Who Gets to Own a Telecom Firm in Canada?

Corporate structures and loan agreements are rarely the stuff of public interest, yet last month they attracted considerable attention in a case involving Globalive, a new wireless company vying to shake up Canada's telecommunications industry. Operating as Wind Mobile, the company paid hundreds of millions of dollars in 2008 to scoop up spectrum to enable it to operate as a new national wireless carrier.

Bell Canada, Telus Corp., and Rogers Communications, the big three incumbent carriers, unsurprisingly opposed the new rival. First they lobbied against a set-aside of spectrum for new entrants. When that failed, they argued Globalive failed to comply with the Telecommunications Act's foreign control restrictions.

Last month, the Canadian Radio-television and Telecommunications Commission agreed. While Industry Canada previously concluded the company met the Canadian control requirements for the purposes of the Radiocommunications Act when it bid for spectrum, the CRTC concluded that its ownership and control structure do not meet the legal requirements to operate as a wireless carrier.

The commission identified a number of changes that will be needed to comply with the law, and Globalive says it is evaluating its options. The first option is presumably for the federal cabinet to overrule the CRTC.

Last week, Industry Minister Tony Clement gave Canada's telecom players until Wednesday to provide their views on the issue as he conducts a pre-cabinet review. A decision may be weeks away, but the process puts a much bigger question into play: Will the Globalive case become the catalyst for the elimination of telecom foreign control restrictions?

Time marches on

This is hardly the first time the foreign control issue has been raised in Canada. There have been earlier recommendations to scrap the requirements, most recently in the 2006 Telecom Policy Review Committee report, which concluded that Canada has "one of the most restrictive and inflexible set of rules limiting foreign investment in the telecommunications sector" among all OECD countries.

With hindsight, it should have been obvious that the foreign control issue would be the elephant in the room around the government's efforts to inject greater competition into the Canadian telecom sector. There is little doubt that officials -- not to mention Canadian consumers -- were anxious to encourage new entrants. While the set-aside in the spectrum auction guaranteed the new entrants, leaving the foreign control rules untouched meant the job was only half-done.

With the Globalive entry into the Canadian market at risk and hundreds of millions in spectrum in limbo, Canadians must ask hard questions about the merits of foreign control restrictions.

The days of retaining Canadian control over physical telecommunications infrastructure connected to millions of homes are over. Wireless networks involve significant investments in cellphone towers, but not direct connectedness into individual homes.

Further, the notion that Canadian control guarantees Canadian jobs is also part of a by-gone era. Canadian carriers regularly outsource some of their customer service jobs out of the country. Meanwhile, other parts of the organization -- retail and business sales as well as network building -- involve jobs that will remain in Canada regardless of a company's country-of-origin. While some head office jobs may be at risk, new companies operating in Canada could potentially create more jobs, not fewer.

Change the law

It is tempting to blame the CRTC or the incumbent telecom providers for the current mess, but the real culprit lies with outdated legislation that prioritizes Canadian ownership over a competitive Canadian marketplace.

The solution lies in changing the law to facilitate foreign ownership of common carriers -- both to facilitate immediate competition and to pave the way for more foreign bidders in the next round of spectrum auctions.