The chairman of the Canadian Radio-television and Telecommunications Commission (CRTC) is calling for sweeping changes to the foreign ownership limits on Canadian telecommunications carriers but says Canadians should still control both broadcasters and telcos.
Konrad von Fickenstein said Tuesday foreign companies should not be allowed to own more than 49 per cent of voting shares of Canadian carriers. The current limit is 20 per cent. He also called for a simplification of the rules, adding the rules for broadcasters and carriers should be the same.
Having one set of ownership rules for telecommunications carriers and another for broadcasters does not make sense, von Fickenstein testified. Rogers Communications Inc., for example, has radio and TV stations, plus phone and cable service, he said. With convergence, television content is carried over the Internet and interactive television content means it’s difficult, in practice, to separate the carriage function from broadcasting.
But the 20 per cent limit on foreign ownership, together with the limit on foreign directors, is too onerous, he testified.
“Canada would benefit from having additional facilities-based carriers,” von Fickenstein said. “Foreign investment, properly regulated, can play a key role. The present rules are too restrictive.”
As it stands, the Telecommunications Act requires that facilities-based carriers – including cellular providers – have at least 80 per cent of their voting shares held by Canadians. In addition, at least 80 per cent of board members must be Canadian, and the law forbids the carriers from being “otherwise controlled” by non-Canadians.
Ever since the federal government opened local phone service to competition 12 years ago, critics have complained that foreign ownership limits have prevented competitors from raising enough investment capital to compete effectively with the incumbent carriers.
Although the AT&T and Sprint brands existed in Canada, Sprint was actually controlled by Call-Net Enterprises Inc., which was by 1999 deep in debt.
AT&T Canada eventually sought court protection from creditors, restructured its debt and emerged as Allstream.
Allstream was acquired by Manitoba Telecom Services and Call-Net was acquired by Rogers.
The Liberals, who headed the federal government from 1993 until 2006, were divided on the issue of foreign ownership. In 2002, then Industry Minister Allan Rock asked the House of Commons industry committee to take a look at the foreign ownership rules.
In a report released the following year, the committee recommended the rules be lifted. But the House of Commons heritage committee, which is in charge of broadcasting policy, made the opposite recommendation out of concern for Canadian content.
After the Conservatives took power in 2006, they put foreign ownership on the back burner, but last year’s entry of Wind Mobile as a cellular carrier forced the issue.
Wind Mobile is owned by Globalive Wireless Management Corp., of which Anthony Lacavera owns 80 per cent of voting shares. But most of the total debt and equity is owned by Orascom Telecom Holding SAE, an Egyptian firm owned by Naguib Sawiris. Orascom also controls Wind Telecomunicazioni SpA, which provides cellular service in Italy and Greece.
Globalive was one of the new entrants that bought wireless spectrum in Industry Canada’s auction two years ago. Though the company spent $442 million on the spectrum – thanks to a loan from Orascom – the CRTC last October denied Globalive permission to operate on the grounds that it did not meet the Canadian ownership criteria.
Cabinet later overturned the CRTC ruling, allowing Globalive to launch Wind Mobile.
During Tuesday Commons committee hearing, von Fickenstein faced questions from federal politicians, including Liberal Marc Garneau, a former astronaut who is now Member of Parliament for the Quebec riding of Westmount-Ville-Marie.
Referring to the $442 million Globalive spent in the Advanced Wireless Spectrum auction, Garneau asked whether it really makes sense to decide, 15 months after the auction, that a company does comply with foreign ownership laws.
Von Fickenstein replied that it’s difficult to “pre-clear” companies to operate cellular providers, adding he has not seen the material Globalive filed with Industry Canada at the time of the spectrum auction.
Serge Cardin, the Bloc Quebecois MP for Sherbrooke, also asked von Fickenstein about the timeline.
Von Fickenstein testified that the CRTC wrote to Globalive in December, 2008, stating they had to go before both Industry Canada and the CRTC.
“Globalive decided to go first to Industry Canada and then at the last minute they came before us,” he said. “That was their choice. That was why there was an eight-month period …”
Cardin then said: “It seems to me they should speak to you first.”
Von Fickenstein replied: “Exactly.”
Brian Masse, a Windsor, Ontario, New Democratic Party MP, expressed concern that even with the new entrants, Canada could go back to having only two or three wireless carriers, due in part to mergers and acquisitions.
“You are making a huge number of assumptions,” von Fickenstein replied, including the assumption that the Competition Bureau would approve such mergers.
“It could be over-ridden,” Masse said, meaning Cabinet could over-rule a Competition Bureau ruling against a merger.
“The Competition Bureau cannot be over-ridden,” replied von Fickenstein, who was once the bureau’s chairman.
But von Fickenstein agreed with Masse that there is probably not room for six or more cellular carriers in Canada.
Dan McTeague, a Toronto-area Liberal MP, asked von Fickenstein that if foreigners were prohibited from owning more than 49 per cent of a carrier’s voting shares, whether there would be enough investment capital available to bring services to Canadians at “competitive” prices.
“I wouldn’t make that recommendation if I wasn’t convinced of that,” von Fickenstein replied.