Conservatives must deal with telecom's festering foreign ownership problem

There's an old saying that if you ignore a problem, it only gets bigger.

The Conservative government learned this the hard way on Friday, when the Federal Court issued a decision that plunges new cellphone carrier Wind Mobile and the whole Canadian telecommunications market into chaos.

The court ruled that Prime Minister Stephen Harper and Industry Minister Tony Clement were wrong in allowing Wind to start up. In 2009, the duo overturned the Canadian Radio-television and Telecommunications Commission, which had found Wind backed by Egypt's Orascom did not meet Canadian ownership requirements.

The court's key finding, however, is that "it is for Parliament not the [cabinet] to rewrite" telecom laws. It effectively gives Wind, the CRTC and the government 45 days to sort out the mess or Canada will find itself down one cellphone provider.

Foreign ownership

Harper and Clement must now deal with a long-ignored problem that has festered during their entire tenure as government foreign ownership restrictions.

The Organization for Economic Co-operation and Development long ago singled out Canada as having the "most severe" telecom restrictions in the developed world. Over the past five years, two separate panels one appointed by the previous Liberal government and another by the Conservatives have found the same thing.

In the span of a day, Harper and Clement went from being heroes hailed by consumers for standing up against usage-based billing, to giant goats for putting Wind, its investor and customers into an impossible situation.

All three bodies concluded that allowing foreign companies entry is imperative to getting more competition, lower prices and better services. Providing telecom services is not a cheap game, so it becomes even more important in less-populated countries like Canada where access to deep sources of funds can be limited.

So if the government panels agree, what's the problem?

In a word: politics.

Clement came close to dealing with the issue last year. He said the government was looking at four options: doing nothing; raising foreign ownership limits to 49 per cent from the current level of around 46 per cent; allowing new foreign companies to start up or buy existing firms with less than 10 per cent market share; or throwing the gates wide open to everyone.

In the end, he chickened out and went with the first option, saying the government wasn't ready to move decisively on the issue.

Political considerations

Ultimately, a minority government is going to have problems fixing the problem because opposition parties simply have too much political capital to gain in preventing it. Such an attempt by any government would draw howls of protest over issues such as selling out Canadian companies or supposedly strategic assets to foreign interests, job losses and the hollowing out of corporate Canada. Of course, there's also the possible threat to Canadian culture and broadcast programming.

It's an emotional and patriotic vein that can easily be tapped and translated into votes for the opposition. A number of unions, including the Communications, Energy and Paperworkers, were in fact quick to cheer the court's Wind decision on Friday as a victory against foreign ownership.

But the problem also cuts to the heart of the usage-based internet billing maelstrom that has raged for the past two weeks. The seemingly obscure wholesale regulatory issue, which directly affects only about five per cent of Canadian internet subscribers, erupted into a huge public outcry against the CRTC, Bell and the other big internet service providers.

More than 400,000 people have signed a "stop the meter" online petition, prompting Clement to vow last Thursday a day before the court's Wind decision that if the CRTC doesn't reverse its decision, he will.

The minister has also indicated he's aware that usage-based billing is only the tip of the unrest iceberg; that Canadians are bristling over their high and ever-rising wireless, television and internet bills, and they want something done about it.

The problem when it comes to internet access is the same as with wireless. Small ISPs such as Teksavvy can't get the funding to properly compete against the likes of Bell and Rogers, nor can they plan an exit strategy that involves building their business to the point where they can sell it to a larger, foreign company.

Their sole recourse is to fight never-ending regulatory battles with the CRTC and big ISPs, all while eking out a subsistence existence.

Deregulation

The foreign ownership problem is bad enough on its own, but it has been exacerbated by the government's general insistence on telecom deregulation. Five years ago, it gave an unprecedented "policy directive" to the CRTC that it was to regulate with a light touch and let market forces dictate services and prices.

While Canadians like to complain that the CRTC isn't looking out for their best interests, it was effectively told not to - that market forces would save the day.

The problem is, market forces haven't been allowed to take root. The result is a market that is deregulated in all but the most important way. It's no wonder consumers are starting to revolt.

For the government, tackling the foreign ownership issue once and for all is now imperative.

Not only is Wind's future at stake, the government also stands to lose much. In the span of a day, Harper and Clement went from being heroes hailed by consumers for standing up against usage-based billing, to giant goats for putting Wind, its investor and customers into an impossible situation.

The government's gross mismanagement of telecom, which ultimately hits every Canadian in the wallet, is sure to give ammunition to opposition parties as an election looms.