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Industry Minister Paradis Makes Foreign Telecom Companies An Offer They Will Likely Refuse

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Thursday February 28, 2013

Industry Minister Christian Paradis was in the news this week (Globe, Post, Cartt.ca) urging foreign telecom companies to consider investing in the Canadian market in order to beef up the competitive environment. Paradis is right to court the big foreign players, who would bring capital, buying power that the current Canadian carriers can't match (potentially leading to better deals on devices), and the ability to leverage their global networks to offer better roaming rates. Foreign telecom companies should view the Canadian market as attractive, given some of the highest ARPU (average revenue per user) rates in the world (see CRTC Figure 6.1.9). Yet they will likely give Canada a pass due in part to failed government policies. These include:

1.    Ongoing foreign investment restrictions in the telecom sector. The government has removed restrictions for the smaller players (anyone with less than ten percent market share), but those companies are less than ideal as a market entry point given the use of spectrum that is incompatible with devices such as the iPhone, incomplete network coverage, and limited geographic footprint. The larger players - Bell, Telus, and Rogers - are far more attractive but are off-limits due to the continuing foreign investment restrictions. The solution is obvious: the complete removal of all foreign investment restrictions in telecommunications.

2.    Ongoing foreign investment restrictions in the broadcast sector.  Even if the restrictions on foreign investment were lifted in the telecom market, the restrictions in the broadcast sector would likely keep Bell and Rogers out of the hands of a foreign entity.  As I've argued before, Canada should also remove the broadcast restrictions, since Canadian broadcast licensees will follow content regulations and regulatory obligations regardless of their nationality.

3.    Failed spectrum policies. Paradis indicated that the 700 MHz spectrum auction will take place by the end of 2013. This is the same auction that was supposed to happen last year and that was completed by the U.S. in January 2008.  If the auction slips to early 2014, that will place Canada six years behind the U.S. in allocating this spectrum. The conclusion for a foreign carrier looking at the Canadian market is clear: the government just isn't serious about creating the framework to allow for vibrant wireless services.

4.    Missing digital economy strategies. Closely linked to the other failures is the absence of a digital economy strategy, despite repeated promises of one.  If the government can't articulate its vision for Canada's digital future, why would it expect a foreign company to do so?

Canada needs foreign investment to address the competitive shortcomings that plague the wireless sector.  But it will take more than speeches to encourage entry.  Rather, it will require policy action by the government to address the myriad of barriers and shortcomings in the Canadian legal and regulatory framework.

Comments (12)add comment

Maynard Krebs said:

Two words....
Functional Separation
February 28, 2013

end user said:

Yup just look at OVH
$39 servers!!! i3/8GB RAM/5TB data transfer.
February 28, 2013

Alex said:

...
After selling all of Nortel's intellectual property to the highest bidder -we have clearly turned our backs on protecting indigenous telecom companies- Lets take the next step and open our borders to foreign compition!
March 01, 2013

Grump said:

...
I'm actually in favour of foreign ownership/investment limits, especially on the bigger companies. Monopolies are dangerous enough -- and should be paid close attention to if they are to be tolerated, even for the right reasons -- but foreign-controlled monopolies would need to be monitored even more closely. With respect to the auction, I agree, that should have happened already. However, I also feel that Canadian-programming is still desirable. We are next door to the biggest media producer and market in the (free-ish) world and our programming would be supplanted in a heartbeat; we can't simply compare ourselves to European countries with more easy-going attitudes towards (commercial) programming when most of them have greater natural cultural independence due to language diversity. Unlike the Internet, cable and subscription programming are tools of media conglomerates for anti-competitive behaviour, and I think cultural content requirements are one check on monopoly behaviour and international influence.
March 01, 2013

ENO said:

Too much profit at stakes for Canadian telecom companies
Canada is the more expensive place in the world where to use a cell phone.
In Europe you can buy a $5 sim card which never expires. By the law companies cannot hold (steal) money you didn't use and if you change carrier they have to transfer your money to the new one.
With a $10 dollar monthly plan you have unlimited internet and many hours of conversation. In Canada $10 dollars gives you just 100MB of internet traffic.
It is illegal to lock cell phones (you have the right to change carrier any time you want).
It is not unusual to meet homeless people using a cell phone.
March 01, 2013

Alex said:

...
Blackberries are all manufactured in China, Bell Canada customer service is done in India. Every opportunity they outsource jobs to cheaper jurisdictions. They don't deserve government protectionism! We are protecting unethical quasi Canadian monopolies from a healthy dose of foreign competition.
March 01, 2013

Wade said:

WLF68
Any investment is useless, if the infrastructure is still owned by a individual company(hint: Bell) who can control it. We need a community based infrastructure system so anyone can expand and upgrade it, particularly outside of cities.
March 01, 2013

Grump said:

...
@Wade: I agree ~100%
@Alex: I agree with your sentiment too, however I guess I see it more as a choice between protecting Canadian investors, not the underlying companies, from foreign investors and foreign control (foreign investment would actually help them grow faster, but in what direction?). I am sick of the monopolies too. I think competition can be fixed without conceding local control beyond our borders. If we don't fix these issues locally first, I think opening up Canadian industry to foreign investment just permits the replacement of one Canadian-controlled monopoly with an internationally-controlled one, with even less accountability and concern for Canada (if that were even possible).
March 02, 2013

Alex said:

...
@Wade:

Allowing foreign competition doesn't mean they won't have to abide by our laws.

Paying too much for cell phone services shouldn't be a Canadians patriotic duty.

Most of these protectionist laws where an effort to protect indigenous telecom industry like Nortel that have long since gone bankrupt.

70% of Canadians live less than 150 kilometers from the U.S. border, with small rule changes we could have real competition (almost immediately). I don't perceive the duopoly that sell Chines made cell phones with Indian customer service as being particularly sacred national institutions that must preserved indefinitely.

Lets have some competition please!
March 02, 2013

Grump said:

...
On the off chance you were replying to me, I agree and also want to see more competition. If competition were strictly synonymous with investment, I think we would probably agree. Irrespective of how we got here, I see deregulation as walking a fine line between promoting competition and promoting looting.
March 03, 2013

Alex said:

Conceded
@Grump:

Alright you win, we will keep this out of date regulation. I much prefer only having a choice of an independent wireless provider if I live in a large inner city anyway.
March 03, 2013

Grump said:

@Alex
I think we would see more competition by deregulating the spectrum itself (which is why the auction would at least promote new entry, assuming the oligopolies are barred from buying and sitting on it...), and related barriers. Monopolies (patents, copyrights, cornered markets, etc), all bar competition by definition. If we want competition, I agree that we need to open the doors somewhere, but we need to open them to Canadians first or they will be flooded before we even get our sh*t together. That's not speaking very highly of Canada either, and that's not to say we "deserve" a head start in business. I would be the first to say "alls's fair" if it were not my own country, and a situation our government created. As it stands, we have gotten used to waiting for the US to swoop in and give us something worth buying, and that's the limit of our appetite for competition (deciding who to ultimately sell out to)... But, foreign investment (ownership of existing business, rather than necessarily new competitors) is the last way I would attempt to encourage growth. Foreign investment in this case could just lead to a China-owned Bell, etc... Like everyone else, I'm sick of the lack of choice. At the moment it's not an accessible market for Canadian businesses, and that's a symptom of a more pressing issue.

I am a strong believer in solving the right problems in the right order; turning a blender on without putting the lid on first can create an even bigger mess to clean up.

Perhaps you or others have ideas on the appropriate order. To me, the big obstacles are spectrum/rights of way on cabling, patents, and copyright.
March 03, 2013

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