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. Further investment activity and industry consolidation is expected.
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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