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The National Broadband Task Force requested a review of Canada’s foreign ownership rules in telecommunications and broadcasting distribution in 2001. At that time, the Task Force was concerned that the restrictions might be impeding industry participation in the competitive deployment of broadband infrastructure in Canada. Since then, a second call for such a review emerged from the consultative sessions held by Industry Canada with the public and the business community as part of Canada’s Innovation Strategy in 2002. This time, the concern was that the restrictions form a barrier to capital acquisition, and possibly to attracting highly skilled people, needed to fuel innovation in one of the leading sectors of the knowledge-based economy — an economy that Canadians have been building for some time and which the government is actively promoting.
Although these two calls for a review of Canada’s foreign ownership rules as they apply to telecommunications common carriers and broadcasting distribution undertakings1 are relatively recent, their underlying concerns began to surface several years ago when the sector was opened up to competition in the wake of advances in information and communications technologies. These new, innovative technologies are radically changing the sector’s industrial structure. Digital and data compression technologies, along with fibre-optic cable, which carries information on a pulse of light, wireless systems, which make use of the electromagnetic spectrum, and the Internet, which is an intricate network of computer networks, are now making it possible to transmit voice and data communications and audio and video entertainment services over telephone, microwave, satellite and cable television company facilities. Traditionally, because of technological constraints, audio and video communications were the distinct preserve of telephone and radio or television facilities and networks. Recent innovations, however, have blurred the conventional boundaries between telecommunications, broadcasting distribution and computing activities, and are paving the way for the convergence of information carriage services over what has been dubbed the “Information Highway.”
Telephone, broadcasting distribution undertakings and independent Internet service providers, who are chasing the same customers in the provision of Internet and broadband services, are eager to build this digital highway. This commercial enthusiasm, however, brings with it both advantages and drawbacks. On the negative side, simultaneous and competitive development of services is leading to duplicative infrastructure. On the positive side, the move to a more competitive market structure promises more new value-added services, greater managerial efficiency, and a more efficient deployment of telecommunications infrastructure — all of which are likely to outweigh the added costs of duplication. In any event, competition is undermining the long-standing “natural monopoly” structure of the telephone and cable television networks and the need for heavy-handed regulation.2
In the transition from monopoly to competition, Canada’s regulator — the Canadian Radio-television and Telecommunications Commission (CRTC) — has adopted a regulatory forbearance model. This model is based on a different concept than that of complete deregulation, as it involves discretionary decision making by the regulator on the means, terms, and timing of implementation. In practice, regulatory forbearance involves only a limited withdrawal of industry supervision and/or a substitution of less burdensome forms of regulation (sometimes called light-handed regulation). In Canada’s case, the historical, regulated cross-subsidy pricing formulas among various telecommunications services and a commitment to universal service remain intact. Hence, a review of the foreign ownership rules in telecommunications must take into consideration their impacts on these public policies, on the authority of the CRTC, and on the forbearance structure already in place.
The Speech from the Throne in 2002 emphasized that the knowledge economy demands more creative approaches to regulation, and the concept of “Smart Regulation” was born. At the request of the Minister of Industry, this committee has been given a mandate to review all foreign ownership restrictions imposed on telecommunications common carriers. Similar restrictions are imposed on broadcasting distribution undertakings — different from that of telecommunications carriers today only in that the Chief Executive Officer of a broadcasting carrier must be a Canadian —and are undergoing simultaneous review as part of a general study of the broadcast sector by our sister committee, the House of Commons Standing Committee on Canadian Heritage.
The mandate of this committee’s review was to examine the impact on the telecommunications industry of foreign direct investment restrictions applicable to telecommunications common carriers, and whether changes could be made to these restrictions without compromising national interests. To accomplish this task, the Committee has structured this report into four chapters. In Chapter 1, the Committee reviews Canada’s foreign ownership restrictions in the context of the foreign ownership regimes of other Organisation for Economic Co-operation and Development (OECD) member countries. The Committee also examines Canada’s relative position in terms of its commitments to liberalize telecommunications services among signatory countries of the Agreement on Basic Telecommunications. In Chapter 2, the Committee investigates allegations of adverse impacts on investment, industry structure, and financial stability of the sector of Canada’s foreign ownership restrictions. The Committee also reviews the legislative framework and regulatory structure of the telecommunications sector to see if they encourage investment and innovation within the sector. In Chapter 3, the Committee considers various foreign ownership rules and other policy instruments in the context of five policy options. The Committee selects the option it believes best balances the objectives of ensuring Canada’s identity and sovereignty, and encouraging FDI as a means of maintaining a modern telecommunications infrastructure and services. In Chapter 4, the Committee explores whether changing the FDI restrictions applicable to telecommunications common carriers will increase access to emerging telecommunications technologies or improve services for consumers. The Committee also addresses the issue of technological convergence and examines whether broadcasting distribution undertakings should be subject to the same foreign ownership rules as telecommunications common carriers. Finally, the Conclusion summarizes the Committee’s recommendations to the government.
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This new economy trades on intellectual capital, not physical assets, but it must ride the rails of a world-leading communications infrastructure. [John McLennan, AT&T Canada, 14:15:45]
Our telecom infrastructure may be adequate for today but as the wired world evolves, one day further capital will be needed. Those investments will be important to our competitiveness as a nation, to our ability to create the lasting knowledge-based jobs on which so much of our future depends. [William Linton, Call-Net Enterprises Inc., 14:16:05]
[T]here are some troubling trends. The income gap with our largest trading partner, the United States, is growing. … Fierce global competition for the best knowledge workers is a hallmark of the knowledge economy. Canada’s share of North American foreign direct investment, or FDI, is declining. [Peter Harder, Industry Canada, 12:9:35]
[I]f you talk to the high-tech companies, the answer is “You ain’t seen anything yet” in investment in … the next generation wireless, the next generation satellite, the next generation digital TV, interactive TV, interactive wireless, radio … The industry is telling us “We need access to funds.” [Michael Binder, Industry Canada, 12:11:05]
I try very hard … not to use the word “deregulation,”... we have not sought in this country … to go abruptly from monopoly to total free competition. We have gone through a transition, where the incumbent [has] obligations to subsidize remote and rural service. … So the word … is “liberalization,” [Hudson Janisch, University of Toronto, 16:16:40]
We don’t lose any control over the system if we open up foreign ownership. The CRTC continues to have … the same regulatory powers. [Francis Fox, Rogers AT&T Wireless Inc., 13:16:55]
Neither culture nor content are part of this review. It should be stressed that the context [of the review is] one of policy mechanisms, not policy objectives. … The question for the review is how best to achieve these objectives. [Peter Harder, Industry Canada, 12:9:40]
This review is not about whether we should change these policy objectives … Rather, it is a review which seeks to understand if there are better policy mechanisms or instruments for achieving these objectives. [Peter Harder, Industry Canada, 12:9:50]
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