The Harper Majority, Telecoms Foreign Ownership and Canada as Digital Free Media Haven

Canadians are all a tizzy about what the Harper majority might mean across a whole range of things. There’s a panopoly of issues within the communication and media realm that might be up for quick action: foreign ownership rules, the re-tabling of copyright legislation, the potential regulation of Online Video Providers (OVPs), and the possibility to turn back the tide that his now transforming the Internet in Canada into a pay-per model governed by the incumbent’s ‘business models’, bandwidth caps and UBB.

For now, I want to focus on the first issue: the telecoms foreign ownership rules and the potential that any changes taken in that regard might be harnessed to a bigger project, namely turning Canada in a digital, ‘free media haven’ governed by the highest standards of the networked free press possible (see here and here, as well).

A version of what follows was published in my column for the online version of the Globe & Mail today, so here I will expand on a few of the issues and add a few links, as I usually do.

The Conservatives are well-known for wanting to liberalize the current rules. Academics and consultants such as Michael Geist and Mark Goldberg have also called for greater foreign investment in Canadian telecoms. Most banking analysts feel the same way.

Konrad von Finckenstein, CRTC chief, is also in favour, but frets about how to deal with the slew of integrated telecom-media behemoths that he has recently blessed: Bell Media, Roger Media, Quebecor, Cogeco, Shaw, (but not Telus). In other words, how to open the gates for more foreign investment in telecoms but not broadcasting?

Those in favour of changing the existing rules believe that doing so could usher in more investment in network development, more competition, less bandwidth throttling and far greater consumer choice. The current incumbents who dominate the telecoms, media and Internet markets in Canada would, so many appear to believe, be forced to compete head-on with the big global players – AT&T, France Telecom, T-Mobile, Japan’s NTT, China Telecom – for customers.

The goals are laudable, but are they realistic?

Some suggest that movement on the issue will be slow because the Tories do not have a clear strategy to deal with it. Yet, the Government has had several options on the table since 2006:

• 1. removing all foreign investment limits;
• 2. raising the limits from the current twenty percent to just under half;
• 3. permitting foreign investment only in new companies that have less than 10 percent market share.

The only strategy the Government doesn’t have is keeping the status quo. Expect change soon.

The Government’s Cabinet Directive in 2006 instructing the CRTC to rely on market forces to the maximum extent feasible also tips its hand. Indeed, the Government tried to do an end run around the law through another Cabinet Directive overturning the CRTC’s decision to reject Globalive’s (Wind Mobile) bid to become a new wireless player on the grounds that it was not Canadian owned and controlled, as the Telecommunications Act (sec. 16) demands.

A Federal Court in February stopped that effort in its tracks. At least a formal change to the Telecommunications Act’s foreign ownership rules would have the virtue of bringing the law into conformity with the facts on the ground, i.e. Wind Mobile is up and running.

Even if we assume that allowing greater foreign ownership is a good thing, and I will offer a few more reasons below as to why it could be, many pesky issues remain. For example, what if the Government decides to just go with option #1: Allowing greater access to foreign capital markets for new comers?

The intended beneficiaries, of course, are Wind Mobile, Mobilicity and Public Mobile, but would it also apply to Quebecor, a company that is a newcomer to wireless but well-entrenched across the rest of the media? Somehow that doesn’t seem right.

That raises the larger issue about how to disentangle telecoms from broadcasting? The fact that telecoms and broadcasting are becoming more intertwined is becoming clearer by the day as Netflix gains a stronger footing in Canada and as Google and Apple appear routinely before the CRTC and Parliamentary Standing Committee on Canadian Heritage.

Indeed, when the Americans negotiated the NAFTA and WTO deals they anticipated that digitization would soon dissolve the boundaries between telecoms and broadcasting and bring the ‘cultural industries’ within the reach of the ‘global trade regime’ as a result of ‘technological forces’. MIT scholar Ithiel de Sola Pool argued much the same thing in his 1983 classic, Technologies of Freedom, many years earlier.

Yet we also need to ask if loosening the rules will lead to the outcomes that so many expect? AOL, AT&T and PSiNet were important players in telecoms and the Internet in this country during the dot.com era, but where are they now?

They have long since retreated, collapsed or gone bankrupt. The point being that this is not the rah-rah days of globalization in the late 1990s, but one when foreign investment in telecoms is at a low ebb.

Just as the “old” AT&T was retreating from Canada, it was also selling off a slew of networks across Latin America in the mid-2000s – mostly to Mexico-based TelMex. The trend continues.

Just last month, Deutsche Telekom sold its T-Mobile wireless operator in the U.S. to the resurrected ‘new’ AT&T. Pundits can believe all they want that AT&T, France Telecoms, Deutsche Telekom, NTT, and so on are lining up to enter Canada, but evidence suggests otherwise.

The lesson from T-Mobile is that foreign capital investment is hunkering down rather than trying to conquer the world. As two World Investment Reports from UNCTAD in 2008 and 2010 observe foreign investment and cross-border mergers & acquisitions in telecoms have fallen considerably from their late-1990s peak throughout the decade, and have yet to recover, especially after the ‘crisis of 2008’.

The sale of T-Mobile also reveals that even the massive U.S. wireless market is unable to sustain robust competition. Three players dominate the U.S. wireless market: AT&T, Verizon and a smaller Sprint/Nextel.

In other words, foreign ownership is no sure-shot solution for concentrated telecom, media and Internet markets. In fact, the World Bank’s message since the early 1990s, amongst others, is that foreign capital investment in telecoms only delivers the good when it is properly regulated and used to launch new rivals, rather than to acquire incumbents (i.e. ‘greenfield investment’).

None of this is to say that we should avoid more foreign investment in telecoms. In fact, the history of telecoms in Canada has been bound up with foreign capital since the first telegraph lines linked Toronto to Buffalo and New York in 1846 and the trans-Atlantic cables created a vast Euro-American space of capital, markets, migration and information with Canada at the hub in the 1860s and 1870s.

Today, greater foreign investment could not only be used to increase the availability and use of broadband telecom and Internet services and foster more competition, but as a stepping stone to far-reaching efforts to transform Canada into an open ‘digital media haven’.

New rules would provide an incentive for greater foreign investment, while our cool climate could entice Amazon, Google, Rackspace, Microsoft and others to build their massive ‘data warehouses’ on Canadian soil because it is cheaper to run these energy hungry facilities here than in the United States. Our stronger protections for personal information could put vast stores of data beyond the reach of the U.S. Patriot Act and keep the ‘domain name snatching’ operations of Homeland Security at bay.

Birgitta Jonsdottir, the Icelandic Member of Parliament, has similarly proposed to make her country a haven for “digital free speech” – similar to what the Cayman Islands is for banking, but with the higher purpose of advancing human rights, democracy and freedom of expression. Seen from this angle, relaxing foreign ownership rules in Canada could serve as the cornerstone of efforts to foster an open telecom, media and Internet system governed by the highest standards of a networked free press in the world (also see here).

For that to happen, however, the new majority Harper Government will have to embrace openness, freedom of speech and democracy just as firmly as it now has its hands on the levers of the state.