Insider warns foreign ownership changes may not come

The comments made Tuesday by Industry Minister Allan Rock concerning possible changes to foreign ownership in Canadian telco companies shouldn’t leave any of the local carriers sighing in relief for quite some time. In reality, according to a government spokesperson, it’s quite possible Ottawa may leave the old system completely as is.

Back in 2001, the National Broadband Task Force urged the federal government to revisit its policy on foreign investment restrictions for the telecommunication common carriers, according to statements made by the Task Force on the Government of Canada’s Innovation Strategy Web site.

Under the current rules, foreign investors are limited to no more than 30 per cent of a Canadian telco. For example, U.S.-based Verizon owns over 20 per cent of Telus Corp. – one of the two real incumbents in Canada which likely won’t be affected by Tuesday’s politics.

An Industry Canada spokesperson, who asked to remain anonymous, said that while there was some pressure mounting on the government to make changes based on the recommendations made by the Task Force, he enforced that all the government is doing is seeking suggestions that the House of Commons Standing Committee will provide in February 2003.

“The government hasn’t made any transitions. The government has released a discussion paper and asked the Standing Committee to make recommendations, (and) one of the outcomes could be no change,” he said.

The Committee has been asked to determine whether Canada can secure access to a larger capital pool for investment infrastructure without compromising its national interest. [Please see Government to review foreign investment restrictions.]

But it may already be too late for at least one local carrier. As Brownlee Thomas said, AT&T Canada needed foreign ownership restrictions to have been lifted back in 1999. Now, the telco faces a split from its U.S.-based parent company AT&T Corp. which has given the former 18 months to change its name. The comments made yesterday were long overdue.

“It’s about time, but it’s about four years too late,” said Thomas, senior industry analyst at the Giga Information Group in Montreal. The two incumbent carriers in Canada, Telus and Bell Canada, aren’t likely to feel any immediate impact from Tuesday’s comments. In fact, Thomas felt it was an issue that neither of the carriers felt was “very important.”

So while one carrier will continue to face adversity now only from falling revenues and a name change, Sprint Canada and Microcell Telecommunications Inc. are two telcos that may benefit if the rules are ever changed. And with the industry continuing to hobble on one leg across North America, interested investors may arrive in the form of either the NTT Group or Telecom Malaysia.

However, while allowing greater investments by foreign companies into Canadian telcos would undoubtedly inject some much needed new revenues to draw from, there is an important trade-off that the government here cannot simply skim over.

“The fine line that the government has to balance is to stimulate innovation and competition while maintaining national interests,” said Warren Chaisatien, senior telecommunications analyst at IDC in Toronto. He echoed the “about time” sentiment expressed by Thomas concerning the statements made by Minister Rock.

Yet, despite all the arguments for increasing foreign investment, the government is still trying to fulfil its promise to provide broadband high-speed access to Canadians by 2004. “The vast majority (around) 50 per cent of rural communities in Canada don’t have broadband access yet. The government is facing a dilemma right now,” Chaisatien said.