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April 27, 2009

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PAGE 14 NEW An online resource tool 1.800.263.3269 Bestcase earlug.indd 1 3/26/08 11:52:01 AM Focus On IT/TELECOMMUNICATIONS LAW ter the field in the coming years. The expanded sector comes following last anada's mobile phone sector is about to get a lot more crowded as a num- ber of new companies get set to en- Mobile phone sector to get more crowded C Expanded sector follows 2008 wireless spectrum auction BY GLENN KAUTH Law Times year's wireless spectrum auction, which net- ted 15 successful bidders and $4.2 billion for federal government coffers. The winners included existing telecom giants such as Bell Mobility Inc., Rogers Communications Inc., and TELUS Communications Inc. along with several new prospective providers. Two cable TV and Internet service providers, Shaw Communications Inc. and Vidéotron Ltée, are planning their own moves into wireless as well as lesser-known entities like Public Mobile Inc., Data & Audio-Visual Enterprise Wireless Inc. (DAVE), and Glo- balive Wireless Management Corp. Some companies, notably Public Mobile much on price on wireless as well." At the same time, Kidd notes some of the lesser-known companies are also show- ing promise despite the fact that, unlike the cable companies, they can't bundle their services with TV and Internet offerings. "In addition to the two cable companies, there are these very well funded other en- trants, Globalive and Audio-Visual, which is commonly called DAVE," he says. "They also pose a very good competitive threat. Mind you, they are single-offering-type companies in that they do not have the abil- ity to bundle their own native services such as wire-line or video. So, their competitive advantage is somewhat less and narrowed to two — one of quality and price." Nevertheless, the expanded field has al- and Globalive, have said they plan to launch new discount services by the end of the year. But David Kidd, the head of the communi- cations law practice group at Blake Cassels & Graydon LLP in Ottawa, says he's also cu- rious about how the entry of two major cable TV companies will affect the market. "I think that we're waiting to see how quickly they roll out, but certainly the two cable companies, Vidéotron and Shaw, clearly in my view are going to make a big difference to this market because of their ability to bundle services. They also have already a captive audience of video cus- tomers through their cable offerings. Vid- éotron has also exhibited quite a degree of competitive spirit in the wire-line side with their voice over IP offerings. They're com- peting very much on price on the wire-line side, and I suspect they'll compete very ready seen a slight retrenchment as Shaw announced recently that it would delay introducing its wireless services. "Basically, the Shaw family is saying: 'Given the capi- tal resources we have available, the com- pany is doing well [and] we think there is a better return on investing in enhancements to our cable products and our high-speed Internet services,'" says Phil Rogers, a part- ner practising telecommunications law at Osler Hoskin & Harcourt LLP in Ottawa. "They're being vague about their capital plans in wireless for the future. They're not saying they have backed off. They're just saying they're going to delay." Still, Rogers notes the federal take from passed those tests, Kidd notes debate con- tinues on whether those restrictions are still necessary. "The whole question of foreign ownership restrictions is an area where Can- ada has not been moving as quickly as some of us would like. There have been a variety of reports that have suggested that Canada should open up foreign ownership restric- tions in telecom. However, the government has so far seemed not to move on that, and it possibly is due to the economic environment that we're in, which tends to be more inward- looking and restrictive in terms of policies rather than opening up the market to foreign investment as it should. So I think there's a level of frustration there and a conflict of how are you going to increase competition in the wireless market while at the same time keeping foreign ownership in place." In Globalive's case, it has significant for- David Kidd says he's curious about how the entry of two major cable TV compa- nies will affect the market. last year's auction indicates "strong interest" in the sector. "I think they will all enter, and all that spectrum will end up being used eventually," he says. Of course, getting off the ground with sufficient financing in the current recession isn't necessarily easy in a capital-intensive in- dustry. Already, though, 13 of the 15 bidders for wireless airwaves last year have received licensing approval from Industry Canada, which means they passed federal restrictions on foreign ownership of telecommunica- tions companies. Those rules limit foreigners to holding a maximum of 20 per cent of a telecom's voting shares at the operating com- pany level and 33 1/3 per cent of the voting shares at the holding company level. In addi- tion, telecoms must also meet what's called a control-of-fact test to ensure that even for- eign investors meeting the voting share re- quirements don't have undue influence over the company through other means such as shareholder agreements, Kidd points out. But while most of the new entrants have Laws for virtual property? BY GLENN KAUTH Law Times players buy and sell — often for real money — in video games. The decision represents a key advancement in the development T he tax-free ride is over for Chinese video game players. Re- cently, the Chinese government announced it is slapping a 20-per-cent income tax levy on sales of virtual property that of virtual property regulations, an area of debate following several Asian cases in which game players have attempted to launch le- gal proceedings over everything from theft of online equipment to the disappearance of online assets. It's also an area people like entertainment lawyer Susan Abramovitch, a partner at Gowling Lafleur Henderson LLP in Toronto, feel Canadians should start thinking about regulating. "It's not going to be just about games some time soon," she says. "There is a real-world value attached to virtual property." The issue is particularly relevant to programs like Second Life, eign involvement by an Egyptian company. But as Rogers points out, the key to passing the test is to restrict voting shares to the pre- scribed levels. "The ownership issues have been dealt with satisfactorily," he says of the new entrants that have received approval. Nevertheless, Michael Hennessy, the se- nior vice president for regulatory and gov- ernment affairs at TELUS, argues the gov- ernment needs to be more transparent about how it assesses companies' compliance with the ownership restrictions. "Because it's all done behind closed doors, you don't know what the test is," he says, noting he's been espe- cially curious about how Globalive — which is purported to be 65-per-cent owned by the Egyptian company — got its licence. "What it is that Globalive had to do, therefore, to come into compliance is unknown." Already, both Public Mobile and Glo- the same time, only one player can own the sword, which makes it exclusive, unless he or she sells or gives the property to someone else, thereby making it transferable. Virtual and real property diverge, of course, in one important aspect, Abramovitch points out. "What's different about it is of course you can't touch it. It only exists within an unregulated, law- less world that is controlled by a dictator — the person who owns the web site or the game." Currently, creators of virtual property are most often subject to user agreements gaming companies require them to accept be- fore they can play. Often, the terms include stipulations that any property remains with the game developers, but Brian Ferstman, of Ferstman Law Office in Toronto, predicts the courts will even- tually take the rules a step further. "I think inevitably you're going to have a body of law. There's no question," he says. "If you have a community — which is what a virtual world is where people enter into transactions for virtual goods, including online real estate, using cyber currency called Linden dollars. Such trades in and of themselves might not raise tax or regulatory impli- cations, but once users exchange Lindens for real currency such as euros or dollars, the game changes. "In some senses, it's very similar to real property," Abramovitch says, noting the two share three key characteristics that make regu- lating virtual assets feasible: exclusivity, persistence, and transfer- ability. "You can acquire a virtual sword on your computer, go back to it, and it's still there," she says, referring to the permanence issue. At — and property can be accumulated, to the people playing that is theirs. I think it will be recognized as private property, and therefore if you are somehow able to steal it, then theft [charges] will be a possibility. I think arson or vandalism [charges could also be laid] if you destroy something someone has created." Ferstman expects the courts will attempt to apply existing laws to virtual property disputes, a process he doesn't think will necessarily be easy as some judges wait for politicians to pass new regulations to deal with it. "As with most systems, it would be a combination. You'll have overly conservative judges who will require that there be legislation because their conservatism is holding back regulation in a certain area. And you'll have the See Lawyer, page 17 www.lawtimesnews.com balive have said they plan to compete in the market based on price through unlim- ited talk and text plans serving a national network. Kidd expects Shaw and Vidéotron will focus on bundling services through a network targeted at their respective cable audiences in Alberta and Quebec. He points out, however, that the existing carriers have already gotten a jump on the prospective competition by lowering their prices. "I think the three incumbents are already be- ing more price conscious both because of the tougher economic time we're currently in and also in anticipation of the new com- petition entering the market," he says. But exactly what the new entrants will mean for consumers isn't yet clear, Rogers notes. "There should be more price compe- tition, but the form of that is very difficult to predict because there are so many ways it can be done," he says. "Maybe some of them will start using American-style pric- ing, which is a little different from Canada in terms of pricing for data services and abolishing the distinction between local and long distance calls. Those are all mar- keting judgments, and each of those new entrants will have to make their own decisions on that." Kidd notes as well that getting off the April 27, 2009 • lAw Times ground in the industry isn't cheap or easy due to the need to do everything from se- curing financing to establishing towers and roaming agreements with other carriers. "It's a very capital-intensive business, and the pos- sibility of erecting new radio towers has be- come an issue of environmental control and See Losses, page 17

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