Remarks to Standing Committee on Industry, Science and Technology on Foreign Investment Restrictions Applicable to Telecommunications Common Carriers

Konrad von Finckenstein, QC
Commissioner of Competition
Competition Bureau

February 24, 2003

Check Against Delivery

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Introduction

• Good afternoon Mr. Chairman and members of the Committee. It is a pleasure to appear before you to provide a competition policy perspective on foreign investment restrictions applicable to telecommunications common carriers.
• As you are aware, the Competition Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.
• Our role is to promote and maintain fair competition so that Canadians can benefit from lower prices, product choice and quality services.
• As Commissioner of Competition, I also have an advocacy role to promote competition policy in general. The Competition Bureau promotes competition in all aspects of economic activity as we believe that market forces are the most efficient allocators of scarce resources. However, we recognize that governments also have to pursue other public policy goals, e.g. cultural and social policies, which may take precedence over competition objectives. Where such public policy concerns over-ride competition, market interference should be kept to the minimum.
• I presented the Bureau's views on foreign ownership when I appeared before the House of Commons Heritage Committee in December 2002 . Allow me to reiterate and amplify on the points I made then.
• First, access to capital is essential for a dynamic and efficient industry and squeezing out foreign capital is inconsistent with an effective capital market. A diversity of options and sources of capital, including diverse sources, diverse risk acceptance, and diverse terms and conditions are necessary for a market to function as best it can. For instance, greater access to foreign capital could help long distance telecommunications firms, cable companies and others who are contemplating entering local telephony markets. It would also be of benefit to cable and telecommunications companies wishing to upgrade existing networks.
• Second, foreign capital is not just about bringing cash to Canada, but involves bringing outside financial ideas, financial influence, sources of technology, and managerial efficiency to Canadians.
• The media sector in Canada and around the world is in transition. Convergence, a poorly defined term to which the industry flocked, has so far not been successful. No sound and profitable business models have evolved. Adjustments in media industries are expected in the near term. Access to foreign capital will only facilitate the transition and ensure the development of a stronger Canadian industry.
• Third, in our view, in terms of carriage, there is no distinction between carrying telephone signals and the carriage of broadcasting signals. Consequently, the carriers of either signal, be they telephone companies or Broadcast Distribution Undertakings (BDU's), should enjoy the same access to capital and be bound by the same ownership rules. Anything less would give one sector an unfair advantage over the other and distort economic decision making.
• The cable companies i.e. the BDU's, when testifying before the Heritage Committee, made it quite clear that they are willing to structurally separate themselves into carrier companies and content companies in order to take advantage of any relaxation in foreign ownership rules for telecom carriers.
• We do not believe that foreign ownership restrictions are necessary to achieve a healthy and vigorous telecommunications industry. Under the Telecommunications Act the regulator has broad powers over telecommunication carriers, having the ability for example to:
  
  

• set rates for incumbent carriers
• determine quality of service
• ensure affordable service in rural or remote areas
• discipline anti-competitive behaviour in areas still under regulation.
  
• And of course, any areas not subject to regulation are governed by the Competition Act.
• Fourth, if the regulator's powers are insufficient to allow it to achieve the government's goals, (a fact that we don't subscribe to and which has yet to be proven) this Committee could contemplate amending the Telecommunication Act to introduce the requirement for licensing of telecom carriers. Such licensing is permitted under WTO rules and practised by most of our trading partners. Such licences, of course, can be made subject to such terms and conditions as are necessary to achieve goals allegedly unattainable under the present regime.
• I would like to stress that these four points relate to telecommunications companies regardless of whether they carry telephony, broadcasting or internet access signals.
• With respect to broadcasting and related content issues, these are the kinds of public policy issues that I referred to at the outset. These issues take precedence over competition. However competition should not be ignored. As I stated in December to the Heritage committee, the Bureau recommends that the government:

  Include, as part of Canada's broadcasting and regulatory policy:

  a) an objective that regulation, where required, be efficient, effective and directed solely to the realization of the Act's core cultural objectives;
  b) an objective of increased reliance on market forces; and
  c) an objective of enhanced efficiency and competitiveness of Canadian broadcasting services.

Concluding comments

• The Bureau's message is simple. We do not see what can be achieved through the blunt and stifling instrument of foreign ownership restrictions that cannot be achieved by other more subtle and less distorting regulatory means.
• Our recommendations apply all to carriers of telecommunication signals regardless of type. A signal is a signal and the same rules should apply to all carriers.
• I am delighted to have been asked to appear before you. I hope that a competition policy perspective can contribute usefully to the deliberations of this important policy issue. I look forward to your questions.