HOUSE OF COMMONS CANADA OPENING CANADIAN COMMUNICATIONS TO THE WORLD Report of the Standing Committee on Industry, Science and Technology Walt Lastewka, M.P. Chair April 2003 The Speaker of the House hereby grants permission to reproduce this document, in whole or in part for use in schools and for other purposes such as private study, research, criticism, review or newspaper summary. Any commercial or other use or reproduction of this publication requires the express prior written authorization of the Speaker of the House of Commons. If this document contains excerpts or the full text of briefs presented to the Committee, permission to reproduce these briefs, in whole or in part, must be obtained from their authors. Also available on the Parliamentary Internet Parlementaire: http://www.parl.gc.ca Available from Communication Canada — Publishing, Ottawa, Canada K1A 0S9 OPENING CANADIAN COMMUNICATIONS TO THE WORLD Report of the Standing Committee on Industry, Science and Technology Walt Lastewka, M.P. Chair April 2003 STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY CHAIR Walt Lastewka, M.P. St. Catharines, Ontario VICE-CHAIRS Dan McTeague, M.P. Pickering―Ajax―Uxbridge, Ontario James Rajotte, M.P. Edmonton Southwest, Alberta MEMBERS André Bachand, M.P. Richmond—Arthabaska, Québec Larry Bagnell, M.P. Yukon, Yukon Paul Crête, M.P. Kamouraska—Rivière-du-Loup— Témiscouata—Les Basques, Québec Brian Fitzpatrick, M.P. Prince Albert, Saskatchewan Cheryl Gallant, M.P. Renfrew—Nipissing—Pembroke, Ontario Jocelyne Girard-Bujold, M.P. Jonquière, Québec Serge Marcil, M.P. Beauharnois―Salaberry, Québec Brian Masse, M.P. Windsor West, Ontario The Hon. Gilbert Normand, M.P. Bellechasse—Etchemins— Montmagny—L’Islet, Québec Andy Savoy, M.P. Tobique―Mactaquac, New Brunswick Brent St. Denis, M.P. Algoma—Manitoulin, Ontario Paddy Torsney, M.P. Burlington, Ontario Joseph Volpe, M.P. Eglinton—Lawrence, Ontario CLERK OF THE COMMITTEE Jean-François Pagé FROM THE RESEARCH BRANCH OF THE LIBRARY OF PARLIAMENT Lalita Acharya, Analyst Geoffrey Kieley, Analyst Daniel Shaw, Analyst iii THE STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY has the honour to present its THIRD REPORT Pursuant to Standing Order 108(2), the Standing Committee on Industry, Science and Technology proceeded to a study on the Foreign Investment Restrictions Applicable to Telecommunications Common Carriers. After hearing evidence, the Committee agreed to report to the House as follows: v TABLE OF CONTENTS CHAIR’S FOREWORD .................................................................................................ix TELECOMMUNICATIONS AND BROADCASTING LANDSCAPE IN CANADA ........xi LIST OF RECOMMENDATIONS ................................................................................ xiii INTRODUCTION........................................................................................................... 1 CHAPTER 1: FOREIGN OWNERSHIP RULES AND RATIONALE ............................. 5 The Foreign Ownership Policy Decision and the Telecommunications Act ............. 5 Canada and the World............................................................................................. 7 The ABT and WTO Negotiations ............................................................................. 9 CHAPTER 2: FOREIGN OWNERSHIP RESTRICTIONS AND INVESTMENT: IS THERE A CONNECTION? ............................................................................... 11 Foreign Ownership Restrictions and Foreign Direct Investment............................ 12 A The Statistical Evidence .............................................................................. 12 B. The Anecdotal Evidence.............................................................................. 14 Cost of Capital and Financial Stability ................................................................... 18 Investment, Industry Structure, Legislative Framework and the Regulatory Environment........................................................................................................... 22 CHAPTER 3: PUBLIC POLICY OBJECTIVES AND INSTRUMENTS: A BALANCED APPROACH .................................................................................. 27 Policy Objectives and Options ............................................................................... 27 Status Quo: Canadian Control............................................................................... 27 Canadian Majority Ownership: The 51%/49% Rule .............................................. 29 Incumbent Provider Restrictions: Tiering .............................................................. 30 Licensing with “Public Interest” Conditions: The Discretionary Approach.............. 32 No Foreign Ownership Restrictions: The Free Entry Approach ............................. 34 Objectives and Instruments: Striking a Balance .................................................... 36 CHAPTER 4: THE CHANGING TELECOMMUNICATIONS LANDSCAPE AND CONVERGENCE................................................................................................... 39 The Canadian Telecommunications Landscape.................................................... 40 New Entrants and Access to New Technologies and Services.............................. 41 Universal Access to Services................................................................................. 42 vii The Internet and Broadband Access ..................................................................... 43 Convergence and Broadcasting Distribution Undertakings.................................... 46 Canadian Content and the Role of the CRTC ....................................................... 51 CONCLUSION ............................................................................................................ 55 APPENDIX 1: GLOSSARY OF SELECTED TELECOMMUNICATIONS INDUSTRY TERMS ............................................................................................... 57 APPENDIX 2: MAJOR EVENTS IN CANADIAN TELECOMMUNICATIONS............. 65 APPENDIX 3: QUESTIONS ON THE IMPACT OF FOREIGN INVESTMENT RESTRICTIONS .................................................................................................... 67 APPENDIX 4: SUMMARY OF FOREIGN INVESTMENT RESTRICTIONS IN OTHER OECD COUNTRIES................................................................................. 69 APPENDIX 5: LIST OF WITNESSES ........................................................................ 73 REQUEST FOR GOVERNMENT RESPONSE........................................................... 77 DISSENTING OPINIONS BLOC QUÉBÉCOIS .............................................................................................. 79 NEW DEMOCRATIC PARTY ................................................................................ 83 MINUTES OF PROCEEDINGS................................................................................... 87 viii CHAIR’S FOREWORD Canada’s economic structure is changing rapidly as the country becomes part of the global knowledge-based, networked economy. Since this economy depends heavily on the efficient communication of information, a modern telecommunications infrastructure and a robust telecommunications sector are essential to Canada’s economic success. In recent years, advances in information and communications technologies (ICTs) and the diffusion of ICTs throughout the economy have increased the efficiency of industry and boosted productivity growth in many industrialized nations, including Canada. Much of the growth in ICT markets is attributable to the telecommunications sector, an industry in which Canada is a world-leader. Expansion and innovation in the telecommunications services sector do not come cheaply; large amounts of capital are required to finance new and enhanced infrastructure. Accessing sufficient levels of high-risk capital on Canada’s domestic markets has proven difficult. Attracting foreign capital is, therefore, vital for expansion of the telecommunications sector in Canada. Canada’s restrictions on foreign direct investment (FDI) applicable to telecommunications common carriers are intended to ensure that there is a balance between encouraging investment in the sector, and maintaining Canada’s sovereignty policy objectives. Concerns have been raised, however, that these restrictions are limiting the telecommunications sector’s access to capital and acting as a barrier to innovation and growth in the sector. In response to these concerns, and in the interests of maintaining a modern and competitive telecommunications sector, the Minister of Industry recently called for a review of the FDI restrictions applicable to telecommunications common carriers. The call for such a review also forms part of the federal government’s efforts, as presented in its Canada’s Innovation Strategy, to improve Canada’s regulatory environment in order to promote innovation. In response to the Minister’s request, the House of Commons Standing Committee on Industry, Science and Technology immediately undertook an intensive study of the issue of FDI restrictions applicable to telecommunications common carriers, and heard a wide range of views on this and related issues. The Committee believes that implementing the recommendations contained in this report will help to improve investment and innovation in the Canadian telecommunications sector, provide better services to consumers, and achieve the government’s telecommunications policy goals. I would like to thank the individuals