Canadian telcom industry faces foreign ownership issues

The CRTC’s new interim chairman, David Colville, is taking over at a time when Canada’s telecommunications industry will likely have to prepare itself to deal with some major issues affecting businesses in Canada, suggest analysts.

Colville, already the vice-chairman of the CRTC’s Atlantic region, was named the successor to former chairwoman Francoise Bertrand earlier this year on a six-month basis. His appointment coincided with the introduction of the new Republican Bush administration in the White House, and the subsequent appointment of Michael Powell as chairman of the U.S. Federal Communications Commission (FCC).

The presence of both Bush and Powell will likely influence the competitive landscape in Canada’s telecom industry, speculated Lawrence Surtees, a telecommunications analyst at IDC Canada Ltd. in Toronto.

In particular, Surtees said the Bush administration might push for Canada to raise its foreign ownership limit of telecommunications companies. Currently, that limit stands at a 33 per cent maximum.

“(Raising Canada’s foreign ownership limit) was an issue that was being vociferously lobbied by U.S. industry players to the Clinton administration,” Surtees said. “I could see greater receptiveness to pressure from the Republican Bush administration. So I think it’s only a matter of time before the powers that be in Washington maybe put it on the table and find a way to pursue it.”

As foreign ownership restrictions fall under Canada’s Telecommunications Act, Surtees pointed out that raising these limits requires Parliament to amend the act.

Industry Canada Minister Brian Tobin has reportedly said he is not planning on scrapping the ownership rules, but analysts expect the government will change its tune before the 3G wireless spectrum, and the lucrative data services it accommodates, is allocated in the next few years.

“Tobin can say, ‘Oh, I’m not interested (in changing the limits),’ but at some point he will be made to be interested,” Surtees said.

Jeremy Depow, a senior analyst with telecommunications research firm The Yankee Group in Canada in Brockville, Ont., said opening up the market to foreign players might serve to increase the amount of competitors in Canada, possibly encouraging service providers to offer more competitive pricing and interesting services.

While a developing economic downturn means American carriers might not be interested in investing in Canadian telecommunications at the moment, that could change by the time 3G comes around. Analysts say such a scenario is possible because the 2-Mbps data transfer rates that 3G technology offers means carriers will be able to provide more lucrative business-oriented services, such as links to corporate intranets, in what is now primarily a consumer market.

3G technology is already in development in both Canada and the United States. All that is required is for a spectrum band to be identified and allocated to service providers.

Canada has already identified the 1710-1850 MHz frequencies as its preferred bands, but it is waiting to make a decision until the U.S. government sets aside its preferred frequency. The U.S. plans to make a final decision by July at the latest.

Another major issue, which the FCC’s Powell has identified as one of his goals, is the opening up of the cable companies’ co-axial cable infrastructure to other service providers. The idea is to encourage the growth of broadband Internet access, which in many areas is limited to DSL on the telco’s copper network or the @Home service offered by most cable operators.

In Canada, the CRTC has already ordered the country’s cable companies to begin preparing to open its network up to other ISPs.

According to David Watt, vice-president, business economics for Rogers Communications Inc. in Toronto, that open cable market will likely be ready by the middle of this year.

The CRTC has regulated that service providers must pay Rogers $21 per month per end user, Watt said. Third-party providers will be able to offer the same speeds to customers as Rogers does with its @Home service.

Unlike local phone service, where service providers had to pay about $17 per month per end user but could only charge customers around $22, service providers operating Internet over cable will likely have better margins to work with. For example, Rogers currently charges its customers $39.95 for its high speed Internet service.

“What people will compete on, I think, is proprietary content: AOL vs. @Home vs. Sympatico Lycos,” Watt suggested.