On the same day that revelations about CSEC spying on the Brazilian government for economic purposes generated headlines around the world, the Canadian government rejected the proposed acquisition of MTS Allstream’s Allstream division by Accelero Capital Holdings, a company co-founded by Naguib Sawiris, an Egyptian billionaire who first captured Canadian telecom attention by backing the entry of Wind Mobile. Industry Minister James Moore indicated that the rejection of the proposed deal involved the national security provisions of the Investment Canada Act. Both companies expressed disappointment with the decision, as MTS Allstream noted its surprise and disappointment and Accelero described it as an “unfounded and unexpected decision.”

While the decision sends a disturbing signal about the government’s willingness to block foreign investment just months after indicating that it was open to such investment, it is worth noting that the change in telecom foreign investment policy was publicly opposed by the Public Safety Canada. In 2011, Public Safety responded to Industry Canada questions about changes to the foreign investment restrictions with the following:

It is important to fully appreciate the scope of the potential impact of reducing or removing restrictions on foreign investment in Canada’s telecommunications sector. The lessening of current restrictions could create new, and increase existing vulnerabilities in our telecommunications networks, further exposing them and the users and services that rely on them, to an increased threat of cyber espionage and denial of service attacks. It could also impede law enforcement and national security investigations by further challenging the ability of authorities to execute judicially authorized warrants to intercept telecommunications. As options are considered to maximize Canada’s competitiveness in the telecommunications sector, Public Safety officials will work with Industry Canada to further develop options to help ensure that any change to the telecommunications market will be accompanied by necessary security safeguards.

When the Public Safety submission first came to light last year, the potential application of the national security provisions in the Investment Canada Act was discussed. In light of the MTS Allstream decision, it would seem that Public Safety may have lost the battle to retain foreign investment restrictions, but has won the war to keep out many potential competitors.