In view of the current international trade tensions, what are your thoughts on foreign ownership restrictions in Canadian telecom?
That was a question posed to me earlier this week. Over the years, I’ve talked about foreign ownership more than 200 times, so I’d like to hear your thoughts. View this as an invitation to share your thoughts as a comment.
Let’s start by clarifying the current rules, which are often misunderstood. Ownership and Control restrictions are set out in Section 16 of the Telecommunications Act.
In Section 16(2)c), we see that there are no ownership restrictions if the company “has annual revenues from the provision of telecommunications services in Canada that represent less than 10% of the total annual revenues, as determined by the Commission, from the provision of telecommunications services in Canada.” In Section 16(6) we see that the company can grow beyond 10% of the telecom market, as long as it grows beyond that threshold organically (ie. not by acquisition).
Earlier this week, the CRTC released the 2023 market size as $59.6B, meaning the 10% threshold is just shy of $6B. There are only 3 companies in Canada with telecom revenues exceeding 10% of the total market: Bell, Rogers, and TELUS.
Number 4 player Quebecor (Videotron) reported revenues of just over $4.8B in 2024. Other than Bell, Rogers and TELUS, foreign acquisition is permissible. A foreign-owned service provider could be built or assembled by acquisitions (up to $5.96B in revenues) and then grown.
Keep in mind that broadcasting has its own restrictions, creating a “poisoned pill” for most converged communications companies, since broadcast distribution (cable or IPTV) is regulated under the Broadcasting Act. There are various creative corporate structures that could enable a competitor to work around the broadcast issues.
What are your thoughts? Would Canada’s communications infrastructure face increased risk of disruption with lightened foreign ownership restrictions? Benefits? Risks? Are concerns real?
Please leave a comment. You don’t have to use your real name, but I do require a real email address (which won’t be posted).
Are Chinese companies allowed to purchase Canadian telcos outside of the Big 3 or are they banned like in the USA?
I have more opinions than questions at this point (okay, the questions are somewhat loaded).
1. Is there currently a limitation of foreign minority ownership in a Canadian company under the Telco Act? Thinking of legit minority partnerships or investments, but also structured work-arounds like Chatham Assets’ effective control of Postmedia.
2. I assume the 10% threshold applies to “total” or “all” telecommunications services? So a foreign company entering a subset market (e.g. Verizon thought about wireless in 2013) could acquire a larger than 10% interest in that market? Also thinking about Starlink and LOS.
3. I believe the federal Investment Act still acts as a back-stop? But if a foreign company got approval and established a <10% market share through acquisition of a Canadian company, it could then grow well beyond that threshold. I don’t think the Investment Act permits the government to post-facto force a sale or divestment of market share or a whole business, so any subsequent abuse of market power by a foreign company would have to be a competition law issue (which doesn’t currently include questions of national security or sovereignty)?