Editorial: Competition at last?

The federal competition panel’s report should prompt a rethink of our anti-competitive ways. But it could have gone further.

Canadians are not known for our love of competition. A northern nation bent on surviving the elements, we prefer collaboration over the contest-loving ways of our neighbour to the south.

This cultural tic shows up significantly in the way we regulate the economy. The Investment Canada Act (ICA) and the Competition Act protect business from overseas competition in a number of ways. The ICA requires all foreign investments over $295 million be reviewed by the ministries of industry or culture. Proposed foreign investments of $5 million in sectors deemed of sufficient national interest — financial services, transport, uranium mining and cultural businesses — must also be reviewed. And the Competition Act gives the Competition Bureau three years to deliberate over whether a merger should be allowed. The result tends to be bad news for the consumer. On average, Canadians pay higher prices than Americans do for everything from cross-country airfares to wireless service to bus tickets.

Take telecom. In July, Bell Mobility and Telus Mobility announced plans to charge 15¢ for each incoming text message to pay-per-use cellphone subscribers. Industry Minister Jim Prentice has reacted strongly, demanding a meeting with executives to find “the best price.” His reaction is justified. In the United Kingdom and United States, carriers offer packages that price incoming text messages at a reasonable flat rate. T-Mobile, for example, offers a package of 400 text messages a month at US$4.99. That’s just over a penny per text. In Canada, lack of choice means BCE and Telus can risk such outlandish pricing.

But things may be about to change.

On June 26, Canada’s Competition Policy Review Panel released its final report. Entitled Compete to Win, the report represents a year’s worth of investigation into competition and foreign investment policies. Happily, the panelists have done a good job. But in key areas they haven’t gone far enough.

First, the good. The report squashes the talk, so popular amongst certain captains of industry last summer, that Canada is being “hollowed-out” by foreign acquisitions. Instead, it favours greater openness to the outside world. The report recommends narrowing the scope of the Investment Canada Act by increasing the general financial threshold for the review of foreign acquisitions to $1 billion. Investments of $5 million or more in financial services, transportation and uranium will no longer be reviewed. As well, the report recommends liberalizing foreign ownership restrictions on air carriers (from 25% to 49% of voting shares), uranium companies and, eventually, telcos. It also proposes clearer guidelines for mergers and acquisitions.

Now for the not-so-good. George Addy, former head of the Competition Bureau and now head of Davies Ward Phillips & Vineberg’s competition and foreign investment review group, applauds the panel’s effort, but argues that much more needs to be done.

For instance, the report recommends shortening the time the Bureau can deliberate on a merger proposal to one year from three. It also recommends the commissioner of the Bureau conclude — and effectively clear — most cases 30 days after receiving the filing. “Second stage” cases that raise complex competition issues would be subject to an additional review, which would end 30 days after dealmakers comply with a second request for information. The problem, Addy says, is that the period between the commissioner requesting and receiving materials on second-stage mergers is left undefined. Who knows what could happen to a deal in the interim?

One other big omission lies in the panelists’ recommendation that the federal government allow bank mergers, but retain the “widely held” rule for banks and demutualized insurers that have more than $8 billion in equity. That rule sets absolute foreign ownership limits of 20% of voting shares and 30% of non-voting shares. In practice, it precludes the takeover of large Canadian institutions by foreign banks or insurers. In other words, the report is recommending our banks merge to compete overseas while maintaining a lock on the market at home. Those hoping for real openness to competition in domestic financial services in Canada can just keep hoping.

The real question is whether any of the recommendations will get implemented, and in what form. Addy indicates the government has established a task force within the Ministry of Industry to consider next steps. Canadian Business will be tracking that process closely.