In June 2008, the blue-ribbon Competition Policy Review Panel
appointed by the federal government issued its report, Compete
to Win, on how to raise Canada's standard of living
through greater competition and productivity. A number of the
report's recommendations to amend the federal Competition
Act and the Investment Canada Act were implemented as
part of the Budget Implementation Act, 2009. Now, it
appears the government is ready to turn its attention to a
recommendation to liberalize Canada's foreign ownership
restrictions in certain economic sectors.
In the Speech to the Throne delivered on March 3, the Governor
General revealed the government's intention to "open
Canada's doors further to venture capital and to foreign
investment in key sectors, including the satellite and
telecommunications industries, giving Canadian firms access to the
funds and expertise they need." Precisely how, and to what
degree, the government intends to liberalize these restrictions is
unknown, however "open[ing] Canada's doors further"
to foreign investment will require statutory amendments and changes
to applicable regulations.
At present, foreign ownership rules for telecom carriers may be
summarized as follows:
- at least 80% of the members of the board of directors of the
carrier are Canadian;
- non-Canadians may not beneficially own, directly or indirectly,
more than 20% of the carrier's voting shares;
- non-Canadians may not beneficially own directly or indirectly
more than 33 1/3% of the voting shares of the carrier's holding
company; and
- the carrier or the holding company may not otherwise be controlled by non-Canadians (i.e., "control in fact").
Since the focus of these requirements is voting shares, foreign
investors often seek to maximize ownership through non-voting
securities. So long as the 20% limit at the carrier level and 33
1/3% limit at the holding company level for Canadian ownership of
voting shares is respected, the question of compliance shifts to
whether the carrier's ownership structure satisfies the highly
fact-specific (and, as the recent case involving Globalive showed,
potentially controversial) "control in fact" test.
Keeping in mind that it remains to be seen precisely how, and to
what degree, the government will liberalize these restrictions, it
will be interesting to see if the government follows the
recommendation in the Compete to Win report to "adopt
a two-phased approach" to liberalization, and, moreover,
whether, as we would expect, it will restrict liberalization to the
telecom sector and not, as the report recommended, extend it to the
broadcasting sector. In this regard, the Compete to Win
report recommended i) amending the Telecommunications Act
"to allow foreign companies to establish a new
telecommunications business in Canada or to acquire an existing
telecommunications company with a market share of up to 10 percent
of the telecommunications market in Canada," followed by ii)
"a review of broadcasting and cultural policies including
foreign investment, telecommunications and broadcasting foreign
investment restrictions [and then liberalization] in a manner that
is competitively neutral for telecommunications and broadcasting
companies."
With the government having made clear its intention to liberalize
telecom sector foreign ownership restrictions, we now await details
about the government's specific plans for liberalization. Some
details could come as early as March 4, when the Minister of
Finance tables the government's 2010 budget. Using the budget
for this purpose could set the stage for implementation of the
liberalization as part of the ensuing budget implementation
legislation, as was done in 2009 for the previously noted
Competition Act and Investment Canada Act
amendments. Of course, it also could be left to Industry Minister
Tony Clement to reveal details about the government's plans,
and to introduce legislation implementing the government's
liberalization of the telecom sector foreign ownership
restrictions
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