Foreign ownership liberalization should benefit Canadians not speculators

In today's Financial Post I was stunned to read comments from unamed industry observers that more foreign ownership was required in Canada's wireless business, but only enough to ensure that certain carriers can avail themselves of liberalization, while other, incumbent Canadian carriers, would be restricted. That makes no sense . If you believe in liberalization and want the benefits, you don't restrict it so only a small group of investors benefit.

The specious reasoning behind such anonymous and self serving sophistry is, according to said unamed observers, that if the ownership rules were removed on a fair and equitable basis for all carriers, then US carriers like Verizon might only invest in incumbents and thus nothing would change in the market. That is absurd and ignore issues of scale. Sounds like just a different spin on protectionism to me. Like an idea that speculators looking for a quick flip of license might contrive rather than good public policy.

First let me make an important caveat on the issue of foreign ownership. TELUS does not oppose the removal of foreign ownership restrictions on Canadian carriers, including on our cable competitors, as long as the rules of the game are applied fairly and equally to all. Conversely we take deep exception to rule changes that would put Canadian companies at a disadvantage relative to global competitors. We can't imagine any other country in the world that would introduce legislation that discriminates against its own enterprises. Unlike so-called unamed sources, we have been explicit and public on our views as recent as this week in the Post.

The proposal for asymmetric treatment is transparently self-serving and economically irrational. If foreign investment is considered necessary to lower prices, increase investment or stimulate innovation then a partial adjustment won't get you the results you want. Arguably it is hard to see exactly how more foreign investment will create better platforms in wireless than Canada has now as a result of over $7 billions spent on wireless in the past two years. However, irrespective of that, asymmetric tinkering only distorts competition and investment.

In terms of investment we would note that of over 600 carriers world-wide, only 17 operate the latest 3G plus networks. Canada now has 3 of those 17 networks. Only 2 other countries (Finland,Hong Kong) have as many as 2 and our major trading partners like the US currently remain a generation behind when it comes to the most advanced infrastructure. And no country we are aware, other than Canada has three carriers offering the iconic iPhone.

Competition and billions of dollars of investment in new networks, new devices and lower prices has already resulted in a new model where every major market in Canada will be served by at least 4 or 5 deep pocketed players;at least 4 or 5. Do the math.

First we start with Rogers,Bell and TELUS nationally. That is 3. Add Wind the Orascom (80 million subscribers world-wide) backed new entrant that was granted a mulligan when it comes to foreign ownership ,so it already has its own playing field. That's 4 in major markets outside Quebec. No problem because media giant Quebecor is building for a mid-2010 launch in that province. So back to 4 again. In Alberta and BC cable giant Shaw is quietly preparing its own launch, expected again by 2011. So that's 5 in western markets when you add in Shaw and Wind. In Sakatchewan and Manitoba the local phone companies dominate the market and have more share today than Rogers,Bell,TELUS combined .So that's at least 4 depending on what Wind and Shaw do. In Southern Ontario it’s at least 6 when you add Public Mobile and Mobilicity to the mix. And in Atlantic Canada 4, once cable provider Bragg decides to build with the new spectrum it has acquired. That's is a lot of carriers for a country the size of Canada; in fact for virtually any country in the world. And it's clear from marketing activity the market has become increasingly dynamic.

In such an environment it is fair to ask what the problem is, since it is not the state of our networks or the number deep pocket providers ready to compete. Some argue it has to do with relative price and penetration as measured by the OECD. Now some may suggest that a data report that often places the US as higher-priced than Canada may have flaws. And that penetration may be lower because local phone service is flat-rated and subsidized in Canada making it the best deal in the OECD (if you can trust OECD data). Regardless of the validity of past data in 2010 the key issues are already being addressed in Canada by: adding to the number of competitors in Canada (done) and by building better and globally compatible networks (done).

Moreover if the issue is scale and removing barriers to creating a North American market then the object to deliver consumer benefits would seem to rest with creating larger players not smaller ones. We can support liberalized rules or not. As to whether the tradeoff for foreign investment would increase investment (given we already have superior networks) and innovation, given the loss of head offices or domestic jobs, is a tough question and one government must address carefully . As we assume it is doing.

However it is crystal clear is that creating an asymmetric environment, where new entrants can more easily flip their licenses is of no real benefit in terms of innovation, productivity or consumer choice. Whatever your point of view on foreign ownership, a model that restricts liberalization to a small group of speculators is not real competition by any measure .

So we will support full liberalization if that is deemed to be in the public interest and have said so, but we cannot support a regime that allows a few speculators to benefit so they can more easily flip their license.

Perhaps the last word should go to a note I saw today from Vince Valentini at TD Newcrest

And lastly on the potential rule changes themselves. Obviously nothing definitive has been proposed by the Government yet, but some suggest that a two-tiered approach is possible, with new entrants getting preferred treatment over incumbents. Really. Let me get this straight. The populist Conservative party is going to enlist the support of the Liberal party to vote in favour of a new Telecom Act that will deliberately harm Canadian telecom companies, which pay material taxes and employ hundreds of thousands of Canadians, in order to help global giants like AT&T and T-Mobile make money in this country. Voters could have a very tough time with this proposition, and we suspect that the courts would have something to say about it if one or more of the incumbents were to challenge the legality of a system that provides unfair treatment to one set of competitors versus another.