It's time to open up to foreign investment
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Why has the change been held up for so long? Those who continue to advocate for the status quo, in particular large incumbents with clearly vested interests, raise fears of loss of cultural control to foreign interests if investment in the sector were liberalized.
Nothing could be further from the truth. In fact, under the current legislative regime, Canada has fallen farther behind other nations in introducing new technologies, consumers have considerably less choice while paying more, and research and development is lagging. An essential step to overcome these shortcomings is to welcome foreign investment into this capital intensive sector, a step that would invite much greater competition and all of the consequential benefits in the marketplace.
Widespread support
The advocates for change are anything but a few squeaky wheels. The federal government, for one, has recently and admirably taken a lead role by announcing its intention to open up the sector to global investment. The public is on board as well, as pollsters tell us. For example, a Harris Decima poll this spring found that 63% of respondents support Canada encouraging foreign investment in the telecommunications sector. 1
Support for change cuts even deeper. The Telecommunications Policy Review Panel commissioned by the federal government advocated creation of a more competitive environment in its report of 2006. The 2008 report of the Competition Policy Review Panel, chaired by Lynton (Red) Wilson, was similarly supportive. Bank of Canada governor Mark Carney has also argued that the market needs to be opened up and made more competitive.
Falling behind
Instead, however, Canada is currently paying dearly for not opening up its market. Let's look at Canada's place in the telecommunications world thanks to the lack of foreign investment and lagging competitiveness.
Ask yourself, for example, why it is that consumers in Japan have been watching mobile television for more than four years, while customers in Canada have been stuck until very recently with 2G networks.
If we compare our situation with that of the U.S., Canada's laggard status is reinforced further. Our overall productivity gap when compared with our most important trading partner and competitor, the U.S., is growing not shrinking. Yet even in the U.S., the government and telecommunications regulator have identified a need to make their industry more competitive.
Last place
In addition, wireless penetration in Canada at present is around 67%, while in the U.S. it sits at about 89% and in most of Europe it is more than 100%. Canada's penetration rate leaves it in 30th place among the Organization for Economic Co-operation and Development's 30 member countries! Clearly our work is cut out for us. 2
If a Canadian company, such as MTS Allstream, were based in any of the 27 of the 30 OECD member countries, it could access capital from anywhere in the world. In Canada, however, that access is blocked, a factor that might explain why many major international companies have effectively left the country during the past decade, including AT&T, Verizon, MCI, Sprint and British Telecom. 3
In a study presented to MTS Allstream in April 2010, Lemay-Yates Associates looked at the foreign direct investment policies for France, Germany, Spain, Italy, Greece, Austria, Switzerland, the Czech Republic, Belgium, Portugal, the U.K., Australia, and the U.S. The researchers found that none of the countries reviewed have foreign direct investment restrictions that are as restrictive as those in Canada. 4
Content vs. delivery
As indicated, those favouring the status quo invoke the cultural sovereignty bogeyman to support their case, suggesting Canada would be losing control of culture. The argument is spurious, however, because it willfully confuses cultural content with the networks that are necessary to deliver that content. One observer who has long advocated that the barriers be torn down uses a pipeline analogy: We want the best pipelines for the lowest possible cost, leveraged by foreign investment. That investment would have no connection with what moves through the pipes — water or, in this case, Canadian culture. Nor would it diminish our ability to regulate that content to promote Canadian culture if we choose to do so.
Why do companies such as MTS Allstream argue that opening the telecommunications sector to global investment will help Canada close the gap with other nations? Generally it comes down to competitiveness, and not just within our borders but also around the globe.
Liberalizing Canada's foreign investment policies is directly connected with any strategy to aspire to be a leader in the digital economy that awaits us. Foreign investment would mean a brighter economic future for Canada as telecommunications advances are "shrinking" the world and intensifying international competition. With a world-class domestic telecommunications industry fostered with foreign investment, Canada's ability to compete on the global stage would be greatly enhanced.
Inspire innovation
Dropping the barriers and welcoming foreign investment in the telecommunications sector will inspire innovation and competition, which in turn will create wealth. That vibrancy will engender overall a more dynamic, competitive business sector. And, of course, that competitive environment will benefit consumers and businesses directly.
As studies and reports have continued to argue and demonstrate, opening our telecommunications sector to global investment isn't just good for business and competition, it is in Canada's national interest.
References
1 Harris Decima poll results reported by Canadian Press, May 20, 2010.
2 Anthony Lacavera, Speech to Empire Club of Canada, "21st Century Canadian Telecommunications: The Way Forward". April 15, 2010
3 OECD, FDI Regulatory Restrictiveness Index: Revision and Extension to More Economies, December 2006,
pages 7 to 9.
4 Lemay Yates Associates Inc., Summary Table on FDI Limits in Carriage and Content in Selected OECD Countries.
