The House of Commons industry committee begins a review tomorrow of rules restricting foreigners to minority stakes in Canadian phone companies, potentially further opening the regulated market.
The long-awaited review, initiated by Industry Minister Allan Rock two months ago, will deal with a host of difficult issues, beginning with the question of whether foreigners should be able to take a majority stake in the country's biggest phone companies, Bell Canada of Montreal and Telus Corp. of Vancouver.
The companies were protected monopolies through most of their existence. Their vast communications networks were built by the regulated rates Canadians customers paid for service.
"Keep it Canadian," said Jon Arnold of telecom consultancy Frost & Sullivan. Mr. Arnold holds dual Canadian and U.S. citizenship, but insists domestic networks are a "vital national interest."
"It's not something you hand over to other people," Mr. Arnold said. "Our infrastructure works very nicely."
But newer phone companies that emerged in the 1990s as the industry became mostly deregulated are starving for capital and insist ownership rules must be relaxed, if only for smaller companies such as themselves.
Further complicating the matter is the cable television industry, which increasingly competes directly with the telecom business. Cable firms operate under the same ownership restrictions, but are not included in this review.
"It's quite silly not to look at these two industries together," said Jeremy Depow of consultancy Yankee Group Canada.
The tangled issues, some observers believe, suggest the Liberal government will not act swiftly on the industry committee's report, expected by the end of April.
"I don't think anything will happen in 2003," said Ian Angus of consultancy Angus TeleManagement. "The committee will meet. The committee will issue a report. The government will study it."
Glen Campbell, an analyst at Merrill Lynch Canada Inc., said in a recent report that he believes changes won't occur until Prime Minister Jean Chrétien leaves office, expected in February, 2004. He also said there is a "high probability" Bell Canada and Telus could remain protected from foreign takeovers.
Should the committee and government choose that route, opening ownership just for the smaller phone companies would still give foreign companies a toehold to compete in Canada. Telus, which appears before the committee Feb. 5, has already declared that such a decision would be unfair. Bell Canada, represented by its owner BCE Inc., appears Feb. 11 and has kept mostly mum on the issues.
(BCE also has majority control of Bell Globemedia, owner of The Globe and Mail.)
James Rajotte, the industry committee's vice-chairman, said at the very least his group will not waffle.
"We're a committee that likes to make recommendations, state clearly where we stand," said Mr. Rajotte, a Canadian Alliance MP from Edmonton. "But I don't know what the recommendation will be. I personally lean towards opening the market, but I'm not sure how much."
The committee plans to hold at least 15 meetings over the coming five weeks, hearing from about 50 witnesses, according to the committee clerk.
Microcell Telecommunications Inc., a mobile phone company operating under court protection from its creditors, is anxious to see the process move along.
"Let's say the recommendation is for change; that would give lots of time for implementation of new rules before [Parliament's]summer recess," said Dean Proctor, Microcell's vice-president of regulatory affairs.
Before Microcell was forced into creditor protection by the looming threat of bankruptcy, German giant Deutsche Telekom AG owned 15 per cent of the Montreal-based company's equity. Issues examined The review of foreign ownership restrictions in the domestic telecommunications sector will ponder a number of questions, trying to balance several issues. These include national sovereignty (Canadian control over domestic telecom infrastructure) and economic advancement (improving the telecom infrastructure, such as bringing high-speed Internet to rural communities).
At present, foreigners are limited to 20 per cent of voting stock in a telecom operating company, or one-third of voting stock in a telecom holding company. The effective current maximum foreign ownership level is 46.7 per cent, which can be reached through the combination of a stake in a holding company and an operating company.
Based on an Industry Canada discussion paper, the House of Commons industry committee seeks to answer 13 questions, including the following:
Do current Canadian foreign investment restrictions significantly affect the amount of capital available in Canada to invest in the telecommunications industry?
Could altering Canada's foreign investment restrictions materially affect the ability of new competitive providers to establish and maintain financial stability, and to what extent can one link any relaxation of foreign investment restrictions with the creation of a more competitive Canadian telecommunications industry?
Should Canada adopt the approach of other countries by placing restrictions only on the existing traditional telecommunications service providers?
Should the U.S. approach of licensing be applied in Canada? Would all telecommunications carriers need to be licensed?
The government could review all applications for licence transfers and ensure the continued Canadian ownership and control of "major" companies in the context of merger and acquisition proposals. If this approach were taken, how should a "major" company be defined?