Government tables foreign ownership amendments to Telecom Act

April 30, 2012

With the introduction of the federal government’s latest budget bill, Canada is a step closer to lifting foreign ownership restrictions for some telecommunications providers.

In mid-March, the Minister of Industry announced planned changes to the current foreign ownership restrictions that are intended to provide greater access to capital and expertise for new entrants and smaller telecommunications carriers.  Last week’s budget bill, which amends over 50 statutes, contains amendments to the Telecommunications Act that are designed to put these changes to the Canadian ownership rules into effect.

Under the proposed amendments, which commence at section 595 of Bill C-38, the Jobs, Growth and Long-term Prosperity Act, Canadian ownership rules will no longer apply to a telecommunications common carrier if the carrier and all its affiliates have total annual telecommunications revenues that represent less than 10% of total Canadian telecommunications revenues, as determined by the CRTC.  

Based on the most recent Communications Monitoring Report, in which total Canadian telecommunications revenues for 2010 were reported at $41.7 billion, this means that telecommunications common carriers with annual revenues from telecommunications services of less than $4.2 billion will not be required to meet Canadian ownership requirements.

If a carrier that was eligible to operate without meeting Canadian ownership requirement exceeds the 10% threshold through internal growth, they will continue to be unaffected by Canadian ownership rules; however, those that exceed the threshold due to the acquisition of control of another carrier, or the acquisition of the assets of another carrier will become subject to ownership requirements.  In fact, the amendments contain a new requirement that telecommunications carriers with less than 10% of total Canadian telecommunications revenues must notify the CRTC when it acquires control of another carrier or acquires assets used by a carrier to provide telecommunications services.

The amendments would also introduce a number of new definitions to the Telecommunications Act.

One of the more notable new definitions fixes a current feature in the Act which provides that only corporations can be eligible to operate as Canadian carriers.  Over the years, this limitation has provided some challenges of interpretation with respect to other forms of business associations, such as partnerships, where the Commission has found that in order to be eligible to operate, each partner in a partnership must be a corporation that meets Canadian ownership and control requirements.

The proposed amendments to the Telecommunications Act would add a new definition of an “entity,” which would encompass not only corporations, but also to partnerships, trusts and joint ventures, each of which would now be eligible to operate in Canada, provided that they meet any applicable ownership requirements.  The requisite level of ownership and control for non-corporations would be determined based on the “voting interest” in a partnership, trust or joint venture, being the ownership interest in the assets of the business that entitles the owner to receive a share of the profits and to share in the assets upon dissolution.  At the operating company level, at least 80% of such voting interests would have to be beneficially owned by Canadians.

Other proposed amendments to the Act relate to telemarketing rules and the National Do Not Call List, giving the CRTC the explicit power to conduct investigations to determine whether there has been a contravention of any order made by the Commission with respect to its telemarketing rules, and clarifying the Commission’s power to set fees for the use of the National Do Not Call list and similar databases.

Since it is contained in the budget bill of a majority government, it is expected that these amendments will be passed in the coming weeks.

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