Report: Foreign Ownership Restrictions are “Archaic”

by Jordan Richardson on February 26, 2010

A report from a Montreal-based telecommunications analyst is making waves in the industry with the suggestion that Canada’s telecom industry is struggling due in large part to a “stranglehold” on the market by the Big Three.

According to Brownlee Thomas, principal analyst at Forrester Research Inc., the foreign ownership laws are at least partly to blame for the hold that Bell, Rogers and Telus has on Canadian consumers. Thomas says that without any sort of supportive movement to change the current Telecommunications Act, the dominance we’re experiencing under Bell, Rogers and Telus will continue.

One of the report’s more basic and palpable conclusions is that Canadian consumers have less choice as a result of the comparatively low competition among providers in Canada. I touched on this in an earlier article and suggested the prospect of complicity on behalf of this triad of providers.

The difficulty with the Telecommunications Act is a passage that says foreigners cannot own a majority of voting shares in a Canadian carrier. Furthermore, the law states that non-Canadians cannot “otherwise control” a Canadian carrier.

So when an upstart company like Globalive wants to get into business to take on the Big Three, they have to raise national capital in support and that can be a bit of a pickle. Canada’s venture capital system is less than idyllic and the idea of foreign investors can be very attractive for new companies.

Without the capital of foreign investors, however, most wannabe Canadian telecommunications carriers are, quite frankly, screwed.

With foreigners restricted by the “archaic” Telecommunications Act from purchasing shares, this leaves the upstarts in the hands of Canadian banks. Those banks are only more than happy to necessitate with providing capital, but the costs of getting that capital are another story altogether.

The Thomas report, called “Foreign ownership rules threaten vibrant Canadian Wireless Competition and Innovation,” connects these laws and clauses in the Telecommunications Act with the trouble companies like Globalive and the upcoming Public Mobile have to go through in order to get to any sort of viable level in Canada.

Taking on the Big Three is a damn near impossible task with these rules, summarizes the report, and it’s hard to disagree with the concept. With the odds stacked against them, what rational person could expect any upstart company to break the vice-like grip of Bell, Rogers and Telus on the weary Canadian consumer?

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