After months of delay, Industry Minister Christian Paradis unveiled the government’s telecom strategy last week, setting out the details of the forthcoming spectrum auction and tinkering with longstanding foreign ownership restrictions.
Spectrum allocation and auctions, which focus on the availability of frequencies used to provide wireless services, involves fairly technical questions that few outside the industry follow closely. Yet the impact of spectrum policy has far reaching effects on consumers, since the right policies can foster greater competition, better services, and lower prices.
While the headlines have focused on changes to the foreign ownership rules, the government’s policy choices are rather timid. 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 â€œbeachfrontâ€ 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.
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at firstname.lastname@example.org or online at www.michaelgeist.ca.