Canada's Telecommunications Industry: Moving Toward Deregulation

Editor: Ms. Embree, please tell us something about your professional background.

Embree: Before coming to Fraser Milner Casgrain I worked in the telecommunications and broadcasting industries in Canada, both as in-house counsel and in private practice. My experience includes working for AT&T Canada, Telesat Canada and the former federal Department of Communications. I have been in the private practice of law since 1996.

Editor: How did you come to Fraser Milner Casgrain?

Embree: I came to Fraser Milner Casgrain from another national law firm a little more than two years ago. FMC was looking to build a presence in the communications law practice area and approached me. It has been an excellent experience for me.

Editor: Speaking of your practice, how has it evolved over the course of your career?

Embree: I began practicing in this area at a time when many segments of the telecommunications market in Canada were highly regulated. Over the years, various segments of this market - including long distance telephone, local telephone, private line services, and data services - have been gradually deregulated by our federal telecommunications regulator, the Canadian Radio-television and Telecommunications Commission ("CRTC"). My practice has evolved in tandem with the gradual deregulation of the telecommunications industry in Canada. The trend toward deregulation is spurred on by many factors, including technological advances and innovation which, in turn, result in increased competition.

Editor: You've also been very active in a variety of professional organizations, and you've chaired the Canadian Bar Association's Media and Communications Law Section. How have these activities helped your practice?

Embree: In my area of practice, as with others, it is essential to stay abreast of new developments. Speaking, writing, attending conferences and networking with fellow practitioners all contribute to my knowledge base and have had a very positive impact on my practice.

Editor: You and one of the associates in the Ottawa office, Amy McKinnon, recently released an assessment of a Canadian government report on the country's telecommunications policies. For starters, what was the origin of the report?

Embree: The Telecommunications Policy Review Panel was established about a year ago as a consequence of the federal government having announced, in Parliament, that it wanted to conduct a review of the Canada's telecommunications policy. The independent panel that was appointed consisted of three telecommunications experts, a representative from the academic world, a telecommunications lawyer and a senior executive from the telecommunications industry.

Editor: What was the perceived need for this kind of review?

Embree: Not everyone felt that a full-scale comprehensive review of Canada's telecommunications policy was needed, including new entrants in the market and the cable sector. However, the established telephone companies believed that it was time for a long hard look at our policies and regulatory mechanisms and they, along with certain like-minded organizations, urged the government to carry out a review.

Editor: Can you give us an overview of the panel's final report? What were the principal recommendations?

Embree: The recommendations can be grouped into different areas of focus. One major area concerns the regulation of telecommunications companies. The report recommended that the statute that governs the CRTC be revised to streamline it and place more emphasis on economic regulation and less emphasis on the existing, ex ante forms of regulation currently employed by the CRTC. To this end, the panel recommended various revisions and deletions to the statute that currently allow the regulator greater discretion to regulate in the public interest.

Editor: Would you elaborate on the panel's emphasis on competition and market forces? I am sure you are aware that, to many American readers, this sounds like a major shift for Canada.

Embree: Yes, if adopted, this would be a major shift for Canada. In fact, if we were comparing the existing Canadian model of regulation to that of the U.S., it is arguably a shift away from the FCC's current model of regulation. Essentially, what the panel has recommended is that we rely, to the greatest extent possible, on competition and market forces as a surrogate for regulation. Now, I should hasten to add, this is already a feature of our current regulatory framework in Canada. In fact, our existing Telecommunications Act already contains provisions that allow the regulator to deregulate where competition and market forces are sufficient to protect the interests of consumers. In the case of the panel's recommendations in the TPR report, I think what the panel is saying is that it would like to reinforce this as the overriding principle and overriding objective of regulation.

Editor: The panel also recommended the creation of a new quasi-regulatory tribunal with respect to telecommunications competition. What is this meant to accomplish?

Embree: The panel has recommended the creation of a tribunal, which would have a five-year mandate and would be composed of CRTC staff, including the CRTC's Vice Chair of Telecommunications, as well as staff from Canada's Competitions Bureau. The tribunal would be charged with making findings concerning the deregulation of telecommunications services. What some critics have said about this recommendation is that the CRTC already has this power, and, indeed, it has used this power to deregulate most telecommunications service markets over the past 20 years.

Legislation and a variety of governmental directives will probably be necessary to create this tribunal and its mandate.

Editor: Many of our readers would be interested in the panel's observations concerning the limitations that Canada now imposes on foreign investment in the telecommunications industry.

Embree: The panel claimed that it was not within its mandate to make recommendations regarding the existing restrictions on foreign ownership in Canadian telecommunications carriers, so it offered up a proposal for consideration. Basically, what the panel proposed was to lift the foreign ownership restrictions in two phases. In the first phase, no restrictions would apply to companies that enter the market with less than 10% of telecommunications revenues in any telecommunications market. In the second phase, all restrictions would be lifted but only after the government has conducted a review of Canada's broadcasting policy, including the foreign ownership restrictions that currently apply under those policies to broadcasting distribution undertakings or "BDUs", such as cable companies and satellite DTH or DBS providers. The rationale behind this second phase of the panel's proposal is that if the foreign ownership rules for telecom carriers are to be lifted, then the same flexibility ought to be permitted the cable companies and other BDUs. These latter companies are providing telecommunications services and competing with the telephone companies today, so fairness dictates they be treated similarly.

Editor: How about the panel's recommendation on spectrum management?

Embree: The panel has recommended that the spectrum management and licensing functions that are currently being exercised by our Canadian Minister for Industry be transferred to the CRTC. If this recommendation were adopted, the Canadian regulatory model would become more similar to the model in the U.S., where spectrum management and licensing activities are housed under the same roof as telecommunications regulation. The panel was of the view that this recommendation would make the spectrum and licensing process more transparent, and possibly more competitive.

Editor: The panel also gave considerable attention to the social objectives of telecommunications management.

Embree: Yes, the panel thought that it might be a good idea to set up another agency, the Telecommunications Consumer Agency, to hear complaints from consumers on telecommunications service issues. Related to this was a recommendation that we codify the obligation currently imposed on incumbent local telephone companies to provide telecommunications service in areas where they have a network infrastructure. This would help to ensure that Canadians would not be left without service options.

Editor: And the panel's recommendation for a national information and communications technology adoption policy?

Embree: Some of the analysis that has been conducted on Canada's economic performance shows that Canada may be lagging in terms of its productivity. Telecommunications technologies, together with other information and communication technologies or "ICT", can improve the productivity of our economy and enhance our ability to compete internationally. The panel has recommended that we adopt a national ICT policy that is designed to address this shortfall - at least to the extent that the ICT sector is capable of doing so.

Editor: What happens next?

Embree: The report has been presented to the Minister for Industry, the Hon. Maxime Bernier, and the next step would be for the government to respond. We have a new government, and it is a minority government, so an immediate response may not be possible. In fact, the government has a number of high priority items that it would like to address in the near term, so some argue that reforming our telecommunications policy may have to take a back seat. I think we will have to wait and see what happens. I understand that, in the meantime, the government has invited industry stakeholders and consumer groups to comment on the report.

Editor: Where would you like to see Canada's telecommunications industry in, say, five years?

Embree: I would like to see an industry with lots of competitors, one where there are no artificial barriers to entry and one which recognizes that wherever monopolies still exist, some degree of regulation is still required. Most important is the presence of a great many new entrants in the market. They contribute to a vibrant and vigorously competitive environment and that, in turn, means new products and services, increased levels of innovation and quality of service and lower prices. Everyone wins, especially consumers.

Published May 1, 2006.