Industry Committee on Feb. 21st, 2007

[Tim Stinson]

If you take that test one step further, try using your wireless service outside of an urban market. Come to one of my communities and try to talk on your cellphone. It just doesn't work, or if it works it doesn't work well. What quality of service do we need to build into these tests? I would say they certainly aren't there right now.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Vincent.

We'll go to, Mr. Carrie, please.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you, Mr. Chair. Thank you very much to all the witnesses for coming here today.

One of the things we've looked at is in the history of telecom. We can look at the long distance example. Back in 1993 the long distance price was 35¢ per minute, and now it's down to about 10¢ per minute. At that time, about 10 billion minutes were being sold; now it's up to 35 billion minutes sold.

At that time, these were the things we were hearing from the opposition: ...the same government that keeps on spinning the same tired line that deregulation is going to save consumers money. We can rest assured that it is not going to save money for the average consumer in the small, remote areas.

That was stated in 1993. Here's another quotation:The average Canadian and the average small business operator in Canada will be the losers.

And here's another quotation about the bill:...it is a document that opens up one very large avenue which is of great concern, and that is the whole process of deregulation, it is a document that essentially harmonizes this with the North American free trade agreement and in the future may put Canadian jobs at risk.

This is what we heard from the opposition back in 1993. The reality seems to be that the exact opposite has happened.

In every country out there that has worked on deregulating local telephony—we're talking about Sweden, Hong Kong, Denmark, Finland, Germany, New Zealand, Norway, the U.K., Australia—there has never been found an instance of non-competitive behaviour. We hear that the incumbents are going to be ganging up and are going to be using influence, but it seems that in the world market this hasn't been the experience.

To Telesat, you've mentioned that you are an international company with interests elsewhere in the world. We haven't heard a lot about satellite companies. How many countries are you in and have experience in?

[Ted Ignacy]

We're currently providing service in Canada, the United States, and through many of the countries in South America.

[Colin Carrie, Conservative, Oshawa, ON]

Given that Telesat has extensive international experience, would you say that the government policy is consistent with the general trend outside Canada?

[Ted Ignacy]

Yes. As you'll find in our written brief....

You know, I have to state that our position in the industry is a little different from that of everybody else here at the table. We are an international player, and the problem we see with telecom regulation in Canada it's that it's one size fits all. When we compare ourselves with our international competitors, many of which are significantly larger than we are, we find they don't have the same burden of regulation we have. They don't have the licence fees; they don't have the regular reporting requirements and the kinds of contributions we have to make back into the domestic economy. They're not facing those things and yet they have significant economies of scale.

Our view is that, from the viewpoint of telecom policy framework in Canada, if you're going to support a satellite business, there has to be a change in the telecom policy. We need deregulation to occur more quickly than it has over the last several years.

[Colin Carrie, Conservative, Oshawa, ON]

We've heard from other witnesses who are saying this entire industry is growing by leaps and bounds and becoming internationally competitive, and that we need to modernize our regulations. We had a comment today too from one of the witnesses, saying that innovation won't grow in Canada if this goes through.

To Mr. Maduri from Barrett, it seems you're a rural broadband service provider. Would you agree that innovation won't grow in Canada if this goes through?

[John Maduri]

I'd say that inasmuch as there are examples of regulation gone right, there are also examples of regulation gone wrong. There's the example of the deferral account, where there is activity in rural Canada to deploy and we're deploying with the benefit of Telesat's Ka-band satellite service. We're deploying wireless broadband service. There is a new model in the province of Alberta, something called SuperNet, where the government working with Bell has built a province-wide Internet backbone.

All of those initiatives are new. Disruptive technology is on its way, and those are great examples. The question is, can regulation keep up?

We have the example in our view of the world that deferral account is regulation gone wrong. We're competing. We've invested $50 million in private equity, private capital, over a period of about 18 months. Today--2006 would have been our first full year of operation with both satellite and wireless--we have 35,000 rural broadband customers.

So I think those are indicators that innovation is working. The challenge for us, though, is a situation of regulation gone wrong, and with the deferral account, an example where the regulator was trying to create, incent, or assist urban, local telephone competition, $621 million is captured in the deferral account and a decision is made to push that into the rurals to help with broadband. Again, you have a very distortionary decision that has a very negative impact on our business model.

So yes, innovation is happening. Disruptive technology is here and it's not necessarily being contained in Canada. The forces are global. They're not just Canadian, and we have to be prepared to adapt. The question is on whether regulation is adapting. We have a very specific example in the deferral account where we don't think it is keeping up. It's not reflecting the advances in business models nor in technology.

[The Chair, Conservative, James Rajotte]

Mr. MacDonald has indicated that he'd like to speak.

[Dean MacDonald]

I hate the dots you're connecting. I really do. First off, we're saying as a group here that we're going to lower prices by being in the business. So we're not saying that prices will stay static and it's going to rise; that's just a bad connection.

Wherever you got that idea, that's not going to happen.

[Colin Carrie, Conservative, Oshawa, ON]

Which dots, sir? Can you explain a little further?

[Dean MacDonald]

You're saying that the guys 10 years ago said long-distance rates won't go down, etc. The reality is that we're proving when we introduce our service that prices do go down. That's what we're all about. That's why we can succeed if we're actually allowed to compete. So that's a huge point, and I don't want you to lose that.

So that's very important. The other point it's really important that you should recognize is that in urban Canada the model's working. The larger companies have gotten market share. But the rules changed a month ago or two months ago, so all of us guys around this table who are in rural Canada, we're not even playing by the same rules any more.

So the rural Canadian companies who want to introduce this service are now penalized. Guess what? You don't get competition there, and that's wrong.

[The Chair, Conservative, James Rajotte]

Thank you.

Sorry, Mr. Carrie, your time is up.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair. Thank you for the presentations here today.

I think I'll switch topics a little bit and just ask about foreign investment restrictions. This has been talked about. To be clear, there are no real restrictions on the amount of capital coming in. It's voting shares that have the restrictions right now. If we move towards deregulation and also loosen up the restrictions on foreign ownership, I'm wondering what your positions are on that. I'd like to know whether or not you agree with the lifting of those restrictions.

Despite what has been talked about, there actually has been a lot of investment in this industry. The argument for lifting foreign ownership restrictions is that there hasn't been the capital put into the actual industry.

I'd like your comments on that. Whoever would like to respond, it would be appreciated.

[The Chair, Conservative, James Rajotte]

Mr. MacDonald, do you want to start?

[Dean MacDonald]

I'll respond, because a significant portion of our company is owned by U.S. investors.

The easiest answer to your question is that if we're going to have restrictions, I guess we don't mind that everywhere else on the planet we're restricted to the same rules; that we're not allowed to invest anywhere else in the world. Explain to me why it should be different. I'd like to buy a cable system in the U.S. or in Europe or wherever, but if we follow the rules that Canada has, I guess I'm not allowed to.

So I can't grow if I follow Canada's rules. I don't get it. It's just wrong. It's just absolutely wrong. It actually underscores the fact that we don't believe in ourselves and our ability to own and manage these companies.

[The Chair, Conservative, James Rajotte]

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

I'll move on to the CRTC, which had a decision with regard to the overpayment and charging it to customers. Bell, Telus in particular, had serious overcharges, and the CRTC ruled that those funds would then go into a development fund, perhaps, to do Internet service in rural areas. That's being contested in courts by consumers who are suggesting those funds should be returned to them.

Say a model comes out where that money actually then goes back to the incumbents to be able to use that towards rural development. It's been an extra surcharge on their customers in a series of places. Will that put you at a competitive disadvantage with regard to their now having this equity that came from overcharges in services to put back into their own development of rural service to the outside?

[The Chair, Conservative, James Rajotte]

Who would like to respond?

Mr. Maduri.

[John Maduri]

It would absolutely put us at a disadvantage. We're going through a process today where I'm sure a number of my fellow colleagues here have submitted their business plans, as well as the current communities that they're serving, with broadband service. I think we're very clearly on record as saying yes, that's an issue.

I think the bigger issue, though, is for the broad category called rural Canada. Because if you look at those proposals, and I guess probably the largest, those hundreds of millions of dollars I think in the case of Bell Canada's submission, and I hope I'm correct in this...$455 million will advance rural broadband by 2.5%.

That still leaves a significant swath of rural Canada to benefit from rural broadband. If you're going to create that kind of market distortion that impacts the ability of players around the table to invest, the question is this: who's going to get to the last 10%, 15% and 20%? Because you're going to be causing a lot of consternation in the investment market, causing distortion. Do players like Telesat and Barrett go and invest in satellites? Do we invest in wireless? Do some of the other players invest?

It's the distortion factor that's problematic for rural Canadians. We'll be creative, we'll adapt, we'll figure things out as long as there's a fair and effective process. We're going through that process today. As long as it's fair and effective, we'll have to accommodate, we'll have to innovate, we don't have a choice. The real question is whether rural Canadians will be disadvantaged.

[The Chair, Conservative, James Rajotte]

Mr. MacDonald.

[Dean MacDonald]

Canadians would go crazy if they knew we were contemplating rewarding the guys who overcharged us by giving them the money back to go and do something. It is absolutely insane. If you went out and bought a car, they charged you too much for it when they shouldn't have, and they can go back and take the money they overcharged you and build in a new way to paint their cars or something, Canadians would go crazy.

Why do we think that's sensible? I don't understand why we are rewarding an incumbent who overcharged, giving them the money back to compete against guys like us, who are actually putting our hard-earned money into putting Internet into all these rural communities. It's unbelievable. It challenges your sensibilities on every level.

So it's only here, through these rules, through this process, that we would actually contemplate giving these guys back the money they've overcharged us on. It's absolutely a shame for Canada to even consider it. It's really wrong. It's obscene.

[The Chair, Conservative, James Rajotte]

Mr. Deane.

[Jim Deane]

I just want to tell you a little about the competitive landscape in Saskatchewan. We're not worried about the deferral account, simply because there isn't much of one for our competitor, SaskTel. But what happened in Saskatchewan is that in order to push out broadband Internet access, a laudable public policy objective, there was simply a $75-million grant from general revenues to the crown-owned monopoly SaskTel.

If that doesn't distort the market, I don't know what does. Then we're competing against our main competitor in rural Saskatchewan for broadband Internet service that has been underwritten by the taxpayer.

Thank you.

[Brian Masse, NDP, Windsor West, ON]

One more quick question, Mr. Chair?