INDU Committee Report

Conservative Party of Canada Opinion on the Recommendations for the
Foreign Ownership Report:

The Government of Canada has recognized the need for reforming Canada’s telecommunications foreign ownership restrictions.

In the March 3^rd, 2010 Speech from the Throne (SFT), the Government announced its intention to “… open Canada’s doors further to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need.”

This SFT commitment was further reinforced in Budget 2010, which stated that the “Government of Canada is committed to ensuring that Canadians can benefit from increased competition and investment in the telecommunications sector, which will lead to greater innovation and lower prices for consumers. Increasing foreign investment is an important way of strengthening market competition and attracting new capital and innovative ideas from abroad.”

In accordance with the Speech from the Throne commitment, the Government should implement policies that will attract more capital into the industry, encourage innovation in both technology and business models, and support competition that would benefit consumers through improved service and lower prices.

The Need for Reform:

The record of testimony before the Committee presents a clear case for reform:

• The Committee heard from a large number of witnesses who argued strongly for reform.
• No Canadian telecommunications or cable company opposed the reform of Canada’s telecommunications foreign ownership restrictions.
• Several telecommunications companies advocated for the reform of these restrictions, and others advocated for reform conditional on certain criteria being met.

Benefits of Reform:

Many witnesses before the Committee articulated the potential benefits of reform:

• Lower costs of capital;
• Reduced barriers to entry;
• Increased viability of telecommunications new entrants and start up businesses;
• Increased productivity and innovation;
• Increased consumer choice; and
• The encouragement of the continued development of a world class telecommunications industry.

Evidence before the Committee:

Evidence before the Committee highlighted the tendency of the current telecommunications foreign ownership restrictions to adversely affect new entrants and small players by raising their cost of capital and diminishing their ability to vigorously complete against large established players.

The Committee heard from Dimitri Ypsilanti of the Organization for Economic Co‑operation and Development (OECD), who stated that of the 30 OECD member countries, only three countries have foreign investment restrictions that apply to all public communications operators: Canada, Mexico and Korea. According to Mr. Ypsilanti, “of the three countries, Canada has the most severe restrictions”.

On the issue of the impact on employment at head offices, Dr. Walid Hejazi testified that there is no rigorous evidence to indicate a hollowing out of the Canadian economy. Furthermore, according to Dr. Hejazi, “head office activity is more robust at foreign, in comparison to domestic, head offices, as shown by research done at Statistics Canada.”

Testimony before the Committee also addressed potential cultural implications of changes to the telecommunications foreign ownership restrictions. For example, witnesses before the Committee expressed concerns that, as a result of technological and corporate convergence, changes to Canada’s telecommunications foreign ownership restrictions would eventually impact broadcasting content, and as a result, would affect Canada’s cultural sovereignty. The Honourable Tony Clement, Minister of Industry, stated emphatically during his appearance before the Committee on May 13^th, 2010 that the Government “… will not consider anything that might impair our ability to pursue our Canadian culture and content policy objectives”.

Action:

The Government of Canada recently launched a consultation paper on a digital economy strategy (DES) in order to promote a world class information and communication technologies (ICT) sector. According to the Honourable Minister Clement, foreign direct investment will be an important aspect of furthering the Digital Economy Strategy, particularly with respect to building the digital infrastructure of the 21^st century.

Recommendations:

In accordance with the 2010 Speech from the Throne commitment, the Government should implement policies that:

• Attract more foreign investment into the telecommunications industry
• Encourage innovation in both technology and business models
• Ensure that those sectors of the telecommunications industry that are most in need of capital would benefit
• Further competition in the telecommunications sector
• Provide consumer benefit through improved service and lower prices
• Enhance the competitiveness and productivity of the Canadian economy.

In addition, no action should be taken that would compromise the government’s ability to protect Canadian culture and encourage Canadian content.