The 10% solution

Press reports suggest the government may liberalize foreign direct investment in the telecommunications sector by going with Plan B.

When the consultation was first launched (at The 2010 Canadian Telecom Summit) three options were set out:

1. The CRTC approach, which would see symmetric liberalization for broadcasting and telecom, but only opening up the market for both sectors to 49% foreign ownership;
2. The approach described by the Telecom Policy Review Panel (TPRP) and endorsed by the Competition Policy Review, which would remove restrictions on telecommunications carriers that have lass than 10% market share;
3. Open the doors to foreign direct investment in all carriers.

A colleague reminded me that Option B is more nuanced than the simple 10% threshold might suggest. As the original foreign investment consultation paper acknowledged, the 10% solution was described by the Telecom Policy Review Panel [report no longer available on-line]:

In the first phase, the Telecommunications Act would be amended to give Cabinet the authority to waive the foreign investment restrictions applicable to a Canadian telecommunications common carrier based on a foreign investment or class of investments being deemed by the Cabinet to be in the public interest. The TPRP proposed that, during the first phase, a presumption should be made that investments in any new start-up telecommunications investment or in any existing telecommunications common carrier with less than 10 percent of the revenue in any telecommunications service market would be in the public interest. This presumption could be rebutted by evidence related to a particular investor or investment.

Prior to the second phase, the TPRP recommended completion of a review of broadcasting policy to resolve issues related to the separation of Canadian policy on broadcasting content from policies for the carriage of telecommunications. It recommended that there should then be a broader liberalization of foreign investment rules in a manner that “treats all telecommunications common carriers including the cable telecommunications industry in a fair and competitively neutral manner.” This liberalization would apply to the carriage business of broadcasting distribution undertakings, while new broadcasting policies would focus any necessary ownership restrictions on content businesses. The Cabinet would retain authority to screen significant investments to ensure they are in the public interest.

In other words, there would be reviews of the ownership by Cabinet, but there would be a presumption of approval in the case of smaller players. Presumably, a larger player could have increased foreign investment, if it can demonstrate the public interest benefit.

Note that the TPRP was clear that foreign investors would remain exempt if they succeed in growing their market share above 10%.

As we await an announcement, we should be aware that there are important subtleties to watch for.