Blogs & Comment

Allstream deal rejection a bone-headed move: Nowak

One of the feds' dumbest mistakes yet

(Sean Kilpatrick/CP)

Industry Minister James Moore said Monday that the takeover would be blocked (Sean Kilpatrick/CP)

The International Telecommunications Union, the United Nations’ telecom agency, recently released its latest report on broadband Internet access. Some of the organization’s conclusions are now doubly ironic given the Canadian government’s shock rejection this week of the sale of Manitoba Telecom’s Allstream division to Egyptian billionaire Naguib Sawiris, the same man who brought Wind Mobile to the country.

Much of the report focuses on how to improve broadband access in the developing world, but it also has poignant advice for advanced countries. Its top recommendation suggests the further liberalization of markets:

Based on panel regressions of broadband penetration for 165 countries for ten years between 2001-2011, competitive markets are associated with broadband penetration levels some 1.4% higher on average for fixed broadband and up to 26.5% higher for mobile broadband. Competition has been a key driver of higher levels of uptake and investment in communication networks and services in many countries.

In the Canadian context, the recommendation seems to be aimed squarely at the country’s lingering foreign ownership limitations. Despite the Conservative government finally liberalizing these rules to some extent last year by allowing foreign ownership of firms with less than 10% of the market, larger companies and broadcasters are still off the table.

The limits are likely discouraging foreign concerns from entering Canada in two ways: firstly because they might want to simply buy a bigger business than build one from the ground up, or secondly, that acquiring a small player and then competing against huge converged telecom-broadcasters such as Bell and Rogers is simply too tough a mountain to climb because their competitors have access to assets, such as broadcast, that they do not. Those two reasons combined are likely why there will be no major foreign bidders in the upcoming wireless spectrum auction.

Completely removing the foreign ownership restrictions on both telecom and broadcast is a necessary move for the long term. The sort of meaningful competition espoused by the ITU simply won’t evolve without it.

That’s what makes Ottawa’s rejection of the Allstream sale over supposed security concerns all the more surprising. MTS has been trying to sell the division, which primarily provides telecom services to Canadian businesses and government clients, for some time now, with no luck. Enter Sawiris, the same man who is largely responsible for lowering cellphone rates in Canada over the past five years through his backing of Wind, which basically gave the Conservatives even a shred of proof that their otherwise scattershot telecom policies – if they can be called that – were working.

Sure, Sawiris did complain loudly a few years back that the government hadn’t done enough and that he regretted getting into Canada, but ultimately his money did the real talking – he was, after all, willing to fork over another half-billion dollars for Allstream. Is the government’s rejection now just sour grapes over those comments or is there substance to its claims of security concerns?

We may never know, but two things are certain – the government is doing an excellent job of scaring away potential foreign telecom investors, which is the opposite of what the ITU is suggesting, and one of those investors is likely Sawiris. By all accounts, he is (or was) interested in re-acquiring – and saving – Wind, probably with a plan to combine it with Allstream to in fact overcome some of the competitive size disadvantages both companies are individually facing. Can anyone blame him if he now changes his mind? And if he does, how far up the creek does that leave Wind and, by extension, the government’s desire to have another strong wireless competitor?

Unless the Conservatives have some secret ace up their sleeves, the rejection of the one man who has kept them out of the hole they’ve slowly been digging may go down as one of their dumbest mistakes yet.