Is a Change in Foreign Ownership Rules for Cultural Industries on the Horizon?

CCA Bul­letin 5/10

Feb­ru­ary 9, 2010

 

Just the facts

On 10 Decem­ber 2009, the fed­eral Cab­i­net over­turned a CRTC deci­sion find­ing that Glob­alive Wire­less Man­age­ment Cor­po­ra­tion was inel­i­gi­ble to oper­ate a wire­less tele­phone ser­vice in Canada because it is con­trolled by a for­eign com­pany, Oras­com.  Within days, Wind Mobile, Globalive’s sub­sidiary, began to offer mobile phone ser­vices in Toronto and Calgary.

This is an extremely impor­tant deci­sion which effec­tively removes any mean­ing­ful con­straint on for­eign own­er­ship of telecom­mu­ni­ca­tion com­pa­nies.  Most com­men­ta­tors believe the deci­sion has an equiv­a­lent effect on all other sec­tors where Canada has lim­ited for­eign own­er­ship, includ­ing broad­cast­ing and cable.

While Cab­i­net main­tained that its deci­sion was not a prece­dent, this is per­ceived by many crit­ics as hol­low rhetoric.  They point out that under Chap­ter 11 of the North Amer­i­can Free Trade Agree­ment (NAFTA), a U.S. com­pany would likely be able to suc­cess­fully sue the Cana­dian gov­ern­ment if the CRTC were to turn down a takeover of a Cana­dian broad­caster or cable com­pany that was struc­tured iden­ti­cally to the Glob­alive deal.

On Jan­u­ary 8, 2010, Pub­lic Mobile, another new entrant to Canada’s domes­tic wire­less mar­ket, filed an appli­ca­tion with the Fed­eral Court for judi­cial review of the Cab­i­net deci­sion “to seek legal clar­ity on tele­com for­eign own­er­ship rules.”  The Com­mu­ni­ca­tions, Energy and Paper­work­ers Union is apply­ing for the right to inter­vene in the case in order to raise its seri­ous cul­tural con­cerns and to pro­tect the integrity of the exist­ing own­er­ship restric­tions.  It is antic­i­pated that sev­eral cul­tural groups will join this application.

Why are own­er­ship restric­tions cul­tur­ally important?

1. Cana­dian own­ers are more likely to tell Cana­dian sto­ries.  In an Octo­ber 2003 report, the CCA doc­u­mented how Cana­dian com­pa­nies in the sound record­ing and book pub­lish­ing fields are respon­si­ble for the over­whelm­ing pre­pon­der­ance of Cana­dian works in those indus­tries.  Peo­ple who run Cana­dian com­pa­nies share our cul­ture.  Many have cho­sen to remain in Canada when they could eas­ily have gone else­where, and they make this deci­sion pri­mar­ily because they want to tell Cana­dian stories.

2. It is eas­ier to reg­u­late the pro­duc­tion and dis­tri­b­u­tion of Cana­dian works by Cana­dian com­pa­nies than it is to reg­u­late for­eign com­pa­nies.  In the audio­vi­sual sec­tor in par­tic­u­lar, this trans­lates into thou­sands of jobs for artists and cre­ators from var­i­ous dis­ci­plines. Trade agree­ments, such as NAFTA, have restricted our abil­ity to imple­ment cul­tural poli­cies and pro­vided exten­sive rights to non-Canadian investors and sup­pli­ers.  Unfor­tu­nately, the new UNESCO cul­tural diver­sity con­ven­tion does not pre­vent trade agree­ments from restrict­ing our cul­tural poli­cies, at least in the short term.

Tell me more

The Broad­cast­ing and the Telecom­mu­ni­ca­tions Acts both require that, to be eli­gi­ble to hold a CRTC licence, an appli­cant must be owned and effec­tively con­trolled by Cana­di­ans.  To estab­lish this, the CRTC looks at whether the tech­ni­cal rules are met and also whether non-Canadians have de facto con­trol over the Cana­dian entity.  In the Glob­alive case, the Com­mis­sion found that Oras­com could exer­cise con­trol over fun­da­men­tal deci­sions of the Cana­dian com­pany through the struc­ture of the Board, liq­uid­ity and veto rights, their rights to influ­ence oper­at­ing and strate­gic deci­sions related to Globalive’s net­work, and con­trol of an impor­tant trade­mark.  The CRTC was also con­cerned since Oras­com not only owns 65 per­cent of the equity of Glob­alive, but has also pro­vided 99 per­cent of its debt financing.

In its 29 Octo­ber 2009 Glob­alive deci­sion, the Com­mis­sion relied heav­ily on its 2007 deci­sion in the case of Can­west Global’s takeover of the spe­cial­ity tele­vi­sion ser­vices of Alliance Atlantis Com­mu­ni­ca­tions.  That acqui­si­tion was funded by the U.S. invest­ment bank Gold­man Sachs. The Com­mis­sion required the par­ties to redraft sig­nif­i­cant ele­ments of their part­ner­ship agree­ment in order to sat­isfy its con­cerns.  How­ever, the Cab­i­net has now set aside the more sig­nif­i­cant con­cerns the CRTC had with Globalive.

As the dis­tinc­tions between Canada’s cable and tele­phone com­pa­nies con­tinue to dis­ap­pear, there can only be direct pres­sure on the cable own­er­ship rules.  But per­haps even more impor­tantly, the new rules would apply to Cana­dian broad­cast­ing com­pa­nies, since the CRTC applies sim­i­lar stan­dards in deter­min­ing whether there is de facto for­eign con­trol over a Cana­dian broadcaster.

Inter­est­ingly enough, the Feb­ru­ary 4, 2010 edi­tion of the National Post reported that “gov­ern­ment sources say the Speech from the Throne on March 3 will lean heav­ily on the report of the Com­pe­ti­tion Review Panel.” That Report rec­om­mended a phased lib­er­al­iza­tion of own­er­ship rules in telecom­mu­ni­ca­tions and broadcasting.

More specif­i­cally, the Panel stated that, “con­sis­tent with the Telecom­mu­ni­ca­tions Pol­icy Review Panel Final Report 2006, the fed­eral gov­ern­ment should adopt a two-phased approach to for­eign par­tic­i­pa­tion in the telecom­mu­ni­ca­tions and broad­cast indus­try. In the first phase, the Min­is­ter of Indus­try should seek an amend­ment to the Telecom­mu­ni­ca­tions Act to allow for­eign com­pa­nies to estab­lish a new telecom­mu­ni­ca­tions busi­ness in Canada or to acquire an exist­ing telecom­mu­ni­ca­tions com­pany with a mar­ket share of up to 10 per­cent of the telecom­mu­ni­ca­tions mar­ket in Canada. In the sec­ond phase, fol­low­ing a review of broad­cast­ing and cul­tural poli­cies includ­ing for­eign invest­ment, telecom­mu­ni­ca­tions and broad­cast­ing for­eign invest­ment restric­tions should be lib­er­al­ized in a man­ner that is com­pet­i­tively neu­tral for telecom­mu­ni­ca­tions and broad­cast­ing companies.”