On March 14, 2012, Canada's Minister of Industry announced proposed changes to the existing foreign ownership restrictions on Canadian telecommunications service providers and announced certain measures relating to the upcoming auctions for 700 MHz spectrum and 2500 MHz spectrum.
The Telecommunications Act will be amended to lift the foreign ownership restrictions for telecommunications service providers that hold less than a 10-percent share of the total Canadian telecommunications market based on revenue. These providers will continue to be exempt from such restrictions when their market share grows (other than through acquisition or merger) above 10% of the Canadian market. Existing Canadian ownership restrictions provide that non-Canadians may not own, directly and indirectly, more than 46.7% of the voting securities of a telecommunications carrier and may not otherwise exercise "control in fact " of such carrier through contract or otherwise.
The removal of the foreign ownership restrictions follow from the commitment made by the government to examine foreign investment rules for the Canadian telecommunications market. They are intended to remove barriers to investment in smaller providers and to allow such providers to access further capital. The government believes this will result in increased competition among existing providers and will also encourage new entry in the Canadian telecommunications market. The amendments are to become effective prior to the upcoming auctions of the 700 MHz spectrum band expected to take place in the first half of 2013 and of the 2500 MHz spectrum expected to take place early in 2014. It should be noted that that similar foreign ownership restrictions contained in the Broadcasting Act which apply to broadcasting entities in Canada are not affected by the announcement and will continue to apply.
The Minister's announcement also described various measures to be implemented relating to the upcoming auctions for 700 MHz spectrum and 2500 MHz spectrum. These measures are also intended to promote the government's stated goals of increasing competition and investment in the Canadian telecommunications market.
Spectrum caps will be applied on the amount of spectrum available to bidders. The caps are intended to enable four or more providers in each region to obtain spectrum in both the 700 MHz band and the 2500 MHz band and also to enable new entrants to acquire spectrum. Unlike the process used in the Advanced Wireless Services (AWS) spectrum auction of 2008, the government will not identify specific blocks of spectrum to be "set-aside" for certain bidders, but will allow all bidders, subject to the spectrum caps, to choose blocks of spectrum based on equipment ecosystem preferences and business plans. A portion of the 700 MHz spectrum will be reserved for exclusive use by public safety users across Canada.
In order to ensure that acquired spectrum is deployed by telecommunications service providers in a timely manner, successful bidders acquiring spectrum will be required to deploy new advanced services to 90 percent of the population in their coverage area within five years of licensing and to 97 percent within seven years of licensing.
The government also intends to change, following stakeholder consultation and input, the existing rules and policies governing roaming and tower sharing arrangements to further support competition.
As part of the next steps, the government will carry out consultations with interested parties on the implementation details of various measures announced and the form, process and rules for the upcoming spectrum auctions.
by Carl De Vuono
a cautionary note
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2012