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INDUSTRY SPOTLIGHT By donalee Moulton service Out of the area Canada continues to reject foreign ownership in telecom industry The telecommunications industry in Canada is big business. And for wireless and wireline compa- nies, it is exclusively Canadian. Foreign- ownership restrictions, under s. 16 of the Telecommunications Act, require carriers to be definitively Canadian- owned and controlled. At least 80 per cent of shares must be in the hands of Canadians and at least 80 per cent of the members of the board of directors must be Canadian. Those restrictions can be traced back to two concerns, says Kirsten Embree, a partner with Fraser Milner Casgrain LLP in Ottawa and head of the firm's communications law practice group. "They seem to stem largely from a desire to have Canadians controlling Canadian infrastructure, and there were security issues as well. I don't think those con- siderations are relevant today," she says. "I'm not a supporter of those rules." Embree is not alone. At least three recent reviews of the telecommunications sec- tor in Canada have concluded it is time to axe foreign-ownership restrictions. In its "Review of Regulatory Reform in Canada in 2002," the Organisation for Economic Co-operation and Development determined, "the elimina- tion of foreign ownership restrictions in the telecommunication sector is a key requirement in Canada. "Canada is one of six OECD countries that have restric- tions on investment and ownership in public telecommunication operators," the report said. "These restrictions can impact negatively on the development of competition in Canada in that they effectively limit investment in the sector, increase the cost of capital, and can delay the diffusion of new technology." Of the telecommunications com- panies contacted for this article only Bell Aliant responded. They declined to comment. Indeed, much of the interest in doing away with foreign-ownership require- ments has to do with improving the sector and service to Canadians. "The principal benefit of increased foreign ownership in the telecommunications sector is, of course, greater access to for- eign capital. This is particularly impor- tant for entrants, who have historically had a higher cost of capital than incum- bents," says Michael Koch, a partner with Goodmans LLP in Toronto. "This is an issue that government should take a serious look at if it wants to ensure that our infrastructure in this country remains a leading one and can contrib- ute to Canada's productivity and interna- tional competitiveness." This may also mean happier share- holders. "The benefit to telecom share- holders is clear. More people available to buy their shares will increase their share prices," says Andrew Roman, a partner with Miller Thomson LLP in Toronto. "The benefit to the public either way is subtle and unclear," he says. "Unlike broadcasters, who produce Canadian shows, does it matter much who owns a bunch of Canadian wires or transmitters that provide telecom service?" Many people argue it does, for innova- tion's sake. "Companies are not innovat- ing," says Embree, adding the dominant players in the marketplace are comfort- able. "If they were truly competitive they would be racing to get more services and products out there." The comfort zone would be given a nudge if new companies with new ideas and new approaches entered the market. INHOUSE AUGUST 2009 • 27