Small businesses and Internet-based tech companies are welcoming Ottawa's interest in allowing more foreign ownership in the Canadian telecommunications market.

Federal Industry Minister Maxime Bernier has indicated the Tories will further deregulate the industry by easing restrictions on foreign ownership.

Under current law, firms based outside Canada are limited to a 46.6-per-cent stake in Canadian-based firms.

Bernier recently told analysts in New York that a forthcoming federal panel will examine telecommunications as part of its sweeping review of competition policy. The future panel, expected to be established this fall, will follow up on a telecommunications review panel that last year endorsed the idea of allowing foreign telcos to have a greater presence in Canada.

Although the first panel was commissioned by the former Liberal government, Bernier, a staunch free-market advocate, has already adhered to some of its recommendations.

For example, he has asked the Canadian Radio-television and Telecommunications Commission (CRTC) to consider market forces more often as it sets new rules - and also expressed interest in allowing more outside ownership.

Many groups have balked at increased foreign ownership in telecommunications on nationalistic grounds and concerns about national security.

But small businesses and tech-company operators say the potential economic gains outweigh such fears.

"It's good for the consumer," says Ted Mallett, Ottawa-based vice-president of research and chief economist for the Canadian Federation of Small Business, which represents 10,000 small and medium-sized firms across the country.

"It means prices are kept down."

Mallett says the arrival of more major players from the U.S. and other countries will create more and bigger opportunities for small firms. Foreign firms will also help stabilize the market, he adds.

John Williamson, federal director for the Canadian Taxpayers Federation, agrees increased foreign input in the domestic market will create more opportunities for Canadian companies both at home and abroad while also helping them become more competitive.

He says the Canadian industry will be able to become more effective while domestic prices will become more market-based.

Some labour and sovereigntist groups have contended increased foreign ownership will spell Canadian job losses. But Williamson says "the whole notion that protectionism saves jobs has been largely discredited."

He contends Canada's experience with NAFTA shows industries affected by free trade are actually better off.

Tech company operators say they're torn between their love for Canada and their company's potential economic gains when it comes to more foreign ownership.

Bill White, chief information officer for Vancouver-based Peer 1 Network, says more foreign ownership is necessary for the Canadian telecommunications industry to become more globally competitive.

Peer 1, which provides co-location and hosting services, won't necessarily benefit from further deregulation of telecom services, but it may help the firm's customers who rely on former phone and cable TV utilities such as Telus and Shaw for Internet access.

Greater foreign ownership could also enable large U.S. players to take over major Canadian firms such as Telus and BCE Inc., the parent of Bell Canada.

Telecom markets were abuzz last week following rumours of a potential acquisition of BCE Inc. by a U.S. private equity firm. However, BCE officials denied any "ongoing" discussions were being held.

Bruce Hobbs, president of Stargate Connections Inc., a business Internet-services provider based in the Vancouver suburb of Burnaby, says concerns over greater foreign ownership could be much ado about nothing.

The domestic market is likely too small for major U.S. firms to want to take over giants such as Telus and Bell, he says. But, he adds, "I could be wrong."

Meanwhile, an internationally recognized telecom and resource-management expert says Canada must allow more foreign ownership of its telecommunications sector if the country wants to become more globally competitive.

Restrictions on foreign ownership tend to leave domestic companies "looking inside and not being as competitive as they should be," says Leonard Waverman, the incoming dean of the University of Calgary's Haskayne School of Business. "Here we are worrying about international security issues, and I don't see (foreign ownership) as a major problem."

Waverman says by allowing firms from the U.S. to gain bigger stakes in domestic firms, Canadian firms in other sectors will be able to acquire larger stakes in U.S. sectors, such as airlines.

"I think it's got to be a two-way street," says Waverman, who is currently the chairman of the London Business School's economics department. "The U.S. has lots of restrictions."

But the loosening of restrictions in specific sectors should occur gradually, he adds, following bilateral and multi-lateral negotiations.

There are aspects of the Canadian telecom industry that are already very successful Waverman says.

"We have a higher fixed-penetration rate. Firms like Rogers and Telus and Bell are first-class companies. What one would gain (from allowing more U.S. ownership) is further economies of scale on purchasing.

"If they're willing to pay a large premium and to buy up the shares, then they must have synergies or something better they can do with those assets than what other managers can do."

Tight restrictions on foreign ownerships also limit the performance of capital markets, he notes, because investors can't spend money on projects in which they're quite willing to invest.

Waverman says the telecom review panel's report is very valuable, because it shows what Ottawa has been doing in terms of shifting the CRTC toward competition policy and away from day-to-day regulation.

"We engage too much, I think, in retail-price regulation," says Waverman. "(Remove) some of those constraints and let (incumbents such as Bell and Telus) compete against some of the entrants, by making it clear to them that competition is fair competition. If they tend to abuse any kind of market position they have, that you throw the bricks up."

Basil Peters, a Vancouver-based investor in tech startup companies, says the bigger issue is deregulation of Internet access - already achieved - which allows tech companies to sell high-speed ADSL services.

Peters, who manages the Fundamental Technologies II fund, predicts online video services will be tech operators' next target for deregulation.

(Monte Stewart can be reached at monte@businessedge.ca)