Foreign telecom ownership to repave Canada’s industry

If you stood still while Industry Minister Christian Paradis was announcing changes to the rules surrounding foreign ownership of telecom companies in Canada, you might have felt the planet shift. That's because the loosening of investment restrictions in the space likely represents the most fundamental change in the industry in well over a generation.

The changes are relatively simple, but will profoundly affect the evolution of telecommunications services in Canada. Most significantly, foreign ownership rules have been removed for companies with less than 10 per cent market share. Spectrum has also been reserved for fourth players in each of the regional markets where the all-critical 700 MHz frequencies are scheduled to be auctioned off next year.

The rule changes signal a major solidification in federal government policy that's often leaned toward protectionism. Ottawa's refusal in 2010 to green-light the hostile bid by Australia's BHP Billiton to take over Potash Corp. and its 2008 blockage of the proposed sale of Canadarm maker MDA to Minnesota-based Alliant Techsystems were seen by some as signs that protecting Canada's strategic business assets trumped any desire to attract foreign investment.

The latest telecom policy shift now casts a long shadow over Saskatchewan's Viterra Inc. As the grainhandler courts potential buyers in the wake of changes to the Canadian Wheat Board to open up the market, the federal government could be signalling a laissez-faire approach to future deals, no matter the market.

Whether the announcement is good or bad news depends on who you are. As with any major telecom policy shift, there are winners and losers:

WINNERS

WIND Mobile, Mobilicity, new players to be named later
The new rules make it easier for smaller operators to build a larger footprint. WIND Mobile's Anthony Lacavera may be publicly singing the blues — in a press release he called the move "a total disaster", saying beyond driving higher prices and limiting services the move would also fuel further consolidation and keep new entrants out of the race for new spectrum. But in all likelihood, he's quietly celebrating the removal of foreign ownership restrictions that have long dogged his company. The government is also forcing major carriers to open up wholesale access to their cell phone towers and make it easier for smaller competitors to roam on their networks.

Consumer and business clients
Canadians have been asking for more value for their telecom dollar pretty much forever. By opening up the market to greater foreign investment and setting aside spectrum for additional players, the government sets the stage for increased competition and greater assurances that whatever new players enter the market, they will actually stick around long enough to make a difference.

Rural Canada
The minister chose Russell, Ont., a tiny town some 40 kilometres outside of Ottawa, to make the announcement. He didn't confirm why, but it's easy to see the deal is all about opening up the market to smaller players who previously might not have had the opportunity to gain a foothold before being swallowed up. Holding the press conference in a place journalists needed to look up on a map sends the message that small town Canada — long a loser in access to cost-effective, high-capacity and high-bandwidth wireline and wireless services compared to better-served urban centres — isn't going to be left out of the next era in telecom.

LOSERS:

Incumbent national carriers
Rogers, BCE and Telus have every right to sing the blues over these changes. With a 95 per cent share of an $18 billion market, they have nowhere to go but down. The silver lining for them lies in a fresh new incentive to take cues from carriers in other markets to bolster customer service, sharpen efficiencies and drive innovation more deeply through their respective cultures.

Consumer and business clients
How can we all be both winners and losers? Easy: If the newly-relaxed foreign ownership rules open the door to even greater globalization in Canadian telecom, we could ultimately become a branch office. By making it easier for American carriers like AT&T and Verizon to kick the tires on possible Canadian investment, the government sets the stage for future rule changes that could just as easily bump the market share cap beyond the initial 10 per cent limit.

None of this means immediate change, and consumers won't wake up tomorrow to half-price rate plans with no bandwidth caps. If anything, the government's new direction kicks off a glacially slow process of change that will gradually bring greater levels of competition to a market that some observers have said has long needed more of it.

Wednesday's announcement is hardly the last word in a debate that's been raging practically since the first phone call was made. But years from now when Canadians look out on a radically evolved telecommunications landscape, they'll look back to this day and realize the process firmly began in a small town few outsiders had previously heard of.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca