Canada Seeks Liberalization of Foreign Telecom Ownership Limits

Spelling out its policy priorities in its “throne speech” in Ottawa last month, the Conservative government said it gradually wants to “open Canada’s doors further to venture capital and to foreign investment” in the “satellite and telecommunications industries.” Ministers said in later comments that they want to particularly encourage foreign investment for telecom startups and smaller firms, not broadcasters and cable operators.

"There’s been no change in our broadcast policy in terms of Canadian content and Canadian rules, but we're signaling a change in the telecom side,” said Industry Minister Tony Clement. He said he wants to hold consultations with industry executives and other interested parties because of the complexities of the issues involved, especially because the nation’s two leading telecom firms, Bell Canada and Rogers Communications, also own broadcast and pay TV operations.

The head of the Canadian Radio-TV and Telecommunications Commission favors drawing a sharper line. In testimony before a House of Commons committee this month, CRTC Chairman Konrad von Finckenstein called for liberalizing foreign telecom and broadcasting ownership restrictions slightly by raising the current ownership limits from 46.7 percent to 49 percent and overhauling the regulatory regime for both industries. While arguing for such reforms, he came out strongly against permitting foreign control of any telecom firms or broadcasters.

"The control of the communications sector should stay in Canadian hands” so the “controlling minds are Canadian,” von Finckenstein told the Standing Committee on Industry, Science and Technology which is studying the nation’s foreign investment rules for telecom firms. If it doesn’t, he warned, “we will have a branch plant communications industry.”

Besides raising the foreign ownership limits for both industries slightly, von Finckenstein backed creating uniform rules for telecom and broadcasting. Noting that converging technologies have produced converged companies, he said it no longer makes sense for the federal government to regulate each industry under different ownership and other rules. He urged the federal government to make the foreign investment and ownership rules the same for both industries and merge the country’s telecommunications and broadcasting acts into one regulatory regime over time. “Canada clearly needs unified legislation to cover telecom, broadcasting and radio communications,” he said. “We need to simplify these rules. We should not be juggling complicated percentage requirements for operating and holding companies.”

The Organization for Economic Co-operation and Development rejected foreign investment restrictions in the name of Canadian cultural and content concerns. In testimony before the Parliamentary committee, Dimitri Ypsilanti, head of the information, communications and consumer policy division directorate on science, technology and industry for the OECD in Paris, said Canada could still maintain local content rules while allowing more foreign investment in networks. “There’s no reason in my mind to believe that foreign telecom network operators will necessitate a change of regulations governing the diffusion of content,” he said. Saying Canada is just one of many OECD countries with local content regulations, he said “these other countries do not seem to find the need to restrict investment in the telecommunications sector."

Von Finckenstein said content regulations don’t carry the same weight as network ownership rules. “No matter what regulation you put together, you can’t instill in them what Canada is all about, so they can reflect it in the program,” he said. “If you don’t take away the ownership, [and] try to rule by regulation, you may not succeed and there’s no way you can go back.”

Canada’s major telecom and cable firms largely lined up behind von Finckenstein’s ownership proposals. Testifying before the same House of Commons committee, executives from Bell Canada, Rogers, Telus, MTS Allstream, and Shaw Communications said they all support raising the foreign ownership limits to 49 percent while retaining Canadian control of firms. “If you are going to change the foreign ownership rules for telecommunications, we think it only makes sense to change the rules for cable television at the same time,” said Ken Engelhart, senior vice president of regulatory affairs at Rogers. “Convergence has finally become a reality."

The telecom and cable executives said they also support continued government regulations to protect Canadian content on TV and radio outlets. Some questioned the need for a single, “converged” Communications Act to cover the entire communications sector. “The purpose of telecommunications legislation is really to regulate until such time as market forces can take over,” Engelhart said. “The purpose of broadcasting or Canadian content regulation is to make sure that market forces never take over. So the two types of legislation have really quite different purposes and I don’t see a lot of merit in combining them."