Federal laws dictate any telecom company with more than 10-per-cent market share must be Canadian owned. 'These significant restrictions have very likely reduced the incentive of foreign-based telecom competitors, such as AT&T and Verizon, from entering Canada on any real scale,' says a paper published on Friday by the C.D. Howe Institute, a Toronto-based think tank.Fred Lum/The Globe and Mail
A trio of competition law experts are calling on federal Industry Minister François-Philippe Champagne to open up the domestic telecom market to foreign companies in order to bring down cellphone prices.
They called for sweeping changes to restrictions on foreign ownership rules as Mr. Champagne is poised to make a decision on Rogers Communications Inc.’s RCI-B-T $20-billion takeover offer for Shaw Communications Inc. SJR-B-T and the federal government is updating competition laws.
Three former leaders of the Competition Bureau and Competition Tribunal – the federal agencies charged with consumer protection – said rules protecting domestic telecom companies that date back to the 1960s no longer serve the country’s interests.
“Historical restrictions on foreign-based ownership have become outdated in the current environment where Canadian consumers are demanding lower prices, akin to that paid by consumers in many other countries,” the report said.
Its authors are Calvin Goldman, former commissioner of competition, Larry Schwartz, an ex-member of the Competition Tribunal, and Richard Taylor, who was deputy commissioner of the Competition Bureau. The C.D. Howe Institute, a Toronto-based think tank, published the paper on Friday.
Federal laws dictate any telecom company with more than 10-per-cent market share must be Canadian owned. “These significant restrictions have very likely reduced the incentive of foreign-based telecom competitors, such as AT&T and Verizon, from entering Canada on any real scale,” the report said.
The trio also called for allowing increased foreign ownership in the airline and agriculture sectors. They said: “Markets will be unable to function in a truly competitive manner until those restrictions on effective competition from foreign-based entities are materially reduced.”
To win approval for the Shaw takeover, Rogers agreed to sell Shaw’s Freedom Mobile cellphone business to Quebecor Inc. QBR-B-T for $2.85-billion. Freedom has roughly two million subscribers in British Columbia, Alberta and Ontario.
Quebecor has 22 per cent of the Quebec cellphone market, with approximately 1.7 million subscribers, and acquiring Freedom would make the Montreal-based company the fourth-largest national cellphone provider, behind Rogers, Bell-parent BCE Inc. BCE-T and Telus Corp. T-T
Over the past five months, Rogers, Shaw and Quebecor successfully argued cellphone users will benefit from their deals, in cases before the Competition Tribunal and Federal Court of Appeal. Quebecor and Rogers offered the government guarantees on pricing, which Mr. Champagne is now reviewing.
Allowing Quebecor to buy Freedom “will not in and of itself likely lead to a major lowering of prices for wireless telecom services across Canada,” the C.D. Howe report said. “That’s because telecom in Canada continues to be unnecessarily protected from the entry of real and effective foreign-based competitors.”
Current Commissioner of Competition Matthew Boswell and his team also maintained, in court hearings, that selling Freedom to Quebecor will not result in significant reductions in cellphone fees. The C.D. Howe report said the lengthy and high-profile fight between regulators and telecom companies “brought real attention to the significantly higher prices paid by consumers in Canada for wireless telecom services.”
Rogers struck its deal to acquire Shaw in March, 2021, and agreed to sell Freedom to Quebecor in June, 2022. The companies have extended the deadlines on closing the transactions several times, and currently target finishing the deals by March 31.
In the agricultural and airline industries, the C.D. Howe report concluded lack of foreign competition is resulting in higher prices for Canadians. They said Canada’s supply management systems for milk, chicken and eggs “thwart real competition and lower prices for consumers.” The authors said foreign airlines should be allowed to fly between Canadian cities, rather than being restricted to international routes.
“From a competition-policy perspective, supply management in the agricultural sector is a prime candidate, in parallel with the telecom sector and airline cabotage, for serious restructuring in favour of greater reliance on more open and competitive markets,” said the report.
Andrew Willis