The Minister of Industry, through the Department of Industry Act, the Radiocommunication Act and the Radiocommunication Regulations, with due regard to the objectives of the Telecommunications Act, is responsible for spectrum management in Canada. As such, the Minister oversees the development of national policies and goals for spectrum resource use and ensures effective management of the radio frequency spectrum.
It is a regulatory requirement that radiocommunication carriers be Canadian-owned and controlled.
Section 5 of the Radiocommunication ActFootnote 1 (the Act) states that the Minister may issue radio licences in respect of radio apparatus and spectrum licences in respect of the utilization of specified radio frequencies within a defined geographical area. The Minister of Industry in exercising these powers may have regard to the objectives of the Canadian telecommunications policy set out at section 7 of the Telecommunications ActFootnote 2. Further, when exercising this authority the Minister is subject to the regulations made by the Governor in Council under section 6 of the ActFootnote 3.
The Governor in Council has made regulations prescribing the eligibility of persons to whom radio licences may be issued as radiocommunication users or radiocommunication service providers (subsection 9(1) of the Radiocommunication RegulationsFootnote 4 , hereafter referred to as the Regulations). The Regulations also prescribe the eligibility of persons to whom radio licences may be issued as radiocommunication carriers, including Canadian ownership and control of a corporation, and the citizenship or permanent residence status and residence requirements of an individualFootnote 5. These eligibility criteria are prescribed under section 10 of the Regulations and refer to certain definitions found at section 2 of the Canadian Telecommunications Common Carrier Ownership and Control Regulations (CTCCOCR).Footnote 6
This document has been developed to provide general information on elements commonly considered in an ownership and control reviews conducted by Industry Canada. An assessment of compliance with eligibility requirements by a radiocommunication carrier is carried out on a case-by-case basis, as each situation is unique and raises particular issues and concerns.
Entities operating as radiocommunication users or radiocommunication service providers are not subject to Canadian ownership and control requirements but they must comply on an ongoing basis with the eligibility criteria outlined in subsection 9(1) of the Regulations.Footnote 7
The Regulations establish Canadian ownership and control requirements for applicants applying for radio licences to operate as radiocommunication carriers. These requirements also apply by policy to those applicants applying for spectrum licences so that they may operate as radiocommunication carriers.
Section 10.1 of the RegulationsFootnote 8 specifies that Canadian ownership and control requirements do not apply to radiocommunication carriers that only operate earth stations.
Examples showing different types of licensees are provided in Appendix A.
It is the responsibility of applicants to demonstrate that they are eligible to hold a licence and it is the responsibility of licensees to maintain that eligibility on an ongoing basis. Licensees are also responsible for notifying the Minister of any changes which would have a material effect on their ownership or control. The Department of Industry does not provide legal guidance with respect to compliance with the ownership and control requirements set out in the Regulations. However, in the course of an assessment, the Department will identify any missing information, areas of concerns or issues pertaining to Canadian ownership and control and will provide a reasonable opportunity to resolve issues and bring ownership and control structures into compliance. However, should it be determined that an applicant or licensee is not in compliance with the requirements and, as such, not eligible to hold a licence, a licence will not be issued or may be suspended or revoked under the authority of the Act.
Situations may arise where there is doubt that an applicant, or a licensee who has been issued a radio licence or a spectrum licence as a radiocommunication carrier, meets the Canadian ownership and control requirements. Under such circumstances, the Department may initiate a review to assess compliance and proceed as discussed above.
In the ownership and control review of a corporation, Industry Canada will examine the corporate documentation and the relevant agreements of the corporation itself as well as those of its Canadian parent corporations or entities. The documentation typically requested from an applicant for a review is listed in Appendix B. It is understood that these documents may not be those that are executed, as they may need to be finalized during the course of the review or amendments may be required to bring the ownership and control structure into compliance. However, prior to issuing a licence, the Department will need to review the final executed corporate documentation and agreements.
The determination of the Canadian ownership and control is comprised of a number of objective elements. In the case of a corporation, an assessment will require a review of the following elements of the applicant's corporate structure:
- Is it incorporated or continued under the laws of Canada or a province?
- Are no less than 80% of the members of the board of directors of the corporation individual Canadians?
- Are no less than 80% of "voting shares" (defined in section 2 of the CTCCOCR) beneficially owned, directly or indirectly, by Canadians?
Canadian owners may be individuals, qualified corporations or any entities listed in the definition of "Canadian" in section 2 of the CTCCOCR.Footnote 9 It is important for an applicant to consider that owners have criteria of their own to meet in accordance with the Regulations and the definitions found at section 2 of the CTCCOCR (see, for example, the definition of a qualified corporation, a qualified trust or a qualified partnershipFootnote 10.
If the corporations and entities of the corporate structure do not meet the criteria, the applicant must undertake the necessary steps or changes to bring the ownership structure into compliance with the regulatory requirements.
In the case of an individual, Industry Canada reviews whether the individual is:
- a citizen within the meaning of subsection 2(1) of the Citizenship ActFootnote 11 who is ordinarily resident in Canada; or
- a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection ActFootnote 12 who is ordinarily resident in Canada, and who has been ordinarily resident in Canada for not more than one year after the date on which that person first became eligible to apply for Canadian citizenship.
As part of a review, the Department will consider whether control in any manner results in control in fact, whether directly through the ownership of securities or indirectly through a trust, agreement or arrangement, the ownership of any body corporate or otherwise.Footnote 13 An assessment of control in fact of an applicant is a complex matter. It is done against the general test of whether it "...is not otherwise controlled by persons that are not Canadians".Footnote 14 One often cited decision states:
"There is no one standard definition of control in fact but generally, it can be viewed as the ongoing power or ability, whether exercised or not, to determine or decide the strategic decision making activities of an enterprise. It can also be viewed as the ability to manage and run the day-to-day operations of an enterprise. Minority shareholders and their designated directors normally have the ability to influence a company as do others such as bankers and employees. The influence, which can be exercised either positively or negatively by way of veto rights, needs to be dominant or determining, however, for it to translate into control in fact".Footnote 15
Therefore, the determination of control in fact is based on the particular facts of each case.Footnote 16 The approach the Department takes is to examine the documentation submitted by the applicant to ascertain if there are elements that, when considered as part of the whole structure, would indicate control in fact by non-Canadians or provide non-Canadians with the ability to exercise control. The review considers, but is not restricted to, the following elements:
- The percentage of share holdings held by Canadians and non-Canadians;
- The rights of Canadians and non-Canadians in shareholders' agreements, including dividend rights, veto rights and the process and right to elect directors;
- The experience and strength of the shareholders and directors, their relationship;
- Board governance that is independent of non-Canadians, including composition of the board and board committees, quorum requirements and scope of authority;
- Nationality, selection and responsibilities of members of the senior management;
- The scope and exclusivity of management and services agreements;
- Source of debt and equity financing.
If the Department concludes that the applicant meets the Canadian ownership and control requirements, it will be eligible to hold a licence as a radiocommunication carrier. If not, then the applicant must take the necessary steps and bring the necessary changes to the corporate structure to comply with the requirements in order to be eligible to hold a licence as a radiocommunication carrier.
8. Telecommunications ActFootnote 17 and Canadian Ownership and Control
The Regulations provide that a corporation is eligible to be licensed as a radiocommunication carrier if it is:
"a Canadian carrier that meets the eligibility criteria set out in subsection 16(1) or (2) of the Telecommunications Act, whether or not the carrier is exempt from the application of that Act or that Act does not otherwise apply to the corporation".Footnote 18
Applicants are reminded that the CRTC has its own mandate under the Telecommunications Act in relation to Canadian ownership and control requirements for Canadian carriers.
All questions concerning Canadian ownership and control should be directed to the office of:
Manager, Wireless Networks
Spectrum Management Operations
300 Slater Street