Harper government considering thorny policy of loosening foreign ownership rules

The federal Conservative government is taking stock of whether to announce this spring the liberalization of foreign ownership rules in Canada’s communications industry, insiders say. An announcement could be made in the government’s Throne Speech, to be delivered March 3, but it’s not clear how far the government will tread. Options include making a simple, broad policy statement about the liberalization of the rules; or proposing amendments to the Telecommunications Act, the Broadcasting Act—or both. In what some are calling a “trial balloon,” the National Post reported this month that, in the Harper government’s Throne Speech, there will be a reference to the recommendations in the Competition Policy Review Panel, chaired by Lynton (Red) Wilson. The Wilson panel report, released in June 2008, recommended a series of policy changes to liberalize investment restrictions in Canada’s regulated industries. The report built on the 2006 Telecommunications Policy Review Panel report, and proposed that the government amend the Telecommunications Act to allow foreign companies to establish new telecommunications operations in Canada or “acquire an existing telecommunications company with a market share of up to 10 per cent of the telecommunications market in Canada.” The report recommended that, in a second phase following a policy review, foreign investment restrictions in the telecom and broadcasting sectors should be liberalized “in a manner that is competitively neutral for telecommunications and broadcasting companies.” But the policy question is a thorny one. One source close to the policy noted that, if the government relaxes the telecom ownership rules according to the Wilson report, it must ensure that the big incumbent companies—Bell Canada, Rogers Communications Inc., and Telus Communications Company—are also “put into play.” “At this point it’s all a trial balloon,” Michael Hennessy, senior vice-president of regulatory and government affairs at Telus, told The Wire Report in an interview. If the government moves on the Wilson report recommendation, Hennessy said, it has to ensure the incumbents have access to foreign capital and research. Simply limiting foreign entrants to a 10 per cent Canadian market share would create an “asymmetric regime” that gives foreign companies a competitive advantage, he said. “You do not put in place a set of rules that favour foreign companies over Canadian, or allow better access to the capital and the research and development that many of these multinationals have,” Hennessy said. One source close to the policy issue noted it could backfire on the government if it fails to keep the big incumbents happy—particularly in a minority Parliament. If Bell, Telus and Rogers oppose the government’s proposal, all three opposition parties, smelling blood, could line up to oppose it. “I hope that he realizes this is going to unleash a real reaction from all Canadians, particularly in Quebec,” added Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, in an interview. The government also faces the problem of whether to loosen the rules for only the telecom sector, or expand it to the broadcasting sector—a problem complicated by the vertical integration in Canada’s communications industry. Lawson Hunter, counsel at Stikeman Elliott LLP in Ottawa and a former executive with Bell Canada, said that if the telecom rules are relaxed, the cable companies—as Internet service providers (ISPs) and voice-over-IP providers—are likely to complain, saying they compete with the telecom companies. But if the government liberalizes the rules for the cable and satellite distributors, the broadcasters will argue that the policy move is unfair. “That’s always been the problem,” Hunter said. In a 90-page report released last week, titled “Navigating Convergence: Charting Canadian Communications Change and Regulatory Implications,” the CRTC noted the possibility of loosening foreign investment in the Canadian telecom sector through amendments to the Telecommunications Act. The commission suggested that if amendments occur, “enforcement mechanisms and regulatory tools” should be examined to ensure that foreign competitors comply with the cultural and consumer objectives of the Broadcasting Act and Telecommunications Act. Coles said he expects the Harper government to make a broad policy proposal fitting conservative ideology. “This is not just about the telecommunications sector,” Coles said in an interview. “This really puts at risk all of the issues around broadcast, sovereignty, and security. It goes on.” Coles said he believes the Conservative government supports liberalizing the rules in principle. The move, he said, will be “about increasing share value with foreign capital, and not taking care of some of the real serious issues surrounding Canadian security.” Harper has followed through on a 2008 election campaign pledge to loosen the foreign ownership rules in the airline and uranium mining industries. But during the 2008 campaign, Harper said the Canadian marketplace was not ready to loosen the rules in the telecom sector. Lynn Meahan, a spokeswoman for Industry Minister Tony Clement, said by email that "at this time, the government is not planning to review or change the foreign ownership restriction" in the telecom sector. But she added that the minister's office "cannot speculate" on what will be in the Speech from the Throne. But some interpret the Harper government’s decision on Globalive as a policy shift, and say that loosening the foreign ownership rules could jibe with the government’s productivity agenda. Last December, the Harper government issued an order in council that overturned a previous CRTC decision that, according to foreign ownership restrictions, had denied Globalive Communications Corp. entry into the Canadian wireless market. Some insiders say that decision has put pressure on the government to clarify the foreign ownership rules. New wireless entrant Public Mobile has launched a federal court application challenging the government’s order-in-council. The company says the Globalive decision means it was unfairly denied access to foreign capital, and wants the government to clarify the rules. Meahan said the Globalive decision has not put pressure on the government to clarify the rules, and that the decision was "based on consideration and assessment of specific facts and circumstances." Right now, the telecom rules limit foreign investment to 20 per cent of the voting shares in the carrier and 33 per cent of the voting shares in the holding company. But Hunter said he’s not convinced that the Tories are under pressure to make any legislative amendments—and that they could loosen the rules on a case-by-case basis. Hunter said the government interpreted the Globalive case by looking at Globalive’s governance rules, such as board control and how many members are Canadian. The government paid less attention to financing—or how much foreign equity or debt is permitted. The government could proceed on foreign ownership decisions by looking exclusively at Canadian control of the board, he said, and move away from the financials. It could issue a clear policy to guide future decisions on a case-by-case basis. “Historically, when you looked at foreign control, the financials were important,” Hunter said. “I think that the government may say that, ‘We’re not going to be too worried about that anymore, we’re going to focus on the Canadians. If you’ve got enough Canadians, a majority of Canadians on the board, then we don’t care.’ That would be a significant change, and they don’t need to change the law to do it.”

Harper government considering thorny policy of loosening foreign ownership rules

Broadcast | February 16, 2010

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