Tuesday, November 23, 2010

Government fails Canada on telecom (again)

If you follow telecommunications news, yesterday saw Canadians take a pretty hard double whammy. In the first instance, the federal government announced firmly that it, in fact, has no balls whatsoever. In the second instance, the rest of the world told us that this lack of balls is costing us dearly.

Let's start with the lack of balls. Industry Minister Tony Clement yesterday said that despite the government making all sorts of noise about loosening foreign ownership restrictions for telecommunications companies, it's actually not going to do anything for a year, maybe two. In a nutshell, foreign companies are only allowed to own 46.7% of a Canadian telecommunications carrier, which has been enough to keep many away.

It's a dated rule from a bygone protectionist era when people believed that the pipes over which phone calls run were somehow a strategic national asset. Virtually every developed country in the world has long done away with such rules, and developing countries such as India have seen big investment materialize by doing the same.

I've talked about the downside of these restrictions many times, including . By putting walls up around Canada, we have made it cozy for the likes of Bell, Rogers and Telus, who charge whatever they want and treat customers like garbage on their way to astounding profits. Because they can do so, they've had zero incentive to expand outside of Canada. We shouldn't expect anything more, because protectionist laws inevitably breed crappy companies.

The government had put four options on the table: do nothing, raise the limits to 49%, eliminate the limits for companies with less than 10% market share, or throw the doors open completely. Clement held consultations over the summer, but yesterday - despite option #3 being the most logical and workable - he instead opted for option #1. Also known as the option with no balls. Now, a decision on what to do about those darn restrictions is going to come closer to our next auction of wireless airwaves, in late 2012.

The general feeling is that he did this because of the opposition recently to selling mining company Potash to an Australian buyer. The government stepped in and essentially blocked the deal because it feared the sale of a "provincial icon" would mean Conservatives losing seats in Saskatchewan.

As far as telecom goes, Clement "couldn’t say whether he thought Canadians want more foreigners in the business of providing them with mobile phones, handhelds and telecom services," according to the Globe and Mail. "I don’t know how to answer that. I don’t have polling in my back pocket,” he said. “My gut tells me that Canadians are … less concerned about the means to an end than the end in itself.”

It seems like he answered his own question. His gut is in fact right. Most Canadians are indeed fed up with their wireless, internet and television providers. They may not like the idea of selling out Canadian companies to foreigners, but ultimately they know the bottom line: more companies means more competition, which means better prices and service. Canadians also know they can do no worse under foreigners. Despite opposition politicians inevitably stirring up national sentiment about "the hollowing out of Canada," ultimately most Canadians know they're being screwed and could care less if AT&T buys Bell Canada or Comcast buys Rogers.

The decision to do nothing means the clock is ticking on the likes of our new wireless companies, Wind Mobile, Mobilicity and Public Mobile. As I've said before, these guys just don't have the money to wage a long-term war against Bell, Rogers and Telus, and because of the ownership rules, they probably can't get the money. The only question remaining is, will any of them go belly up before the government finally finds the balls to do what's necessary? Wind Mobile is already practically begging for the restrictions to be loosened... that smells like hurting to me.

Clement says there "other ways" to get to better prices and services without opening up foreign investment. I'd sure as hell like to see them. The way I see it, there are two "other ways." Either Clement keeps flouting the existing laws, like he did by allowing foreign-backed Wind to start up, or the government gives up its zealous commitment to "market forces" and starts re-regulating. But there's a higher probability of Clement being the guest of honour at a statisticians' convention than that happening.

It's ironic then, that on the same day as Clement's chickening out, the Organization for Economic Co-operation and Development released its latest Information Technology Outlook (you can download the PDF by clicking here). Now, government ministers probably don't have the time to read through the 300 pages of reports like this one, so allow me to summarize: we're screwed. Indeed, the report sums up Canada's technological position in the developed world nicely.

While there are some things to be proud of, the overall picture it paints is that we are a net importer of technology. In other words, we take in a lot of stuff from elsewhere, but we put precious little out to the rest of the world. And if it wasn't for the BlackBerry, designed by Research In Motion in Waterloo, our situation would actually be dire.

More specifically, as it relates to telecommunications, our broadband situation continues to deteriorate. The OECD has been tracking Canada's decline over the past decade from leading the world in high-speed internet adoption to the periphery of the top ten. Along the way, the telecom companies and their lobbyists have tried to shoot the messenger, claiming the OECD's methodology is flawed, and that it shouldn't be counting individual broadband subscriptions but rather household connections, since those are more accurate.

The OECD made that switch and the decline was still evident. With the release of yesterday's report, Canada has finally slipped out of the top ten - we're now eleventh in the OECD.

So what's a simple ranking like that mean? To put it in basic terms, it means there are ten other countries that are better equipped with the infrastructure of the new economy than we are. Each country that passes us by means that the odds of the next Google or Amazon starting up in Canada grow slimmer.

This should not be news to Clement or anyone else in the government. Not only are they working on their own "digital economy strategy" - a plan that I suspect may never see the light of day, and which will doubtlessly be vastly disappointing if it does happen - but they also have a boss who very clearly "gets" it. Newly installed Governor General David Johnston, the former president of the University of Waterloo (RIM's stomping grounds), understand technology and its key role in economic prosperity very well. I've interviewed him a few times and he has always come across as very in touch with all of the problems I've mentioned here. Unfortunately, it doesn't look like any of his wisdom has rubbed off on the government so far.

So, to boil all this down: we're screwed. Things are deteriorating and the government is too chicken-shit to do anything about it.

Here's the part that's most galling. If the government fears the opposition raising a stink about selling out Canada if it tried to lift foreign ownership restrictions, they could always wheel out this 2006 report that was originally commissioned by the previous Liberal government. The Telecommunications Policy Review Panel found that:

Among OECD countries, Canada has maintained one of the most restrictive and inflexible set of rules limiting foreign investment in the telecommunications sector. However, the Panel notes that countries that have removed, or significantly liberalized, their foreign investment restrictions in their telecommunications sectors have generally not relinquished all capacity to respond to public interest considerations related to foreign investment in their telecommunications markets. Other OECD countries have in place explicit or implicit safeguards to ensure that foreign investment in their telecommunications markets serves and does not prejudice their national public interest.

What did the panel suggest? The same options #3 and #4 that Clement proposed earlier this year: first, the removal of restrictions on companies with less than 10% market share, followed years later by the easing of all restrictions. It sure looks like the Liberals would actually be in agreement about lifting foreign ownership limits.

Doesn't this just make you want to cry?


natehartmanoracle said...

no balls ay?
don't BET on this.

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