TELUS calls for equal treatment for all carriers under open environment for foreign investment

The following is a summary of our submission to Industry Canada on liberalizing Canada's restrictions on foreign investment in communications

TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization of foreign investment rules over the past 10 years, while still investing $25 billion in a national growth strategy
The consultation paper presents the following three options for consideration:
1. Increase the limit for direct foreign investment in broadcasting and telecommunications common carriers to 49 percent;
2. Lift restrictions on telecommunications common carriers with a 10 percent market share or less of total telecom revenues; or
3. Remove telecommunications restrictions completely.
All of the Government’s proposals fail its stated objectives.
• Option#1 makes no real difference in terms of attracting new investment, as it only moves the real FDI threshold from 46% direct/indirect to 49% direct.
• Options #2 and #3 would discriminate against companies and shareholders that have contributed the most to telecommunications investment and innovation in Canada in favor of foreign enterprises.
We worry that any asymmetric law may remain in force for decades with deep and unintended consequences in terms of an erosion of the value of domestic carriers in Canadian communications.
For instance, such asymmetry could provide opportunities for large foreign carriers that already benefit from scale economies to leverage even greater North American-wide scale in a fashion denied to Canadian companies that have invested tens of billions of dollars in domestic infrastructure and employ tens of thousands of Canadians.
Fairness and competitive neutrality must prevail over any attempt to legislate short-term advantages for a select class of carrier shareholders that may be looking for a change of control or highly leveraged financing to support a risky business case.
TELUS also considers that an asymmetric law if passed could be subject to challenge under our international obligations in the WTO in that such a law would effectively discriminate against most shareholders of Canadian companies.
TELUS has proposed a fourth option:
Remove the restrictions completely on all telecommunications carriers and broadcast distributors, while maintaining restrictions on the ownership of broadcast channels and specialty services and adopting safeguards with respect to vertical integration of broadcast carriers.

The point of opening up foreign investment is not simply to obtain a lower cost of capital. The Canadian financial market can already deliver a lower cost of capital today. The problem is that both Canadian and international debt markets have dried up and foreign investors are only interested in equity positions that allow for a change of control.
Change of control is the logical outcome of the liberalization of FDI. That is why these rules are referred to as foreign ownership rules. That is not a bad thing. Most of our trading partners have already adopted open regimes without any adverse affect.
However we are not aware of any of our key trading partners, that have adopted rules that provide increased opportunity to foreign investors while denying it to domestic enterprises.
TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization over the past 10 years, while still investing $25 billion in a national growth strategy
The point of liberalization of FDI is to maximize the benefits of more open markets, increased scale and innovation, and investment for all consumers and all Canadian enterprises, not simply the shareholders of a handful of new wireless entrants.
Option#3 is equally asymmetric in that it would exclude any carriers and distributors of video that are regulated pursuant to Broadcasting Act from the benefits of liberalization.
Given the realities of convergence, Option#3 would effectively exclude virtually all Canadian telecommunications carriers from benefitting from reform since all carry voice, video and data services on integrated networks.
Further, all telecommunications carriers, even stand-alone wireless carriers and ISPs, now carry a mix of video, voice and data traffic on their networks, some of which may be considered broadcasting and therefore subject to the Broadcasting Act
If government cannot reform its rules in a fashion that does not discriminate against most existing Canadian carriers and distributors, it should postpone any change until it can enact real reform, in order to protect against changing the law in a fashion that favors a select few.
However, we believe that regulation and enforcement of broadcast carriage rules in a way that removes opportunities for self-dealing by integrated carriers regardless of nationality and requires clear divestiture of content properties prior to any change resulting in control by foreign owned entities should provide sufficient comfort for government to fully liberalize the carriage/distribution market without delay.
To enable this we propose that government endorse a clearer separation of carriage and content by granting the CRTC explicit powers to maintain protections for programming-related decisions, such as Canadian content rules or the implementation of rules relating to the structural separation of carriage and content businesses to prevent abuse of vertical integration.
It would seem easy therefore to make clear in the rules governing liberalization, that any sale of a telecommunications or cable company to a foreign entity can only be permitted where any common content assets (radio, TV and specialty channels) are first fully divested from the carriage and distribution assets. Under such a model it would be clear that broadcasting properties like radio, TV and specialty channels are not for sale to foreign entities, and if an integrated carrier wanted to avail itself of the benefits of foreign ownership, it must divest such assets prior to any sale taking effect.
If culture and diversity are to be respected then there must be clear safeguards in place to prevent self-dealing and undue preference/disadvantage arising from vertical integration even if there are not changes in foreign control. Vertical integration, and not foreign ownership, is of greater concern today in terms of access, choice and diversity.
Since self-dealing is more likely to occur where companies actually are vertically integrated than in circumstances where content is broadly controlled, perhaps the time for concern about access is now, as effective control over key broadcast content continues to be consolidated and integrated into Canada’s three largest cable companies.