Industry revisits merit of foreign telco ownership

Allan Rock asked Canadians on Tuesday if easing foreign ownership rules might help revive the telecom industry, but an industry analyst says a review is too little, too late.

The Industry Minister asked the House of Commons Standing Committee on Industry, Science and Technology to review

the current legislation regulating foreign investment in the telecommunications industry.

Currently, the Telecommunications Act places substantial limits on foreign voting equity and prohibits foreign control of companies in this sector. The reason for the restrictions was highlighted in a discussion paper Rock released, also on Tuesday. The federal government says foreign control could jeopardize the preservation of Canadian values and policy objectives in an industry it sees as key in maintaining Canada’s identity and sovereignty.

The argument has always been full of holes, according to Telus Corp. executive vice-president corporate development and general council Jim Peters. He says when it comes to telecommunications, Canadian identity may be influenced by what hits the Canadian airwaves, but not who owns the station.

“”I don’t think it matters who owns Shaw’s networks as long as the Canadian Government is able to ensure a balance of Canadian content is flowing over those networks.””

One issue of immediate concern to the big kids on the block is how the new regulations would affect them in comparison to the struggling competitive local exchange carriers (CLECs), says Peters. He says he has heard suggestions that it may make sense to create a two-tiered system where the rules for incumbents do not change — an idea with which he disagrees.

“”It’s not going to achieve policy objectives, which I understand is to ensure greater access to capital. And if that’s the case it should apply to all the companies,”” Peters says.

With the telecom industry in disarray the review may well come too late to help the CLECs, according to Gartner Group telecommunications analyst Elroy Jopling.

He says that even such significant players as AT&T Canada are having a difficult time and the smaller firms even more so.

AT&T Canada’s shares were recently bought out by AT&T Corp., he points out, and afterwards the U.S. company decided to write off the money it spent and break off ties with the Canadian enterprise rather than invest in it further.

“”Over at AT&T, if it could have happened earlier (they) would have been happier, but by the time this happens there’s a big question mark as to will AT&T even still be there?”” he says.

Current regulations did not hinder Telus’ ability to find capital at the time of their 2000 purchase of Clearnet, nor were they a burden last year when the company decided to re-finance its debt, Peters says. However, unrestricted access to the market could drive cost of capital down, he says. The Telecommunications industry is quite capital-intensive, making cost of capital a big issue for telecommunications firms.

“”We recently indicated that we were spending $500 million in capital expense to roll out our high-speed internet network in British Columbia and Alberta and that’s just on the capital side. Then there’s the operating expense associated with it, probably $1 billion that Telus has invested starting in 2001 through to 2003,”” Peters says.

Opening up access to foreign markets however, Peters points out, may not solve struggling firms’ woes, since investor confidence in telcos has waned drastically all over the world.

Jopling agrees, and points out investors have lost astronomical sums of money on telecommunications investments, which is likely to make them mistrust the industry for a while.

“”In the telecommunications business the loss in market capitalization has been $2 trillion. When the economy turns around, is telecom the first place (investors) are going to go? In most cases no. Once burned, twice shy,”” he says.

Jopling also points out that the government initiative, although well intentioned, may actually frighten potential investors away from the Canadian telco.

“”In essence CEOs out there are very risk averse. Where you don’t make investments is in an area where you’re not sure what the environment is going to be. And everybody looks and is not sure where the CRTC is going to come down next,”” he says.

Both Jopling and Peters agree that the review is a good idea, though.

“”Address foreign ownership, I agree with that,”” Jopling says, “”but don’t have grandiose ideas of what that’s going to accomplish.””


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Jim Love, Chief Content Officer, IT World Canada

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