The federal government is opening the door to more foreign ownership of wireless companies, a move that would allow non-Canadians to own 100 per cent of firms with a market share of 10 per cent or less.
It says this exemption from foreign investment restrictions would continue even if these companies grow naturally to occupy more than 10 per cent of the market, but would not if these firms get bigger through mergers or takeovers.
Current federal law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent.
The Globe and Mail reported last November that a key cabinet committee was considering a proposal to allow 100 per cent foreign ownership of telecom firms with a share of 10 per cent or less of the Canadian market.
Industry Minister Christian Paradis announced the move Wednesday as he laid down the rules for two major auctions of wireless frequencies including the 700 MHz selloff, which he said will take place in the first half of 2013.
The government said changes to foreign investment rules would be passed before the first auction.
Small Canadian telecom players such as Wind Mobile and Mobilicity are struggling against well established incumbents such as BCE Inc. (BCE-T40.18-0.62-1.52%), Rogers Communications Inc. (RCI.B-T38.77-0.61-1.55%) and Telus Corp. (T-T57.19-0.82-1.41%) in a weak economic climate. Allowing these smaller players access to global capital markets could spur competition by providing them with deeper war chests in the capital-intensive sector.
The Conservatives are selling the decision as a boon for consumers, who they said will benefit from lower prices.
“The Harper government understands that Canadian families work hard for their money and that they want their government to make decisions that will help them keep more of it,” Mr. Paradis said. He staged his announcement at a family home in Russell, Ont., about 30 kilometres from downtown Ottawa.
Mr. Paradis announced the following points:
- The Telecommunications Act will be amended to lift foreign investment restrictions for telecom companies that hold less than a 10-percent share of the total Canadian telecommunications market. This will help telecom companies with a small market share access the capital they need to grow and compete.
- The government will be applying caps in the upcoming spectrum auctions to guarantee that both new wireless competitors and incumbent carriers have access to the spectrum up for auction.
- The government will apply specific measures in the 700 MHz auction to see that rural Canadians will have access to the same advanced services as everyone else in a timely manner.
- The government will improve and extend the existing policy on roaming and tower sharing to further support competition and will improve transparency and information sharing to facilitate agreements between companies to slow the proliferation of new cellphone towers.
A portion of the 700 MHz spectrum will be reserved for public safety users such as police and firefighters across Canada.
Early reaction from at least one new wireless competitor, Mobilicity, was positive. Incumbents had previously argued for foreign ownership restrictions to be removed for all players, not just small companies, and had argued vociferously against any sort of cap or set-aside.
“I think the government is committed to breaking up the oligopoly and creating some competition,” Stewart Lyons, Mobilicity’s president and chief operating officer said in an interview. “I mean, it’s a fact we had stuff like system access fees and low usage in this country. It’s a fact that we never had unlimited long-distance plans until now. These things are all objective facts. And how they’re all gone by the wayside now thanks to competition. The government obviously sees that. They see happy consumers, and greater proliferation of technology, and that’s their mandate – that’s their job.”
Ottawa also announced it would not set aside spectrum for smaller players, as the government did in 2008, for the 700 MHz frequency auction or for the 2,500 MHz auction expected to follow within a year. Small wireless companies had argued for set-asides, and Wind Mobile even vowed not to bid in the auction if the company didn’t receive such set asides.
But the government said it would introduce limits on purchases of spectrum that would function “like a set-aside” for smaller players and regional providers.
Unlike the last auction in 2008, regional providers with strong market share will be considered incumbents in their own region.
For the 700 MHz spectrum, the government said it would limit purchases of prime spectrum by incumbents.
This, it said, would effectively reserve one block of prime spectrum in each of 14 license areas of Canada for firms and for regional companies that aren’t national heavyweights.
Incumbents in each of the 14 license areas would be limited to buying what amounts to 5 MHz of prime spectrum for uploads to cell towers and 5 MHz for downloads.
This effectively reserves 25 per cent of prime spectrum for new entrants or regional providers.
For the 2,500 MHz spectrum, there will be a cap on purchases that will effectively allow new entrants and regional providers to gain access to one block of frequencies in each license area.
The government is also imposing new obligations on some of those companies that end up buying 700 MHz spectrum that should force them to offer high-speed service to more rural customers.