Foreign investment in Canada’s wireless sector has been the subject of much discussion since the federal government’s recent partial liberalization of the telecommunications sector. The following is intended as a guide to help foreign law firms and their telecom and foreign investor clients understand this regulatory environment.
The Canadian regime for the regulation of telecom companies is set out principally in the Telecommunications Act. Under this regime, the Canadian Radio-television and Telecommunications Commission (CRTC) has been given wide jurisdiction to regulate facilities-based carriers (FBCs), while its jurisdiction with respect to all other telecommunications service providers (TSPs) has been significantly constrained, resulting in the deregulation of non-facilities-based companies and resellers.
As a starting point, a TSP is defined as “a person who provides basic telecommunications services, including by exempt transmission apparatus”. An exempt transmission apparatus is defined as follows: “any apparatus whose functions are limited to one or more of the following: (a) the switching of telecommunications; (b) the input, capture, storage, organization, modification, retrieval, output or other processing of intelligence; or (c) control of the speed, code, protocol, content, format, routing or similar aspect of the transmission of intelligence”.
However, only a TSP which “owns or operates a transmission facility used by that person or another person to provide telecommunications services to the public for compensation” is subject to the vast majority of the provisions of the Telecom Act. Such a TSP is defined in the act as a telecommunications common carrier, though it is generally referred to as a FBC.
A “transmission facility” is also defined under the act and means “any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include exempt transmission apparatus”. Thus it is possible for a TSP to own or operate switching equipment or other exempt apparatus without attracting the obligations of a FBC.
FBCs are subject to foreign ownership restrictions under section 16 of the Telecom Act although these restrictions were recently removed for any small carrier whose annual revenues from telecommunications services in Canada represent less than 10% of the total annual revenues for all TSPs for the provision of telecommunications services in Canada.
FBCs do not need a licence to operate but they must have their rates approved by the CRTC if they provide services in one of the few areas in which rates are still regulated. They also face a wide variety of other regulatory obligations, such as a prohibition against unjust discrimination or undue preference, requirements related to the provision of basic service, and participation in a programme to subsidize service to high-cost service areas.
By contrast, TSPs that are either non-facilities-based carriers or resellers are subject to regulatory obligations basically in only two areas. First, all TSPs providing international telecommunications services must obtain a licence from the CRTC. Second, the CRTC is empowered to create a regulatory system applicable to all TSPs that provides for financial support of telecommunications services in remote and high-cost service areas.
A TSP that provides basic international telecommunications services (BITS) has just a few obligations that it must meet. Before beginning operations, it must apply for a BITS licence. The CRTC places the completed application on the public record for 30 days and, if no negative comments are received, subsequently issues a renewable licence, normally for a 10-year period.
The licensee must comply with a standard set of conditions that are attached to the licence. A failure to comply can result in the CRTC suspending or revoking the licence. The standard conditions of licence relate to such matters as anti-competitive conduct in relation to the provision of an international telecommunications service or services, compliance with the contribution regime, and obligations with regard to the filing of information with the CRTC.
Investment Canada Act
In addition to regulatory requirements under the Telecom Act, foreign investments over a specific financial threshold may also be subject to review under the Investment Canada Act. Specifically, under this legislation, the minister of industry must be satisfied that the transaction is “likely of net benefit to Canada”. Generally speaking, in reaching a decision the minister considers a variety of factors, such as the effect on economic activity and competition in Canada; participation by Canadians; the effect on productivity, efficiency, technological development, product innovation and variety; compatibility with national industrial, economic and cultural policies; and the contribution to Canada’s ability to compete in world markets.
Sheridan Scott is a partner and co-chair of competition, antitrust and foreign investment at Bennett Jones LLP, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai, Abu Dhabi and Doha, and representative offices in Washington DC and Beijing.
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Raj Sahni, Chair – India Business Group