Business Lobbying and Canadian Telecom Governance

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Another recently completed selection of my winter reading was Cornelia Woll’s Firm Interests: How Governments Shape Business Lobbying on Global Trade. Woll explored the relationship between government economic policy and business lobbying interests, suggesting in complex and transitional periods where business may not have clearly articulated — or even internally known — positions, government can have quite a bit of influence to shape interests. Once business internalizes government goals, the businesses eventually generate objectives within that framework and execute on the strategies.

Woll uses liberalization of telecommunications service in the 1990s and open skies arrangements in the 2000s as case studies, primarily focusing on US and European actors. She argued they presented strong examples, as they consisted of companies that had been (or, in some cases, still were) monopolies/oligarchies that had traditionally operated in highly protected domestic markets. Woll charts the move from resistance to acceptance and then championing of liberalization by firms with a historical bias towards protectionism, demonstrating in these industries how government — especially US trade policy of the late 80s and 90s — started influencing companies thoughts on international competition. The triggering point, Woll suggests, was in part the changing nature domestic economic affairs.

In telecoms, the 1996 Telecommunications Act in the US fostered new domestic competition and the European Commission was looking to foster greater EU competition. As this made businesses more familiar with a competitive industry (US wireless industry was largely competitive already), it made it easier to make the shift. US trade representatives especially reframed the case for liberalization from reduction of tariffs and connection fees — which, after all, had been large revenue streams for telcos — to a focus on improved opportunities for foreign direct investment and market share. The EC tied telecom liberalization in the EU to the global GATS efforts. (Deregulating the domestic market in the US and EU members belief they were disadvantaged in bilateral open skies agreements with the US were offered as key drivers for liberalization of international air transport.)

Overall, Woll presents a timeline that demonstrates government (US & EU) trade policy that took the lead on liberalization efforts and was not simply a matter of businesses dictating policy goals to government policy officials. Yet while Woll makes a convincing argument for government helping to set telecom and air transport lobbying goals, there remains some challenges to her theory. Woll starts the book with a focus on how financial firms, especially those of US firms like American Express, were paramount in the early efforts of trying to replicate the success of GATT in the services industry. In fact, Woll highlights how unusual the decades long effort by financial actors was for firms noted for an almost myopic focus on only the next quarter. Woll fails to address that liberalization of specific industries — and government trade representatives leading those efforts — may be argued to be the result of international capital goals and objectives.

With Woll’s book fresh in my mind, I attended a talk by Anthony Lacavera for Ryerson’s Real World Speaker Series on January 19th. Lacavera was pleasantly candid, though the students threw a fair amount of softball questions. He noted that one of the most surprising things he found in launching WIND’s Canadian operations was just how strongly the incumbents lobbied against WIND, especially in the CRTC. While some have argued that the CRTC was simply applying the regulations as laid out in the 1993 Telecommunications Act, Lacavera noted that Globalive’s corporate structure had been investigated by Industry Canada prior to bidding on spectrum licenses and been approved and the CRTC didn’t raise objections until after licenses had been paid for in full months after the auction. (He also conceded that clearly he had a bias in the matter.)

As a business class, the focus was primarily on the business developments and challenges of moving from Gloablive’s origins in 1998, morphing over time from a telecoms reseller to provider, to present day in building out its own network infrastructure. There wasn’t as much focus as I would have liked on future efforts, especially the pending spectrum auction, though he did touch on the change in working primarily with Orascom to VimpelCom — access to increased scale was a pro, garnering attention within an even larger corporate entity was a con.

One of the perceived delays with the 700MHz auction in Canada is due to government investigation of liberalization of the Canadian telecom sector. Will they open telecoms to foreign competition? Will it be staggered, with initially only smaller market actors being permitted to become completely liberalized? Will telecom be liberalized and not broadcasting? The incumbents don’t appear to have a coherent preference, other than that foreign investment rules for small market actors should be the same as for the incumbents. I’m not sure that I agree that as it stands liberalization for small actors would significantly lower cost of capital vis-a-vis incumbents — while Canadian capital markets are much smaller, the immense scale of incumbents versus new entrants seems an important consideration.

While Lacavera did not touch upon spectrum set asides or foreign investment rules, he did respond to one question of where he saw the industry in a 5 years and that was consolidation — BELLUS, Shawgers and Public WINDicity, along with Videtron being the unassailable Quebec entity (Lacavera suggested the mergers but not the names). I’d argue this outcome would result from allowing foreign competition for smaller market actors but not for either dominant market actors or foreign ownership of broadcasting. Permitting increased domestic consolidation would be the consolation prize for incumbents.

If liberalization is focused on market share, the outcome will likely be full liberalization in a 3-10 year time horizon. If it hinges on broadcasting, then there’s some interesting questions to be asked in the corporate boardrooms of Shaw, Rogers and Bell while TELUS will see its current strategy of focusing on the platform payoff by perhaps allowing for immediate greater access to foreign investment.