Industry Committee on March 15th, 2012

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

As you know, the telecommunications sector is a rather special market that sees a lot of consolidations and that requires a great deal of money. It takes money to get involved in the sector and the process is long and tedious before you break even.

So it is important to focus on some aspects. A company that has access to foreign investment and whose market share is just shy of 10% could actually, in theory, have a market share of more than 10% as long as there is organic growth. That does not work for mergers, acquisitions or consolidations. You have raised this issue but I think that it is clear.

Furthermore, you just have to look at what is happening around the world to see that there are openings like that. In general, there is no desire to jump into a market and to have such a rapid organic growth.

Let's take the spectrum for example. Right now, you have a 5 MHz block open to new customers. What I am saying is that the growth plan has a lot of ups and downs, and it is quite difficult to speculate on what is going to happen on markets.

But one thing is certain: if we want to be competitive, if we want to have more choice, better prices and higher-quality technology, the thing to do is to continue in the direction taken in 2008 and to give access to capital to small companies that really need it.

Right now, the market share that small businesses have is minimal. We know that the three major companies have 80% of the spectrum with 93% of market shares. So we are a long way from your example.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I'm going to stop you there because I think I have only about a minute and 20 seconds left.

The last question I am going to ask you has to do with the decision to choose a ceiling rather than use the set asides. Unless I'm mistaken, what is currently planned with the ceiling will not be enough for developing LTE technology. In fact, the technology will be allowed or will be able to develop, but the speeds will be the same as they currently are. So there will be no particular advantage to developing LTE technology. Several companies have told us that.

So, would it not have been better to choose set asides, just to enable better competition, rather than favour a ceiling that will actually hinder the development of a very promising technology in the future, to ensure that Canada will be able to follow the rest of the world's example?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

You are talking about ceilings or set asides, which isn't relevant. What we need to talk about is the number. In reference to the number of blocks, some companies told us that they would need more. However, other companies are saying that there are already enough because some companies are already at 800 MHz, in advanced wireless services. So it's important to look at it overall. Some companies have said this, but some others have said something else. You know, if you talk to the three main players and the others, depending on where they are located and their size, you will get all kinds of opposing positions.

So that is why we decided that the least intrusive approach was to establish a ceiling that would in fact be a set aside. We wouldn't have to decide which of the blocks would be what we call the "prime" block.

Imagine that we decided to use a set aside. So, which block are we going to choose, given all the technological advances, given everything that's going on in the market with the ecosystems, given everything going on in the United States, with AT&T and Verizon? We are getting into an extremely complicated world that, we think, should instead be dictated by the market, so that people can make business decisions based on what is viable for them, and not based on what the government dictates.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Minister.

Your timing was actually just about perfect. We went a little over on that one, but I thought it was a question everybody would want to have answered.

Mr. Braid, you have seven minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you to the minister and officials for being here this afternoon.

Minister, for my first question I want to pick up where Mr. Lake and Monsieur Caron left off by talking about the telecommunications industry.

I wanted to ask specifically with respect to yesterday's announcement, Minister, if you could speak to the anticipated benefits to consumers as a result of yesterday's announcement.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Once again we are of course very happy about our record since 2008, because there is a specific tangible benefit in the form of more players and a decrease of an average of 10% in costs.

Now we have an opportunity. We have to keep in mind that the 700 megahertz spectrum is highly valuable, so it is our responsibility as government to make sure it is fully optimized, fully well used, because this spectrum is very effective both in rural areas and in cities. In cities it can go through cement walls. When you go into rural areas, you can have a better cost structure because you need fewer towers to have the spectrum travelling.

The idea here was to make sure we would have four players everywhere in the country. In the cities you can have a good business case, but when you go into the rural areas, there is a possibility that companies could get two blocks, or they can go with partnerships, as is the case with Bell and Telus, for example.

What we decided to do is to put an extra requirement for rural deployment to have a coverage of 90% of the current HSPA footprint within the next five years following the auction, and then after that go up to 97% within the next 10 years following the auction.

What it means is that in the current HSPA footprint we have now, which covers about 98% of Canadian households, these people will have access to LTE technology, the same quality as you see in the cities. This is a huge impact.

When we speak about better technology, better quality, this is it. I addressed better prices; the other option is more choices. The question is having a fourth player in all areas.

After that we can go beyond that, addressing the 2,500 megahertz spectrum. This spectrum is very valuable too. It can be very effective. It can be used in remote areas. There are some companies operating with satellites, for example. They know how to use the spectrum and there is an opportunity for them to deploy that.

Some companies can find niche markets where other companies might not, but down the road you have good diversity. We can hope that we will be able to deploy network coverage as widely as possible.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Changing gears now, I want to pick up on a point I think you made in your opening presentation. I don't think you referenced it by name, but I think you referenced the Jenkins panel and the work it did in presenting its report to the government.

I wanted to follow on from there and ask at a high level. I think you mentioned the importance of “fixing problems.” At a high level, could you speak to the policy areas you hope to address?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

I cannot speak for my colleague, but I will say what I know.

As I said in my notes, it's concerning to see the level of pick-up from the private sector after all the investment by our government. SR and ED is one of the most generous regimes we have had, for example.

The idea is to find out how we can better leverage funds from the private sector. The Jenkins panel was mandated to look into this. Basically they came up with a report and addressed several issues.

With regard to the SR and ED program itself, they addressed the issue of procurement and the role the government could play in procurement. I have to mention that in budget 2010, a pilot program of $140 million was announced, through which the government could consider some new technologies from what I would call the “post-prototype until the commercialization” era. This is a good way to help. We are the greatest purchaser, so there was a pilot program there, and there was good success. There was a good report recently about that.

After that, the panel also addressed the research area in general. It made some conclusions about the NRC and other granting councils. Finally, the Jenkins panel addressed the issue of access to capital for the high-growth firms.

These are basically the areas that were touched on. Of course, I also presume that the aerospace review panel will consult this report to make sure we fully consider what has been studied in the past. I would say Jenkins is a more general umbrella, but after that it will be useful for a narrower analysis, such as that done by the aerospace industry.

We are studying it. Of course, we will respond to conclusions.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Why is it important, Minister, to be concerned about innovation in Canada?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

That's the future. If we want to keep our leadership, we have to innovate. We have to make sure we can facilitate, we can help.

On innovation, we have to consider that it comes from the private sector. The role we have to play is to support the private sector to go down that road. Innovation is saleable. The more you are at the forefront, the more you can be a winner on the market. It's a no-brainer. You sit down with the private sector. That's always the way to go.

There are some parts of the economy in which we have been leaders but we can no longer be leaders. When you speak about volume and about wanting to compete against Asia, we are at a disadvantage, but if we innovate, then we can create specific products and find niche markets. This is why we want to continue on this. This is why, for example, we had the automotive innovation fund. We had great outcomes with the program, and we have to continue.

It's the same thing with the aerospace sector. We have 80,000 jobs here, a full chain of manufacturing, but we cannot sit on our hands and say that we are the best in the world. We have to continue. That's why, while the sector is going well, we said to Mr. Emerson: “Look, we are there, we are the fifth-biggest player, but where do we want to be in the future? Where do we want to be in 20 years or 30 years?” Innovation is a major part of this.

[The Chair, Conservative, David Sweet]

Thank you, Minister.

We now move to Mr. Regan for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman. You've noted that it's seven minutes.

Through you to the minister, you're here for an hour. Your opening comments took 12 minutes, which is fine. You understand that most of the remaining 48 minutes will be taken up with friendly questions from your own party members. I have only seven minutes, and I'm going to try to craft questions so that you can give nice short answers. I'd appreciate it.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

My questions were very tough.

[Geoff Regan, Liberal, Halifax West, NS]

Yes, undoubtedly, Mr. Braid, they were very tough.

The spectrum auction, it seems to me, gives an opportunity to the government to invest the proceeds, whatever they may be—and hopefully, they'll be substantial—in the digital economy, which it failed to do in 2008. I hope it doesn't repeat its past mistakes in that regard.

You mentioned that the committee is working on an e-commerce report. I hope you'll listen to what we've heard from witnesses in relation to that, in terms of the development of the digital economy, because when you think about the past, after all, your government inherited a $13 billion surplus, which it then squandered, putting the country in deficit by April and May of 2008, six months before the recession began. If you simply apply these funds to the deficit, it seems to me that you will simply be repeating and compounding that economic mismanagement.

I wonder if you will commit today to investing the proceeds in broadband development, in digital content creation, in digital skills training, in digital literacy—the kinds of things that will help to develop a digital economic strategy for Canada. I think perhaps that's the kind of question you can give a yes or no answer to.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

No, I cannot give you a yes or no, but I can tell you, first of all, that I said I was going to have notes for 15 minutes of speaking, and I used only 12 minutes.

[Geoff Regan, Liberal, Halifax West, NS]

I appreciate that. Good point. That's fair enough.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

I cannot take any commitment here. As you know, the Minister of Finance is responsible for drafting budgets. What I can say on the digital economy is that we had a pilot project to make sure that the SMEs could go toward digital technology. As you know, the BDC put aside a fund of $200 million, which is very important. We are still going down that road.

I think what we did in 2008, once again, is a good way to go. We saw the prices for consumers go down, and this is what they expect.

[Geoff Regan, Liberal, Halifax West, NS]

Minister, you said yesterday that in terms of your spectrum strategy, the strategy is to try to cover 90% of rural areas within five years and 97% within seven years. Does this mean that by 2020 there will still be significant parts of Canada that won't have broadband service?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

When you speak about rural areas, I have to specify with the 700 megahertz spectrum. We are talking about the current HSPA network coverage.

[Geoff Regan, Liberal, Halifax West, NS]

You were saying that only 97%.... In other words, it's not 100% by 2020.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

It's 97% of the existing HSPA, but after that you have remote areas. Now we can go further than this. That is why I gave the example of the 2,500 megahertz spectrum. What I can tell you here on the record is that 98% of Canadian households have access to wireless technology as we talk now. Maybe they are not using it, but they have access to it—

[Geoff Regan, Liberal, Halifax West, NS]

If you drive around the country, Mr. Minister, I think you'll find that your service cuts out an awful lot and lots of places don't have service, so I beg to differ on that—

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Yes, but it's 98% of Canadian households.

[Geoff Regan, Liberal, Halifax West, NS]

It's nice to have that number. I don't see that in real-life experience—

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

I'm talking about users more than territory—