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Government allows full foreign ownership of smaller telcos; sets 4G spectrum cap for auction in H1 2013

15 Mar 2012

Canada’s Industry Minister, Christian Paradis, yesterday announced that the federal government will remove foreign ownership restrictions on the country’s smaller telecoms network operators – those with a 10% market share or less in revenue terms – ahead of a crucial 4G mobile frequency licence auction which he said is scheduled for the first half of 2013. Alongside confirmation of the rough timetable for auctioning 700MHz ‘digital dividend’ band spectrum and 2.5GHz-2.6GHz frequencies, the minister also announced that individual spectrum caps will be applied to the upcoming licensing process to prevent the larger, established operators from monopolising the bandwidth. However, the decision stopped short of reserving certain portions of 4G spectrum for newer market entrants, a measure which had been lobbied for by some of the smaller players. A decision on foreign ownership rules was one of the pre-requisites for the launch of the 4G auction, which is aimed at allocating enough frequencies for the larger cellcos, Rogers, Bell and Telus, to expand their Long Term Evolution (LTE) networks beyond the larger urban markets nationwide, while potentially allowing some of the smaller players to enter the LTE segment.

TeleGeography’s GlobalComms Database notes that, under existing rules, all Canadian infrastructure-based telecoms service providers (fixed or mobile, also referred to as ‘telecoms common carriers’) are required to be ‘Canadian-owned and controlled’, meaning at least 80% Canadian direct voting control and 66.66% or more indirect voting share held by Canadians, whilst 80% of the board of directors must be Canadian. An additional clause, that network operators must not otherwise be ‘controlled in fact’ by non-Canadians, has fuelled recurring debates over foreign ownership between the sector regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), and the federal government represented by Industry Canada. The arguments have been polarised by court cases surrounding the arrival of Wind Mobile, financially backed by Egypt’s Orascom Telecom (and now a part of the Russian Vimpelcom group), which ultimately won federal approval. The latest decision from Ottawa appears to represent a final victory over the CRTC’s opposing stance that foreigners should not be allowed to increase controlling shares beyond 49% in any telecoms network operator. In its latest move, the government rejected alternative proposals to either increase the limit for direct foreign investment in all telecoms common carriers, large and small, to 49%; or to remove foreign ownership restrictions completely.

The up-for-grabs 700MHz band was relinquished by broadcasting operators on a national basis by a deadline of August 2011 via the switch from analogue to digital broadcasting, says GlobalComms, which adds that on 31 March 2011 fixed-wireless licences in the 2500MHz-2690MHz band officially became eligible for transition to mobile Broadband Radio Service (BRS) licences (under a conversion process which Industry Canada approved in July 2009). Bell and Rogers, joint owners of the national 2.5GHz-2.6GHz WiMAX network operator Inukshuk, became eligible to convert 2600MHz spectrum to fully mobile ‘4G’ standard to assist with LTE deployment across the country, with the re-allocation to be coordinated with an auction of spare mobile 2500MHz spectrum. As LTE rollouts begin to take priority, Rogers scheduled a switch-off of its WiMAX services this month. Minister Paradis stated in yesterday’s announcement that the new 700MHz/2.5GHz licences will carry rural rollout stipulations to spread the availability of high speed mobile broadband services countrywide, while network roaming and cellular tower sharing regulations will be revised as a further measure to facilitate faster and more efficient service deployment.

The minister said that the government’s measures were intended to improve competition, but the fact that a portion of spectrum was not reserved for smaller or new operators was bemoaned by Wind Mobile’s CEO Anthony Lacavera, quoted by The Globe & Mail, who called the move ‘a total disaster’. Referring to the alternative spectrum cap strategy, he added: ‘It gives the illusion that the competitive marketplace has been strengthened, but it will be a catalyst for consolidation and new entrants will be starved of frequencies.’

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