Industry Committee on Feb. 12th, 2007

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

I have so many questions I'd like to ask. Maybe we can start with your mandate. You wanted to get out and start modernizing the regulatory framework here in Canada. How many people did you actually get to talk to—witnesses, companies, and things like that?

[Hank Intven]

We decided early on in our process not to hold public hearings as such, but rather to do two things: issue a consultation paper and then ask for input from the general public. We ensured that there was wide publication of that paper and received about 200 submissions from industry, consumer groups, academics, and others—many of the stakeholders in the industry.

We ensured that this process occurred in a transparent manner to keep everyone honest, so that in the second round of comments parties were able to comment on the views expressed in the first round.

We held several quite successful policy forums. We invited some of the top telecommunications experts—regulatory, economic, and so on in the world—to the one in Gatineau. To another in Whitehorse, we invited and helped subsidize a number of community groups and others who were particularly concerned about service in smaller areas.

Then several of us travelled to talk to regulators, policy-makers, and others in the U.S., the European Union—including the United Kingdom, Brussels, France, and Ireland, which is quite a leader in ICT policy—Japan, and Korea. We got a good sense from that.

Then we talked to people in the industry, consumer groups, and others for the better part of a year. We spent a lot of time in off-the-record discussions, which we also found to be very productive.

In the end, we talked to a lot of people.

[Colin Carrie, Conservative, Oshawa, ON]

In my opinion, you did a thorough, wonderful job.

One of the things we've been recently criticized for is moving too fast.You said there is an urgency, and we're trying to do what we can do in a reasonable fashion, as quickly as we can. But you mentioned that we really haven't changed a lot since 1906, if you take a close view. Would you say on the record—I just want you to give me your opinion—that Canada's current regulatory framework for telecommunications is outdated?

[Hank Intven]

It's outdated, yes. The legal framework is.

To be fair, as we've said, the CRTC has struggled heroically with those two very broad rules—that rights be just and reasonable, and that there be no unjust discrimination—and has tried to craft a modern regulatory structure. Indeed, it was doing quite well, but in recent years we've found that other countries have moved ahead, in terms of applying a less monopolist public utility regime and more of a law-based, competitive approach. This is what we're recommending.

[Colin Carrie, Conservative, Oshawa, ON]

Also on the record, if it's okay with you, we've been criticized that perhaps the minister or the cabinet are not working within their powers, that the minister is rushing forward with this. Do you feel that the minister has acted within the Telecommunications Act, and is he moving forward at a quick enough rate?

[Hank Intven]

Section 8 of the Telecommunications Act—and I recall the debate when it was being drafted back in the early 1990s—clearly gives the government the power to issue policy directions of general application.

It was surprising to me that this was the first time in 13 years when this was actually done, but it's clearly within the government's power to issue a policy direction. That's what section 8 says.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

I'd like to talk a bit about the win-back rule and restrictions. We had some consultation last week, and many of the witnesses were complaining about the minister's proposal to do away with win-back restrictions.

The minister's proposal seems to be in line with your report, which stated, and I'd like to quote: “making offers and counter-offers to the same customers is the very essence of competition” and in general “win-back campaigns should not be restricted by the regulator”.

Are win-back restrictions really necessary to protect competitors?

[Hank Intven]

Win-backs are probably the good example of one of the fundamental kinds of recommendations we made, which was that the regulatory framework should not proscribe per se activities. That is, it should not make something illegal just because there is a risk that it could harm competition.

Is it possible that win-back campaigns could harm competition and drive a competitor out of the market? Yes, it's possible that could happen. For example, if a new entrant came into a market, it is conceivable that a telephone company could give away free service for life to everyone who came back to the telephone company. Is it likely to happen? I don't know, but I doubt it, because I don't think that's very smart business policy.

Our basic approach was to say that rather than have ex ante prescriptions against certain types of behaviour, it's better to wait to see what actually happens in the market. If a real problem does occur, yes, then do something about it, by all means.

That's why we recommended that a telecom competition tribunal be established as a powerful, rapidly acting agency that could deal with problems if they emerge.

But should behaviour be prescribed in advance? We don't think so.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Carrie.

We'll go now to Ms. Davies. Welcome to the committee, Ms. Davies. You have six minutes.

[Libby Davies, NDP, Vancouver East, BC]

Thank you very much.

I'm not the regular member at this committee. Our member is away today, and I don't have the benefit of the panel's report, but just picking up on what you've said today, it's pretty clear that the panel supports the idea of relying on market forces and supports the decision the minister made recently.

I didn't hear you mention—maybe briefly you touched on it once—the protection of the consumer. I think there is a huge concern that if this moves quickly, or if we move to a reliance on market forces, in the end it will be consumers who pay the price.

I remember phone deregulation in long distance 20 years ago. I was on a Vancouver municipal council, and there was a huge debate about what the long-term impact of that would be, so it's interesting that you bring that up. Your assertion is that things haven't changed very much legally since 1906. I'm sure you're correct on that, but in the actual way things are operating there have been enormous changes.

So I express a concern about the fact that you are urging this committee to adopt a position of moving quickly, even while there's a parliamentary process going on. I think there are huge issues of how consumers are going to be protected.

I consider myself an average consumer. The amount of stuff thrown at you about phone services and the so-called competition that's there, particularly if you're in a concentrated urban market like Vancouver, I think creates enormous confusion.

I worry when you say we should rely on market forces, and that somehow this is all going to be fixed and we'll end up with a better system. If we don't have some sort of strong oversight in the public interest, whether you're in a large urban centre or a small community, and with the huge differences that exist there, I think we're going down a road that in the long term will cause a lot of distress for consumers.

I wonder how you answer that. What protection is offered for consumers, if we rely so much on market forces?

[Hank Intven]

Well, Ms. Davies, I don't think the two recommendations we made are at all inconsistent. We recommended that in the introduction of new services, the pricing of those services, and the marketing of those services, the regulator should withdraw from involvement in the day-to-day activities. What technologies come to the market, how they're introduced, and that sort of thing should be something that is left to the marketplace.

When it comes to protection of consumers, we agree with your concern entirely. A significant chapter of our report, chapter 6 on social regulation, recognized that there were some concerns about vulnerable consumers, particularly in a less regulated, more competitive marketplace, and we made a number of specific recommendations to protect vulnerable consumers in those areas. We would encourage the government to implement them.

They include the establishment of this ombudsman office, which we called a telecom consumer agency, to deal with the problems. This is a model that's worked quite well in both Australia and the United Kingdom, where essentially it's an industry-funded body, but supervised by the CRTC so that you have the regulator ultimately supervising it.

What it does is put the onus where it should be, on the industry, to clean up its own act. There have been some abusive telemarketing practices, there have been some real problems with comprehensibility of bills—they've become very complex—and the comprehensibility of some of the packages, and some of it has bordered on the misleading. That's why we thought the TCA, the telecommunications consumer agency, could provide a very useful role protecting vulnerable consumers.

[Libby Davies, NDP, Vancouver East, BC]

Do I have a little more time?

[The Chair, Conservative, James Rajotte]

You have two more minutes.

[Libby Davies, NDP, Vancouver East, BC]

I don't think it's only vulnerable consumers. There are groups in our society that would be more particularly at risk. I actually think it's consumers overall.

I suppose there are people who have a lot of know-how, have a lot of time to investigate all these different sorts of marketing schemes that come forward and whether or not you'll gain in the short term or the long term. I think you have to put enormous energy into doing that.

So, yes, you can beat that game. If you're someone who's highly aware of what the market is, you can compare different offers that come through. But for most people, most consumers who aren't even in that vulnerable category, I just don't think people have the wherewithal or the resources to do that.

I really have a huge concern about that. It's all the lure about special packages or introductory offers, and if there isn't some sort of strong basis or ground rules that protect the public's interest over the phone services and the local service, then I do think that in the long term we lose out. I just don't see, from what I've heard from you today, or the direction the government is taking, that there's a protection for that. There's this sense that the market itself will sort it out. It might for some people, but a lot of people also get left behind.

[The Chair, Conservative, James Rajotte]

Mr. Intven.

[Hank Intven]

We feel that the market is actually working for the average consumer. If you've watched it closely, as I'm sure you have, based on what you've said, today's telecom consumer is immeasurably better off, in terms of the quality and types and pricing of service they get.

You can call now, as people do, at the drop of a hat across Canada and across the ocean and all that. You remember the days when a long-distance call was a special event for a middle-class family. You would have to send a letter in advance or call in advance to set up the call. Now people call when and if they want. Most middle-class and lower-middle-class families have cellphones, which has made family life and getting together so much easier. Everyone relies on the Internet, and Internet rates are reasonably good.

Has it become a little more complex? Yes. The technology itself has made it a bit more complex, and some of the marketing is a little complex, but in the end, I don't think anyone would dispute that the average consumer is much better off.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We'll go to Mr. Brison, for five minutes.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Earlier, Mr. Intven, you had mentioned that in fact there was a fair degree of competition in rural and small-town communities, and I want to pursue that a little bit with you.

Any competition that does exist in some of the more prosperous smaller towns was abetted and assisted by the win-back restrictions. It was assisted by the previous market-based test, which allowed a triggering at 25% as opposed to a mere presence test.

Aren't you concerned that with those changes we will not see those communities that are currently not as well served by vigorous competition in fact hindered from ever developing that level of competition? If a mere presence test will trigger deregulation, any smaller competitor entering one of these smaller markets and establishing marketing and an office will trigger that, and at that moment be subject to deregulated competition. Probably the example that would be set by a couple of these cases would discourage competition in similar-sized markets elsewhere. Are you concerned about that?

[Hank Intven]

The marketplace isn't perfect, and I think the government's market presence test probably isn't perfect either. But it does present a reasonable effort, I think, to come up with a bright-line test, rather than a more complex economic assessment of the situation.

As I understand it, what the government's test says is that the communities you'd worry about wouldn't be subject to forbearance until there are three independent players in the market. That's a fair amount. Remember, the way the technologies are rolling out now, once a cable company lights up a VOIP service, it tends to be ubiquitous; it's available throughout all the areas where the cable company has it. With WiMAX, when it comes on stream, that will be even more so.

So I guess I'm a bit worried. We tend to try to manage market outcomes a little too much in the telecom sector, and it's not just in Canada. The Europeans are doing the same, and the Americans were doing the same and have now backed off. I think the reality is that sometimes if prices go up a little bit in a market, that actually acts as an incentive for someone new to come in with a new technology—for instance, a new wireless technology. Barrett Xplore is a good example of that, and there are others who are trying to find ways to get into the market.

So am I concerned that somehow allowing forbearance too early will act as a real deterrent against competition? I guess not too much. I don't think the telephone companies, the incumbent carriers, are likely to act that foolishly to try to specifically target and drive new entrants out of the market, because to do so would be, one, a public relations disaster for them; and two, it could ultimately result in some legal repercussions, either regulatory or from the Competition Bureau. So I guess I'm not that worried.

[Scott Brison, Liberal, Kings—Hants, NS]

You mentioned the Competition Bureau. One of the failures, you said, of the New Zealand example was the lack of an organization or a regulatory oversight organization with the expertise at the time. The Competition Bureau, we've heard from other witnesses, does not have the established expertise that the CRTC does have currently. The Competition Bureau is also notoriously slow in its response to these issues. For a smaller competitor, a lengthy battle with a larger telco could be devastating in terms of the profits of a new competitor.

It didn't work in New Zealand, as you stated, in fact partially because of the lack of expertise in the regulatory body. So why are you so confident in the Competition Bureau when it has the same challenge ahead of it? You refer to the telecom competition tribunal, but it really hasn't been established.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Intven.

[Hank Intven]

Mr. Brison, our report is quite clear. We did not feel that the Competition Bureau could provide a full answer to the needs of applying competition policy in the telecom sector. We believe there should be something new, such as the TCT, to do that.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Shipley for five minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chairman; and thank you, Mr. Intven, for coming today.

You mentioned in your presentation that Canada had a strong market not because of the mandated wholesale access policies, but because of the competition from facilities-based cable companies. Do we need a strong and expandable mandated access regime to encourage more competition?

[Hank Intven]

I think if you talk to experts around the world and telecommunication economists, they will generally agree that where there are truly essential facilities—that is, facilities that cannot be economically or technically duplicated on a reasonable basis—there should be some mandated wholesale access to those. However, what the CRTC has done over the years is develop a class of what it calls near-essential facilities, and it has also mandated access to those at relatively low cost.

I'm sorry if I get into the economic jargon too much.

The problem with that, we found, is that acted as a disincentive to competitors building their own networks, because you could simply buy wholesale access from the existing incumbent telephone companies at a low price and you had no incentive to build your own network to compete with them. So I think the answer is yes, most economists would say you need some mandated access to essential facilities, but you do not need it beyond that.