—–Increase the limit for direct foreign investment in broadcasting and telecommunications common carriers to 49 percent;
——Lift restrictions on telecommunications common carriers with a 10-percent market share or less, by revenue; or
——Remove telecommunications restrictions completely.
The release of the list will start a furious six weeks of lobbying by incumbent phone and cable companies as well as wireless startups who are just launching service now, some of whom eagerly want investment to ensure they can compete against the entrenched giants of the industry.
The paper details how the changes would work:
Option 1: Currently the Telecommunications Act effectively limits direct and indirect foreign ownership of a telecom carrier to 47 per cent. The act’s requirement that not less than 80 percent of voting shares of a telecommunications common carrier be held by Canadians would be reduced to 51 percent. A similar change would be made to the rules the Canadian Radio-television and Telecommunications Commission have to consider when it weighs who controls a telecom carrier.
Option 2 would also see an ammendment to the Telecommunications Act to define the criterion to be less than 10 per cent of total telecommunication market revenues. According to the CRTC‘s Communications Monitoring Report of 2009, total telecommunication revenues in 2008, based on CRTC data collection, amounted to $40.3 billion. The threshold, therefore, would be just over $4 billion.
To encourage long-term investments, foreign investors who are successful in growing their market shares over 10 per cent of total telecommunications market revenues would still not have to comply with the restrictions incumbents face under the law.
However, he also said the issue isn’t foreign investment but the ability of startups to raise money. “Incumbents have no problems raising capital,” he said.
But “it’s more difficult to raise money in Canadian than it is in international markets.”
Incumbent telephone and cable companies including Telus Corp., Bell Canada, Rogers, are not only telecommunications carriers for offering voice and Internet service, they are also broadcast undertakings regulated by the Broadcasting Act for distributing TV signals, so only Option One would apply to them.
Telecommunications industry consultant Mark Goldberg calls Option Two the “everyone but Telus, Bell and Rogers” choice. He believes only they have telecom revenues over the $4 billion threshold.
The lack of clarity over the positions of broadcast distribution undertakings, as they are called, may cause them heartburn because they very much want all restrictions off foreign ownership. If Option Three only applies to telecom companies, they’re left out.
Clement has said publicly he doesn’t want to touch the Broadcasting Act because it includes the sensitive Canadian content obligations of TV, specialty cable channels and radio stations.
However, Goldberg notes that the discussion paper says the government “is not considering” changing that act, rather than “will not.” If Ottawa merely amends the Broadcasting Act to allow BDU’s to take advantage of new foreign ownership laws that would clear things up.
In fact, a Telus spokesman said soon after the discussion paper was released that not covering BDU’s is a “significant gap” in the options.
“We’re in a converged world now for delivery of all kinds of content,” said Jim Johannsson, director of media relations. Telcos can’t separate their broadcast distribution services from their voice and data services, he said.
“We’re not opposed to foreign direct investment as long as it’s done in a way that’s equitable and fair to all players. We do not believe it’s appropriate or fair to have asymmetric rules.”
BCE Inc. issued a statement saying it is studying the consultation paper. “Bell has previously stated that we have no issue with increased foreign investment provided the same rules apply to all – big companies and small, telecom and broadcasting – and [foreign] ownership limits are increased to a maximum of 49 per cent,” the statement said. That’s Option One.
Jean Brazeau, senior vice-president of regulatory affairs at Shaw Communications Inc., said that’s the also the preference of three options for the Calgary-based cable company.
“Whatever the solution, we want it to be equitable, to apply to both telecom carriers and cable carriers.” he said in an interview. “We compete in the same markets and we want to be sure no one gains a unfair advantage over the other players.”
However, Shaw’s real preference is that the distribution side of BDUs be added to Option Three so there would be no foreign ownership restrictions for any carrier. It wouldn’t be hard for a company to corporately separate content creators like TV stations or specialty channels from its distribution network, he said. Otherwise Option Three would give an advantage to telecom companies, which would give Shaw “significant problems.”
Like Telus’ Johannsson, Brazeau says giving preference to companies with less than 10 per cent market share (Option Two) opens the market to competitors such as Verizon and AT&T. “They would gain the advantage and we would not,” he complained.
The three options haven’t clarified the government’s strategy, he added. “I’m not sure they’re really made up their minds yet on what they’d like to see,” other than it wants some sort of liberalization.
However, analyst Greg McDonald of National Bank Financial is certain the Industry department wants to get rid of all telecom foreign ownership restrictions. That’s why he thinks the debate will come down to the 10 per cent rule or total elimination. Option Two, the 10 per cent rule, “there to make sure the debate is balanced,” he added. “It’s politically easy, but it doesn’t really address the concerns of the incumbent telcos.”
But he cautioned that the “monkey wrench” in the debate may be the fact that many incumbents are regulated by both the Broadcasting and Telecommunications Act.
Tony Lacavera, the chairman of Toronto-based Globalive Wireless Management Corp., which arguably caused the government to initiate the telecom foreign ownership overhaul, said the options are a good framework for debate.
But, he added, “the most important thing is that we not let the incumbents muddy the waters by trying to bring Canadian broadcasting or content into the discussion. This is a discussion about foreign ownership in telecommunications, not in broadcasting … They are separate and distinct.”
The issue, he said, is creating competition in telecommunications carriage.
Of the three options, he dismissed raising the foreign ownership limit to 49 per cent as not doing a lot.
“Whether we do a phased-in approach or do this all at once, both of those [options] provide a basis for debate.”
After fruitlessly hunting for Canadian investors, Globalive had to rely on Egypt’s Orascom Telecom Holdings SAE to get into the wireless market. But looking at the depth of Orascom’s involvement, including funding all of its debt, providing the Wind Mobile brand and a management contract, the CRTC ruled Globalive wasn’t controlled by Canadians. That was the opposite conclusion Industry Canada came to.
Last December the federal cabinet sided with Industry, and while the government insisted it wasn’t a precedent many couldn’t figure out what Ottawa’s telecom foreign ownership policy was.
To meet that uncertainty in March the Harper government said in the throne speech it wants to “open the doors” to foreign telecom investment.
The foreign investment restrictions on facilities-based telecom carriers date back to 1987 as part of the free trade negotiations with the U.S. But for the past seven years there have been calls to liberalize the rules, starting in 2003 with a report by the House of Commons Industry committee. The 2006 Telecommunications Policy Review Panel recommended a phased-in liberalization, plus a review of the Broadcasting Act. That was echoed by a 2008 federal competition policy review panel.