Ottawa to permit foreign control of small wireless firms

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In its first major effort to loosen restrictions on foreign investment, the Harper government is throwing a lifeline to struggling newcomers in the wireless industry – allowing them to tap deeper pockets of non-Canadian capital.

The Conservatives, who displayed a more protectionist side before they won a majority government, hope this change will spur competition in the wireless market and ultimately reduce consumers' bills.

Smaller wireless firms raised doubts about whether it's enough.

Industry Minister Christian Paradis said on Wednesday the government will pass a law allowing non-Canadians to buy up to 100 per cent of domestic wireless firms that have a market share of 10 per cent or less.

Current federal law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent.

Wireless service is a major pocketbook issue for smart-phone-hungry consumers, and one the Conservatives are clearly trying to turn to their political advantage.

Mr. Paradis announced the change as he laid down rules for two major auctions of wireless frequencies, a parcelling out of spectrum that is expected to fetch Ottawa a tidy sum – $3-billion to $6-billion – from telecom firms.

Federal accounting rules, however, will likely mean the government must record the cash in increments over a decade rather than reaping it as one big windfall.

Mr. Paradis stressed that the auction rules on Wednesday as guaranteeing consumers at least four players will be able to buy new spectrum in each regional wireless market.

The first of two auctions will be a major leap forward for Canadian consumers.

Ottawa is selling off rights for the 700 MHz spectrum, which wireless experts have dubbed "beachfront property" because it's such a hot commodity for consumers eager for faster and richer downloads on their cell phones and mobile tablets.

This spectrum, which will be auctioned off in the first half of 2013, is particularly valuable because 700 MHz airwaves can penetrate thick walls and travel long distances.

Wednesday's announcement is an attempt in a small way to give an advantage to bit players in the wireless sector, a group that combined holds only about four per cent of national market share.

It's not clear if this relaxing of foreign investment restrictions is the beginning of broader liberalization by the Conservatives.

Mr. Paradis was asked whether he'd also follow through on a government panel's recommendation that, as a next step, Ottawa further loosen foreign ownership restrictions for both telecom and broadcasting firms.

"It's premature today to speculate on that," the Industry Minister said.

Small Canadian telecom players such as Wind Mobile and Mobilicity are struggling against well established incumbents such as BCE Inc., Rogers Communications Inc. and Telus Corp. in a weak economic climate.

Allowing these smaller players access to global capital markets could spur competition by providing them with more resources in the capital-intensive sector.

On its face, it appears the established providers lost several key lobbying battles before the government's decision.

Companies such as Bell had warned the government not to intervene in the auction on behalf of smaller players, saying the entrants are not interested in bringing advanced wireless technology to rural areas, and the fragmenting of the market would make it more difficult for the larger players to expand across Canada's vast geography.

They lost on that issue as well as on the argument that all players in the telecom sector deserved access to foreign capital, not just the newest players.

Telus's senior vice-president for regulatory and government affairs, Michael Hennessy, said the government had made a "balanced decision" on spectrum policy, but added they were "disappointed" on the foreign ownership issue.

Stewart Lyons, the president and chief operating officer of Mobilicity, said the Harper government's moves will boost competition.

"I think the government is committed to breaking up the oligopoly and creating some competition," Mr. Lyons said.

But others were not so pleased. Anthony Lacavera, chief executive officer of Globalive, said that the rule changes do not permit new players to buy up enough spectrum to build and launch next-generation long-term evolution (LTE) wireless networks.

"As it's written, there's no point in new entrants showing up for the auction."