Industry Committee on Feb. 26th, 2007

[Ian Munro]

I do absolutely, because deregulation will allow all the players in the marketplace to really fight tooth and nail with one another for customers' loyalty. That's really what competition is all about, fundamentally, and the sooner we can get to that situation where everyone has to sharpen their pencils as much as they possibly can, the more consumers win.

[Colin Carrie, Conservative, Oshawa, ON]

We've heard some concerns about rural areas down east—my family is outside Sydney—and concern about consumers in the rural areas. What do you think would happen to the consumers in the rural areas if we deregulate?

[Ian Munro]

I think the point is that by the proposal the minister has put forward we would deregulate in rural areas only where the competitors and competition are present. Where the competitors are not present, regulation will remain to protect consumers. That's why I spoke earlier about the benefits of going to smaller areas. You can precisely target areas based on the competitive nature of the marketplace in that area. Where the competition is not there, of course, we would not regulate, and consumers would remain protected by regulation.

I think that sums it up.

[Colin Carrie, Conservative, Oshawa, ON]

That's good.

Following on that, could you comment a little further on the minister's proposed approach for forbearance, which is to emphasize the presence of competitive infrastructure in the market before deregulating it?

[Ian Munro]

Again, I'll make the point I made before about not focusing on market share in these cases. I think what's key is the presence of competitors who can quickly respond to any pricing action by any other competitor. It sounds simplistic, but it's true that if, suppose, the Halifax market were deregulated, and if any one player—be it the incumbent ILEC or any other player—attempted to raise prices, I can switch to someone else by the weekend. You can have lots of debates among economists who have different models, but that seems so straightforward and commonsense to me that I think it really makes the point.

[Michael Janigan]

Mr. Carrie, if I may, I'll interject here. I think we have to be clear about what in fact we're talking about in relation to the forbearance order. The telephone companies have always been able to compete with their new-entrant competitors. They have the ability, for example, with respect to local exchange services to lower prices, if they want, across their rate band.

What has been done in this circumstance is to say effectively that we don't need to worry about any of the ordinary protections that are afforded to consumers in a particular region, because there is enough competition here; we'll let the market decide the ultimate price.

In general terms, what that will mean for high-volume consumers is potentially more product offerings, more bundles, and whatever. For example, I'm a fairly intense consumer of telecommunications. Our house probably spends over $300 a month in various forms of communications--Internet, wireless. I expect there may be some better offers available that might be made to me. On the other hand, we would anticipate that those customers who are low-volume or in rural areas will not likely be taking part in those discounts or have those discounts available to them, simply because of the fact of deregulation.

In the case of regulation, what happens with the incumbent telephone company is that their rates have to be lowered across a rate band. In deregulated circumstances, they can be done one on one with customers, and that's effectively what this is all about. It's not necessarily about competition, although competition is part and parcel of it. It's about effectively being able to target your message to the customers you want to attract.

[Colin Carrie, Conservative, Oshawa, ON]

I had another question that maybe you could have input on. Many people who have come forward to this panel fear that our deregulating the local telephone service would lead to re-monopolization. Do you think that will happen?

[Ian Munro]

No, I don't. The deregulation, by the test proposed, occurs when there are competing service providers in the area already. Re-monopolization would require the incumbent to drive the competitors out of the marketplace. These cable companies are big boys, not little mom and pop shops. The wireless players are big players. I think the idea that they would be driven from the marketplace is just not credible, and even if, hypothetically, any particular business found itself in financial difficulties, the infrastructure is already there: the cable is in the ground, the wireless towers are in place. So if—again hypothetically, in a sky-is-falling scenario—some competitor company has business problems, someone else is able to step in and pick up the infrastructure and keep going right from there.

So I think the idea that re-monopolization is going to occur is simply not credible.

[Michael Janigan]

I also don't believe, particularly in the areas where cable has penetrated the local telephony market, you're going to see re-monopolization. In areas where there has been no new entrant penetration, you may see a reluctance to get on board. It's more likely that you will see a prevalent and established duopoly between the cable companies and the telephone companies. I think that's a concern, because the experience, for example, in things like broadband is that it's a pretty cozy little duopoly that exists both in terms of price and offerings.

[The Chair, Conservative, James Rajotte]

Sorry, Mr. Carrie, your time is up now.

We'll go now to Ms. Mathyssen, please.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you, Mr. Chair.

You'll have to forgive me. I'm a neophyte when it comes to all of this.

I was speaking with a constituent who represents a small provider and that constituent had some concerns. I want to address some of those with you.

I want to come back to the question about the big companies gobbling up the little companies by virtue of the fact that there is the possibility that a smaller company could run into difficulty. You made mention of the fact that the infrastructure is still in the ground and it was possible for another company to pick it up. This may seem naive, but is it not also a possibility that those bigger companies that do have that large market share would be the ones doing the picking up of that infrastructure--the gobbling up--and we're back to the monopoly question again?

[Ian Munro]

Who was that question directed to?

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Both, actually.

[Ian Munro]

Thank you.

I don't know which small companies you mean in this example. The main competition to the incumbent telephone companies is coming these days from the cable companies--Rogers, Shaw, EastLink, Vidéotron--and these are certainly not small companies. I think the idea that the phone company would be taking over any of those is.... I don't think that's a credible outcome, so I'm not sure what other small companies you might have in mind in your example.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Okay.

[Michael Janigan]

I have to look to the wireless example in Canada, where effectively we attempted to start off the digital networks by licensing Microcell and Clearnet and had them end up being gobbled by the same providers they were supposed to compete with.

It is a big problem, because, in effect, the test on mergers is in fact efficiency. Many times they are able to show that there will be cost savings associated with efficiency--not necessarily associated with consumer welfare, but associated with shareholder welfare. I think there is a problem, not so much in terms of re-monopolization but in terms of the reduction to a duopoly or an oligopoly of companies that is extremely comfortable with their position and is not competing hard with each other.

I was at a conference last month where the president of the largest phone company in India was telling me how hard it was to compete in the wireless market in India where competitors are out offering $20 a month wireless access for life. This is hand-to-hand combat that's taking place among the wireless companies. You're not seeing that here. You're not seeing the same level of competition between wireless companies and broadband that exists in other parts of the world. We will eventually evolve a cozy little duopoly where, effectively, both the cable companies and the telephone companies will be happy with their market share and their performance with the shareholders.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

The group I spoke with had some requests in terms of this committee and the minister.

One of the requests was that there wouldn't be any deregulation until it was very clear that it was more than just a competitor, but a healthy competitor, in any given area. The second one was that the service quality would be continued in a regulated way even after deregulation. Thirdly, that there be a mechanism for re-regulation if healthy and sustainable competition were to disappear.

Are these reasonable requests? Are these requests that make sense to you?

[Ian Munro]

I think the service quality is just another aspect of competition. Competitors will compete on price and on service quality, and if the quality is poor, they will lose market share. The competitors in the market have every incentive to provide a high level of quality to consumers.

As for healthy competitors, I certainly don't think anyone would say that Shaw, Rogers, EastLink, and Vidéotron are unhealthy competitors. As for some test of their health, I'm not sure I'd recommend that as a new form of regulation to get into. Re-regulation, I guess, legally always remains possible, but to the extent we have a yo-yo effect of regulating and deregulating, I think what you're going to do in that circumstance is deter investment in the market to the detriment of consumers in the future. I would hope that any consideration of re-regulation in the future would be undertaken very, very carefully.

[Michael Janigan]

I can speak to your three points.

First of all, I think the appropriate mechanism is to make sure there's independent, accurate information associated with the industry and the state of competition in any of the different local forbearance areas, and that it's maintained and brought up to date and everybody's aware of it and can swiftly act on it.

Secondly, with respect to re-regulation, that, of course, is part and parcel of any accountable plan for deregulation. In effect, if market forces fail to deliver the consumer protections they're supposed to deliver, then the regulator should be able to swiftly step in and institute the consumer protections that are necessary to solve the particular problem.

Your third question--what was the third one?

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Quality.

[Michael Janigan]

Quality of service was a matter that the commission found in CRTC decision 2006-15 could be looked to by competition. The problem may well be that the individual providers may take more care in the provision of service to their high-volume customers than to their low-volume customers, where it may not necessarily be all that attractive to increase the quality of service or the lines or install new facilities to serve, if it's not economically appropriate.

I think, in fact, service quality should be maintained in a deregulated environment, or, as an alternative, that something like a consumer ombudsman is put in place to report on these kinds of problems and highlight them for the regulator to take up with the companies.

[The Chair, Conservative, James Rajotte]

Thank you very much.

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

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

Thank you, Mr. Chairman. Thank you to both of you for your interventions.

Mr. Janigan, I just want to clarify what you said about what the best approach would be in terms of regulatory reform in telecommunications. Are you saying we would be better off with basically implementing the whole TPRP report and through legislation changing the regulatory environment, instead of overturning CRTC decisions to effect what ought to be legislative change?

[Michael Janigan]

I think essentially that's correct. The TPRP report is a comprehensive document and has within it a whole series of checks and balances and objectives that are much to be preferred.

The effect of the government action in this case is to take a couple of different measures that seem to have some support within this document and attempt to use them to lever what they're getting at. I think it's inappropriate from that standpoint. If you're going to reform the telecommunications industry, I think it has to be done in a comprehensive fashion. You have to put together something like an implementation committee to implement the provisions of the TPRP report, to discuss the kinds of recommendations, including that new bipartite in the Competition Tribunal, which will take a lot of discussion, and also look at the specific consumer protections that were put in this document, which have not been addressed by the government and should be addressed, particularly if they're looking at a more deregulated environment.

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

Do you believe, then, that the minister, by cherry-picking from the TPRP report and moving forward without a comprehensive plan, is actually solidifying a duopoly as opposed to leading to greater competition?