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Competition Bureau of Canada

Competition Bureau

Making the Most of Technology

 

FOREIGN INVESTMENT RESTRICTIONS

E. 6     Should the foreign investment restrictions be removed? What would be the implications of this for future telecommunications investment, as well as ICT investment as a whole? What other effects would the removal of such restrictions have?

127. Foreign ownership restrictions are a barrier to entry that can provide incumbents with absolute cost advantages over potential entrants that present considerable, and in some cases insurmountable, impediments to entry. That foreign ownership restrictions are a barrier to entry is simply a statement of economic principle.

128. The provision of telecommunications is extremely capital intensive and entry into, and survival within, the telecommunications services market will depend in large part on  service providers having access to equity capital and debt at the lowest possible cost. Foreign ownership restrictions increase the cost of capital and this increase is ultimately passed on to consumers.

129. However, whether foreign ownership restrictions are negative in all circumstances depends on the public policy objectives that they are designed and intended to achieve. In this regard, the Bureau notes that in 1987, when the government first placed foreign ownership restrictions on facilities-based telecommunications carriers, the restrictions were justified by the government as a means of  “harmoniz[ing] Canadian policy with that of other countries and ensur[ing] our national sovereignty, security and economic, social and cultural well-being.”47

130. Ten years later, Canada and many countries belonging to the World Trade Organization adopted the Agreement on Basic Telecommunications (ABT) to liberalize trade and investment in basic telecommunications services. Under the ABT, many member countries of the OECD have reduced or eliminated their foreign ownership restrictions. Some of these countries concluded that the benefits of increasing access to foreign capital outweigh the implicit costs of any associated loss in sovereignty. Almost all other OECD countries now have more liberal telecommunications foreign investment regimes than Canada.48

131. The Bureau submits that the foreign ownership restrictions have served their intended purpose and are no longer necessary to harmonize Canadian policy with that of our global trading partners. In fact, in light of the abolishment of foreign ownership restrictions in most other OECD countries, Canada’s maintenance of the restrictions is inimical to the latter policy rationale for their imposition.  Furthermore, the Bureau is unaware of any articulated concerns to national sovereignty, security or economic, social and cultural well-being that the foreign ownership restrictions are needed or even well-suited to address.
 
132. The Bureau supports the eventual removal of the foreign ownership restrictions in the telecommunications sector. However, the Bureau notes that changing the rules overnight may not be the best policy. Rather, the process that should guide this transition is a matter of public policy that will require thoughtful public consultation and debate.

 

47. Standing Committee on Industry, Natural Resources, Science and Technology, Report on the Study on the Foreign Investment Restrictions Applicable to Telecommunications Common Carriers, dated , online: Standing Committee on Industry, Natural Resources, Science and Technology <http://www.parl.gc.ca/InfoComDoc/37/2/INST/Studies/Reports/instrp03/06-toc-e.htm.> (date accessed: August 9, 2005).

48. Standing Committee on Industry, Natural Resources, Science and Technology, Report on the Study on the Foreign Investment Restrictions Applicable to Telecommunications Common Carriers, dated , online: Standing Committee on Industry, Natural Resources, Science and Technology <http://www.parl.gc.ca/InfoComDoc/37/2/INST/Studies/Reports/instrp03/06-toc-e.htm.> (date accessed: August 9, 2005).


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