Canada: A Closer Look at the Liberalization of Foreign Ownership Restrictions for Satellites in Canada

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Communications, September 2010

As previously announced in our July 2010 Blakes Bulletin on Communications: Canada Removes Foreign Ownership Restrictions on Satellite Carriers, Canada recently enacted legislation which eliminated the restrictions on foreign ownership of Canadian satellites.

At first glance, Canada's initiative seems like a straightforward measure designed to open up foreign investment in satellites operating in Canadian orbital slots. The purpose of this article is to examine that initiative more closely.

Prior to this enactment, the regulatory framework in Canada placed limits on the amount of foreign ownership permitted in all telecommunications common carriers offering services to the Canadian public for compensation. These limits include a requirement that at least 80% of a carrier's board of directors must be individual Canadians and that Canadians must own at least 80% of its voting shares. Where the telecommunications carrier is held by a holding company, non-Canadians are permitted to hold up to 331/3% of the voting shares of that holding company. As well, in both cases, the carrier must not be otherwise controlled in fact by non-Canadians. Those restrictions still apply to terrestrial Canadian carriers, however, they no longer apply to Canadian satellite carriers.

This recent initiative regarding Canadian satellite carriers can be regarded as the next logical step after the liberalization of the mobile satellite services market in 1998. As part of the Global Agreement on Trade in Services (GATS) in 1997, Canada agreed to allow full foreign ownership of mobile satellite systems operating in Canada. Today, Industry Canada routinely grants mobile radio and spectrum licences to foreign companies offering mobile satellite services to Canadians.

It is clear that these recent changes to satellite ownership policy are a less controversial start to the liberalization process than for other types of carriers, as there are relatively few satellite operators in Canada and they already compete on the international stage. By starting the liberalization with satellite operators, Canada has avoided for now the thorny issues regarding content and culture under the Broadcasting Act. As all of the major terrestrial telecommunications carriers in Canada also hold broadcasting licences, the convergence of telecommunications and broadcasting has frequently been raised as an impediment to proceeding with foreign-ownership/foreign-licensed. Canada is currently wrestling with these issues as they relate to terrestrial carriers and some progress is expected by the federal government in the coming year.

However, the recent change in legislation regarding ownership of Canadian satellite carriers has not changed Canada's satellite use policy. Canada's satellite use policy requires that Direct-To-Home (DTH) Canadian video programming services, using fixed or direct broadcast satellites, must be carried on "Canadian satellite facilities". While there may be some question as to the meaning of "Canadian satellite facilities", in our view, the recent amendments to the Telecommunications Act strongly suggest that the expression should be interpreted as meaning Canadian licensed satellites in Canadian orbital slots, irrespective of ownership.

Assuming this to be the case, Industry Canada's satellite use policy seems out of step with the recent legislative initiative. If Canada is interested in opening up the Canadian satellite carrier market to greater competition through foreign investment, it would seem reasonable to extend the recent initiative to allow Canadian DTH broadcasting distribution undertakings to negotiate with a foreign-licensed satellite operator for the delivery of Canadian video programming. After all, an exception already exists for digital satellite subscription radio services. More importantly, increasing competition in the provision of satellite service capacity in Canada for DTH services could provide greater capacity at lower prices, which ultimately benefits Canadian consumers.

On the other hand, the use of a satellite in a Canadian orbital slot generally provides better coverage in Canada, especially for Canadian viewers in the far north. In other words, there may be technical limitations on the use of foreign satellites for DTH services in Canada. It should also be recalled that the current Canadian policy mirrors a similar restriction in the United States regarding the use of Canadian satellites for the delivery of DTH services to American viewers, although the Federal Communications Commission has overridden this restriction on several occasions and granted access by U.S. DTH providers to Canadian licensed satellites, on public interest grounds. As a result of these practical and political limitations on the use of foreign satellites for Canadian DTH services, there may be little public pressure on the Canadian government to change the policy.

On a related matter, Industry Canada's policy regarding the granting of applications for satellites in Canadian orbital slots has historically focussed on a qualitative assessment of benefits of the application for Canada and Canadian users. It is unclear at the present time whether the recent changes in ownership policy will result in Canada changing to a competitive auction process, as it has done with terrestrial wireless spectrum, instead of the qualitative assessment of benefits approach it has used in the past. Industry Canada is currently conducting an internal review of this policy and is expected to announce the results of this review in the coming months.

Finally it should be noted that foreign investment in a new satellite carrier in Canada or the acquisition of an existing satellite carrier, may be subject to notification or review under the Investment Canada Act, depending upon the size and nature of the foreign investment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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