It's time to ease rules limiting foreign ownership of telecoms

Source: National Post

I have no idea what doing business in Egypt requires, but it can't be any more of a hassle than Globalive Wireless Management's recent harrowing experience running camels through the regulators guarding the telecom pyramids in Ottawa.

Globalive Wireless has just pumped more than half a billion dollars into the Canadian economy. That includes paying Ottawa $442-million last year for the right to new wireless spectrum, cash now already spent by the federal government stimulating road work in Saskatchewan and writing giant cheques to constituents in Nova Scotia.

Globalive has also invested another hundred million or more preparing a new Canadian wireless network to compete with the likes of Shaw, Rogers, Telus and Bell.

Having taken Globalive's money, Canada is now telling the company the deal is off. Under a CRTC ruling last week, Globalive was deemed to be foreign controlled by Egyptian telecom magnate Naquib Sawiris. Mr. Sawiris's company, Orascom Telecom Holdings, is today left holding spectrum he just bought but now cannot use.

Making matters worse, the spectrum auction run by Industry Canada in 2008 is now seen as a distorted shambles in which prices were grossly exaggerated by Mr. Sawiris's authorized participation. Ottawa collected $4.25-billion in spectrum auction fees, triple what had been initially expected. And, as a final result, Canadian cell phone users, anxious for more competition, will not get any from Globalive.

Whether or not it's possible to sue Ottawa over this third-worldish policy switch and bureaucratic camel-trading, complete with secret meetings and rule-bending approval processes, it certainly looks like Globalive and its owner, Mr. Sawiris, have a case of some kind, politically and morally, if not legally. Ottawa led Globalive into bidding for spectrum and a major role in the Canadian wireless market, and then it pulled the carpet out from under the company.

For Industry Minister Tony Clement and the rest of the Harper Cabinet, where the Globalive situation originated, there are no easy escapes. Mr. Sawiris and Globalive are going to have to be made right in one way or another, and all options involve costs.

The best option, if it could be pulled off, would be to quickly move to lift the antiquated and competition-stifling telecom foreign ownership rules. A telecom policy review panel recommended removing foreign restrictions in 2006. A federal competition review panel made the same recommendation in 2008. What are we waiting for?

By announcing a plan to fast-track new foreign investment rules, as often recommended by panels and experts, and by aiming for as open a regime as possible within a short time frame, Ottawa might be able to buy time with Globalive. If Orascom could be certain it will be able to enter the Canadian market, Ottawa might be able to lift the bad faith it has left with Mr. Sawiris. The Canadian economy would get hundreds of millions in fresh investment and wireless would get more competition.

Another option would be to give Mr. Sawiris all his money back, although that would set a bad precedent and do nothing to enhance competition, the alleged objective of the spectrum auction exercise. A more radical idea making the rounds in telecom circles would be for Ottawa to bail Globalive out by taking over all or part of its debt, set at $508-million at the time of its hearings before the CRTC. If the federal government controlled Globalive's debt, that might make it possible for Globalive to pass muster as a "Canadian" company.

All this may seem like extreme policy reaction for the benefit of a wronged foreign investor who has run afoul of the ownership rules and the enforcement arm of the Canadian Radio-television and Telecommunications Commission. But the scale of the policy mess created with the Globalive decision requires a significant policy move.

When Ottawa took Globalive's spectrum money, Industry Canada had approved the company's auction bid and — following secret discussions — approved Globalive as an operator that met Canada's foreign investment restrictions. Under telecom law, a telecom carrier must be "not otherwise controlled by persons that are not Canadian." The CRTC looked at the Globalive's ownership structure, with all its loans and covenants and holding companies and board lineups, and concluded it did not pass the test.

Under the circumstances, with Mr. Sawiris putting up all of the cash and holding all of the control cards, the CRTC had no choice. It also seems obvious to anyone looking at the structure that Globalive is not "not otherwise controlled by persons that are not Canadian."

If it's obvious to everyone, how come it wasn't obvious to Industry Canada when it approved Globalive's spectrum bid and took its money? Was Industry Canada too embarrassed to turn down Globalive after it had allowed spectrum auction prices to be driven by Globalive's aggressive drive for prime spectrum?

Whatever short-term fix Ottawa applies to Globalive, it's time for a long-term fix. Foreign ownership rules in telecommunications are anachronisms. To quote from the blue chip 2008 Competition Review Panel, "it appears incongruous to retain existing foreign investment restrictions that prevent Canadians from capturing the full benefits" of competition, innovation and investment that would flow from removing restrictions.

The panel suggested phasing new rules in over five years, to give Canadian incumbents time to prepare for new competition. But they've had plenty of time. By opening the door to Globalive now, Ottawa could address two issues simultaneously. It would increase competition and get itself out from under the Globalive mess it created.

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