Could telecom be next after new airline foreign ownership rules?

Industry watchers said last week’s announcement by the federal government that it was loosening foreign ownership rules for Canadian airlines probably isn’t indicative of a coming shift for other protected industries like telecommunications—but they’re not willing to completely rule it out. In a Thursday press release, the transport ministry said the Liberal government would be “pursuing legislation to change international ownership restrictions from 25 to 49 per cent of voting interests for Canadian air carriers,” as part of a bid to “support greater choice, better service, lower costs, and new rights for travellers.” According to a transcript of a speech the same day to the Metropolitan Montreal Chamber of Commerce, Minister Marc Garneau expanded on the plan, noting that “international companies will be able to own 49 per cent of an airline in Canada—up from the current 25 per cent, but a single foreign investor, or combination of foreign investors, will be capped at a maximum of 25 per cent.” Within the past year, reports from the Organization for Economic Co-operation and Development (OECD) and MacDonald-Laurier Institute have called for the federal government to relax its rules on foreign ownership of protected industries as a way to boost competition and lower prices. It’s not a new conversation, Gerry Wall, president of telecom consulting company Wall Communications, said in a phone interview, with recommendations coming from 2006’s Telecom Review Panel and rearing up again in 2009 when Globalive Capital Inc., heavily backed by an Egyptian investor, was bringing Wind Mobile to the market. “I think it may be a signal that they’re going to look at all infrastructure. … And if they’re doing it for transportation why wouldn’t they continue to do it for telecom,” Wall said. But, he added, the last round of extensive consultation on the issue resulted in the current rules, which still don’t allow a foreign player to come into the Canadian market on equal footing with the Big Three. When asked if the department was considering a change to the telecom rules surrounding foreign investment in light of the coming changes for airlines, Innovation, Science and Economic Development Canada spokeswoman Stéfanie Power pointed to the current rules, saying that “the telecommunications sector is an essential platform for innovation and a leading digital economy.” “Under the Telecommunications Act, foreign-owned companies can acquire Canadian telecommunications companies, provided the company’s revenues equal less than 10 percent of the total telecommunications market,” Power said in an email. “We are working to support competition, choice and availability of services, and foster a strong investment climate for telecommunications services.” Steven Globerman, Fraser Institute senior fellow and director of the Center for International Business at Western Washington University, said in an email that Thursday’s announcement for airlines “is essentially what was done for telecom companies a few years ago. I would be in favour of eliminating all foreign ownership limits on telcos (and airlines), but I don’t see that as a likelihood for the foreseeable future, and I don’t think that the foreign ownership liberalization initiative for airlines signals a further easing of ownership rules affecting telecoms.” Wall, who called himself “agnostic” over whether the government should ease ownership rules, said there hasn’t been a demonstrated benefit for Canadians. “I don’t have any problem with them changing the rules to allow a foreign owner to come in, but I don’t think at the end of the day it’s going to make a big difference to what happens for Canadian consumers. I don’t see a lot of upside or downside on it,” Wall said, adding that if a major American company was allowed to come in, it would buy out an existing incumbent, which still leaves three major players instead of adding a fourth. The current rules would allow for a foreign player to come in a purchase a company like Manitoba Telecom Services Inc., which is in the process of being acquired by BCE Inc., Wall noted — but that didn’t happen. “No one’s come in to buy any other entities and start another fourth player — I don’t see that happening,” Wall said. “And the market has pretty much decided; it’s told us you’re not going to have a fourth entrant come in and try and grow their way into national prominence.” But Sean Speer, Macdonald-Laurier Institute senior fellow and former advisor to Prime Minister Stephen Harper, said Heritage Minister Mélanie Joly’s ongoing review of Canadian cultural industries—in which she has repeatedly said that “everything is on the table”—might provide the opening that was previously missing for making a change to foreign investment rules feasible. “Because Bell and major telecommunications companies aren’t just governed by the Telecommunications Act, they’re also governed by the Broadcasting Act. To loosen the foreign ownership restrictions in telecommunications wouldn’t change the fact that their companies would still be subject to the restrictions in the Broadcasting Act, and so the only way to do it in a meaningful way is to loosen the restrictions in both statutes or even consider consolidating the two pieces of legislation,” Speer said, adding that the vertical integration characterizing the largest telecoms made the Harper government hesitant. Speer also pointed to a recent report from the economic growth advisory committee struck by Finance Minister Bill Morneau, which featured a recommendation to bring more foreign investment to Canada. “The increased competition and trade from foreign firms reduces prices and improves the purchasing power of Canadians,” said the report, which was released in October. “If you’re going to have a pro-foreign investment agenda you need to picture that you don’t preclude foreign investment from entering the country,” Speer said. He added: “Surely you can’t live up to or fulfill the scale that he’s talking about with the little opening that presently exists. You’re not going to attract the scale of foreign investment by offering foreign investors just this small, inconsequential sliver of the marketplace. “ — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Could telecom be next after new airline foreign ownership rules?

News | November 8, 2016

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Could telecom be next after new airline foreign ownership rules?

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