Telecommunications market is global, but not in Canada

Outdated ownership rules are keeping prices high and competition low, experts say

Outdated ownership rules are stifling competition and prices, experts say

In the United Kingdom, cellphone subscribers can choose from services offered by British, French, Spanish and German companies. In Australia, customers can pick from Australian, British, Singaporean and Hong Kong-based providers. In the United States, aside from their own national carriers, Americans can also get services from British and German firms.

Canadians, meanwhile, have only Canadian providers to choose from: Rogers Communications Inc., Bell Canada Inc. and Telus Corp., plus a few smaller operators. Even Canada's lone foreign brand name, Britain's Virgin Mobile, rents airtime from its half-owner Bell, and is therefore not in control of its own destiny.

The same is true for other telecommunications services, including home phones, internet access and television. In Europe, internet and television service providers from different countries fiercely compete on their rivals' home turfs in signing up customers. In New Zealand, Kiwi, Australian and British companies duke it out for television and internet customers.

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In Canada, again, every major phone, internet and television provider is Canadian. A few foreign companies also offer services to a handful of customers, but they are all ultimately dependent on accessing Canadian firms' infrastructure.

The telecommunications market has over the past decade become a global business, but not in Canada. Here, old protectionist rules still stand, leaving our nation as an anachronism. Since 1993, the Telecommunications Act has required that 80 per cent of the voting shares of Canadian companies belong to Canadians. Their boards of directors, meanwhile, must also be 80 per cent Canadian. According to the Organization for Economic Co-operation and Development, those are the most restrictive rules in the developed world.

The result? Without the threat of a new, well-financed foreign company coming in to build its own networks and steal customers, Canadian service providers have it easy. Consumers thus have to deal with high prices, poor services and a lower level of competition than seen in the rest of the world.

"When you've only got domestic competitors, they're competing on minor things like speed," says James Milway, executive director of the Institute for Competitiveness and Prosperity. "If you've only got two or three big dogs going after each other, neither one wants to go for a big break."

Moreover, the safe and easy Canadian market has also kept the likes of Bell, Rogers and Telus from expanding outward to become globally competitive companies, like Britain's Vodafone Group PLC, Spain's Telefonica SA or Germany's T-Mobile, all of which are multinational empires.

"Nobody is stepping out into a world setting because they're doing quite well here in Canada, thank you," Milway says. "None of them have been able to take this Canadian base and become a world leader like [BlackBerry maker] Research In Motion."

Conservatives, Liberals agree

A report in June by the Conservative-appointed Competition Policy Review panel recognized these deficiencies and urged the lifting of foreign-ownership restrictions. The report was the second in two years to come to that conclusion, following the Liberal-appointed Telecommunications Policy Review panel's recommendations in 2006.

Competition Policy Review Panel chairman Lynton "Red" Wilson says Canadian companies need to "take the play to the other end of the rink." ((Tom Hanson/Canadian Press))
Although both parties tend to agree on the need to lift restrictions, the issue is a political football that will likely be used by political parties to gain favour with voters in the upcoming election. The NDP has already argued against lifting restrictions because it would contribute to the "hollowing out" of Canada, where foreign firms would buy up local companies and turn them into little more than branch plants — a hot-button issue for many Canadians.

Lynton "Red" Wilson, who headed the competition report, said the best way to avoid that hollowing out was "to take the play to the other end of the rink."

"Canadian firms must become more savvy and determined global players," he said in June.

One concern all three parties agree on is that lifting restrictions won't be easy since in many cases telecommunications providers and broadcasters are now one and the same, yet Canadian content rules must continue to be protected. Rogers, for example, not only has the pipes that television signals go through, it also has a good deal of control over what content is broadcast through that connection since it owns several CityTV stations across the country.

Broadcasting requirements that ensure continued Canadian content would thus need to be put into place before the telecommunications ownership rules are changed, the parties agree.

"If you take out the foreign-ownership restrictions and AT&T or some other U.S. conglomerate swallows up that Canadian telecom, then we're going to end up with a situation where we have U.S. or foreign interests controlling our broadcast as well," says NDP MP Charlie Angus. "That's highly problematic, because these guys do the bare minimum at the best of times to provide Canadian voices and content as to their obligations."

Also, not everyone agrees that the rules need to be changed and some say the restrictions are fine as they are. Globalive Communications Inc., a firm positioned to become Canada's fourth national wireless player, says it has managed to bring in large foreign investment despite the rules.

Rules haven't kept everyone away

"The rules are pretty transparent and workable," says Globalive chief executive Anthony Lacavera. "I have no problem with them."

Globalive in July was the big winner of a government auction of wireless airwaves, spending nearly $500 million on spectrum. The company, however, is a minnow compared to Bell, Rogers and Telus and required extensive backing from foreign billionaires to make the purchase. Industry analysts believe the company's main foreign backer, Egyptian billionaire Naguib Sawiris, is funding the venture in the hopes that ownership restrictions are eventually lifted so that he can assume control.

Sawiris wouldn't be the first to try that strategy. AT&T Inc. had stakes in Rogers Wireless and Allstream before selling them to Rogers and Manitoba Telecom Services Inc., respectively, after getting tired of waiting for an easing of restrictions. T-Mobile also had a stake in Microcell Telecommunications, which operated the Fido brand, before it too sold out to Rogers.

"Canada has a reputation as being a challenging place for non-Canadians to carry on business," AT&T has said.

The issue is sure to arise during the election and the public will ultimately have to decide what is more important — a more competitive telecommunications market, or keeping the nation's providers in Canadian hands.

"At the end of the day the people decide, so you can't just have expert panels tell people what's good for them," Milway says. "If it's an issue that resonates with Canadians and one of the parties smells blood, they'll be going for it."