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The Globe and Mail

Ottawa to open telecom sector to greater foreign ownership

At the end of 2010, new wireless companies – such as Wind, Mobilicity, Public Mobile and Vidéotron Ltée – were responsible for 30 per cent of all new wireless subscribers.

The federal government says it will allow more foreign ownership in Canada's telecommunications sector in a new policy that could transform Canada's wireless industry.

In Wednesday's Speech from the Throne, which kicks off a new session of Parliament with a broad outline of the government's priorities, the government confirmed telecommunications will be included as part of a broader push to allow more foreign investment in Canada.

"Our government will open Canada's doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need," says a transcript of the speech, which was being read in the Senate by Governor General Michaëlle Jean.

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"While safeguarding national security, our government will ensure that unnecessary regulation does not inhibit the growth of Canada's uranium mining industry by unduly restricting foreign investment. It will also expand investment promotion in key markets."

The policy statement shows that cabinet's decision last year to overrule an October decision of the Canadian Radio-television and Telecommunications Commission was not simply a one-off by the Harper government. The CRTC had ruled that Globalive Wireless Management Corp. did not meet the requirements to enter the Canadian market because it was controlled by a transnational Egyptian firm.

That decision was overruled in December by Industry Minister Tony Clement, which allowed Globalive to launch "Wind Mobile," a cellphone service that is now competing against Telus, Bell and Rogers in limited markets.

Some observers feel the possibility of a foreign company coming in and buying a chunk of Bell Canada or Rogers Communications Inc. is unlikely, since the market is maturing and regulatory restrictions would likely mean a foreign buyer would be unable to get a controlling stake.

But it would certainly make it easier for smaller wireless companies – upstarts such as Public Mobile or DAVE Wireless – to go out and get more foreign financing, to speed launches, get more advanced technologies, and build out their networks. Public Mobile has launched a suit with the Federal Court, asking it to review the Globalive decision to clarify exactly how much foreign financing is possible.

"We believe opening the doors to foreign investment in Canada will benefit the new wireless entrants in the near term by providing them with greater access to capital and allowing them to simplify their business structures," UBS Securities Canada analyst Phillip Huang said in a research note.

"... For widely-held companies such as BCE and Telus, they may benefit in the longer term from potential takeout by foreign strategic players (although they may need to divest their media businesses in doing so – foreign ownership rules for broadcasting does not appear to be addressed). For family-controlled businesses (e.g. Rogers, Shaw, Cogeco, Quebecor), the benefit is less certain until there's greater visibility to the families' intentions. We also note that the Canadian telecom sector may be less attractive to foreign strategic players today versus several years ago as the industry is maturing and growth is slowing, and their shares are generally trading at a discount to their Canadian peers."

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There is now a 46.7-per-cent maximum on foreign ownership in the telecommunications, broadcasting, and cable industries in Canada. Changing those foreign ownership restrictions would require a change of the Canadian Telecommunications Act, said Dvai Ghose, a telecom and cable analyst at Genuity Capital Markets in Toronto. That would be unlikely, he said, unless the Conservatives had a Parliamentary majority, since the Bloc Quebecois, the NDP, and the Liberals would likely "wrap themselves in the flag" and seize upon the nationalist aspects of the issue.

"We believe that such support is unlikely and that the Conservatives probably do not want to make foreign ownership a big issue for the new Parliament," Mr. Ghose wrote in a research note distributed Wednesday before the speech.

"In our view, many Canadians are not even aware of the issue," though they may be indirectly aware of the restrictions' impact on the market, he continued.

The regulations restricting foreign ownership in telecommunications and broadcasting are mainly directed at ensuring access to Canadian content. But many consider those regulations outdated in an era where one can watch TV and download movies over the Internet – or on a wireless device.

"Foreign ownership rules are very important and it's very important that they get applied in a straightforward manner," Anthony Lacavera, chairman of Globalive, said in an interview last week. "But the idea of content being on mobile is very real, and I do think that a debate is warranted."

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