Canada’s parliament is holding hearings this month to review whether to ease its foreign ownership restrictions in the telecommunications sector. Canadian law requires telecom companies — wireline, wireless and satellite — to be “Canadian-owned and controlled.” This translates into the following restrictions: at least 80 percent of the board members of a telecom company must be Canadian; at least 80 percent of voting shares must be owned by Canadians; and the company can’t be “otherwise controlled” by a non-Canadian.

Canadian Industry Minister Alan Rock is concerned that such high foreign investment barriers could be limiting investment in the country’s telecom infrastructure. He has asked the House of Commons Standing Committee on Industry, Science and Technology to study the issue and develop recommendations about easing these restrictions.

Testifying before the committee last week, BCE [NYSE: BCE] CEO Michael Sabia said he supports a limited easing of foreign ownership restrictions. BCE is the parent company of satellite communications company Telesat Canada, as well as the country’s largest telecom carrier, Bell Canada.

Sabia said he supports raising the direct foreign ownership limit to 49 percent, but favors keeping the 20 percent limit on foreign ownership of telecom holding companies like BCE.

The committee is considering these questions in its review:

1. Do current Canadian foreign investment restrictions significantly affect the amount of capital available in Canada to invest in the telecommunications industry?

2. Should Canada’s relative per-capita investment performance in this sector be a source of concern, or has there simply been overinvestment in the United States?

3. To what extent can differences in investment levels be attributed to foreign investment restrictions?

4. Are there foreign companies that would like to establish operations in Canada and, if so, would their entrance likely affect the provision of new or improved services to Canadians, and stimulate a more competitive Canadian market structure?

5. Could altering Canada’s foreign investment restrictions materially affect the ability of new competitive providers to establish and maintain financial stability, and to what extent can one link any relaxation of foreign investment restrictions with the creation of a more competitive Canadian telecommunications industry?

6. Would altering the foreign investment restrictions assist the deployment of broadband infrastructure in rural and remote communities?

7. Should Canada adopt the approach of other countries by placing restrictions only on the existing traditional telecommunications service providers?

8. If this approach were adopted in Canada, which companies would be required to continue to be Canadian owned and controlled? All incumbent providers? Just large incumbent providers?

9. Should the current ownership and control limitations be maintained for these companies, or should the voting limitation be raised from the current 20 percent limit for operating companies to some other level, while retaining the majority Canadian ownership and control? What would be an appropriate level?

10. Should the U.S. approach of licensing be applied in Canada? Would all telecommunications carriers need to be licensed?

11. The government could review all applications for license transfers and ensure the continued Canadian ownership and control of major companies in the context of merger and acquisition proposals. If this approach were taken, how should a ‘major’ company be defined?

12. In cases in which mergers and acquisitions are approved, what conditions would be appropriate to ensure the achievement of other public policy objectives?

13. Were the government to make any changes to these foreign investment restrictions, would it be appropriate to introduce some form of delay between when the changes would be announced and when they would take effect?

–Fred Donovan