Evidence of meeting #42 for Industry, Science and Technology in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was market.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Jean Brazeau  Vice-President, Telecommunications, Shaw Communications Inc.
  • Yves Mayrand  Vice-President, Corporate Affairs, COGECO Inc.
  • Kenneth Engelhart  Vice-President, Regulatory, Rogers Communications Inc.
  • Luc Lavoie  Executive Vice-President , Corporate Affairs, Quebecor Inc., Vidéotron Ltée
  • Ted Chislett  President and Chief Operating Officer, Primus Telecommunications Canada Inc.
  • Chris Peirce  Chief Regulatory Officer, MTS Allstream Inc.
  • Joe Parent  Vice-President, Marketing and Business Development, Vonage Canada Corp.

4:30 p.m.

Conservative

The Chair James Rajotte

Thank you, gentlemen, for appearing. I apologize for the shortness of time. It was a very good discussion. We appreciate your being with us here today.

We are going to suspend for two minutes and have the witnesses come to the table. We'll suspend for a couple of minutes, members.

4:35 p.m.

Conservative

The Chair James Rajotte

Members, we are into our second hour, and we have our second panel, consisting of the competitive local exchange carriers.

We have three witnesses before us today. First of all, from Primus Telecommunications Canada, we have Ted Chislett, the president and COO. Secondly, from MTS Allstream, we have Chris Peirce, the chief regulatory officer. Thirdly, from Vonage Canada, we have Joe Parent, vice-president of marketing and business development.

We'll start off in the same order, beginning with you, Mr. Chislett, for your opening statement.

4:35 p.m.

Ted Chislett President and Chief Operating Officer, Primus Telecommunications Canada Inc.

Thank you very much for inviting me here today. You probably have copies of my presentation, if you want to follow along.

Today, in the short time I have, I would like to impress upon you the need for a wholesale access regime and ongoing regulatory oversight to monitor and react to those players with market power, post-deregulation. This is necessary to ensure that a competitive retail market exists and that impediments to competition do not develop.

By way of background, Primus Canada is the largest alternative telecommunications service provider in Canada that is independent of incumbent telephone or cable companies, with approximately one million customers.

Some appearing before you may say there already is lots of competition in the local market in Canada. I say not to be misled by the extent of competition or the reasons for it. All competitors are reliant on either the telephone or cable companies' local networks to deliver local broadband and other services to their customers. The extent to which vigorous competition exists in local and broadband services from players such as Primus and others is a direct result of the current CRTC policies and its mandatory wholesale access regime.

The local access network is different from other areas of telecommunications like long distance, because it is a “natural monopoly”, like electricity, gas, and water distribution. The cost for competitors like Primus to overbuild this last mile network by digging up the streets and backyards is enormous, and it's an insurmountable barrier to facilities-based entry.

For Canadians to receive the benefits of telecom competition, we need many competitors who can innovate and compete, not a monopoly or a duopoly. A workable wholesale access regime will foster vibrant retail competition and thereby enable the reliance on market forces, eliminating the need for retail rate regulation and tariffs.

However, after retail forbearance, even with wholesale access, we are still very concerned about the continued market power of the ILECs and cable companies. We are concerned that their market power could unduly impair competitive forces in the market, resulting in higher prices, less innovation, and lower quality of service. Therefore, an ongoing oversight role is required to ensure that the actions by dominant players, either individually or jointly, will not unduly impede competition and be detrimental to the objectives of the Telecommunications Act. This oversight should normally be non-intrusive, but the CRTC needs to retain the power to step in and intervene if necessary in order to promote the telecom objectives.

Here are some examples. I think everyone would agree that if the ILEC were to call every customer who switched from their service and offered them $1,000 to switch back, this would be anti-competitive. While we haven't seen $1,000 credits yet, customers joining our competitor are called, and we have seen offers of over $400 credits. We have also seen long distance credits applied to the customer's local bill, which violates the CRTC's rules.

As another example, if service is consistently worse for wholesale customers than for the dominant player's own retail customers, potentially penalties or even institutional separation may be required.

Guidelines may also be required for promotions. Short-term service discounts or incentives are part of a competitive environment, but it would not be fair if returning customers were offered lower long-term rates not available to customers who did not leave the ILEC. This would establish two classes of customers, which would be unjust.

Intervention may also be required if retail rates are lower than the wholesale rates or if services are not made available to competitors for resale. Also, it may be necessary to mandate network neutrality, prohibit blocking of content, and define what level of packet prioritization is acceptable.

This oversight is broader and more specific than general competition law, as it is concerned with the telecom objectives and fostering an environment to stimulate innovation and competition in an industry of natural monopolies. The CRTC, as the industry's regulator, is needed to provide this oversight.

In conclusion, as the telecommunications industry moves from economic regulation to deregulation, there is a need for a workable wholesale access regime and ongoing regulatory oversight to monitor those players with market power and ensure that Canadians can benefit from competition.

Thank you.

4:40 p.m.

Conservative

The Chair James Rajotte

Thank you very much, Mr. Chislett.

We'll go to Mr. Peirce.

February 7th, 2007 / 4:40 p.m.

Chris Peirce Chief Regulatory Officer, MTS Allstream Inc.

Thank you.

MTS Allstream is a leading national communications solutions provider. In Manitoba, we are the incumbent, and we now face competition from Shaw. We are unique among the former monopoly providers in that over half our revenues come from having committed to a growth strategy defined by expansion from coast to coast, where we have none of the clear advantages of incumbency. Nationally, we are the leading provider of competitive solutions to Canadian businesses, whether they be small, medium, or large.

By definition, then, we endorse the objective of achieving fully competitive markets as serving the best interests of Canadian customers. Competitive market forces will bring faster innovation, customer choice, and competitive pricing. Market forces that are not competitive, where one dominant player is free to exercise its market power, will slow innovation, bringing less customer choice and inflated pricing. Importantly, we also support the policy direction issued in December by the government. In its final form, that policy direction responded positively to the concerns we raised before this committee.

We cannot support, however, the proposed order dealing with forbearance. In its current form, that proposed order strikes at the very core of the conditions under which the CRTC may or must not grant forbearance, per the Telecommunications Act.

The proposed order offers a choice of two tests to an applicant seeking retail deregulation. The first is the test referred to Monday by Sheridan Scott, the Commissioner of Competition. It is multi-pronged and, while ambiguous, at least considers the presence of market power, including reference to market share, the number of competitors offering service, and active rivalry, all to determine if competitive market forces are present. But the second choice is a test that ignores all of these attributes of competitive market forces and merely calls on the regulator to count the number of providers apparently offering service: two facilities-based providers and, for residential markets, an additional wireless provider.

Clearly, no former monopoly in its right mind will choose Ms. Scott's test. To be deregulated in the local market without having one's market power even considered, as per the second test, is manna from heaven for the former monopolies, not for consumers.

Just as clearly, the second test, which I'll call the mere presence test, is contrary to the approach specifically recommended by the telecom policy report, that deregulation should only occur where significant market power was found not to exist.

The mere presence test is also inconsistent with the policy direction, which recognized the ability of the former monopolies to exercise market power in the retail market, absent an updated essential facilities regime for competitors, and which directed the CRTC to put such a regime in place, a task that won't be completed until 2008.

Our detailed comments submitted to the government in response to the proposed order point out that the mere presence test is fundamentally incompatible with competition law. Nowhere else in the world, save in the now re-monopolizing U.S., would regulators consider deregulating an incumbent without looking at the actual state of competition in the market. Further, and as was alluded to Monday by Richard French, the mere presence test is unworkably vague.

Most importantly, we are concerned with the legality of the proposed order, which supplants the statutory obligations of the CRTC with the mere presence test. The proposed order effectively repeals subsections 34(1) and 34(3) of the Telecommunications Act.

Obviously, cabinet cannot itself amend the statute. In our respectful view, the measure proposed will not withstand judicial scrutiny.

Despite our wholehearted endorsement of the objective of competitive market forces and attendant retail deregulation, we can't support the proposed order. The existing forbearance decision offers more certainty and is, frankly, more streamlined.

Thank you.

4:40 p.m.

Conservative

The Chair James Rajotte

Thank you very much, Mr. Peirce.

We'll go to Mr. Parent, please.

4:40 p.m.

Joe Parent Vice-President, Marketing and Business Development, Vonage Canada Corp.

Thank you for the invitation to appear.

For those members who aren't yet familiar with Vonage Canada, we're a leading independent provider of innovative consumer-friendly broadband telephone service, also referred to as voice over IP or VOIP. We've been in the telecommunications business for a little over two years, and within that time we've created over 200 well-paying technology sector jobs in Canada.

We believe Canadians are hungry for innovative and well-priced alternatives to the services of the large telephone and cable companies. We want to continue to build our high-growth business and provide that choice to consumers and businesses.

The committee study is on telecommunications deregulation. Vonage Canada supports the goal of a deregulated telecommunications market structure that will ultimately produce lower prices, greater choice, and increased innovation for Canadians in our economy. However, we cannot simply wish such a competitive market structure into being. The CRTC, an independent regulator, conducted an extensive proceeding and developed a sound plan for the transition from a market still dominated by former monopolies to robust and sustainable competition. By contrast, the minister's proposed order varying the local forbearance decision assumes a competitive market regardless of the overwhelming evidence that the former monopolies still dominate. It does so in contradiction of the Competition Bureau's criteria and in contradiction even of the Telecommunications Act.

But the main reason we felt it important to address you today is that the proposed order takes Canada in the direction of less innovation and of less choice, not more. The minister's proposed order would replace the CRTC criteria with a singular focus on the presence of a competitor's network in the geographic market. This competitive presence test ignores completely the market power a telephone company continues to exercise.

A small provider like Vonage Canada is David to Bell's Goliath. We cannot ignore the former monopoly's market power, which is real and manifests itself every single day. Bell and TELUS can and do preclude competition by denying Vonage Canada access to their online advertising properties and by limiting the supply of broadband connections used to provide VOIP.

Moreover, under the proposed order, Bell and TELUS would have the ability to contact each and every new customer signed up by Vonage Canada at the very moment that customer acts on his or her decision to switch. Using the knowledge that they obtain through their monopoly position, the telephone companies will be able to offer those customers, and only those customers, a special deal. The vast majority of their customers will not experience lower prices as a result.

In our view, the competitive presence test adopted in the proposed order will simply transition the market from a telephone company monopoly to a duopoly including the cable company. These companies share a mutual incentive to protect their market share, but lack the incentive to compete aggressively for Canadians' business by innovating or contributing to our national productivity. The cable companies have simply matched the product and price offered by the telephone company. This may be in their commercial self-interest, but it does not result in true choice or innovation for Canadians.

Canadians will not and should not be satisfied with such a limited choice and poverty of imagination, nor, in our view, should the government.

Thank you.

4:45 p.m.

Conservative

The Chair James Rajotte

Thank you very much, Mr. Parent, and thanks to all of you for being brief in your opening statements.

We will go to questions from members. I should have pointed out last session, but I will do so now, that members have a very limited time in which to ask questions, so we ask you to be as brief as possible in order to allow other panellists to answer. They have six minutes in the first round and five minutes in the second--not too much time for questions.

We'll start with Mr. McTeague for six minutes.

4:45 p.m.

Liberal

Dan McTeague Pickering—Scarborough East, ON

Thank you for being here today and thank you for the frankness and the brevity with which you presented your concerns here today. I can tell you that on the opposition side we are deeply concerned about the rush by the minister to proceed notwithstanding the number of recommendations made in the TPRP.

I wanted to point out for my colleague Mr. Shipley that Bill C-41's genesis was Bill C-19, and it was this member of Parliament who had everything to do with making that happen. Unfortunately, we had a lot of opposition at that time, including that from your party.

I realize, Mr. Shipley, you weren't here at the time, but I want to make it abundantly clear that the issue of fines concerns us. Fines, if they are limited only to administrative monetary penalties that go back to general revenue, assuming the time it takes to even get a fine, cannot possibly help you, the aggrieved party.

Tell me, from your perspective, how you see these fines--assuming that your various companies have been found to be in a position of having been egregiously violated--helping your company stay in business, or will you be gone by that point?

4:45 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

I think, to start off quickly, I would say that I agree completely that the problem with the AMPs approach is that there is nothing remedial about it. If you had a competition act that actually granted access to private interests to pursue a remedy, that would be different, but as Ken Engelhart mentioned in a previous panel, in terms of quality of service, there already are fines.

We just received another cheque for over $300,000 from Bell for inferior-quality service provided in the fourth quarter of 2006. They've clearly decided that the fines are just a cost of doing business, and that they are better off paying the fines than providing improved quality of service.

So to us, the act needs redefinition in terms of what constitutes anti-competitive behaviour in telecommunications, because the fines on their own don't make that any sort of avenue of relief for us.

4:45 p.m.

President and Chief Operating Officer, Primus Telecommunications Canada Inc.

Ted Chislett

We don't see the fines as being any detriment. The real issue is that the Competition Bureau, in our opinion, is not the right organization. The CRTC has the industry knowledge. They'll be dealing with wholesale in the future, and they'll be able to step in and order things other than fines. That's where it should be.

The test you have for trying to prove the purpose and the activity as a practice, and all the legal things about the Competition Bureau, make it unworkable, together with the length of time it takes to do it.

4:50 p.m.

Vice-President, Marketing and Business Development, Vonage Canada Corp.

Joe Parent

I completely agree with that. While the intent is there, the process would take so long that it would be irrelevant, from the position of Vonage Canada. We would be out of business by the time any damages were levied. We think it's much more effective to consider policy direction that would prevent the activity from happening in the first place, as opposed to fining it after it's determined to have happened.

4:50 p.m.

Liberal

Dan McTeague Pickering—Scarborough East, ON

We in the opposition are very concerned about what has happened in the United States, with the rush to do the same thing. Of course, now there's less competition, higher prices or at least stable prices, and very little in the way of innovation.

Mr. Peirce, you may be the best one to speak to this. I saw something here on the Industry Canada website about the potential violation of the Telecommunications Act; that it may be deemed ultra vires. Can you enlighten this committee as to how your company sees this to be the case?

4:50 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

Right now the Telecommunications Act calls on the CRTC, under section 34, to find as a fact, on a case-by-case basis, that sufficient competition is present to justify the granting of forbearance to a incumbent provider.

The telecom policy review admittedly says that section of the act should be replaced, but the way you replace that is through an amended piece of legislation. One test you could relate to this proposed forbearance order--the one Sheridan Scott was referring to--talks about various indicia of market power. But the problem is that the applicant gets to choose the test, and the test any applicant will choose is the one that isn't about market power; it's just about counting whether or not there are providers in the marketplace.

On the question earlier about what would happen in a rural or a more regional municipal setting, if small cable companies to which we'd provided the wholesale provider were looking to get into telecommunications and knew that as soon as they even existed in the marketplace the incumbent would be able to apply for forbearance, they'd be very hesitant to get involved. That's why we say that section is effectively replaced by this proposed forbearance order.

4:50 p.m.

Liberal

Dan McTeague Pickering—Scarborough East, ON

The TPRP made about 127 recommendations. In the view of the opposition here, I think it's very clear that some serious cherry-picking took place.

Do you believe there are some egregious omissions in this order? You've alluded to a few of them regarding market share and the hybrid being created by the CRTC and the Competition Bureau--sort of a band-aid solution, from our perspective. I'm wondering if you would agree and could live with this committee's recommending that the government endorse the entire report before proceeding with its order.