Ottawa is considering a plan to open the door to more foreign ownership of telecom companies, a move that would allow non-Canadians to own 100 per cent of firms that have 10-per-cent market share or less.
Small Canadian telecom players are struggling against well-established players in a weak economic climate. Allowing them access to global capital markets could spur competition by providing them with deeper war chests.
The wireless upstarts that launched in Canada – including Wind Mobile, Public Mobile and Mobilicity – have managed to bring down prices in the industry. But they have not managed to take much market share from the three big incumbents, which dominate with about 95 per cent of the wireless market.
Current federal law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent. Ottawa is also hammering out plans for the next auction of wireless frequencies. It is expected this plan would not set aside licences for smaller players, as the government did in 2008.
Instead, the government is contemplating capping the amount of spectrum any one company can purchase at 10 megahertz of bandwidth. Last week, Wind’s Egyptian billionaire financial backer, Naguib Sawiris, threatened to not finance Wind’s participation in the auction if no licences are set aside for new competitors.
A proposal titled “Increasing Competition and Choice in the Telecommunications Sector” was on the agenda to be discussed by a key committee of cabinet ministers who met on Tuesday, according to sources. Should the proposal proceed, it’s expected the government would announce the foreign-ownership plans first, and then unveil the auction design possibly a month later.
Industry Minister Christian Paradis is scheduled to give a speech to the telecom industry next week at the International Institute of Telecommunications, a venue that gives him an opportunity to signal Ottawa’s direction if the Tories decide to move on foreign ownership.
Sources cautioned, however, that the Harper government’s priorities and planning cabinet committee may be merely discussing the foreign ownership proposal rather than be poised to make a decision soon.
The government is tight-lipped about its intentions for the telecom sector, particularly after a civil servant recently mistakenly forwarded an internal e-mail by to people working in the industry – a message that made references to wireless auction policy matters. The auction rules are a closely guarded secret, and affect how public companies spend billions of dollars of capital.
Allowing foreigners to own 100 per cent of small telecom players would require changes to the federal Telecommunications Act.
The government hopes that loosening foreign ownership restrictions for those companies with 10-per-cent or less market share would help the new companies’ efforts to bring down wireless prices for Canadians.
At the same time, most industry watchers think choosing this route – as opposed to loosening ownership requirements for all companies, including Bell, Telus and Rogers – is the safest political strategy: It effectively legitimizes cabinet’s 2009 decision to approve Wind’s financing structure, while making it impossible for a foreign player to buy up a major Canadian telecom provider and cut thousands of jobs.
The Conservatives promised in the 2010 Speech from the Throne to “open Canada’s doors further” to foreign ownership in telecom, as a means of lowering prices. But their enthusiasm for changes appeared to cool following a public backlash over an attempt by overseas bidders to buy the iconic Potash Corp. of Saskatchewan in late 2010.
In 2009, the Canadian Radio-television and Telecommunications Commission ruled that Wind’s parent Globalive Wireless Management Corp., with strong Egyptian ties, was insufficiently Canadian-owned and controlled. But the Harper government overruled the CRTC, and critics charged that it was rewriting foreign ownership rules on an ad-hoc basis. Other telecom players complained that this rendered the previous wireless frequency auction unfair, because other would-be entrants had stuck carefully to existing rules on how much foreign ownership and control was allowed.
Even before it launched service, Globalive’s rivals have tried to prevent the company from operating in Canada. Since Wind Mobile launched in December, 2009, rival Public Mobile has taken the government’s decision overruling the CRTC all the way to the Supreme Court of Canada, which has not yet heard the case.