Industry Committee on March 30th, 2010

[Voices]

Oh, oh!

[Mike Wallace, Conservative, Burlington, ON]

You must have been watching CBC.

I have a basic question, and I really appreciate the discussion today. It's been absolutely excellent in presenting the different points of view; however, I'm of the view that Canada can't operate in a cocoon. Things are happening around the world in all industries, including the telecommunications industry, in terms of competition, consolidations, and those types of things. My concern today is that if we do not move to be more competitive in the world market in terms of opening up to foreign investment, the companies that are here today just will not survive in the long term because they won't be able to attract the capital to be able to compete. We have a small market to begin with, as you've mentioned.

I'm offering you an opportunity to make an academic response to that view. Do you believe that in the long term, preventing more foreign ownership would have an effect on the ability of existing Canadian companies to survive? If you believe, as I think Mr. Paradis does, that they could survive, how do we encourage Canadians to invest in their own companies? What are we doing wrong? Are the companies doing something wrong? What could the government be doing?

I come from Burlington, Ontario. Steel was a big issue in my area. We had Dofasco and Stelco. I'll use Dofasco as an example. It is now owned by a foreign entity. It was an excellent steel company and still is an excellent steel company, but it waited around, and as consolidations happened around the world, it got swallowed. The alternative was to be more proactive, in my view. That's what I'm concerned about in the telecommunications business.

I'll leave it to you to comment. Mr. Paradis, you can go first, and then we'll go down the line if anybody else wants to comment.

[Richard Paradis]

Okay. Briefly, if you have any kids in the house, you know they're watching the Internet about 50 hours a week right now and they're listening to music about 40 hours a week, and you sort of wonder when they ever study or eat.

The fact is that we're moving in an era, even yourselves, when we're consuming more and more information through communications tools. Of those companies that we're talking about that are Canadian, be it Telus, Bell, Rogers, or Quebecor, we've been in an economic downturn for the last two years at least, and these companies are still making 25%, 26% profit margins. They are investing in infrastructure, but they're still making 25% profit, and in a bad time. In the coming year, as the economy starts going again, we're probably going to see them with profit margins of 30%, 35%. So they're not having a problem finding capital.

We're moving into an economy that's based on the transfer of information and the fact that everybody wants to have their own little personal intelligent phone. And as soon as the kids get their hands on an intelligent phone, your bill doubles. So it's an industry that has a fantastic future. It's one of our industrial sectors that's probably going to be the most performing in the coming years, and none of them are complaining that they can't find capital.

[Ian Morrison]

I passed out, perhaps before you arrived, CRTC's ownership data. At the very top of the very front page is the ownership of BCE. I understand that some half a million Canadians are owners of that company.

But it seems to me that there is a tension between two values that you are describing. One is profit, the extent of profit; the other is price and affordability to the consumer. They don't go together. The profit includes higher prices. So as you're pushing down prices through more competition, hopefully sustainable competition, you're going to push down profits of the existing incumbent players.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Morrison.

Thank you very much, Mr. Wallace.

We're going to go lastly to Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair and guests. Thank you for being here, Mr. Globerman, and yourself, for making the effort.

I've spent a considerable amount of my time as a member of Parliament going back well before 1995 into the subtle changes in the terms of the Broadcasting Act. Notwithstanding the fact that a decision was made to do a one-off with respect to Globalive, I'm not sure any of us here really had any interest in or had heard a lot about the need for foreign ownership in terms of telecommunications. So I'm wondering if this is in fact a problem that is in search of a solution, rather than vice versa.

Four years ago the government chose to short-circuit competition in the telecom industry in its forbearance decision. I'm wondering how much of that forbearance decision to short-circuit and to prevent new competition from coming in, particularly in wireless, is the reason we're having this discussion today. I'd welcome any observations you have in that regard.

The second question I would have is to you, Mr. Globerman. You have the Hart-Scott-Rodino Act, which is extremely powerful and can be used in certain circumstances, whether there's a question of foreign ownership or investment or not.

I'm wondering, given that we have a Competition Act written by some very large dominant players in Canada with very few significant amendments, headed by an individual who was responsible for creating a merger in the propane industry when she was working in the private sector, do you feel comfortable with the assertion that our Competition Act is up to snuff?

More importantly, do you believe that Canada has the regulatory wherewithal to prevent a dominant position from taking place, where assets in Canada can simply be scooped up with very limited protections and wind up in fact preventing Canadians from getting access to international technologies in the wonderful world that you paint for us?

[Dr. Steven Globerman]

I feel like I've come from the file of horrible examples today, because I actually worked for the Competition Bureau. I was one of their expert witnesses in the Superior Propane case.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Then you'll be aware of my building destroyed by--

[Dr. Steven Globerman]

Yes, I share your concerns. That was a bad decision.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

[Dr. Steven Globerman]

I think that clearly the Competition Act has been an improvement over what was there before, which was really no merger provision at all. I think the real issue is fundamentally whether the telecom industry--and in fact then, as my co-panellist has said, the broadcasting industry--be moved completely under the Competition Act so it doesn't have a regulatory exemption. Then it truly is subject to the merger provisions in the Competition Act, which, as an aside, I would favour.

I think we do have to be concerned about concentration levels in this industry, as we do in every other industry. That's why I was saying that opening up the industry to entry is the greatest defence we have against monopolization.

I just want to make one quick point about the issue and availability of capital. I agree with my co-panellists. I don't think the concern is whether Canada will have enough capital to grow this industry. I think the concern is whether Canada will be an attractive enough environment in which the industry will grow. I think the issue of globalization is important, because it's participating in the global economy that's going to keep you efficient and make you an attractive target for investors.

[The Chair, Conservative, Michael Chong]

Go ahead, Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I'm concerned when I read stories of Goldman Sachs or AIG having an incredible amount of economic or capital leverage. They can come into a situation, work in cooperation, for instance, with any index investor, fund an exceptional purchase of Canadian assets, and then ultimately suggest perhaps control of content indirectly: who you hire, for instance, or what you cover if you own one of these assets.

I recognize the great world is not moving towards voice but towards broadband, and we can't walk away from the exception that there may be a question of what is covered and what is not covered.

But I can see a scenario--and it is one that I think has been proven time and time again--whereby individuals will purchase assets, drive prices below cost, prevent any new entrant from coming in, acquire public assets that have been paid for by Canadians over the years, and wind up closing shop for Canada to the rest of the world.

That's recognizing, of course, that we're 36 million people. I mean, the African and Middle Eastern markets represent potential in terms of numbers of consumers that are far greater.

So what I'm really driving at is do you not envisage a scenario whereby consumers will actually lose in the long run, as opposed to gaining?

[Dr. Steven Globerman]

I absolutely acknowledge the possibility that if there were no ownership controls, we could have one or two foreign investors who take over large Canadian companies and concentration in the industry would increase. That's the purpose of the Competition Act, to try to prevent that.

But let me just say in passing that we do a lot of things in this country that discourage entry into broadcasting that make that potential problem even worse. For example, when we allocate spectrum we make sure that the established carriers get their so-called fair share. But competitive bidding for spectrum where the bidding was really open to foreign companies might bring in new, large competitors, not through the acquisition process, but as de novo entrants.

We can do a lot of things to make this sector more competitive, in addition to and besides using the Competition Act appropriately.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. McTeague.

I want to thank our three witnesses, Mr. Globerman, Mr. Morrison, and Mr. Paradis, for your testimony today. We very much appreciate it.

We're going to suspend for two minutes to allow the witnesses to depart and the room to clear. We are then going to reconvene, because we have three items to discuss in camera regarding future committee business.

The meeting is suspended.

[Proceedings continue in camera]