Canadian government to loosen foreign ownership restrictions in telecommunications sector

March 15, 2012

As part of its plan to auction rights for the 700 MHz spectrum band, the Canadian government announced yesterday that it plans to amend the Telecommunications Act to lift foreign investment restrictions for telecommunications companies holding less than a 10 per-cent share of the total Canadian telecommunications market.

The Honourable Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services:

  • The foreign investment restrictions in the Telecommunications Act will be amended in order to allow non-Canadian investors to control 100% of domestic wireless firms that have a market share of 10 per-cent or less;
  • The government will support an upcoming spectrum auction by applying caps so as to guarantee new wireless competitors as well as incumbents access to the spectrum up for auction;
  • Specific measures will be introduced in the 700 MHz auction to ensure that rural Canadians have equal access to telecommunications services;
  • Improvements and extensions for the existing policy on roaming and tower sharing to support competition and limit the proliferation of new cellphone towers;
  • Reserving a portion of the 700 MHz spectrum for public safety users including police and firefighter services across Canada.

In 2008, the government auctioned Advanced Wireless Services spectrum in order to set aside spectrum for new entrants, while the Canadian Radio and Telecommunications Commission (CRTC) established policies to support the entry of new competitors in the market for wireless services.  In the upcoming spectrum auction, which is set to take place in 2013, the government has said it will apply caps enabling four or more service providers in each region to obtain spectrum in both the 700 MHz and the 2500 MHz bands. 

Revising Foreign Ownership Restrictions

Under the existing legislative regime, non-Canadian wireless service providers are subject to ownership restrictions found in the Telecommunications Act, the Radiocommunication Act, and the Canadian Telecommunications Common Carrier Ownership and Control Regulations.  At present, the rules may be summarized as follows:

  • at least 80% of the members of the board of directors of the carrier must be 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" – a test set out by the CRTC in the Canadian Airlines decision and discussed in Telecom Decision CRTC 2010-226).

The government has said that the proposed amendments will be apply to the Telecommunications Act and will create a threshold exemption whereby no foreign ownership restrictions will apply to telecommunications providers with revenue representing less than 10% of the total Canadian telecommunications market.  In addition, the planned changes are designed to encourage long-term investment in Canada’s telecommunications industry by allowing foreign-controlled companies that are successful in growing their market shares beyond 10 percent - other than by merger or acquisition -  to continue to be exempt from the restrictions.

It should be noted, however, that in spite of the government’s commitment to reform ownership restrictions under the Telecommunications Act, restrictions will remain in place under the Broadcasting Act and direct foreign investment will continue to be subject to the controls found in the Investment Canada Act

For more background on the Canadian governments’ plans to liberalize the telecom sector and the implications for foreign ownership please see our backgrounder and our previous blog post on this topic.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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