Increasing foreign control of Canada’s telecommunications: No evidence. No need. No support. Submission by the Communications, Energy and Paperworkers Union of Canada in response to Opening Canada’s Doors to Foreign Investment in Telecommunications: Options for Reform , Industry Canada’s Consultation Paper (June 2010) 30 July 2010 Contents Executive Summary 1 I Introduction 1 A What is CEP? 1 B The importance of telecommunications 1 C Natural oligopolies and public utility theory 1 II Canadian telecommunications today: reality check 3 A Foreign investment in Canadian telecommunications 4 B The success of Canadian telecommunications 7 1 INVESTMENT 8 2 COMPETITION 9 3 INNOVATION 16 C Canada’s spectrum must benefit all Canadians 19 1 NATIONAL SECURITY 20 2 CANADIANS ’ LEGAL RIGHTS 21 3 EMPLOYMENT 22 4 CONVERGENCE AND CONTENT 24 III Options 26 Option 1: Raise foreign voting shares from 20% to 49% 27 1 DISCUSSION 28 2 CEP’ S CONCLUSION 31 Option 2: Foreign ownership of common carriers with 10% or less of telecommunications revenues 31 1 DISCUSSION 32 2 CEP’ S CONCLUSION 38 Option 3: Remove all foreign ownership restrictions 38 1 DISCUSSION 39 2 CEP’ S CONCLUSION 42 The Fourth Option: Serve the public interest 42 IV Conclusion: serve the public interest 44 Endnotes 1 Appendices 1 CRTC response to access to information request for research on the impact of increasing foreign investment: “no records” 2 “A look at Canada’s top five wireless trends” Globe and Mail (23 July 2010) 3 Telecommunication company bankruptcies since 2000– a sampling 4 US communication companies’ notices of discontinuation of service 5 Vodafone’s 2010 summary of regulatory initiatives in Europe 6 European Commission Directive on the retention of data 7 CEP Recommendations for converged communications legislation Executive Summary – page 1 Executive Summary Introduction ES 1. The Communications, Energy and Paperworkers Union of Canada is this country’s largest media union, representing thousands of people who work across the country in Canadian telecommunications and broadcasting companies. CEP has participated in every major review of foreign ownership in the communications sector. ES 2. CEP agrees with the federal government that the $45 billion telecommunications sector is critical to Canada’s economy, and represents a key government priority. Federal industrial policy must address not only Canadians’ interest in innovative services at competitive prices, but also employment, national security, privacy and service to Canadians in rural areas. ES 3. New federal telecommunications policies must not repeat the mistakes of the past, however: foreign control of Canada’s telecommunications system that began in the 1850s and faded away by the 1970s restricted and limited domestic innovation in this sector by requiring Canada’s telephone companies to depend on US companies’ intellectual property. This century of foreign ownership of Canadian telecommunications companies was marked by anti- competitive behaviour, inadequate rural service, high prices and content censorship – and led six provinces to nationalize telephone service to serve their residents’ needs. Canadian telecommunications today ES 4. Today Canada’s telecommunications industry is marked by high profits, near universal availability of telephone service, and billions of dollars worth of investment. The federal government’s spectrum auctions have succeeded in attracting new entrants to the sector, and as the federal government intended, this new competition has already introduced price competition to the wireless telephone sector. ES 5. Although well-publicized research by the OECD has fostered the view that Canadian mobile telephone rates are substantially more expensive than in other countries, what is less well-known is the fact that the study’s serious methodological flaws led to flawed conclusions. ES 6. CEP undertook new research to correct the OECD’s study’s flaws, and found that based on Canadians’ actual wireless usage, only 4 of 28 OECD countries have mobile prices that are lower than Canada’s. 2 ES 7. Additional research by CEP also shows that wireless prices are not unrelated to the level of competition within national markets: New Zealand, for example, identified by the OECD study as being among the countries with the lowest-priced mobile service, has a virtual duopoly with two companies sharing 96% of the market. ES 8. Finally, a brief review of telephone systems across the European Union shows that national governments there regulate mobile telephone costs for their citizens, not just by capping rates but by requiring companies to reduce costs over time. ES 9. Insofar as innovation is concerned, CEP notes that even though ICT research and development expenditures still account for well over a third of all R&D spending in Canada, R&D spending by telecommunications companies has flatlined since 2002. We point out, however, that inviting foreign-controlled companies to undertaken R&D in Canada will not magically create new Canadian innovations – because intellectual property rights in these new ideas will be owned by non-Canadians, not Canadians. Canada will therefore be returned to the position of over a century ago, when almost all telephone patents in this country, were held by American companies. ES 10. Industrial policy in Canadian telecommunications must benefit all Canadians by addressing issues related to pricing, national security, privacy, employment and control over content. ES 11. Increased foreign control of our nation’s communications system threatens this country’s national security, Canadians’ privacy and employment – since mergers and acquisitions are largely financed indirectly through job losses. While industrial employment has increased by 31% since 1991, consolidating ownership permitted by the CRTC has reduced employment in telecommunications over the same period by 10%. ES 12. Because broadcast and print media are now also distributed by telecommunications companies under the CRTC’s lax, laissez-faire “traffic management” regime, increased foreign control of telecommunications will permit non-Canadians to control content, an especially grave concern in light of our democracy’s reliance on uncensored news and information. ES 13. CEP therefore rejects each of the three options presented by Industry Canada’s Consultation Paper . 3 Option 1: Adopt the CRTC’s recommendation to increase foreign ownership in both telecommunications and broadcasting to 49% of voting shares, while ignoring foreign debt ES 14. As the CRTC has confirmed in response to an access to information request that it has not undertaken or commissioned any research on the impact of increased foreign investment in Canadian telecommunications, CEP respectfully submits that the CRTC’s recommendation should not be given any weight. ES 15. CEP also opposes this option because no evidence has been presented to Canadians to show that increased foreign ownership will meet Canadian telecommunications companies’ pressing need and reliance on additional foreign investment capital, increase Canada’s level of innovation, increase choice or reduce prices in the long run. ES 16. Given the risks that increased foreign ownership and control will reduce national security, privacy, and employment, CEP opposes any increase to the current levels of foreign ownership in Canadian telecommunications. Option 2: Let small companies be acquired by foreign owners ES 17. As no evidence has been presented to show that replacing Canadian-owned telecommunications companies with 10% or less of telecommunications revenues will increase investment, improve service or reduce prices, CEP opposes this option. ES 18. Allowing foreign ownership to purchase any or all of Canada’s 40 or so small Canadian telecommunications companies will not increase but reduce the number of competitors in Canada, and – because their revenues fall below the 10% threshold – could include Quebecor, Shaw and Cogeco, as well as the individual Bell Aliant, Rogers Business Solutions and Telus Wireless business segments. ES 19. The 10% threshold option must also be rejected because it holds the door open to further mergers and acquisitions down the road. As Canada’s trade treaties permit foreign-owned companies to challenge government limits if these are applied inequitably to Canadian and non-Canadian companies, what will stop a foreign company that can buy a small Canadian telecommunications company, from acquiring others? ES 20. The 10% threshold option also merits rejection because the government has not clearly established why it believes competition is inadequate in Canadian telecommunications. Before introducing foreign ownership to fix problems unsupported by any evidence, the 4 government should instead review the performance of the CRTC in achieving Parliament’s objectives for telecommunications and broadcasting, and in particular the Commission’s decision to ignore the 2009 court case in which Rogers and Shaw were found to have struck a secret non-compete covenant with each other in the broadcast distribution sector. Option 3: Remove all foreign ownership restrictions in Canadian telecommunications ES 21. No evidence described the costs and benefits of this proposal, explained why the federal government wants to return Canadians to the late 1800s when American companies owned and controlled this country’s telecommunications system, or indicated how the government would protect Canadians from lost telecommunications service when foreign companies decide