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A month ago, in a post entitled “Foreign ownership restrictions in turbulent times”, I asked “In view of the current international trade tensions, what are your thoughts on foreign ownership restrictions in Canadian telecom?”

While there were a couple comments on that post, as well as a few emails, I noticed a relevant entry on Ted Woodhead’s blog post last week:

Last year, I proposed a review of the Canadian ownership and control regulations for telecommunications and broadcasting companies. I have revisited the view that a more liberal approach to those regulations could spur further investment and technology transfer than the currently more restrictive regime. I now would recommend that any future government tread carefully in revisiting the restrictions. No one, a year ago could have reasonably foreseen the chaos and upheaval that would be wrought by the bad actor activities of the United States. I do not believe for the foreseeable future that we can allow foreign control of these strategic industries and networks.

A year ago, who would have thought that “bad actor” would be an appropriate phrase to attach to the United States?

He goes on to recommend that whichever party leads the next government of Canada, it should ratchet up the broadband objective to 100/10 Mbps from its current target of universal access to 50/10 Mbps service, and place a priority on funding fibre to the home projects over other technologies.

I have no issue with increasing the target speeds for access, but I prefer to have technology neutrality in government funding programs. There are some communities that simply cannot be served by wireline facilities as I described in a recent post.

If the target broadband objective gets raised, do we need to place a priority on projects that deliver 100/10 to communities that are below 50/10, or do we put upgrades on a similar footing as those delivering initial broadband?

I have long said that “some broadband” is better than “no broadband”. This is why I continue support the use of wireless solutions as part of a broadband toolkit.

Ted notes that the Liberals and Conservatives are both pledging increased investment in infrastructure and both promise to reduce the regulatory red tape. This is promising, as long as the government recognizes that we are not yet done with making affordable digital connectivity available to every household.

Should government broadband subsidies consider the ownership structure of funding recipients?

Should funding be limited to Canadian owned and controlled entities?

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).

The Washington correspondent for the Globe and Mail, Kevin Carmichael wrote last week that Canada should follow the lead of American regulators and impose further rules on wireless carriers here in Canada to “germinate” a fourth wireless provider (“U.S. telecom regime provides strong model for Ottawa,” August 1, 2014).

There is a strong gravitational pull in the telecommunications business to consolidate to achieve economies of scale. A government can counter those forces, but only if it is resolute about it.

It might be be worthwhile to review the state of Canada’s wireless industry.

Canada already has at least four wireless competitors in all major markets. According to a recent government study, Canadian wireless prices match and usually beat those in the U.S. And while the U.S. has just two national carriers offering the latest wireless network technology, 4G LTE, Canada already has three, despite the challenges imposed by our larger geography and more dispersed population. The quality of Canadian wireless services are similarly acknowledged as superior to those in Europe – where countries like Germany recently reduced their number of national carriers from four to three, in hopes of bringing wireless network investment to North American levels, with more countries expected to follow soon.
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The federal Government‎ has recently introduced some legislative changes, and the CRTC had a major ruling on Thursday, both contributing to lower costs for smaller new entrant players. Combined with generous terms in the next spectrum auction, we see Canada has already taken aggressive steps to benefit smaller competitors, the impact of which has not yet been seen, let alone measured.

Wireless is a part of everyone’s lives and discussing how Canada can continue to build our lead in the sector is always worthwhile. But we need an informed understanding of the real state of the Canadian marketplace before adopting foreign “solutions” for it.

You can’t manage what you aren’t measuring. Another reason that we need a better Digital Economy Scorecard.

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.

In his opening address to The 2010 Canadian Telecom Summit, Industry Minister Tony Clement announced that the department would shortly launch a consultation to determine the nature of liberalization of rules governing Foreign Direct Investment in the telecommunications sector.

That consultation was launched earlier today.

The status quo is not an option being entertained.

The 12-page consultation paper describes three options:

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.

In the case of the second option, there is a question of which services basket or geography will be used to establish the market share. As the consultation paper indicates, the TPRP suggested that the 10% would be a test in ‘any’ market:

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.

However, the language of the option laid out in the new paper [pdf] speaks about ‘total telecommunications market revenues’, which were just over $40B according to the latest CRTC monitoring report. This option has the effect of locking out investment flexibility for Canada’s big three: Bell, Rogers and TELUS.

While the consultation paper leaves a crack open for possible liberalization of cable companies and other broadcast distribution undertakings. Keep in mind that cable companies and all of the major phone companies hold broadcast distribution licenses. The consultation paper carefully tip-toes around whether we will see amendments to the Broadcast Act.

While it is recognized that telecommunications and broadcasting are increasingly converging, the policy objectives and legislative authorities under the Telecommunications Act and the Broadcasting Act are distinct, and the government is not considering changes to the Broadcasting Act. With respect to broadcasting content and culture, the government will not consider any action that could impair its ability to pursue Canadian culture and content policy objectives.

If the government wouldn’t consider the type of modifications proposed by Rogers to the House industry committee in April, it could have been simpler in its language with a clear statement like “the government will not consider changes to the Broadcasting Act.” 

Comments are due July 30.