The federal government should not liberalize Canada’s foreign investment rules for the telecommunications sector, not even for smaller companies, because there is little proof that doing so would benefit consumers, says the NDP.
The official Opposition argues the benefits of foreign ownership have been overstated. Moreover, it says relaxing the rules for only small telecom players would be “very problematic” because it would create an uneven playing field within the industry.
“There are many complications, and we don’t feel the case has been made for foreign ownership so far,” said Guy Caron, the NDP’s industry critic.
Mr. Caron’s declaration of his party’s position comes at a time when the Conservative government is mulling potential changes to the industry’s foreign investment rules. While current law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent, Ottawa is considering whether to allow 100 per cent foreign ownership of telecom firms with a market share of 10 per cent or less.
(A similar proposal was advocated by the Telecommunications Policy Review Panel in 2006 and the subsequent Competition Policy Review Panel in 2008. Both panels concluded that liberalizing the restrictions on foreign investment would boost competition in the sector.)
Industry Minister Christian Paradis is widely expected to announce the government’s intentions on foreign investment along with its long-awaited auction policy for the coveted 700 MHz frequency in the coming weeks.
The Conservatives signalled their desire to ease foreign investment restrictions for telecom during the 2010 Speech from the Throne, but the industry is still waiting for clarity on the government’s plans.
Although the government has also consulted the industry on other options, including a complete removal of all foreign ownership restrictions, experts say that outcome would be unpalatable to voters.
There are fears that allowing foreign takeovers of the big three incumbents – Rogers Communications Inc. , BCE Inc. and Telus Corp. – would result in massive job losses and reduced competition.
The NDP concurs with that assessment but also questions the rationale for potentially easing the rules for smaller companies, which are actively lobbying for such a change. For instance, Mr. Caron wonders what would happen if a smaller company (wholly owned by foreigners) is eventually the target of a takeover and then sees its market share exceed the 10 per cent threshold.
Additionally, he notes such concessions for smaller players are bound to spark howls of protest from the big three, who’ve already argued that an asymmetrical reform of foreign investment rules would put them at a disadvantage when raising capital. Some industry observers suggest that outcome might trigger consolidation among larger players, perhaps even reigniting merger speculation about Telus and BCE.
Among the most vocal proponents for changes to foreign investment rules is Globalive Wireless Management Corp., which operates under the Wind Mobile brand name. The company is backed by Egyptian billionaire Naguib Sawiris and Amsterdam-based carrier VimpelCom Ltd.
Wind and other wireless newcomers, like Mobilicity and Public Mobile, are widely credited for driving down wireless prices in recent years. Analysts, however, say current pricing levels are unsustainable.
Following a spate of aggressive holiday promotions by industry players, Mobilicity, for instance, upped the ante again this month by launching a $50 port-in credit and free data offers on some of its plans. “No signs of more rational w’less (sic) pricing yet,” wrote Phillip Huang, an analyst with UBS Securities Canada Inc., in a note to clients this week that detailed the development.
For his part, Mr. Caron argues there are faulty assumptions about high mobile pricing and weak competition in Canada. Much of the confusion, he argues, stems from an Organization for Economic Co-operation and Development (OECD) pricing study that suggests Canada is plagued with some of the highest mobile prices in the world.
Mr. Caron, however, argues the study is flawed because it does not take into account that Canadians’ average monthly use of mobile services exceeds that of consumers in other OECD countries.
As a result, Canada’s poor ranking generally results from the OECD “comparing oranges and apples,” he said. If one is looking at Canadian consumption of text, voice or data and comparing it to that of other OECD countries for similar consumption levels, then “our prices are actually competitive,” said Mr. Caron, who has previously studied the issue as an economist with the Communications Energy and Paperworkers Union of Canada.
Instead of fiddling with foreign investment restrictions, the NDP argues that Ottawa should set aside, or reserve, wireless licences in the next spectrum auction for smaller telecom players to ensure they remain competitive. The government used a set-aside in a previous auction in 2008.