As the struggling domestic telephone business limps along, the complicated issue of foreign ownership could vault into the spotlight this week as Industry Minister Allan Rock pushes for a review of current rules restricting non-Canadians to minority stakes.
Small, upstart phone companies competing against onetime monopolies such as Bell Canada are desperate for new sources of capital. According to some observers, their survival rests on the government seriously loosening ownership restrictions.
"Competition is clearly at risk," said Chris Peirce, who is in charge of regulatory affairs at Toronto-based AT&T Canada Inc. His counterpart at Montreal-based Microcell Telecommunications Inc., Dean Proctor, was more blunt in a recent paper presented at a conference in India: "Many erstwhile competitors in closed markets risk becoming the subject of university case studies . . . the analysis of Hobbesian lives that were nasty, brutish and short."
Mr. Rock acknowledged this last week, saying phone companies face "important questions of access to capital." He suggested that a review will be announced before month's end. It could happen as early as today or tomorrow at a conference Mr. Rock is hosting in Toronto on innovation and the economy.
The basic thesis behind loosening the ownership law is that the more capital available to domestic phone companies, the more money those companies can invest in new technology and services, in theory benefiting consumers. Foreign capital could also keep small competitors in business and growing, bolstering competition in an industry that was once, and to an extent still is, controlled by monopolies.
However, the idea of reviewing telecom ownership without looking at cable rankles many, especially those in the cable business. Foreigners can't own more than a fifth of voting stock in operating companies in either sector.
"It doesn't make sense to exclude cable," said Ken Engelhart, vice-president of regulatory affairs at Toronto-based Rogers Communications Inc. The lines between telecom and cable have blurred in recent years and they compete head to head in Internet services, a battle that will only widen as technology improves so that cable can deliver telephone services. Some phone companies already sell television services.
Changing the rules for one and not the other is widely viewed as unfair. Michael Sabia, the head of Bell Canada parent BCE Inc. of Montreal, has said the two should be reviewed together.
Still, Mr. Rock has jurisdiction only over telecom. Cable falls under the purview of Sheila Copps, Heritage Minister. For cultural protection reasons, she is less enthusiastic about allowing foreigners to take majority control of domestic cable companies.
"I don't see Ms. Copps's point that cable is somehow different than the telephone companies," said Iain Grant, managing director of consultancy SeaBoard Group. "Cable is just another delivery method. Electrons have no passports."
Some observers have considered the issue more broadly. They worry about the longer-term future, the so-called "hollowing out" of Corporate Canada. Should the ownership law be loosened, one observer said, it's only a matter of time before Americans or other foreigners take over business pillars such as BCE and Bell Canada.
Top-level executive jobs and domestic corporate headquarters would likely disappear if foreign titans went on a Canadian spending spree. Losing such power centres can hurt cities such as Toronto and Montreal and the national economy in general.
New York-based Verizon Communications Inc. owns about one-fifth of Telus Corp. While Verizon is at present heavily indebted, it could easily swallow the Vancouver-based company.
"Free market forces should reign," said Darren Entwistle, Telus president and chief executive officer. Like BCE's Mr. Sabia, Mr. Entwistle said telecom and cable should be reviewed together. In sum, Mr. Entwistle said, "we're supportive of the removal of foreign ownership restrictions in a considered fashion."
Telecom ownership restrictions were only formally introduced in the early 1990s, in part to prevent American takeovers in the wake of the North American free-trade agreement. And though voting control is technically limited to 20 per cent, foreigners can now actually gain up to a 46.7-per-cent stake through a combination of investments in operating and holding companies.
To many, though the telecom ownership issue is clouded today, change is inevitable. Most countries in the developed world do not restrict ownership of phone companies. It is likely the World Trade Organization will eventually force Canada to open up if the federal government doesn't do it.
One option right now could be the loosening of restrictions for small phone companies and leaving Canadians in control of Bell Canada and Telus, somewhat similar to legislation governing ownership of financial services companies.
"To see something opened up and liberalized is good," said Michael Sone, a Toronto-based consultant. "How important is it at the moment? I don't think it's terribly pressing, given the state of the industry."