AT&T Canada’s McLennan asks feds to justify foreign ownership restrictions

In theory, a foreign firm can own 46.67 per cent of a telecom carrier’s voting shares. In practice, it’s quite difficult to reach this maximum.

The Telecommunications Act stipulates that at least 80 per cent of a telco must be held by Canadians. This leaves 20 per cent of voting shares for foreign


But the law also allows foreign entities to own up to one-third of a “”holding company”” that owns a Canadian carrier. For example, a foreign firm could own one-third of Call-Net Enterprises Inc. (which owns Sprint Canada) but only 20 per cent of Sprint Canada itself.

A foreign company can own both 20 per cent of the voting shares of the carrier itself, plus one-third of a holding company that owns the other 80 per cent.

One-third of 80 is 26.67. Therefore, a foreign company can hold 46.67 per cent of voting shares by owning 20 per cent directly and another 26.67 indirectly.

As Elisabeth Ostiguy notes in her column above, Canadian carriers are getting more vocal in their efforts to lobby the government to relax the foreign ownership rules.

Last month, John McLennan, AT&T Canada’s chief executive officer and vice-chairman, appeared before the House of Commons Standing Committee on Industry, Science and Technology.

“”Rather than asking whether changes to the current restrictions are justified, the proper question for the inquiry is: can the restrictions themselves be justified?”” he said. “”In the context of competitive providers of telecommunications services, the answer clear is ‘No.'””

McLennan said the current law forces carriers to raise money by borrowing from foreign bondholders instead of selling shares to foreign owners.

AT&T Canada is currently operating under the protection of the Companies’ Creditors Arrangement Act, and recently eliminated more than $4 billion in debt by allowing major bondholders to take control of the company.

This reduced the stake that AT&T Corp. has in the carrier, which will stop using the AT&T brand name this fall.

McLennan told the Commons committee the current law limits the ability of the competitive carriers to compete with the incumbents.

But BCE Inc.’s CEO, Michael Sabia, told the committee he is also in favour of loosening the restrictions.

“”Allowing for greater flow of capital is always a positive move,”” he said. “”Indeed we believe the complete removal of ownership restrictions is likely inevitable given the globalization of the world’s economies.””

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Jim Love, Chief Content Officer, IT World Canada

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