Canadian Enough? Telecommunications Policy Objectives

It seems that my prediction that Globalive would get the nod from the federal government was correct. That doesn't make me feel omniscient since the outcome was just too predictable. The halfhearted negative response from two of the incumbents (Telus and Bell) tells me they expected this result as well.

For those paying attention, this was only one of two important telecommunications policy decisions on Friday by the government, both of which went contrary to earlier CRTC decisions. While in seemingly different industry segments -- wireless and DSL -- I believe these decisions were closely related. I'll get into this later in this article.

First, we should dispense with the Globalive decision, in particular regarding whether this company meets the rules for Canadian ownership and control. I believe the CRTC got it right when they ruled against Globalive. I also believe Clement got it right when he overruled the CRTC.

Clement stressed that Friday's announcement was not giving Globalive special treatment.

"Let me state for the record, government is not removing, reducing, bending or creating an exception to Canadian ownership and control requirements in the telecommunications and broadcast industries," he said.

I am not being inconsistent by agreeing with both the CRTC and the Minister. The CRTC made a correct ruling (so far as I can tell) on the specifics of the law, despite pejorative comments that can be found on media comment threads and in various blogs.

"The CRTCs seemingly arbitrary decision to impose restrictions on Globalive..."

The only uncertainty I have is in regards to the fine details of the Globalive-Wind-Orascom corporate structure, with which I am unfamiliar in its details. If you have ever had to deal with the legal specifics of shareholders agreements, voting rights, share classes and corporate decision procedures, you will know that much is hidden deep in these matters and can be difficult to unravel even by experts in corporate law. I cannot say how much of these specifics are understood by the Commissioners and the Minister, though I would think they understand it enough for their purposes.

Nevertheless, as a matter of national policy I think Clement got it right. As of right now it is reasonable to state that Globalive is Canadian owned and controlled. This may not be true tomorrow: it will depend on the gotchas in the corporate documents and debt instruments should Globalive fail to meet its future obligations to Orascom. That was why the CRTC correctly noted that Globalive's Canadian ownership and control situation is unstable. Clement disregarded the uncertain future in favour of increasing competition today, something which is sorely needed in the present market.

Here is where we can begin to tie this decision with the one on DSL. On Friday, Clement voided the CRTC decision from earlier this year that the incumbents will need to extend GAS (Gateway Access Service) to technologies that support higher data rates. My view is that both decisions by Clement were united by one policy objective, and one that I've discussed in earlier articles: to promote facilities-based competition, not competition by forcing sharing of incumbents' networks. Globalive is building telecommunications infrastructure, and the government wants exactly this. GAS encourages the opposite by extending ISPs' abilities to stay in business with minimal network investment while discouraging incumbents from investing in infrastructure since the return on their investment will be reduced.

"With access to advanced broadband services denied, MTS and small ISPs are now under pressure to invest more in their own infrastructure."

As a broadband consumer who uses an ISP that takes advantage of GAS, this decision is not to my personal advantage. Even so, I have to recognize that in the long run it is to the benefit of the country. There can be no guarantee of this: the decision reduces competitive options for consumers today, but it is merely neutral on creating investment incentives for ISPs other than those operated by the incumbents. That is, Clement's decision limits ISP dependence on the incumbents' networks but provides no other specific incentive to invest, except insofar as they may feel compelled to do so if they wish to remain viable well into the future.

I will now return to the Globalive decision's implications on Canadian ownership and control of telecommunications networks and services to better understand the future implications. Some believe we are on a slippery slope to seeing this and other critical infrastructure open to being acquired by foreigners.

"It has established an enormous precedent going forward as to how people are supposed to interpret our Canadian ownership laws," said Michael Hennessy, [Telus] senior vice-president of regulatory and government affairs.

I disagree with this sentiment. The present law only made sense when the industry was run by monopolies or at most two or three major corporations. For the purpose of national security and economic stability, in the past we did need to prevent foreign control of these companies. (Students of history will know that this was not always true since Bell Canada, BC Tel and others were foreign-controlled at times, and no catastrophes ensued because of this.) However, with competition it is less important that each individual company be Canadian owned and controlled: if Globalive defaults on their debt and Orascom takes it over, the overall wireless industry will still be majority owned and controlled by Canadians.

It is correct to ask what is to become of the ownership and control requirements contained within the Telecommunications Act. Perhaps the right solution is to require that some threshold percentage of each critical industry segment -- wired and wireless -- be Canadian owned and controlled in aggregate. This suggestion has its own difficulties but may be preferable to the present law, and it could provide a workable balance between promoting competition and protecting the national interest.

It will be interesting to see if this government opens up the law to amendment. I don't think it's a priority of theirs, so for the time being they may be content to deal with related issues ad hoc. I doubt that the government much cares for the sensibilities of the CRTC Commissioners and will think nothing of overruling them again in future.