In summary, Chapter 1 of this report provided some historical background on foreign ownership restrictions on telecommunications common carriers in Canada. Chapter 2 explored some of the economic dimensions of foreign ownership restrictions. In particular, it examined how some features of Canada’s telecommunications market might be improved through the removal of foreign ownership restrictions. Chapter 3 examined some social and equity issues linked to both maintaining the status quo and the removal of foreign ownership restrictions for telecommunications common carriers. In Chapter 4, the potential implications of removing foreign ownership restrictions on Canada’s cultural sovereignty were discussed. The issue of foreign ownership restrictions for the Canadian telecommunications industry is complex, with stakeholders contributing much to the debate on both sides of the issue. This chapter aims to synthesize the viewpoints, and present the Committee’s position and recommendations on the issue.

A. Bringing All the Elements Together

The recent performance of the Canadian telecommunications industry is, on the whole, unsatisfactory. In particular, the Committee considers that the relatively low level of wireless phone penetration and the disappointing progression of broadband penetration in recent years are symptomatic that all is not well in Canada’s telecommunications industry (in terms of pricing, services offered, and the competitive environment in general). As explained in Chapter 2, foreign ownership restrictions disproportionally penalise new entrants and smaller players through their effect on the cost of capital; this in turn lowers the ability of new entrants and smaller players to pose a competitive threat to large incumbents. Moreover, foreign direct investment has, from a macro-economic perspective, benefits that could include increased productivity, increased competition and lower prices. Therefore, the economic case in favour of the removal of foreign ownership restrictions is clear.

Some witnesses argued that the removal of foreign ownership restrictions for telecommunications common carriers may result in:

• The loss of head office jobs;
• Residents in rural and remote areas being adversely impacted as a result of cut throat competition in urban areas; and
• An increase in competition that is temporary and that ultimately leads to foreign ownership of Canadian telecommunications companies and an increase in market concentration.

Economists typically argue that if these elements are real concerns, then it is possible to deal with them via other more efficient measures (e.g., through direct subsidy or regulations) than through the imposition of foreign ownership restrictions. Opponents argue that there is no guarantee that these issues would ever be tackled if foreign ownership restrictions for telecommunications common carriers are eliminated.

Furthermore, maintaining foreign ownership restrictions for BDUs but removing them for telecommunications common carriers also poses an equity issue from the integrated companies’ perspective since it could force them to spin off their telecommunications carriage subsidiaries so that they can compete on the same terms as “pure-play” firms that have unlimited access to foreign capital. This last element is important in the discussion since it directly ties in with the domino effect and the Canadian cultural sovereignty argument. Indeed, opponents of the removal of foreign ownership restrictions have indicated that in today’s era of technological and corporate convergence, removing foreign ownership restrictions in one part of the communications industry would negatively and irremediably affect Canadian broadcasting content (and therefore, Canada’s cultural sovereignty) through a domino effect. Pressure would first be applied to liberalise broadcasting distribution so that those industries would be treated on the same footing as telecommunications common carriers, and this would ultimately lead to an impact on broadcasting content. The term “elephant in the room” was used during the Committee’s hearings by Maureen Parker, Executive Director, Writers Guild of Canada, when talking about potential implications on broadcasting content. Before making recommendations, the Committee would like to expand on this element.

B. The Ever Thinning Line between Internet and Television

Technological convergence, far from stabilising, is gathering speed like never before. In recent years, technological convergence has resulted in a considerable linkage between Internet and television. It is almost a given now that this movement will continue until almost complete convergence between the two media is achieved. This will occur irrespective of what the outcome of the debate on foreign ownership in the telecommunications industry is. No doubt, this is a huge elephant in the room and corporations are switching into high gear to prepare for this ultimate convergence. This was expressed by the President and Chief Executive Officers of Rogers Communications in Rogers’ 2009 annual report[53]:

The transformation underway in our industry is about the blurring of lines between wireline and wireless; between the TV screen, the computer screen and the smartphone screen; between the excitement of real-time and the convenience of time-shifting. It’s about richer content, greater mobility, and faster speeds on our customer’s platform of choice. It’s about digital content available across multiple IP-based platforms.[...]

As our industry transforms, it will be defined by the marriage of broadband and wireless in an all IP world—setting the stage for new ways of interacting, engaging and consuming information, communications and entertainment—facilitating the intersection of content and distribution. The future will increasingly be driven by consumers looking to access media and communicate anywhere, anytime and anyplace.

Corporate preparedness for this marriage between television and Internet is not limited to radio communications signal carriers, or for that matter, to private entities. The Committee notes, for example, the launch of the tou.tv web site from Radio-Canada, in collaboration with nine other French-language broadcasters and eleven producers, which offers French-language programming on demand in high resolution free of charge (including French versions of popular American shows like “Desperate Housewives” and “Lost”).

It should be noted that CRTC determined in 1999 that transmissions of programs over the Internet (i.e. “new media broadcasting undertakings”) constituted “broadcasting” that falls within the scope of the Broadcasting Act[54]. The CRTC however granted exemption orders to new media broadcasting undertakings that exempt them from regulations under the Act. Therefore, new media broadcasting undertakings do not need to register with the CRTC, are not subject to Canadian ownership and control requirements or minimum levels of Canadian content. After consultations, this exemption was broadly renewed in 2009[55]. Of particular note, also in 2009, the CRTC referred to the Federal Court of Appeal the determination as to whether Internet service providers that are telecommunications common carriers[56] are, in whole or in part, “broadcasting undertakings” subject to the Broadcasting Act (review and hearing of the case by the Federal Court is currently on-going at the time of writing this report). Figure 5 shows the current road to broadcasting content in the context of the 2009 CRTC decisions and technological convergence between Internet and television.

Figure 5—The Road to Broadcasting Content in a Converged World: The Ever
Thinning Line between Internet and Television

The implications of this convergence between Internet and television are so large for Canada’s broadcasting sector that they could dwarf any domino effect resulting from the removal of foreign ownership restrictions in the telecommunications industry. In a world where Internet and television is fully converged, nothing could prevent foreign-owned and controlled corporations from aggressively distributing and promoting their broadcasting content via the Internet to a Canadian audience. This poses an enormous challenge to Canadian broadcasting content, and renders the question of how best to protect and promote Canadian cultural sovereignty even more acute. Economists would argue that any technology-driven innovation that is deemed desirable from an economic standpoint, but that negatively affect a societal worthy objective—in this case distribution and promotion of Canadian broadcasting content—should be directly subsidised in order to offset the negative externalities.

As a result, while the removal of foreign ownership restrictions for telecommunications common carriers and broadcasting distributions undertakings may improve competition, services and prices, the following question also needs an urgent response: How can Canada’s cultural sovereignty, with respect to broadcasting content, be best protected and promoted in an era of potential complete convergence between television and Internet?

In light of the testimony heard by the Committee and the preceding discussion, the Committee is of the view that the Government of Canada should consider the following recommendations:

Recommendation 1

Clarify the interpretation of the “Control in Fact” test.

Recommendation 2

Remove foreign ownership restrictions in respect of satellite ownership or operation in Canada given that Canadian satellite companies (e.g., Telesat) already face competition from foreign entities in the domestic market.