Canada urged to lift foreign ownership limits in several sectors

Canadamust throw open the doors to foreign ownership in telecommunications, air travel and uranium mining and allow bank mergers if it is to avoid falling farther behind in the global economy,a competitionreview panel said Thursday.

Lynton "Red" Wilson, chair of the government-appointed Competition Policy Review Panel, called his group'sCompete to Win report a"wake-up call" for Canada. He was speaking at a luncheonof the Economic Club of Toronto.

Theregulatory limits in the abovesectors have resulted in companies that are uncompetitive, inefficient and unwilling to expand into other countries, Wilson said.

"Canada must step up its game and become more competitive, both here at home and abroad," he said.

"In the global economy, the pace of competition has accelerated, and our competitors are becoming more successful. As a country, we must position ourselves for more wins in this new global marketplace."

Under the existing Investment Canada Act, any foreign takeover of a Canadian company worth more than $295 million must be reviewed by the government, and the acquiring firm must show the deal will have a net benefit to Canada.

The panel advocated raising that threshold to $1 billion and reversing the net-benefit test. The latter change would mean the governmentwould be required toshow a proposed deal is not in Canada's best interests much likeit did when it recently blocked the sale of B.C.-based space equipment maker MDA Corp. to U.S. interests.

The report called for the easing of foreign-ownership restrictions in a number of sectors. In telecommunications and broadcasting, foreign firms are currently limited to owning 20 per cent of voting shares of an operating company and 33.3 per cent of a holding company.

These restrictions reduce competitive intensity in a number of ways, the report said. Theydiminish the ability of new entrants to come into the market, limit theirsources of funding andprevent the latest technologies from being deployed.

Most importantly, they "[remove] pressure on existing firms to reduce or eliminate inefficiencies in their business practices and activities [in order] to be world-class (rather than best-in-country-class) competitors," the panel said.

The report cited Canada's woefulrecord when it comes to cellphone usage, where it ranks at the bottom of the developed world in terms of subscribers per capita. That situationresulted in the government having to entice new entrants into the market with special rules for an auction of wirelessairwaves, currently underway.

Thepanel's reporturged a two-phased easing of telecommunications limits designed to increase the number of competitors in Canada rather than simply open the door for foreign buyouts of existing companies. In the first phase, foreign companies would be allowed to own a Canadian telecommunications firm that has less than a 10-per-cent market share. That would allow foreign companies to start up a new cellphone carrier or internet provider in Canada, for example, or buy a smaller player.

Foreign takeovers of larger companies would then be allowed after five years,at which time a broader review of broadcasting and cultural policies would take place. The panel said the government could still regulate Canadian content requirements, but said these wouldn't need to be tied to the actual pipes over which the media is transmitted.

AT&T, other foreign telecoms welcome report

Wilson,the former president and chief executive officer of BCE Inc. and vice-chairman of theBank of Nova Scotia,said opening the doors to foreign companies is key to spurring Canadian firms into competing globally.

"The best way to ensure that successful Canadian businesses are not simply absorbed by international consolidators to avoid being 'hollowed out' is to take the play to the other end of the rink," he told the Economic Club. "Canadian firms must become more savvy and determined global players."

The panel was put together last summer by then industry ministerMaxime Bernier. His successor, Jim Prentice, on Thursday thanked the panel members for their "fine piece of work" and said he would study the report over the next few days.

The other panel members include:

• Isabelle Hudon, the CEO of the Board of Trade of Metropolitan Montreal
• P. Thomas Jenkins, executive chairman and chief strategy officer of Waterloo, Ont.-based Open Text Corp.
• Brian Levitt, co-chair of legal firm Osler, Hoskin & Harcourt LLP
• N. Murray Edwards, president of Calgary-based management firm Edco Financial Holdings Ltd.

Wilson said Prentice has formed a task force to study the report and will likely act on it when Parliament resumes in the fall.

The report found immediate support from foreign telecommunications players. U.S.-based AT&T Inc., which has urged the government to lift ownership restrictions for years, praised the report andstrongly hinted it wouldexpand the services it offers in Canada if the recommendations were implemented.

"The removal of these restrictions would increase investment and telecom competition in Canada; promote increased deployment of new facilities, technologies and service innovations; bring lower prices and improved services; and stimulate broader growth in the Canadian economy," said Dave Denault, general manager ofAT&T Global Services Canada Co. in a statement.

"AT&T would welcome the opportunity that[investment] liberalization would bring to enhance service to our enterprise customers, with flexibility to extend our product offering and to invest in appropriate infrastructure."

Opposition calls findings 'ideological'

Liberal industry opposition critic Scott Brison said the report was "more ideological than substantive" but added that he wasn't necessarily opposed to lifting foreign ownership restrictions.

Thereport mirrored recommendations made bythe Liberal-appointed Telecommunications Policy Review Panel in 2006, whichalso advocated the lifting of foreign-ownership restrictions.

Brisonsuggested, however,that issues of national security need to be addressed and added to any revisions of the Investment Canada Act.

"[Eliminating ownership restrictions] isnot something I am religious about," he said. "But most countries consider national security criteria when considering foreign investment."

Brison said Prentice had promised to address the national security issue before the panel made its report, but he has yet to do so.

NDP MP Peggy Nash said the report missed a couple of key competition issues, such as the rising Canadian dollar, as well as oil and gas prices. Foreign takeovers haven't been a problem, she said, as only one the MDA deal has been blocked in the past 20 years.

Nash said the solution to Canada's telecommunications problems isn't necessarily the introduction of more foreign-based competition but better regulations and consumer protections.

"We certainly have a problem with hidden cellphone charges and contracts and a lot of consumer gouging," she said. "Does competition in some ways help? You can argue that, but not allowing companies to tack on all these charges and gouge consumers is one approach, as well."

Wilsonalso told the Economic Club thata new Canadian Competitiveness Council should be formed to continually monitor competition issues.

"Such a council would be the prime public advocate and a powerful voice for competition in Canada," he said.