On Wednesday, March 14, 2012, the federal government announced its proposed changes to the foreign ownership requirements for Canadian telecom carriers.

The government will lift the foreign ownership restrictions completely for all telecom carriers with less than a 10% share of the national telecom market. However, as no changes have been proposed regarding the foreign ownership restrictions relating to Canadian broadcasting licensees, integrated carriers holding broadcasting licences will still be subject to the foreign ownership restrictions imposed by the Broadcasting Act. The proposed changes will therefore have the greatest impact on Canadian carriers which do not hold broadcasting licences. For those types of carriers, there will no longer be any restrictions on foreign direct investment in the voting shares of Canadian carriers, subject to any issues that may arise under the Investment Canada Act, which applies generally to foreign investments in Canada.

Prior to this announced change, foreign investors were restricted to direct and indirect investment of 46.7% in the voting shares of Canadian carriers. Moreover, under the old rules, potential foreign investments were also scrutinized under a "control in fact" test that looked beyond the ownership of the voting shares to see if actual control rested with non-Canadians through the use of other control levers such as trade-mark licensing agreements, consulting agreements, minority shareholder veto powers and undue influence over the board of directors. Such issues were at the heart of a CRTC ruling regarding Globalive Wireless Management Corporation (now known as Wind Mobile) which rejected the Globalive structure and found that Globalive was not eligible to operate in the Canadian wireless market. For further information on Globalive, see our previous Blakes Bulletins: October 2009 and December 2009.

The announcement also addressed the auction rules for the highly coveted 700 MHz spectrum. In the Advanced Wireless Spectrum Auction in 2008, Industry Canada had set aside certain portions of the spectrum which was being auctioned for new entrants. Since that time, the new entrants have complained that their entry into the wireless market has been hampered by a variety of issues, including the lack of access to foreign capital. By allowing new entrants unlimited access to foreign capital, Industry Canada has partially met the concerns of the new entrants. In the announcement, the government stopped short of granting a set-aside as it did in the 2008 AWS auction. In fact, each incumbent will be limited to winning one of the four main blocks of spectrum with no restrictions on the remaining blocks.

The proposed changes will require amendments to the Telecommunications Act as well as consequential amendments to various regulations governing wireless and wireline carriers. The government has indicated that such amendments will be passed before the 700MHz auction commences, which is scheduled to occur in the first half of 2013.

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