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Canada's telecoms market may be in for shake-up
|15 июля 2010|
Canada's telecom industry has enjoyed steady growth as other sectors have struggled in the recession, but government plans to revamp the country's strict cap on foreign-ownership levels is setting the stage for a major shake-up in the industry.Canada's government has laid out three proposals to allow more foreign investment so its telecom sector can better compete in the global market. It is trying to find a balance between opening up capital for small companies and protecting its telecom giants -- Telus , BCE Inc's Bell Canada, and Rogers Communications -- from foreign takeovers.
Those companies could see their shares hit, depending on which policy revision is chosen, analysts say.
"Increasing foreign ownership rules to only smaller players would be a definite negative impact to larger players," Maher Yaghi of Desjardins Securities in Canada said in a phone interview. "Bell, Telus and Rogers would have to make some significant cuts to operations if they feel their market shares would not be sustainable. In terms of stock performance, they certainly would be negatively affected."
Canada's telecom industry has had a stellar year compared with the broader Toronto stock market. The S&P/TSX Capped Telecommunications Index has risen 6.3% year-to-date as of mid July while the S&P/TSX Composite Index fell 4%.
Of all the countries in the developed world, Canada has the most protected telecom industry. According to current law, telecom companies must be controlled by Canadians. Foreign investment cannot be more than 46.7%, with direct investment capped at 20%. At least 80% of a telecom company's board of directors must be Canadian.
Critics, including consumers and small telecom firms, say current regulations restrict competition and keep prices artificially high. They hope the proposed reforms will benefit consumers, revitalize the industry and lower prices by allowing more foreign capital.Three options
For reform, the government's first option is to lift the limit on foreign investment to 49% from 46.7%, a move few analysts expect as it would not produce significant change. The second option lifts restrictions on smaller companies, those with less than a 10% market share. That would be the most detrimental to the bottom line of the three largest companies as it could threaten their market share by giving their competitors a boost, analysts say.
A third option for reform would be to lift ownership restrictions for all. The three national players would not immediately benefit from that because they hold media segments, which follow a separate set of stringent investment rules. The third option would give big companies' stock a short-term knock but they would recover in the long term, Yaghi said.
"They'd eventually have to divest out [media] options in order to benefit, which could alleviate short-term negative impact," Yaghi said. "But it could be a year or so."
Canada's telecom companies are at odds on how regulations should evolve and many are submitting formal comments on the issue this month. Larger companies like Telus, which has seen its stock surge nearly 19% this year, and Rogers, with shares soaring 13% year-to-date, want to keep that momentum.
Ken Engelhart, senior vice president of regulatory affairs at Rogers Communications said the company, which is not taking a formal position, would prefer to see a fourth option -- removing ownership restrictions for all, including media/broadcast affiliates. He called the current three proposals "strange micromanagement."
"If you're going to do it, just do it," Engelhart said in a phone interview."Let's not play around with it. This makes no sense to us. I don't know how you could do it for one and not for all."
Engelhart said telecom is such a fast-moving business that companies should have equal access to foreign dollars to be able to respond to market conditions similarly.
Anthony Lacavera, CEO of Globalive Communications and its new subsidiary, Wind Mobile, said he has a different view. Wind Mobile is backed by Egypt-based Orascom Telecom Holding and Lacavera wants reform to favor smaller companies. He said "any relaxation of regulations would benefit the industry."
To launch Wind Mobile last year, Lacavera developed a 10-year business plan with a $1.6 billion operating budget and secured the backing of Orascom, which now owns 65.1% of Globalive's equity, and C$508 million in debt, as well as one-third of the voting shares. Lacavera holds two-thirds of the voting shares and a roughly one-third equity stake.
The Canadian Radio-Television Telecommunications Commission, the industry's regulator, ruled in September that Orascom's stake in Globalive gave the Egyptian company too much control of Wind Mobile and would not allow the company to open. But with more than 800 jobs at the startup on the line, the Canadian government quickly overturned the CRTC decision. Wind Mobile launched in December as Canada's fourth national wireless provider.
Lacavera blames the initial regulatory setback on a confusing, subjective part of the regulations, in which the CRTC can judge if a foreign company has too much control regardless of its financial stake. He said removing foreign ownership restrictions -- either entirely or for just smaller companies -- would resolve the issue for future startups.
Wind Mobile does not need capital immediately, but Lacavera says the broader telecom industry deserves a change to its "antiquated framework." He plans to be "very vocal" on the issue this month."There is a lot of room for market shakeup, so the more competition, the better, he said.
Telecom analysts including Phillip Huang of UBS Investment are watching the reform process and expect change to benefit smaller companies over larger ones.
"We continue to believe that opening the doors to foreign investment in Canada will benefit the new wireless entrants by providing them with greater access to capital and allowing them to simplify their business structures," Huang wrote in a June note."We believe this would create greater competition for the incumbents."
The Canadian government is seeking comments on the proposals before July 30.
Источник: Total Telecom