Two parliamentary committees separately reviewing the status of foreign investment rules governing the communications sector in Canada have generated directly conflicting recommendations.

Stakeholders in the investment-starved telecommunications and cable television industries seeking elimination of the current ownership restrictions are in conflict with their counterparts in the broadcast and content production sectors, who are hoping to protect Canada's cultural sovereignty and preserve foreign investment limits. Given this stalemate, any progress on a new investment policy for the communications industry will be tricky. With each industry camp boasting its own Cabinet champion, the issue is likely to be left to simmer during the Liberal Party's leadership campaign until it can be re-examined by the new prime minister.

With the release on June 11 2003 of Our Cultural Sovereignty: The Second Century of Canadian Broadcasting, an 872-page report culminating a two-year study of the state of the Canadian Broadcasting System by the House of Commons Standing Committee on Canadian Heritage, Minister of Canadian Heritage Sheila Copps was presented with a sweeping set of 97 recommendations to revamp the sector. Recommendation 11.5 has proved to be the most controversial: "The committee recommends that the existing foreign ownership limits for broadcasting and telecommunications be maintained at current levels."

Only six weeks earlier, on April 28 2003, Canada's House of Commons Standing Committee on Industry, Science and Technology concluded its own review of the foreign ownership and control restrictions imposed on telecommunications common carriers operating in Canada with the release of Opening Canadian Communications to the World, as discussed in "Committee Recommends Elimination of Foreign Ownership Rules". Foremost among this report's recommendations were the following:

"That the government prepare all necessary legislative changes to remove entirely the existing minimum Canadian ownership requirements, including the requirement of Canadian control, applicable to telecommunications common carriers.

That the government ensure that any changes made to the Canadian ownership and control requirements applicable to telecommunications common carriers be applied equally to broadcasting distribution undertakings."

Lest the direct conflict of the rival committee's views on foreign ownership go unnoticed, the Heritage Report noted the work in parallel of the Standing Committee on Industry and its unequivocal conclusions to strip away all foreign ownership restrictions from the telecommunications and cable television and satellite broadcast distribution sectors:

"The Heritage Committee strongly disagrees with the recommendations on foreign ownership made by the Industry Committee. The main arguments presented in the Industry Committee's report are economic.

The committee sees the Industry Committee's recommendations to be an extremely simplistic approach to a complex set of issues. In particular, its report ignores the many public policy and cultural issues that are at the heart of the matter."

At the heart of the debate are Canada's decade-old telecommunications ownership and control laws which have come under heavy pressure from industry titans in both the telecommunications and cable sectors, the latter seeking to parlay elimination or relaxation of the current rules into similar amendments governing cable and satellite broadcast carriers. Companies such as AT&T Canada Inc, Rogers Cable and Canwest Global argue that freer access to foreign capital in the sector will promote greater competition and increase consumer benefits.

At present, a Canadian telecommunications carrier such as Bell Canada or TELUS is ineligible to operate in Canada unless it is, among other things, Canadian owned and controlled. To be deemed as Canadian owned and controlled, the following restrictions apply:

  • Not more than 20% of the board of directors of the operating carrier may be non-Canadians;
  • Not more than 20% of the voting shares of the carrier may be beneficially owned by non-Canadians; and
  • The carrier may not be otherwise controlled in fact by non-Canadians.

Moreover, no more than 33.3% of the voting shares of a non-operating parent corporation of the operating carrier may be owned by non-Canadians, nor can the parent be otherwise controlled in fact by non-Canadians.

Broadcast and content production players, such as Astral Media Inc, Alliance Atlantis Communications Inc and the Canadian Association of Film Distributors and Exporters, discount claims that the communications sector is dependent on unfettered access to additional foreign capital for its success. These proponents of the status quo believe that current ownership levels are adequate to lure new investment capital to the sector without compromising Canadian control over the fragile broadcast system and further undermining cultural sovereignty.

In May 2001 Copps tasked the Heritage Committee with broad terms of reference and a mandate to conduct the latest in a long list of studies into the health and prosperity of the Canadian broadcasting system. Among the many areas the committee was asked to probe was the suitability of existing foreign ownership and control limits on broadcasting operators, which largely mirror those in place to govern telecommunications.

Subsequently, on November 19 2002, Industry Minister Alan Rock tabled a discussion paper and announced a committee review to examine existing ownership and control restrictions under the Telecommunications Act and regulations. In the discussion paper, Rock questioned how Canadians could "gain access to a larger pool for investment without compromising their national sovereignty policy objectives".

Five months later, Rock had his answer. In its report, the Industry Committee left no doubt that anything less than elimination of all foreign ownership rules for telecommunications and broadcast distribution carriers would thwart investment and innovation in the sectors. The Industry Report noted that:

  • the removal of the current foreign ownership and control restrictions, in their entirety, is necessary to improve investment and innovation in Canada's telecommunications sector;
  • the removal of the foreign ownership and control restrictions would attract more capital, jobs and research and development work to the Canadian industry;
  • the Investment Canada Act is an effective government tool to ensure that any substantial foreign investment in the sector is carried out in a manner which is consistent with the public interest;
  • the Canadian Radio-television and Telecommunications Commission has the power to ensure that services are provided at affordable prices to rural and remote regions of the country; and
  • technological convergence among telecommunications common carriers and broadcasting distribution undertakings has made these entities no longer separable on the basis of their underlying distribution networks or the services they provide.

By contrast, the Heritage Committee, in its report, regarded the links between telecommunications and broadcasting and calls to remove ownership safeguards in both sectors as potentially perilous to the maintenance of a broadcasting system that reflects Canadian themes and issues back to Canadians. By contrast, the committee observed that:

"One wrong move could do irreparable harm to the Canadian system. Once this happens, there will be no turning back. For this reason, the committee believes that the suggestion that ownership restrictions can be lifted in the telecommunications sector without a serious impact on broadcasting content is seriously flawed."

The Industry Report and Heritage Report have both been tabled for response by the government within prescribed timelines falling just prior to the Liberal leadership convention. Reconciling the clashing views on foreign ownership is likely to be the last job an outgoing prime minister would wish for, and one of the more challenging tasks for his replacement to shoulder.

For further information on this topic please contact Lorne Abugov at Osler, Hoskin & Harcourt LLP by telephone (+1 613 235 7234) or by fax (+1 613 235 2867) or by email ([email protected]).