Feds to loosen foreign ownership rules

The federal government plans to  “open the doors” further to more foreign investment in telecommunications, Governor General Michaëlle Jean said in Wednesday’s throne speech, but a telecom analyst believes it will be two years before we actually see legislation.

“It’s long overdue,” said Eamon Hoey, senior partner at Toronto-based Hoey Associates Management Consultants Inc.

It was not immediately clear whether the Conservative government will introduce legislation amending the Telecommunications Act and allow non-Canadians to hold more than 20 per cent of voting shares of telecom carriers. An Industry Canada spokesperson said Thursday the government “will consider” recommendations made by two government appointed panels during the past five years.

The Telecommunications Act says a firm can operate as a “telecommunications common carrier” if it is Canadian owned and controlled.
Sub-section 3 of the Act stipulates that a corporation is Canadian if

• not less than 80 per cent of the members of the board of directors of the corporation are individual Canadians;

• Canadians beneficially own, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than 80 per cent of the corporation’s voting shares issued and outstanding; and

• the corporation is “not otherwise controlled by persons that are not Canadians.”

Mark Goldberg, a Thornhill, Ont.-based telecom consultant, said the industry doesn’t know yet what to make of the throne speech.

“We need to see the details,” he said.

Goldberg wouldn’t speculate on whether, given that this is a minority government, Parliament will actually pass legislation changing the foreign ownership requirements before the next election. But given that a Liberal-appointed telecom review panel also called for a relaxing of the rules, he hopes the party will forgo partisanship on the issue.

“I was always opposed to those foreign investment rules,” Hoey said. “It’s been a real barrier to competition in Canada.”
Foreign ownership was an issue when Globalive wireless  Management Corp. opened business as Wind Mobile due to non-voting shares and debt held by Egyptian firm Orascom Telecom Holdings SAE.

Orascom has 32 per cent of the voting shares of Globalive Investment Holdings Corp. — the parent of Globalive Wireless, which does business as Wind Mobile — 65 per cent of the total equity and almost 100 per cent of its debt.

Globalive chairman Anthony Lacavera’s AAL Holdings Corp. has 66 per cent of the voting shares and 34 per cent of the equity.

The Canadian Radio-television and Telecommunications Commission ruled last year that Globalive was, in effect, controlled by Orascom. But Cabinet later over-turned that ruling, allowing Wind Mobile to launch cellular wireless service.

In April, 2003, when the Liberals were in power, the House of Commons Standing Committee on Industry, Science and Technology recommended that foreign ownership limits be lifted.

Three years later, the Telecommunications Policy Review Panel, appointed by Liberal Prime Minister Paul Martin, recommended the laws be loosened.

The panel released its report in March, 2006, two months after a federal election brought the Conservatives to power in a minority government under Prime Minister Stephen Harper. The panel recommended a “phased liberalization” of the foreign ownership rules and that Cabinet review foreign investments using a “public interest” test.

The Industry Minister at the time, Maxime Bernier, responded by saying he would “carefully review” the report.

Last June, CRTC chairman Konrad von Fickenstein said during the annual Telecom Summit he could not see “how you can have a Canadian broadcasting system that is totally foreign owned.”

When asked whether telecom carriers, as opposed to broadcasters, should continue to have foreign ownership limits, von Fickenstein replied: “What’s the difference? We are in an age of convergence.”

On Feb. 24, Industry Canada spokesperson Michel Cimpaye stated in an email to Network World Canada: “The government is not planning to review or change the foreign ownership restriction at this time.”

On Thursday, Cimpaye wrote in an e-mail that the government “will consider the recommendations” of both Telecom Policy Review Panel and the 2008 Competition Policy Review Panel, headed by Lynton Wilson, a former chief executive officer of Bell Canada Enterprises (BCE) Inc.

Hoey said it would take a while to change the law because parliamentary committees have to examine new legislation, which requires approval from both the House of Commons and the Senate.

He added the New Democratic Party will oppose any changes to protect unionized jobs.

“Ignatieff will be opposed to it,” Hoey added of the federal Liberal leader. “It’s just another wedge he can drive and claim the Conservatives are trying to sell out Canada.”

Although the former monopoly carriers may benefit from foreign ownership restrictions, Bell Canada Enterprises Inc. has been prepared for change.

Jean Monty, BCE’s chief executive officer in May, 2001, spoke to a business audience about the convergence of broadcasting and telecom.

“I obviously enjoy having the umbrella of foreign ownership restrictions at this stage while we’re creating this business model,”  Monty said at the time. “Do I believe that that model will evolve? It has to.”

On Wednesday Hoey said companies like BCE, Telus Corp. and Rogers Communications Inc. would have a hard time competing if American-style pricing came to Canada.

“All you have to do is look at wireless services,” Hoey said. “I was just in the U.S. and God, I tell you, if those rates I saw in the U.S. just a few days ago – Rogers and Bell will have a tough time competing. When you can get unlimited calling for $40 a month – wow!”

The review panel appointed in 2005 included Dr. Gerri Sinclair, Hank Intven and André Tremblay.
 At the time, Sinclair was director of the Canada Foundation for Innovation and had been General Manager of Microsoft Network Canada.

Intven is a partner at partner in the Toronto office of McCarthy Tétrault LLP and was Executive Director of Telecommunications at the CRTC from 1981–85.

Andre Tremblay was the CEO of Microcell Telecommunications.

In its conclusion, it stated:

“Pending completion of this review, the Panel proposes a phased liberalization of restrictions on foreign investment in telecommunications service providers that are not subject to the Broadcasting Act.”

It had not been asked to provide a recommendation on foreign ownership but did anyway in an “afterword.”

The panel stated: “The first phase should replace the currently inflexible restrictions on foreign investment with a “public interest” test to review new foreign investments in specific telecommunications markets.”

The panel proposed that “ investments in market entrants and telecommunications common carriers holding less than a 10-percent share of any relevant telecommunications market should be presumed to be in the public interest, unless there is evidence to the contrary.”
Goldberg noted that the 2008 Competition Review Panel said the government should allow foreign companies to control carriers that have less than 10 per cent of the market. That would benefit the new wireless entrants, such as Mobilicity and Public Mobile, he said. However, if the government goes that route it has to decide if the 10 per cent rule applies nationally or regionally.
-With files from Howard Solomon

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