Backward Down the Info Highway

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Backward Down the Info Highway

Postby jon » Fri Feb 18, 2011 4:46 pm

I found this kind of a fun read:

Ottawa drives backward down the info highway
By Terence Corcoran, Financial Post
February 17, 2011

If the Harper Tories insist on driving backward down the old information highway, the least they could do is look in the rear-view mirror now and then. The string of policy pileups littering the telecom industry -- from user-based billing on the Internet to the Globalive Wireless foreign-ownership fiasco -- are entirely avoidable accidents brought on by a government that wants bold, innovative technology and open competition while pointing policy in the opposite direction.

The future promises at least another decade of tangled policy, court battles and regulatory chaos -- and delayed innovation. No other outcome is possible so long as the government intends to set the policy agenda exactly backward. The plan, as frequently outlined by Industry Minister Tony Clement, is to first get all the spectrum allocated and settle all the competition issues, including installing a range of competing companies. Only then will the government look at changing foreign-ownership regulations.

It's a policy that can't work--unless the government's idea of policy success is the current Globalive Wireless situation. By any reasonable assessment other than the tortured logic of Ottawa's foreign-control calculations, Globalive and its Wind Mobile operation is a foreign-owned company. That was the finding of the CRTC until the federal Cabinet overruled it. The Federal Court has since overruled the Cabinet, which has now appealed to have the Federal Court decision quashed.

In short: Ottawa prohibits foreign control, but is now fighting to have foreign-controlled Globalive Wireless continue to operate in Canada. One does not end up in such quagmires of contradiction without good reason, and the reason is the backward approach to telecom policy.

Industry Canada determined in 2008 that opening up wireless spectrum is the first step. An auction was held, but only "Canadian" companies could bid on the spectrum, the idea being to force competition in wireless but only from Canadian companies. Globalive, tapping into the Orascom Telecom empire of Egyptian magnate Naquib Sawaris, attempted to get around the foreign ownership rules. Not unreasonably under the circumstances, Globalive created an elaborate structure of debts, voting shares and director appointments.

The government bought it, but the CRTC didn't. The fact that Orascom held all the money and the technology, if not the seats on the board of directors, convinced the CRTC that Globalive was not Canadian.

Now imagine what would have happened if Ottawa had a policy in place that drove telecom development directly toward the objectives the government claims to want, which is more capital investment, more innovation and more competition. First you change the foreign ownership regime, then you hold the spectrum auction.

If foreign-control restrictions had been lifted first, Mr. Sawaris' Orascom -- whether in partnership with Tony Lacavera's local operation or not -- could have bid directly for spectrum. If successful, Orascom would then have been free to immediately start building a network in competition with Bell, Rogers and others supplying wireless. Instead, Globalive now operates under a cloud of uncertainty. It wouldn't be at all surprising if Wind Mobile were now more restrained in their business objectives as they face a year in judicial limbo.

A perverse side effect is the possibility that Globalive might now try to consolidate its Wind operations with other new wireless companies that are struggling to make a go of it. Mr. Lacavera, CEO of Globalive, says he believes consolidations are coming. After taking over other companies, Globalive might end up with an ownership structure that would make it more "Canadian" under the rules. The effect of such consolidations, however, would be to achieve the opposite of policy intent by eliminating competition -- for the sole purpose of accommodating foreign ownership rules.

The foreign ownership limits, in other words, have prevented a full-throttle competitive entry by Globalive or any other foreign company into the Canadian wireless market, and now the rules may also promote consolidations that undermine competition.

This policy fiasco is about to repeat itself. In a recent interview on CBC Radio's The House, host Kathleen Petty asked Mr. Clement a perceptive question and got the same old answer:

Petty It seems to me that you are trying to promote free enterprise ... on an industry that isn't really based on free enterprise. It's sort of artificial.... If you really want more options, the option is to have more major providers, isn't it?

Clement No, I think the option is you've got to have a whole menu of options for Canadians. What we've done to make that possible in the last couple of years is to reserve spectrum for new wireless entrants who are starting out small, and maybe they'll grow to be big some day.

Mr. Clement went on to say that the next policy track is to first decide on how to auction more spectrum in the near future. "Until we decide on who gets to bid on that spectrum that's coming up over the next couple of years, it's difficult to make the decision on foreign direct investment."

After three years of telecom-policy blowups, the federal government is still driving backwards.
ref. - http://www.edmontonjournal.com/business ... story.html
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