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Ottawa Foregoes Bold Vision on Telecom

Its strategy to facilitate greater telecom competition focuses on two key issues.  First, it opts for a spectrum cap that will limit the amount of the best “beachfront” spectrum any single company may hold. When combined with a use-it-or-lost-it requirement that should guard against carriers hoarding spectrum without using it, the policy is designed to ensure that every market in Canada has at least one major wireless carrier not named Bell, Telus, or Rogers.

Second, the government has opened the door to increased foreign investment. The current foreign investment restrictions will be lifted for any carrier with less than ten per cent market share (effectively anyone other than the big three). Restrictions remain in place for broadcasters and broadcast distribution companies.  The move will put to rest the controversy over Globalive that dogged the last spectrum auction, when questions arose as to whether it fully complied with foreign ownership restrictions.

After heavy lobbying from all stakeholders, the government’s policy choices reflect a desire for compromise. For example, the choice of a spectrum cap falls between the set-aside demanded by smaller players and the fully open auction favoured by the incumbents.

The primary goal appears to be the creation of a strong, fourth carrier in the market. The spectrum caps and foreign ownership changes are both geared toward giving a fourth player the necessary spectrum and access to capital to compete with Bell, Telus and Rogers. That suggests consolidation of the current smaller players in the hope of a single, stronger competitor – possibly foreign owned – challenging the incumbents.

With the proposed approach, large international players such as Verizon or Deutsche Telecom will be limited to buying up (or investing in) smaller Canadian companies with a long-term vision of building market share. Had the government fully liberalized the market, those telecom giants could have considered strategic investments in the big three and caused a far bigger shift in the competitive environment.

The chief barrier to the complete removal of foreign ownership restrictions is presumably concerns over the cultural policy implications of opening the broadcast sector to greater foreign ownership. Many observers appear to assume that Canadian ownership and content requirements go hand-in-hand, fearing that a foreign owned broadcaster would be less likely to comply with Canadian content requirements. Yet there is little reason to believe this to be so.

Foreign owned businesses regularly face Canadian-specific regulations and there is little evidence that Canadian businesses are more likely to comply with the law than foreign operators. Cultural businesses may raise particular sensitivities, but broadcasters dependent upon licensing from a national regulator can ill-afford to put that licence at risk by violating its terms or national law.

The government could have shaken up the Canadian market by removing telecom foreign ownership restrictions altogether and considered dropping foreign ownership limits on broadcasters as well. The Paradis incremental, go-safe approach might make for good politics, but passing on a bolder vision is a lost opportunity.

7 Comments

  1. Domestic Cooperative?
    Perhaps this is an opportunity for a domestic cooperative to make a run up the middle, rather than create/add another wireless giant, for/to the club? That would introduce some actual competition to the niche. Would this type of domestic competitor have access to the available investment capital, I wonder?

  2. What happens when the smaller company gets bigger?
    Let’s say a smaller foreign-owned company grabs 5% of the market, and then because they have finally brought sane cell phone pricing to this insane market, grows to 15% within a year. What happens then? Does it now have to become canadian-owned?

  3. Corporations are people too
    They’ll claim refugee status which will let them work in the country for a couple of decades.

  4. Un-Trusted Computing says:

    Ugh Spammers
    @MG I think you should add the word “Loan” to your comment filter

  5. Harper is in Asia
    Anyone know how to make Canada disappear from GPS?

  6. Got it wrong
    Michael normally I wouldn’t speak up like this but you’ve got it wrong on the foreign ownership. It’s not the people are worried foreign companies won’t comply with CanCon, it’s that the current government will get rid of CanCon if foreign interest proves to be lacking.

    Completely removing foreign investment would only shake up who owns the telecom market, not its primary character of large integrated firms .

  7. in response to eric: companies that grow will be allowed to stay foreign owned.

    in response to doug: allow lightsquared to set up its proposed american network plans here in canada