Opening the telecom sector to more foreign investment won’t spur competition unless Ottawa also prevents the country’s three biggest players from dominating the upcoming wireless licence auction, say top executives at some of the new upstarts.
The federal government is considering a change to ownership laws that would allow foreign companies to own smaller telcos that have a market share of 10 per cent or less. The idea is to stimulate competition by making it easier for smaller companies such as Globalive Wireless Management Corp. to find the capital they need to compete with giants such as Rogers Communications Inc. and BCE Inc.
But those companies say the investment rules are far from their biggest worry. They want the government to set aside new wireless spectrum for them to purchase in next year’s auction, as it did in 2008.
Industry Minister Christian Paradis refused to discuss Ottawa’s plans Wednesday. He told the Commons that Ottawa is still pondering how to proceed on foreign investment and the next spectrum auction and that “no decision … is made yet.”
Mr. Paradis said, however, that the government committed in the 2011 budget to examine foreign investment rules in the telecom sector “and our aim is to create better choice and lower costs for consumers.” Current federal law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent.
Globalive chairman Anthony Lacavera said that removing foreign ownership restrictions are long overdue. But he is worried about how Ottawa will structure the spectrum auction – even if it limits, or caps, the amount of spectrum any one company can buy.
“New entrants will be shut out and the market will consolidate back to three large players,” Mr. Lacavera said.
According to sources, Ottawa is contemplating capping the amount of spectrum any one company can purchase at 10 megahertz of bandwidth. Last week, Globalive’s Egyptian financial backer, Naguib Sawiris, threatened to not finance its participation in the auction if no licences are set aside for new competitors. Globalive operates under the Wind Mobile brand name in Canada.
Mobilicity executive chairman John Bitove says the foreign ownership issue would be “irrelevant” to his company especially if Ottawa eventually allows Rogers Communications Inc., BCE Inc. and Telus Corp. to hoard spectrum by putting in place a generous cap. “Then, you know, it’s lights out for some of us,” he said.
But Mirko Bibic, senior vice-president of regulatory and government affairs for BCE, questioned the rationale for changing the foreign ownership rules: “Never has the wireless market in Canada been more competitive than it is now.”
He also warned that changing the foreign ownership rules would create significant unintended consequences, including an “abandonment of rural broadband” as wireless competition ramps up in major urban centres like Toronto, Montreal and Vancouver. “That kind of large foreign new entrant is not going to be focused on urban and rural areas and we are going to have to react and respond competitively,” he said.
The Conservatives’ enthusiasm for liberalizing Canada’s telecom industry has waxed and waned.
The Tories promised in their 2010 Speech from the Throne to “open Canada’s doors further” to foreign ownership in telecom as a means of lowering prices. But they appeared to get cold feet in late 2010, however, after a political backlash over the possibility that Ottawa might allow a foreign firm to buy a cherished Saskatchewan institution: Potash Corp. Faced with the threat of losing as many as six seats in Saskatchewan, the Conservatives nixed the sale.
Shortly afterward, Industry Minister Tony Clement announced he was also postponing a decision until sometime in 2011 or 2012 on precisely what kind of changes he’d make to foreign investment restrictions on telecom ownership. The move effectively buried a possible lightning rod for criticism during the 2011 election campaign, ensuring the Conservatives didn’t head to the polls facing partisan accusations of selling out Canadian companies.
While no final decision has been made, investors bid up shares of Manitoba Telecom Services Inc. by 6.8 per cent to $30.31 a share on Wednesday, signalling investor anticipation that a foreign entity could be interested in acquiring that company.