Canada to Lift Certain Restrictions on Foreign Ownership in the Telecommunications Sector
Mar 26, 2012
On March 14, 2012, the Honourable Christian Paradis, federal Minister of Industry, announced proposed amendments to the Telecommunications Act to lift certain restrictions on foreign ownership in the telecommunications sector. These amendments were included in a package of measures which also addressed elements of the Policy and Technical Framework for the upcoming spectrum auctions for the 700 MHz and 2500 MHz bands.
Currently, under the Telecommunications Act, non-Canadian entities may not own, directly or indirectly, more than 46.7% of the voting shares of a Canadian carrier (33.3% at the holding company level and 20% at the operating company level), and may not otherwise have “control in fact” of such a carrier. The Minister’s announcement provides that the Telecommunications Act will be amended to exempt telecommunication carriers that hold less than a 10 percent share of the “total telecommunications Canadian market revenue” from these foreign ownership restrictions. The Government’s stated objective for implementing this change is to improve access to capital for smaller carriers. Going forward, such carriers will continue to be exempt from foreign ownership restrictions if their market share increases above the 10 percent market share threshold, other than by way of a merger or acquisition. Restrictions on foreign ownership under the Broadcasting Act would remain in place for such carriers for their broadcasting distribution activities. The provisions of the Investment Canada Act and the Competition Act would also continue to apply where review and notification thresholds are met. A draft of the proposed amendments has not yet been released.
These proposed amendments have been anticipated for some time. In 2006, the Telecommunications Policy Review Panel and in 2008, the Competition Policy Review Panel which were both expert panels appointed by the federal government, issued recommendations in favour of such amendments. Furthermore, in the 2010 Throne Speech delivered by the Governor General, the federal government announced its intention to “open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries.”
Concurrently with the announcement on foreign ownership restrictions, the federal government also announced it will apply caps in the upcoming 700 MHz and 2500 MHz spectrum auctions to guarantee that both new and incumbent carriers have access to the spectrum up for auction. Spectrum auction caps limit the amount of spectrum that a company can acquire in a given auction. In the case of the 700 MHz spectrum, which will allow carriers to deploy 4G LTE (i.e., next generation) networks and services, a limit on prime spectrum will be imposed on incumbents, which will effectively reserve prime spectrum for new entrants and regional providers.
Finally, the federal government also announced it will: (i) apply specific measures in the auction to see that rural parts of Canada have access to advanced services in a timely manner; (ii) improve and extend the existing policy on roaming and tower sharing to improve information sharing and to facilitate agreements between companies to slow the proliferation of new cellphone towers; and (iii) reserve a portion of the 700 MHz spectrum for public safety users such as police and firefighters across Canada.
If you have any questions on the implications of the subject matter of this Osler Update, or you wish to discuss further, please contact Michelle Lally or Pierre Fournier-Simard.