Increased tax revenues from foreign investment can be invested in Cancon: Expert

OTTAWA—Opening up the Canadian telecommunications sector to more foreign investment would increase tax revenues and create fiscal room to fund more Canadian content, a University of Alberta economics professor told the House of Commons Standing Committee on Industry, Science and Technology, Thursday. “I think you could get rid of the regulations we have now, which impose a huge economic cost,” Randall Morck, a professor with the department of finance and business management at the University of Alberta, told the committee. “I think the increased economic activity would let you raise the tax base sufficiently that you could fund direct production of Canadian culture through the CBC, the National Film Board, or whatever.” Morck, as well as Walid Hejazi, a professor of international business with the University of Toronto’s Rotman School of Management, told the committee that it would be advantageous to lift foreign investment rules in the Canadian telecommunications sector. But Morck said it is impossible for the CRTC to keep up with new and emerging methods of content delivery. “I worry that the CRTC is kind of like generals fighting the last war,” he said. “How are you going to have Canadian content percentage restrictions where people, instead of listening to a radio station or looking at TV channels on a cable lineup, can simply point and click and listen to whatever they want?” But committee member Charlie Angus, NDP MP and the party’s digital affairs critic, cited the Canadian music industry to illustrate the importance of Canadian content regulations. “In the 1970s, you could never hear a Canadian song on the radio until it became public policy that you were going to hear it,” he said. “Now we have a market that is international in scope because public policy made it .” Hejazi told the committee that reducing foreign ownership barriers for entry into the Canadian telecommunications market would benefit consumers. “Relaxing restrictions on foreign entry into Canada’s telecom industry will do two things: it will enhance pricing and customer service for Canadian individuals and businesses, and in the process it will make Canada more competitive,” Hejazi said. The Telecommunications Act currently limits 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. CRTC chairman Konrad von Finckenstein has proposed that each of those levels be increased to 49 per cent, so that Canadian control and ownership of companies is maintained. Hejazi said the telecommunications industry ranks among the most critically important sectors to the Canadian economy, along with transportation and the financial sector. He said more foreign investment in the telecommunications industry would help close the prosperity gap between Canada and the United States. More advanced telecommunications technologies would result in an increase in productivity, he said. “The best way to protect Canadian companies is to create an environment that is conducive to innovation,” Hejazi said. “By exposing Canadian firms to international competition, we will be forced to rise to the challenge of that competition.” Hejazi added that Canadian companies have proven that they can compete internationally by investing abroad. Canadian firms invest about 25 per cent more abroad than foreign companies invest in Canada, he said. “If it is the case that the Canadian telcos are operating at a globally competitive level, there really wouldn’t be room for foreign companies to come into Canada,” Hejazi said. “On the other hand, if Canadian companies are not operating at an international standard, consumers will have a wider variety of choice.” At the committee Thursday, Liberal MP Anthony Rota said opening the doors to foreign ownership could result in foreign buyouts of Canadian companies. “What I’ve heard, either from the OECD or others who have presented, is that Canada should probably have two or three providers nationwide,” Rota said. Morck said government regulation remains necessary in a more open telecommunications sector. Most foreign takeovers are “fixer-uppers,” he said, in which a foreign company would buy a struggling Canadian firm to improve it and make it profitable. jmigneault@thewirereport.ca

Increased tax revenues from foreign investment can be invested in Cancon: Expert

Broadcast | May 6, 2010

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