Last week the details of the Trans Pacific Partnership “trade” deal were released online. Upon reading the section on telecommunications, it was unclear, at least to me, if signing the agreement would remove longstanding regulations limiting foreign ownership and control over telecoms in Canada. It was also unclear if decisions to liberalize ownership would shift to the Investment Canada Act, leaving it to existing, and undefined, tests, albeit at a higher threshold, to be used to determine whether to allow takeovers of Bell,Rogers,TELUS and perhaps to a lesser extent Shaw and Quebecor.
On the broadcasting and broadcast distribution (cable and satellite) side it seems that there remains a carve-out for “cultural” issues. However even if that were the case, the fact that both the Harper government and the CRTC have taken a hands-off approach to regulating over-the-top services from Apple and Google to Netflix and HBO, suggests that ownership restrictions in broadcasting may have much less import over time, as broadcasting becomes more IP-based.
Regardless of whether you support ownership and control restrictions, or not, it is worth debating the implications of these shifts before formally adopting the TPP or pursuing laissez-faire approaches to IP-based companies operating in regulated markets.
In telecom, if the intent of the TPP is to allow direct entry by larger global telecoms like AT&T and Verizon to compete on a facilities basis, that changes the need for current rules shaping the market significantly. For instance it should raise concerns about current proceedings to consider whether forced resale of fibre to the home investments of domestic carriers, distorts investment decisions or the capacity of domestic carriers to compete in a more open market. Arguably it reduces incentives of larger foreign conglomerates to compete by investing in the country in favour of leasing facilities at a marginal cost thus avoiding a lot of domestic regulation. Certainly at a minimum it would be important to determine if countries like the US were open to reciprocal treatment on this issue.
Particularly important in this respect is to also assess how that type of fibre unbundling would allow cloud-based companies like Amazon, Google and Microsoft to compete without regulation or obligation in the Canadian marketplace, because these companies may actually have more influence over the future of telecom and content delivery than last century carriers like AT&T.
From a shareholder perspective it becomes critical that there is some degree of certainty as to whether the domestic telecoms you are invested will be permitted to be sold to foreign carriers or not. Even if Investment Canada guidance was clearer, there is still a high degree of risk involved if final determinations are left to subjective decision-making, as we have recently seen in the case of Potash and other industries. Similarly if rules are lifted for carriage but not content, does that create significant distortions for vertically integrated carriers when it comes to achieving more open markets. And really, which carriers or cloud-based companies are not vertically integrated to some degree today?
Concerns over foreign control of broadcasting has been used in the past as a primary reason to prevent liberalization in carriage. Primarily because it was felt that if carriers, that were also in the cable business were liberalized, then Canada would be on a slippery slope towards liberalization of broadcasters too. And there were all kinds of concerns about the erosion of cultural sovereignty, including a loss of creative jobs, that suggested that would be a bad outcome.
Ironically the hands-off approach to OTT and broadcast apps has already greased that slope and, if pundits are right in suggesting that apps are the future of broadcasting, then sovereignty over content may already be sliding away.
The TPP could prove a tipping point but the emergence of IP-based (Internet) competition has already started to change the importance of ownership restrictions and its worth now discussing whether there are other effective ways to influence communications policy reasons than through these restrictions. The longer we delay that debate, the harder it is as a Country to do anything about it, if we later determine some new policies are required.
Arguably you can achieve as much or more, through effective regulation of enterprises, no matter who owns the enterprises, as could be achieved by preventing foreign ownership in an Internet based market. In fact arguably any outcome from the consumer price of access, to subsidies for remote access to high quality broadband, to Canadian content obligations or production subsidies that support Canadian creators, could be managed and directed absent Canadian ownership and control of carriers and broadcasters. And such regulations could be designed to apply equally to facilities-based or OTT/IP-based entities whether these deliver carrier, content and/or cloud-based services to Canadians. That may be a better approach to achieving a level-playing field within our national economy.
Of course all of this comes with caveats. The first being that all of this requires a broader determination as to when to rely more on open markets and when to intervene. And the second and more important is to ensure if as a Country we wish to enact laws or regulations to permit a degree of intervention to affect investment,consumer price, privacy, access, creative jobs and choice, or to limit market power, we have the power to do so. But the ability to choose to enact laws or regulations, may be very dependent on what domestic powers the past government agreed to limit, in order to sign on to the TPP. That is why, it is important to determine the extent to which the TPP is really just a free trade deal or more a “new economic order” deal that allows larger trans-national corporations to provide goods and services within a country and yet still remain outside of the rules applied national entities to those bricks and mortar companies sustain our economy.