CCA Bulletin 11/10

April 6, 2010

Telecoms: Is Canada Selling its Cultural Sovereignty Through

the Back Door?

Why this issue matters

For the past several decades, the operating principle in Canadian cultural policy has been that Canadian ownership and effective control of our cultural industries will ensure more Canadian content is made available to Canadians. This is the case because it is easier to regulate Canadian owned companies than foreign owned ones. Moreover, Canadians are more likely than non-Canadians to tell our own stories and to present our own view of the world based on our own values.

Given the convergence of technologies and the concentration of ownership in the audiovisual sector, opening up foreign ownership and control of our telecommunications can only lead to tremendous pressures to enable a similar model in cable and broadcasting. This could result in severe consequences for Canadian cultural sovereignty.

The absence of appropriate regulation in the movie industry is the best illustration of the negative impacts of foreign ownership and control of a cultural industry. Film distribution policy does not distinguish the distribution rights for the Canadian market from North American rights for most of the largest distributors. As a consequence, foreign film distributors maintain a lock on the majority of the film distribution activity in Canada. Foreign films (i.e. US movies) occupy over 98% of screen time in English Canada, whereas the situation is somewhat better in Québec cinemas. This demonstrates how foreign controlled cultural industries can successfully shut Canadian cultural goods and services out of the market with impunity as the result of ineffective policy.

Just the Facts

Last week, the government introduced Bill C9 in the House of Commons, An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures.  Buried in Section 2184 of this omnibus Bill is an amendment to Subsections 16 (1) and (5) of the Telecommunications Act to allow foreign ownership of Canadian satellite companies. By tying such an amendment to a money Bill, the government is daring Opposition parties to launch an election on this issue, thus virtually ensuring that this important policy change, announced in the Throne Speech  and the Budget Speech, will proceed without much of an open public debate.

Somewhat ironically, Opposition parties have ensured that the Standing Committee on Industry, Science and Technology hold a series of hearings on Canada’s Foreign Ownership Rules and Regulations in the Telecommunications Sector. On April 1, the CCA appeared alongside other cultural organizations to urge Parliamentarians to maintain the current set of restrictions on foreign ownership in this strategically important sector. It is more than likely that allowing foreign ownership of Canadian satellite telecommunication companies will be a matter of fact before the Committee’s hearings are over.

Tell me more

In its presentation, the CCA insisted on the danger of a domino effect which could jeopardize the realization of the cultural objectives ensconced in the Broadcasting Act (1991).

The first breach to the foreign ownership regulations was made by the CRTC in 2007 when it allowed the acquisition by CanWest of Alliance Atlantis despite the fact that, according to many critics, the effective control rested with US investor Goldman Sachs. The second domino fell in December 2009 when the government reversed a CRTC decision finding that Globalive Wireless Management Corporation was ineligible to operate a wireless telephone service in Canada because it is de facto controlled by Orascom, an Egyptian company. The third domino to fall will be allowing satellite companies to be sold to foreign interests.

Contrary to positions expressed by both Conservative and Liberal members on the Committee, the CCA believes that it is virtually impossible to change foreign ownership rules in telecom and isolate broadcasting from the consequences of doing so. Some of Canada’s largest corporations operate in all these fields. Those companies would apply tremendous pressure on policymakers to “level the playing field” with their competitors and to obtain access to foreign investment on the same terms.  How will it be possible to deny one protagonist access to foreign investments granted to its main competitor?  Where can we draw a clear line between the tangled interests of BCE, Rogers, CTVglobemedia, Shaw, Telus or Québécor?

Canada currently permits foreign investment in Canadian broadcasting and telecommunications services; it simply prohibits foreign nationals from controlling these services.  There is no evidence that lack of foreign investment has hurt either industry. During the committee hearing, the question was raised as to whether telecommunications companies have even maxed out on allowable levels of foreign investments.

Culture and International Trade

The main reason why the CCA does not believe it will be possible to enforce Canadian laws and regulations on foreign controlled companies has to do with Canada’s international trade agreements. The CCA is very concerned about the implications of NAFTA, and specifically Chapter 11, which provides foreign investors with a right to sue the Canadian government and seek compensation for government actions. Investors could sue the government for the decisions of regulatory agencies like the CRTC, if they believe the decisions violate their rights under NAFTA. 

1. First, in relation to NAFTA, the CCA would point out that the cultural exemption is limited in scope to the cultural industries that existed at the time NAFTA was created.  Importantly, this does not include the new media sector, such as interactive television, computer games, etc. 
2. Second, Chapter 11 rights could potentially come into play in two ways in this matter. If the rules in Telecommunications are changed, a foreign company that decides to invest in a Canadian cable company or broadcaster could structure a deal in a way that mirrors the new telecom rules.  If the CRTC were to prevent them from proceeding, they could launch a Chapter 11 challenge on the basis that they are being treated unfairly in relation to a direct competitor operating in the same marketplace.
3. Finally, if foreign companies are permitted or force entry into Canada’s broadcasting system, existing rules and regulations relating to the production and distribution of Canadian content productions may be sustainable, since the foreign company is entering the market where those rules exist.  But if the CRTC or the government were to try to update the rules to reflect a new environment, the foreign company may have a cause of action under Chapter 11.

The CCA continues to believe that some regulatory requirements should apply to all distribution platforms with regards to the production of Canadian programs. Such regulation, if adopted, may be unsustainable with respect to foreign owned companies. 

This scenario is not improbable. A domino effect within Canada’s tightly knit telecommunications and broadcasting sector could knock down any pretence of cultural policy in the audiovisual sector.

Of course, there are other reasons to maintain the current restrictions on ownership, particularly with regards to potential threats to Canadian sovereignty. In this vein, it is worth noting that most of our major trading partners (including the EU and the U.S.) also maintain foreign ownership limits, particularly in broadcasting, which is deemed to be a sector of vital national interest.

What can I do?