Is it time to remove telecom ownership restrictions?

In a Globe and Mail article last week, Rita Trichur set out compelling arguments to remove Canada’s remaining foreign ownership restrictions that apply only to carriers that have greater than 10% of total Canadian telecommunications revenues. From a practical perspective, that definition is a euphemism for Bell, Rogers, and TELUS.

In her article (“Telus CEO says it’s time for Ottawa to relax foreign-ownership rules for large telecoms. He’s right”), Rita writes that efforts by the Canadian government to “micromanage market competition have failed.”

The article continues: “If lower prices, connectivity and innovation are the Trudeau government’s overarching goals, then the time is right for our federal legislators to finally heed Mr. Entwistle’s advice and let market forces prevail.”

As the article notes, the 2006 report of the Telecommunications Policy Review Panel [pdf, 1.6 MB] and the 2008 Competition Policy Review Panel report [Compete to Win] each recommended liberalization of restrictions on foreign investment in order to boost competition.

From the Competition panel report:

Telecommunications and Broadcasting

  • For several years, Canada has been reorienting its telecommunication policies to place greater reliance on market forces in recognition that competitive access to information and communications technology facilitates business productivity throughout the economy.
  • Canada’s telecommunications policy was subject to an extensive review in 2005–2006 by the Telecommunications Policy Review Panel, which concluded that reducing restrictions on foreign ownership would increase competitive intensity, improve industry productivity, and be more consistent with Canada’s open trade and investment policies.
  • Accordingly, the Panel recommends the adoption of a two-phased liberalization of foreign ownership rules pertaining to the telecommunications and broadcasting sectors. In the first phase, foreign telecommunications companies would be permitted to establish a new Canadian business or acquire an existing Canadian telecommunications company with a market share of up to 10 percent. In the second phase, liberalization of foreign ownership would be undertaken for both telecommunications and broadcasting in a way that would be competitively neutral.

As the Globe article notes, “Not only is Ottawa taking too long to move forward with the second phase of foreign-investment liberalization, but the remaining restrictions unnecessarily drive up the cost of capital for large telecoms.”

The article quotes TELUS chief Darren Entwistle saying:

When you have artificial regulation, it fetters your fluid access to international capital markets. I don’t want to do that; I want to get the cheapest money available.

When we’re blowing our brains on fibre and 5G, I want to make sure that we get money at the lowest cost possible along the way.

I have written before about the high levels of investment required to build networks in Canada. Over the summer, a government background paper acknowledged that “in Canada the share of telecommunications revenues invested in capital expenditures over time was 30-50% above the OECD average.” Canadian telecom carriers invest well in excess of $10B in capital each year.

The opinion piece in the Globe and Mail concludes saying: “Instead of more meddling in the telecom market, Ottawa should create a plan to relax the remaining foreign-investment restrictions over the next three years.”

Is it time? Will a minority Liberal government take a “free-market” page from the Conservative party’s playbook to open up Canada’s telecom market?

Recall that a couple of weeks ago, I released “A Reading List For Free Market Telecom Policy”. Are you sensing a trend?

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