OTTAWA – “There is a concern that these restrictions are impairing the growth and competitiveness of the industry to the detriment of consumers and the industry as a whole,” said Marta Morgan, not wasting any time getting to the point during the opening of the Standing Committee on Industry, Science and Technology hearings on foreign investment restrictions in telecommunications last week.
Morgan, the assistant deputy minister of the strategic policy sector at Industry Canada, and two other Industry officials appeared in front of the committee March 25.
She continued by giving a brief history of previous studies done on Canada’s foreign ownership rules. She talked about the 2003 report done by the House of Commons Industry committee, the Telecommunications Policy Review Panel report in 2006 and the Competition Policy Review Panel study of 2008. In all three cases, they argued for a liberalization of the current rules to allow more foreign investment in the Canadian telecommunications market, she said.
Little has happened since.
Morgan highlighted a 2008 Organisation for Economic Cooperation and Development (OECD) report that said 18 of the 30 OECD nations didn’t have any foreign ownership limits. Nine had restrictions but just six of those imposed them only on foreign state run monopolies. Canada, Mexico and South Korea, concluded the report, had the most closed markets with respect to foreign ownership.
Since the publishing of the OECD study, Mexico and South Korea have opened their telecommunications markets to more foreign investment, said Morgan. Foreign entities can now control wireless companies in Mexico and there is legislation before the Mexican congress to allow more foreign investment for wireline telecom companies. South Korea now allows 49% foreign investment in telecommunications companies and this level may increase as a result of trade negotiations with the United States.
“Of all OECD countries, Canada now has one of the most restrictive regimes for foreign investment in telecommunications,” Morgan said.
After her opening remarks, it didn’t take long for the Globalive Wireless (now Wind Mobile) issue to be raised and for the government officials to find themselves on the hot seat.
Bloc Québécois MP Serge Cardin brought Globalive into the debate when he asked if the department believes Orascom holds two-thirds of Globalive’s equity and whether the government’s order allowing the new entrant wireless carrier to launch goes against the spirit of the Telecommunications Act.
Anne-Marie Lévesque, senior general counsel of legal services at Industry Canada, defended the government’s decision. She explained that there are a number of issues at play including legal control and control in fact, and while the CRTC ruled that control in fact of Globalive may be in the hands of foreigners, the feds didn’t see it that way.
“The government felt, and this is reflected in the order, that the foreign company Orascom did not have the ability to control the daily business of this company,” Lévesque said in response to Cardin’s question. “Perhaps it had a degree of influence because of its financial investment, but it did not have a control in fact as required by case law.”
Later, responding to a question from Liberal MP Dan McTeague, Lévesque said there haven’t been any changes to the application of the control in fact test.
“The challenge in applying the control in fact test is… that one has to look at all the facts and determine whether those facts taken together amount to control, not legal control, but factual control and that’s not an exact science,” she said. “It’s a subjective assessment of the facts. So the law has not changed. The application of the law has not changed.”
Other issues raised during the hearing
• Liberal MP, and former astronaut Marc Garneau, asked what, if any, impact on culture and identity would result from opening Canada’s telecommunications to greater foreign investment. “While I’m not an expert in European identity, the French, the Germans, the English have all lifted for the most part these restrictions without negative impact from a cultural or identity perspective,” Morgan explained.
• Mike Lake, a Conservative MP from Edmonton-Mills Woods-Beaumont, sought to bring the debate to the consumer, asking what the impact of allowing more foreign investment would do. Morgan said there two benefits would accrue to Canadian consumers. Foreign investors bring assets, technology, people and know-how to help increase productivity. Secondly, foreign investment results in more competition. “Foreign direct investment makes domestic firms compete harder. They make them innovate more, they put pressure on them to reduce inefficiency, to reduce their prices to consumers and to increase their offers,” she said.
• OECD countries that have liberalized their foreign investment regimes for telecom have seen their consumers benefit from better services and lower prices, Morgan noted. The evidence speaks for itself when comparing the Canadian wireless experience to that of the US, she added. “The penetration of wireless service in Canada is much less for example than it is in the United States [where] 85% of US households would have some kind of a wireless cell phone or other wireless device versus around 60%, 65% of Canadian households,” she said. “So there is evidence internationally that there is room in Canada both on the pricing and the availability of services for improvement.”
The hearings continue this week with witnesses scheduled to appear on March 30, April 1 and April 13. After this, the committee will turn its attention to the Investment Canada Act with hearings on April 15, 20 and 22.
