Do foreign ownership restrictions in Canada’s Broadcasting Act create a poison pill for foreign ownership of Canadian telecom carriers?
A number of recent articles discuss the benefits of increased foreign ownership in Canada’s telecom sector. Those articles have focused on restrictions contained in the Telecom Act. Last Friday, a detailed “explainer” appeared on The Hub, discussing “A brief history of foreign ownership restrictions in Canada’s telecom sector”.
However, most carriers in Canada also hold broadcasting licenses, even if the companies are not involved in radio or TV stations. The Broadcast Act comes into play for their TV distribution businesses (cable or IPTV). As I observed last week, I have not seen discussion of liberalization of foreign ownership limits contained in the Broadcasting Act. Under that Act, foreign control simply is not permitted:
3 (1) It is hereby declared as the broadcasting policy for Canada that
(a) the Canadian broadcasting system shall be effectively owned and controlled by Canadians, and it is recognized that it includes foreign broadcasting undertakings that provide programming to Canadians
“Broadcasting undertaking” is a defined term under the Act: “includes a distribution undertaking, an online undertaking, a programming undertaking and a network”. Under the Broadcasting Act, “Network” is defined as: “includes any operation where control over all or any part of the programs or program schedules of one or more broadcasting undertakings is delegated to another undertaking or person, but does not include such an operation that is an online undertaking”.
As I noted two years ago, 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.
The 2008 Competition panel wrote:
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.
The Telecom Act was updated to accommodate that first phase; the Broadcasting Act was not.
There are all sorts of cultural sovereignty issues that come to mind when considering complete liberalization of foreign ownership in the broadcast sector. However, is there really such an issue for broadcast distributors – companies that deliver cable TV or IPTV services?
Perhaps the most obvious cure would be to declare that broadcast distributors are telecom undertakings, and explicitly remove this class from the ownership restrictions in the Broadcasting Act. If we consider the metaphor of streaming video services, we do not consider an internet service provider (ISP) to be a broadcast distribution undertaking. Do we still need to maintain a different ownership regime for transporting linear channels?
There are still wholesale access issues that could need adjudication by the regulator, but we are talking about liberalization of ownership, not deregulation of the sector. Couldn’t the current regulations remain intact?
Foreign ownership restrictions under the Telecom Act apply only to Bell, Rogers and TELUS, the only service providers with telecommunications revenues exceeding 10% of the national telecommunications services market. However, broadcasting foreign ownership restrictions continue to serve as a poison pill, even for smaller telecom service providers that also provide TV distribution. Does that continue to make sense?
Looking beyond companies that own radio and TV broadcasters, perhaps it is time to examine the first steps toward creating an antidote for broadcasting’s foreign ownership poison pill.
Postscript: Writing on The Hub, Peter Menzies covered a similar theme in his post today with “When it comes to telecoms, does Canada need to get over its foreign ownership phobia?”