Telus CEO Darren Entwistle at his Toronto office on Sept. 15.JENNIFER ROBERTS/The Globe and Mail
Darren Entwistle is a free marketeer.
That’s why the president and chief executive officer of Telus Corp. T-T is renewing his call for the Canadian government to relax the foreign-ownership rules for large telecommunications companies at long last.
Yes, Mr. Entwistle has made this same economic argument in the past. But now a wave of consolidation – including the proposed tie-ups of Rogers-Shaw, Quebecor-Freedom and Bell-Distributel – is creating a pivotal moment for competition.
Those deals demonstrate that Ottawa’s efforts to micromanage market competition have failed. The federal government is still trying to solve the same old problem and creating uncertainty for industry players in the process.
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There’s a better way. If lower prices, connectivity and innovation are the Trudeau government’s overarching goals, then the time is right for our federal legislators to finally heed Mr. Entwistle’s advice and let market forces prevail.
“I’m a big believer that we shouldn’t have foreign-ownership restrictions,” Mr. Entwistle said in a recent interview with The Globe and Mail’s Alexandra Posadzki and Andrew Willis.
“The best protection shouldn’t be artificial regulation. The best protection should be a fully valued stock price,” he added.
Absolutely.
Back in 2012, the federal government made legislative changes to allow up to 100-per-cent foreign ownership of small telecoms that have a revenue market share of 10 per cent or less.
Those changes, however, did not apply to large telecoms such as Rogers RCI-B-T, Bell BCE-T or Telus. In fact, direct and indirect foreign investment in those incumbents remained capped at a combined total of 46.7 per cent. (Additionally, Canadian citizens must occupy 80 per cent of their corporate board seats.)
But at least two blue-ribbon panels, which laid the groundwork for the legislative changes, recommended that Ottawa pursue a broader liberalization of the foreign-investment rules for both telecom and broadcasting after first giving smaller telecom carriers a running start.
The Telecommunications Policy Review Panel in 2006 and the subsequent Competition Policy Review Panel in 2008 both concluded that liberalizing restrictions on foreign investment would boost competition.
A decade has now passed since Canada first relaxed the foreign-investment rules for small carriers, and it’s clear those rule changes have failed to create sustainable competition in the telecom market.
Remember Wind Mobile? Well, its foreign investors fled Canada long ago and that discount carrier, now owned by Shaw and rebranded as Freedom Mobile, appears poised to change hands yet again.
Not only is Ottawa taking too long to move forward with the second phase of foreign-investment liberalization, but the remaining restrictions unnecessarily drive up the cost of capital for large telecoms.
“When you have artificial regulation, it fetters your fluid access to international capital markets. I don’t want to do that; I want to get the cheapest money available,” Mr. Entwistle said.
“When we’re blowing our brains on fibre and 5G, I want to make sure that we get money at the lowest cost possible along the way.”
Sure, Mr. Entwistle’s position is rooted in self-interest. But so what?
Protectionism ultimately harms consumers.
Telecom, especially wireless, is a costly business and companies require scale to remain profitable. That’s why it makes a lot of sense to fully open the Canadian market to deep-pocketed foreign investors.
American telecoms are particularly well suited to compete in Canada because of the geographic proximity of their home networks.
For instance, U.S. carriers could provide cross-border wireless services at cheaper rates and use their massive purchasing power to offer Canadians discounts on costly smartphones. Paying off a device over a two-year term comprises a huge chunk of consumers’ monthly wireless bills.
But foreign telecoms will only have an incentive to invest in Canada over the long term if they’re able to gain control of a major domestic player.
Ottawa should have already learned this lesson.
After all, Verizon Communications Inc. VZ-N sold its 20-per-cent ownership stake in Telus back in 2004 in part because there was no ultimate path to control.
Moreover, Canada’s relaxation of foreign-investment rules for small telecoms and favourable rules for new carriers in government spectrum auctions have failed to lure Verizon back in the ensuing years.
Spectrum refers to the invisible radio waves that carry wireless signals. It’s clear that Ottawa’s previous efforts to provide new entrant carriers with preferential access to some of those airwaves is still a sore point for Mr. Entwistle.
“My only ask on dropping foreign-ownership restrictions is a level playing field,” he said. “Verizon doesn’t need any help from the Canadian government – just have a level playing field. So, if you’re running a spectrum auction, have an open auction.”
He’s right.
Instead of more meddling in the telecom market, Ottawa should create a plan to relax the remaining foreign-investment restrictions over the next three years.
Open up the telecom market and let the best in the world compete.