A Montreal telecom analyst says Canada’s foreign ownership restrictions are “archaic” but in the absence of any movement to change the Telecommunications Act, companies should squeeze their wireless providers for better deals.
Brownlee Thomas, principal analyst at Forrester Research Inc., wrote in a report published this week that the big three Canadian cellular carriers - Bell Canada Enterprises Inc., Rogers Communications Inc. and Telus Corp. - get more that 95 per cent of wireless revenues today.
The report, dubbed “Foreign ownership rules threaten vibrant Canadian Wireless Competition and Innovation," states the lack of competition in Canada means Canadians have fewer choices.
“The only way we’ve seen enterprise clients achieve decent results in negotiating competitive contract terms and conditions for wireless services over the past few years is when they decide to migrate all or most of their users to a different provider,” Thomas wrote.
Two years ago, Industry Canada auctioned off Advanced Wireless Spectrum, reserving some licences for new wireless entrants.
Of the new entrants, only Globalive Wireless Management Corp. is actually offering cellular service, in Toronto and Calgary using the Wind Mobile brand.
Data & Audio-Visual Enterprises (DAVE) Wireless plans to start its Mobility service this spring.
Globalive was initially denied its operating licence by the Canadian Radio-television and Telecommunications Commission (CRTC) last October due to the influence of minority shareholder Orascom Telecom SAE, which is based in Egypt. Globalive appealed to Cabinet, which overturned the CRTC ruling.
Public Mobile Inc., which also intends to roll out wireless service this year, is in the midst of a foreign ownership review.
Under the Telecommunications Act, foreigners cannot own a majority of voting shares in a Canadian carrier. Globalive complied with this because Canadian chairman Anthony Lacavera owns 80 per cent of voting shares. But another clause in the law states the carrier cannot be “otherwise controlled” by non-Canadians, and Orascom provided loans to Globalive with terms and conditions.
Critics of the law complain it's more difficult for carriers to raise money when foreigners are restricted from buying their shares.
“They have to go to the banks and say will you give us money?” Thomas said in an interview. “The banks can say, ‘yeah but this is how much it will cost you.’”
Forrester is based in Cambridge, Mass. but Thomas lives and works in Montreal.
Thomas is not the only person who has recently weighed in on the foreign ownership law.
Look Communications Inc. is a Milton, Ont. firm that until this year provided television and Internet services over fixed wireless networks. It has sold the bulk of its operations and is now focused on handing its remaining cash to shareholders while minimizing tax penalties.
Look held its shareholder meeting Tuesday and posted the remarks of CEO Gerald McGoey on its Web site.
McGoey was quoted as stating: “The case of Globalive is particularly interesting and not just because on government agency said it was ‘Canadian’ and therefore allowed to participate in the (Advanced Wireless Spectrum) auction, while a second agency later said it was not Canadian enough to actually use the spectrum, only to lead federal Cabinet to overturn the CRTC decision and slap the ‘Made in Canada’ sticker back on the company. Even when challenged by other new wireless providers, the Government of Canada has refused to release the rationale for the decision even though it was ‘based on facts.’”
In its decision, Cabinet stated: "The factual requirement involves assessing whether a foreign entity controls ‘in fact’ the company. Control in fact is the ongoing ability to determine the strategic decision-making or to manage the day-to-day operations of a company …”
However, minutes of federal Cabinet meetings are confidential.
In 2003, when the Liberals were in power under then Prime Minister Paul Martin, the House of Commons Standing Committee on Industry, Science and Technology recommended the restrictions be lifted. But the same year, the Heritage committee recommended they stay the same, due to concerns over foreign ownership of broadcasters.
On Tuesday, an Industry Canada spokesperson said the department is aware of Forrester’s report but does not plan to lift the restrictions.
Thomas did not go as far as to say lifting foreign ownership restrictions will bring in a whole slew of new competitors
“I don’t think it’s going to attract a whole bunch of new capital but existing competitors would be a much better position to compete with each other,” she said.
For example, Toronto-based Rogers and Videotron Ltd. of Montreal could “take a bigger role in enterprise and in business communications services,” Thomas said.
They could do this by raising money from shareholders instead of having to borrow money from banks or other firms.
She also questioned the process by which companies like Globalive can be turned down for carrier licences and have to appeal to Cabinet.
“You’ve got a level playing field but we’re playing football in the dark,” she said. “The Minister will flash the light on Public Mobile or Wind Mobile.”
Thomas noted the new wireless entrants will appeal primarily to consumers, but businesses can get better deals from the big three by asking for the same deals consumers are getting.
A case in point is the system access fees, which Wind Mobile does not charge and some carriers also dropped for new users.
“Why would you agree to pay $6.95 per user per month when the market’s going in a different direction?”