While the headlines have focused on changes to the foreign ownership rules, my weekly technology law column (Toronto Star version, homepage version) echoes my initial post on the decision by arguing the government’s policy choices are rather timid.
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.