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Consistent with prior policy announcements, the federal
government in Canada has passed legislation relaxing restrictions
on foreign ownership in the telecommunications sector in an effort
to attract foreign investment and spur competition.1
The recent amendments to the Telecommunications
Act2 provide an exemption to the normal rules for
carriers and their affiliates having total annual
telecommunications revenues that represent less than 10% of total
Canadian telecom industry revenues. Based upon the most recent CRTC
reports, carriers could have up to C$4.17 billion in annual revenue
and still be exempt from the foreign ownership restrictions. As a
result, the exemption will apply to all current Canadian carriers
other than Bell Canada, TELUS Corporation and Rogers Communications
Inc.
A carrier established under the exemption can expand its
operations to exceed the 10% ownership threshold, provided that
growth beyond the threshold is not a result of acquiring control of
another carrier or acquiring assets of another Canadian carrier, in
which case the normal ownership restrictions would apply
(effectively, a 46.7% limit and no "control in
fact").
It should be noted that the amendments do not provide for
parallel changes to the foreign ownership restrictions in respect
of broadcast undertakings under the Broadcasting Act, and
that the provisions of the Investment Canada Act will
continue to apply.
A small publicly listed wireless broadband carrier has already
taken steps to reorganize its capital in order to take advantage of
the new exemption.3 Further investment activity and
industry consolidation is expected.
Footnotes
1 Bill C-38, the Jobs, Growth and Long-term
Prosperity Act (received Royal Assent on June 29,
2012).
2 Telecommunications Act, SC 1993, c
38.
3 TeraGo Inc. press release in respect of share
conversion, dated July 5, 2012 (TSX: TGO,
www.terago.ca).
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