Fortress Canada

Peter Nowak
National Post
Tuesday, May 01, 2007

Protectionist barriers are falling in the telecom sector. That's good. But don't expect real progress on price and services until foreign-ownership limits are lifted.

Can you remember the last time your cellphone bill went down rather than up? How about your cable bill? Internet? Home phone? Probably not. And there's a simple reason why unlike just about any other country, Canada is devoid of any sizeable foreign-owned telecommunication service providers. The result Canadian providers operate in a market where there is no threat of a new, hungry competitor coming in to steal their lunch with innovation and lower prices. Consequently, they have mastered the art of giving customers the same for more, but rarely more for less.

The foreigners — the likes of AT&T Inc. and Sprint Nextel Corp. from the U.S., Germany's T-Mobile and the U.K.'s Vodafone Group PLC — have been kept at bay by ownership restrictions that limit foreign firms to 20% direct ownership of voting shares in Canadian telecommunications providers and another 26% through a holding company. Not surprisingly, a 46% stake in a company that operates in what is relatively a small market has thus far proven less than appealing for the big multinationals.

Change is in the air, however. With Industry Minister Maxime Bernier, a market- forces purist, atop the portfolio, the Tory government has been moving systematically to undo this state of inertia. By all accounts, the Tories are just a majority government away from flinging our telecom doors open to the foreigners.

The move was actually initiated by the Liberal government two years ago when it set up the Telecommunications Policy Review. A year ago, that panel issued recommendations on how to bring Canada's policies up to date and in line with the rest of the world. Bernier has been implementing those suggestions, including giving more power to the Competition Bureau, reducing the role of the Canadian Radio-television and Telecommunications Commission, and proposing to reserve radio airwaves for new cellphone providers. Last month, the government also deregulated the local phone market, which will allow carriers to set prices as they see fit.

Next on that list lifting the ownership restrictions. It's going to be a bloody process, and the howls of protest have already started. When rumours of a friendly takeover of BCE Inc. by U.S.-based private equity firm KKR surfaced in late March, supposed nationalists wasted no time in ratcheting up the anti- foreigner rhetoric. Suddenly, Bell was a 'national icon' and decisions about Canadian telecommunications shouldn't be made in Manhattan boardrooms. Also, think of the jobs that will be lost, one union said.

The Liberals reportedly support changing the rules as well, but only if they're in power. Otherwise, opposing the change is too valuable a political tool. What better way to stir up anti-Tory nationalist sentiment than with the well-worn 'hollowing-out of corporate Canada' argument? To be fair, the Tories would likely adopt the same strategy if the roles were reversed.

The cultural protectionists will inevitably have their pound of flesh as well. Broadcasters have the same ownership restrictions, and any move to change the telecom rules is sure to be seen as the first step in an assault on Canadian- content policies. For some reason, they say, if a foreigner owns the pipes through which television and radio are delivered, they will automatically scrap Canadian programming in favour of foreign content.

Unfortunately, such fear of foreigners supersedes economic principles. In the end, it doesn't matter whether Canadians, Americans or even Zimbabweans own the pipes through which content is delivered. Supply and demand guarantee there will always be French programming for Quebec and we will always have our own home- grown crappy pop artists -- Canadian Idol, anyone?

The cost of fear, meanwhile, is ever-climbing prices. If it takes a Manhattan boardroom to fix that, then bring on the foreigners.

"The above newsclip is distributed to educate and inform. This does not imply accuracy nor endorsement of the views by AT&T."