Changes to foreign ownership rules applying to Canadian telecommunications companies

Author: Stephen Nattrass Publication | March 2012

On March 14, 2012, the Canadian government announced that it will permit foreign ownership of Canadian telecommunications companies that have less than a 10% share of the national telecommunications market.  The government’s goal is to promote competition by improving access to capital and encouraging long term investment in the Canadian telecommunications industry.

The required legislative changes will be made prior to the 700 MHz and 2500 MHz spectrum auctions in 2013 and 2014.

Changes to the foreign ownership rules

Currently, the Telecommunications Act requires that the board of directors of a Canadian telecommunications carrier be at least 80% Canadian individuals.  Foreign ownership of a carrier’s holding company cannot be more than 33⅓%, and foreign ownership of the carrier itself is limited to 20%.  Further, the Canadian Radio-television Telecommunications Commission can also review the ownership and control of Canadian telecommunications companies to ensure that they are not “controlled in fact” by foreign corporations.

Foreign investors will be able to invest in carriers that control less than 10% of the national Canadian telecommunications market by revenue.  The changes will only apply, however, to companies regulated by the Telecommunications Act, and not to the foreign ownership rules under the Broadcasting Act.

Market share growth above the 10% threshold will allow the company to remain exempt from the foreign ownership rules, but growth as a result of merger or acquisition will require compliance with the existing ownership and control rules.

Any direct foreign investment in Canada over certain thresholds is subject to the Investment Canada Act, and this will continue to apply to foreign investment in the telecommunications sector.

The government must amend the Telecommunications Act and its regulations legislation prior to the auctions in order to implement these changes.  How the government will implement these changes and when the amendments will be introduced is not currently known.

Upcoming spectrum auctions

The 700 MHz auction will be held in the first half of 2013, with the 2500 MHz auction following in early 2014.  The 700 MHz spectrum is particularly important because it can penetrate buildings and travel long distances, which is important to operating in urban and rural markets.

As part of the spectrum auctions, the government will cap the amount of spectrum that any one company can acquire.  No company will be able to obtain more than one block of spectrum, which effectively means that smaller carriers will be able to access at least 25% of the most desirable spectrum in each band range.

Companies with more than one block of 700 MHz spectrum will be required to deploy advanced services to 90% of the population in their coverage area within five years of licensing.

Proposed changes to the mandatory roaming and antenna tower sharing policies

As part of the 2008 spectrum auction, Industry Canada implemented policies on mandatory roaming and antenna tower sharing to allow new wireless entrants to compete with existing wireless telecommunications providers.  Industry Canada announced proposed changes to these policies, including an indefinite extension of the mandatory roaming policy, a requirement that basic information about antenna towers be made available, as well as changes to the arbitration process.

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