Easing foreign ownership restrictions

The Bell / Rogers purchase of MLSE could lead to the end of foreign ownership restrictions in Canadian telecom.

Not for the reasons that are implicit in a couple tweets from Peter Nowak who wrote:

The longer that foreign ownership wall exists, the more likely it is that #Bell & #Rogers will own everything

followed by:

… If there were no foreign ownership regulations telecoms would spend $ elsewhere, like in telecom

I don’t buy into this line of thinking – that Bell and Rogers invested in MLSE because they operate in a protected environment. In fact, if you accept the stated intent of their acquisition, it would make even more sense as additional competition attacks their traditional core businesses. The nature of Canada’s communications business – offering content across more screens than most US carriers – could lead to greater success in content ownership than US cable companies were able to achieve. The Vancouver Olympics gave a preview of what can be done with cross-platform delivery of sports programming.

But I want to look at a different angle of last week’s blockbuster deal. Will it provide cover to the federal government to fully liberalize foreign ownership restrictions while keeping everyone happy at the same time?

It has been generally expected that the government wanted to lift the foreign ownership restrictions in the telecom sector, but did not want to face the possibility of Canada’s most iconic brands falling into the hands of foreign multi-nationals. If Saskatchewan’s potash mines were too strategic to go to a foreigner (pronounced “fuhr’ner”), how could high tech titans like Rogers or Bell be permitted to become “small” regional operations of an American, British, French or German carrier, let alone one from Russia or beyond.

That was why the federal government has been floating the idea of the small carrier solution – allow foreign ownership of carriers with less than 10% of the market. Using the rules set out in the last spectrum auction, the 10% solution really means: we’ll allow full liberalization for all carriers other than Bell, Rogers and TELUS.

Problem was that there is a certain unfairness with that kind of liberalization. Why would we penalize the 3 largest companies with a higher cost of capital, just because they are successful? Such unfairness doesn’t play well and it certainly isn’t consistent with Conservative economic principles.

Last week’s deal appears to provide the perfect cover for the government to do the right thing by lifting all restrictions on foreign direct investment in telecommunications. Bell and Rogers are now so fully invested in content for their broadcast assets, feeding their extensive multi-screen platforms, that the companies will not be able to separate out their telecom assets. The Toronto Maple Leafs are the perfect poison pill to prevent Bell or Rogers from falling into foreign hands.

No one is talking about liberalizing ownership restrictions for broadcasters. While people have correctly called for cable and direct-to-home satellite to be regulated as telecom assets, broadcasters like TSN and Sportsnet will continue to be Canadian. And with the Leafs as the marquee asset for delivery of those networks on your PC, your phone and your TV, there is no practical way to segregate the ownership of these conglomerates between the broadcast and telecom assets.

As a result, the federal government can now lift the restrictions for all, treating all players equally – just as Rogers has been requesting.

The Toronto Maple Leafs biggest play this season may be solving the political challenge of liberalized foreign ownership in telecom.