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No downside to making Bell, Rogers and Telus compete with foreign companies, according to secret government analysis

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Opening up Canada’s market to foreign telecommunications companies will lead to lower prices for internet and cell phone plans, increase overall economic growth, and could even boost the stock prices of domestic giants like Rogers, Telus and Bell, according to a federal government analysis.

The analysis, classified secret, was prepared for senior government officials overseeing the rewriting of the Telecommunications Act and the Broadcasting Act, both of which limit foreign companies’ ability to sell internet or mobile phone plans in Canada.

Multiple documents prepared for officials conducting that review, obtained by The Logic via access-to-information requests, suggest a fundamental overhaul of how Canada’s telecommunications sector is regulated and identify best practices from other countries that Canada could adopt.

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“Peer countries generally eliminated foreign investment restrictions in the late 90s or early 2000s,” reads a January 2018 report, adding that most other countries in the Organization for Economic Cooperation and Development (OECD) have at least one foreign wireless competitor, and that overall, “Canada’s restrictions are the most severe.”

A related January report from Innovation Science and Economic Development (ISED) officials reviewed the practices of other countries between 1995 and 2017. It concluded that relaxing foreign investment rules brought about multiple benefits: price decline, greater competition, technological innovation, increased adoption population-wide and economic growth. It identified no downsides to increased foreign investment.

Canada currently bars foreign investment in telecommunications companies with 10 per cent market share or more.  That’s led to some of the highest prices in the world, according to a June 8 report prepared for John Knubley, deputy innovation minister, and Graham Flack, then deputy minister of Canadian Heritage, which the two presented to a committee of deputy ministers from across the federal government. According to the presentation, “Canadian prices [are] higher than the international average for every price bracket.”

The government’s public comments paint a very different picture of Canada’s telecommunications sector. In a December 2017 report publicly released by ISED, for example, the government claimed that existing competition “is producing meaningful results for Canadians.”

Knubley and Flack’s presentation, however, paints a starker picture of phone prices in Canada. To illustrate the scope of the problem, it highlights a phone plan offered by Rogers for 10GB of data and unlimited calling, which costs $65 in Saskatchewan, $70 in Manitoba, $85 in Quebec and $125 in Ontario.

Innovation Minister Navdeep Bains did not reply to a series of questions, including whether the government will take steps to increase foreign investment in the telecommunications sector, given that its own analysis found no downside to doing so.

“We have taken steps to promote competition so that prices will be more affordable,” said Danielle Keenan, press secretary for Bains. “In regions with strong competition, prices are as much as 31 per cent lower than the national average.”

Talking Points

The government sees lots of potential benefits to letting foreign companies eat into the Big Three’s combined 89 per cent market share of the telecommunications sector: lower prices, technological innovation, increased adoption population-wide and economic growth. More foreign competition could come in two ways: the USMCA, which calls for the elimination of anti-competitive practices in the telecommunications industry, and the rewriting of the Telecommunications Act.

This isn’t the first time the government has concluded foreign investment in telecommunications would be a net positive. In 2006, its Telecommunications Policy Review Panel suggested a two-phase approach for foreign investment in telecom: first, allowing foreign investment in companies with less than 10 per cent market share—which it did in 2012—and then extending that allowance to larger companies, which it has yet to do.

Attempts to increase foreign investment have been fiercely resisted by Canada’s three largest telecommunications companies: Bell, Rogers and Telus, which together have a 89 per cent share of the wireless subscriber market. For example, in 2013, the previous Conservative government tried to get U.S. giant Verizon to enter the Canadian market. The Big Three—which have a smaller combined market capitalization than Verizon—responded with a multi-million dollar marketing campaign and requests that the government change laws to make it harder for foreign companies to enter Canada. The Conservative government, which had a policy goal of four wireless providers in every market, did not comply with those requests, but Verizon ultimately decided not to expand to Canada.

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The government documents repeatedly highlight how quickly foreign investment can benefit a market. One report, titled: “Foreign Investment in Telecommunications” states that since Germany-based T-Mobile entered the U.S. market in 2013, the average cost of U.S. wireless plans has declined by 50 per cent, and that T-Mobile introduced a number of features to the market, including unlimited video streaming and free international roaming—both of which have since been replicated by other carriers.

“Verizon and AT&T maintain over 70 per cent of industry revenues but competition from T-Mobile and Sprint have forced the larger carriers to respond with more attractive plans for customers,” reads the report.

The government’s analysis also highlighted the benefits of foreign competition in Mexico, the United Kingdom, Russia, Finland, France, Iceland, the Czech Republic, Chile, the eastern Caribbean, and 12 Asian countries including India.

“With an ability to purchase equipment at lower costs and access to global supply chains, multinational providers pass the savings on to consumers,” reads one of the January 2018 reports. It cites a 2017 analysis of Mexico’s market, which found that after foreign investment restrictions were liberalized and companies like AT&T entered the market, prices dropped by 75 per cent and 50 million new wireless subscriptions were purchased.

The analysis also cited a U.K. government report showing that subscriber growth quadrupled in the 10 years after its foreign investment restrictions were lifted. Liberalizing foreign investment wasn’t just good for consumers. In Finland, the government’s analysis cites early deregulation for the emergence of a “successful telecom equipment industry” in the country.

The analysis also cited a Université de Montréal study, which found that Canada’s real GDP would grow by 1.7 per cent over a decade if foreign investment rules in telecommunications were liberalized, and a World Bank estimate that countries with foreign investment in telecoms and financial services grow 1.5 per cent faster than those without it.

The new United States-Mexico-Canada Agreement (USMCA) includes provisions regarding cracking down on anti-competitive practices in the telecommunications industry that could make it easier for smaller companies, including foreign ones, to compete with the Big Three. The government hopes to sign the USMCA this week.

Simultaneously, the government has convened a panel of experts, chaired by former Telus vice-president Janet Yale, to suggest revisions to the Telecommunications Act, the Broadcasting Act and the Radiocommunication Act.

Stéfanie Power, a communications adviser at ISED, replied to questions sent to Yale. Power didn’t directly respond to any questions—including whether the panel was considering potential downsides to increased foreign investment, despite the government identifying none—instead saying the panel’s final report will “be delivered by January 2020.”

ISED’s documents were similarly unclear on what, if anything, the government intends to do with its conclusion that foreign competition brings significant benefits. One of the January reports, for example, has both its “considerations” and “options” sections fully redacted.

“More competition is always better for customers,” said Ken Engelhart, a Toronto-based communications lawyer who spent 25 years at Rogers. “You’re always going to get lower prices and better value when you have more competition.… it’s a no-brainer.”

The current 10 per cent market share rules for foreign investment in telecoms insulates Bell, Telus and Rogers from foreign ownership—they are the only firms that exceed the threshold. Scrapping the policy, however, might ultimately benefit those firms. The 1995–2017 review of FDI in telecommunications compiled by ISED suggests that foreign competition could boost share prices of Canadian carriers. The analysis quotes Ted Rogers, then-president and CEO of Rogers Communications Inc., as saying in 2000, “Rogers shares could rise 50–100% if U.S. companies were allowed to bid on them.”

Rogers and Telus did not reply to requests for comment by deadline. Marc Choma, Bell communications director, said government policies are already encouraging competition and “have made Canada a world leader when it comes to wireless speeds and innovation, benefiting both consumers and businesses alike.”

“Low-cost services like our own Lucky Mobile are meeting demand for inexpensive options, and across the industry the cost per GB of data has been declining steadily over the last 3 years,” said Choma.

Engelhart echoed the government’s internal analysis, pointing out foreign competition also places pressure on local companies to innovate.

“If, say, Verizon bought one of the Big Three carriers, would they bring some competitive clout and some new technology into Canada that would shake things up for the other competitors? Probably—sure. I think that’s why you want more competition, is to shake things up,” said Engelhart.

With files from Catherine McIntyre