Cablegate: Telecom Policy:

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
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

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