US embassy cable - 03OTTAWA1079

UNCLAS SECTION 01 OF 02 OTTAWA 001079 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CIP, EB/BTA/DCT - FAIRFAX/SHEEHAN 
AND WHA/CAN 
 
STATE PASS USTR FOR J.MCHALE AND S.CHANDLER 
 
FCC FOR INTERNATIONAL - D.ABELSON, J.MANN AND P.COOPER 
 
USDOC FOR 4310/IEP/OOC/WH/J.BENDER 
 
USDOC ALSO FOR NTIA - BURR 
 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, CA, Communication 
SUBJECT:  TELECOM POLICY: 
       GOC SIGNALS A MORE PRO-COMPETITIVE STANCE 
 
REF:  (A) 02 OTTAWA 3290 
 
      (B) 02 OTTAWA 1488 
 
1.   (U) This message is sensitive, but unclassified. 
Please treat accordingly. 
 
2.   (U) SUMMARY:  Canada is clearly shifting its policy on 
telecommunications competition toward a more pro-competitive 
model. 
 
-- Following extensive public hearings, in late April a key 
Parliamentary committee is expected to call for a sweeping 
re-examination of the GOC's foreign ownership restrictions 
in communications industries. 
 
-- During March the Minister of Industry called on the GOC's 
telecom regulator to promote greater competition in local 
phone service.  Accordingly, on April 10 the regulator 
issued a public notice saying that major incumbent telcos 
had broken various regulations in a pattern of anti- 
competitive conduct, and that it will undertake spot 
inspections to uncover and prosecute such behavior. 
END SUMMARY 
 
3.   (U) BACKGROUND:  Canada's communications regulatory 
agency is the Canadian Radio-Television and 
Telecommunications Commission (CRTC).  The GOC's Departments 
of Industry (for telecoms) and Canadian Heritage (for 
broadcasting) determine policy.  In telecoms, the shift from 
monopoly to competition began in the early 1990's, but 
progress slowed after a few years: the major incumbent firms 
retained dominant market shares, and newer entrants had 
difficulty becoming profitable.  The latter complained in 
particular of two barriers to competition:  (1) restrictions 
on the degree of foreign ownership of telecom carriers, and 
(2) the level of "contributions" which new entrants had to 
pay to incumbents for the use of their facilities. 
 
4.   (SBU) In January 2002, Charles Dalfen became Chairman 
of the CRTC.  Observers have been consistently positive 
about the prospects for a more pro-competitive regulatory 
regime under Dalfen's leadership.  On May 30, 2002, in a 
decision that made both sides about equally unhappy, the 
CRTC set out ground rules for competition in local telephone 
service (ref B).  Since then, observers say, CRTC 
decisionmaking on telecoms has begun to move more quickly 
and has shown signs of becoming more favorable to smaller 
competitors. 
 
5.   (U) OWNERSHIP RESTRICTIONS:  Foreign ownership of 
telecom carriers in Canada is restricted to direct ownership 
of no more than 20 percent of voting shares, and no more 
than one-third of indirect ownership, effectively limiting 
foreign ownership to a maximum of 46.7 percent of any 
carrier.  U.S.-based telecom interests pressed the GOC in 
1999-2001 to review these restrictions, without immediate 
success. 
 
6.   (SBU) In late 2002 Industry Minister Allan Rock asked 
the House of Commons Committee on Industry to examine this 
issue (ref A).  Having held extensive hearings, the 
Committee will release its report on April 28.  According to 
press reports and contacts, the report will take a favorable 
view of relaxing the restrictions.  In light of the 
inextricable competitive links between telecommunications 
and other media which are outside the Committee's (and 
Minister Rock's) mandate, the report will advise the GOC to 
hold a broader review covering ownership restrictions 
affecting all these industries. 
 
6.   (U) LOCAL SERVICE COMPETITION: In a speech on March 26, 
Minister Rock said that the GOC "expects that the CRTC will 
continue to show its commitment to maintaining pro- 
competition momentum . . .  (L)ocal competition is virtually 
non-existent in all but our largest cities. We would like to 
see the CRTC consider what additional measures it can take 
to promote competition . . . the Government of Canada will 
closely monitor the evolution of competition to ensure that 
it does not deteriorate." 
 
7.   (U) On April 10, the CRTC issued a public notice on 
regulatory compliance (no. 2003-4 at crtc.gc.ca) which 
listed a variety of known infractions of tariffs, rules 
and/or legislation by incumbent telecom firms.  Suggesting 
that a complaints-based enforcement system had not been 
adequate, the CRTC announced that it would designate 
inspectors to verify compliance by conducting unannounced 
inspections of these firms, which could begin anytime after 
June 19, 2003. 
 
8.   (SBU) COMMENT:  While industry observers and 
competitive firms received this announcement favorably, the 
extent to which the CRTC will follow through remains to be 
seen.  A spokesperson for the largest incumbent, Bell 
Canada, was quoted arguing that determinations of past 
"infractions" had been based on "erroneous" information from 
competitors, and that it would be more accurate to say that 
the CRTC and incumbent firms are in "disagreement" over 
"complex and arcane" rules.  Skeptics would note that the 
large incumbents have been perennially effective at winning 
the "regulatory affairs game" vis--vis smaller firms, 
mainly by casting themselves as instruments of public 
policy.  In post's view, while Minister Rock's call for 
greater competition provided a short-term push, progress 
depends on the appetite of CRTC Chairman Dalfen for 
substantial change.  Higher-level GOC policies, including 
the foreign ownership issue, will likely be hostage to the 
coming Liberal Party leadership transition and subsequent 
election, which will distract GOC ministers until sometime 
in 2004. 
 
CELLUCCI