Canadian Heritage Committee on Nov. 25th, 2010

[Dean Del Mastro, Conservative, Peterborough, ON]

Ken.

[Kenneth Engelhart]

I think Michael's right. I assume it's a matter of the arithmetic.

[Dean Del Mastro, Conservative, Peterborough, ON]

I want to come back and ask a couple of questions specifically on vertical integration. As I said, I think it's very powerful. I do believe there's a wireless future.

I've been to Ericsson and I've seen some of the things they're doing for G technology, the efficiency they're finding in bandwidth. I think it's incredible, the technology that is literally....They're testing it now, meaning it's not far down the road, and if we're going to compete, if we're going to have that kind of wireless network that can fuel the productivity that Canada needs, we need this kind of strength in the system where we have large players that can bring it all together and make it happen.

How has vertical integration assisted Rogers in being that stronger company that can expand things out?

Secondly, I'd ask Mr. Hennessy, is Telus concerned about being kind of locked out of some of those benefits?

[Kenneth Engelhart]

I guess my favourite example is when we started broadcasting Blue Jay games on the cellphone and no one else in North America was doing it. We were asked, “Why are you the first company in North America doing it?” We said, “Well, if you own the team, the stadium, the broadcaster, and the cellphone company, it's not that hard.” With vertical integration, every stage along the way there are transaction costs. If you can eliminate those transaction costs, you can kick-start that business. Of course, once it's kick-started and customers start to like it, then it takes off. So I do think there's some power to vertical integration.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

[Michael Hennessy]

I agree with that. I think we sometimes underestimate the innovation we see created in Canada. Canada has had a lot of firsts in that area. We are a small country. We've come here. We're not opposed to vertical integration. It's a business strategy. Clearly, it's not a business strategy that we pursue. But as we say, as long as there are clear principles on access and non-discrimination, I think it's a business strategy that is worth pursuing if it brings stability to the system.

We have tended to focus more on the network, because that's what we're good at. What we want to try to do is enable the best customer experience for watching whatever type of content they want, on whatever platform, whether it's the Internet, whether it's our cable TV service that is an Internet technology-based service, or whether it's our new wireless networks that Rogers has built and is now recognized as world-leading.

Our whole goal is a belief that this is all built around the consumers. We're going where they're going, and they believe in open platforms.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Hennessy.

Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you.

This has been a fascinating study for us. I'm glad to have you gentlemen here. I know my colleagues over there think we New Democrats feel the market is evil. We actually think the market's great, but we simply believe there need to be certain rules to keep a market competitive.

For example, look at the grocery business. You know, it used to be all those little corner grocery stores, then they consolidated and got bigger and bigger. Now there are all kinds of choices, but in a lot of these grocery stores small operators don't get shelf space. That's the way it is. If you want to compete in the milk business and you're a small milk company, go into another line of business, because it's set up, it's anti-competitive. They're not going to allow it.

It's the same in cattle. You have two cattle players and if they see a small operation get up and running, they'll drop the price of cattle a few cents and they can put you out of business. They're not doing it to give the consumer a break; they're doing it because they don't want competition. That's their business model and that's what they do.

Our question is, when we look at vertical integration here, what do we need to do, if anything, to ensure we don't have anti-competitive practices?

Mr. Hennessy, you're giving us a very different picture of the potential for this market from some of the other players. You talk about making content available but only at prohibitively expensive prices, or not allowing access in a timely manner. Why is it that you think the potential of vertical integration can be offset by troubling issues of anti-competitive behaviour toward smaller third-party players?

[Michael Hennessy]

Well, I guess, Mr. Angus, it's not that I maybe think it can be offset as much as it's here. It's a reality. It's a given. We recognize, by the fact that we're not vertically integrated, that we face the biggest threat because our four largest competitors, adding the wireless, Internet, TV, and telephone business, are Shaw, Vidéotron, Bell, and Quebecor. So we know very well and already have experienced certain issues where we've had very great difficulty getting content. It's unfortunate our colleague from Quebecor isn't here, because we have substantial issues with them in front of the CRTC right now.

I do have very serious concerns. I don't want to understate that. I think it will probably be an ugly row to hoe for the next year or so, unless we do get the rules straightened out. It's also, given the size of this country, perhaps something that is inevitable.

I do look back and think we have lost a significant amount in many of the small and local businesses in communications that have disappeared over the last ten years.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Mr. Englehart, Mr. Hennessy raised the issue of needing to put firewalls in place because of some conflicts of interest in a vertically integrated company and getting the sensitive information they're going to need. Do you support that, or does Rogers have a policy in place in terms of firewall protection?

[Kenneth Engelhart]

Mr. Hennessy used the term “structural separation”, which is not a concept that I endorse, because that implies that you set up two separate companies and stuff like that. It is very common in commercial agreements to have clauses in the contract that govern where that information can go, who can look at it, and what it can be used for. We have lots of contracts like that, and I believe those contracts and those clauses can provide the protection Mr. Hennessy is looking for.

[Michael Hennessy]

That really is what we're looking for. I agree with Mr. Englehart, the use of the words “structural separation” may imply too much. We want marketing barriers between--

[Charlie Angus, NDP, Timmins—James Bay, ON]

Marketing barriers, yes.

[Michael Hennessy]

--their carrier business and their content business, and I think Ken agreed to that, which is great.

[Charlie Angus, NDP, Timmins—James Bay, ON]

You raised the issue of timely compliance. Certainly someone might agree to give you content but they could drag it out where the content actually becomes fairly useless, unless you want to watch reruns. Do you think the CRTC needs to have more teeth--for example, administrative monetary penalties?

[Michael Hennessy]

Somebody asked me that question the other day. I think there has to be more compliance, but my first response to that was there's no point in giving somebody the power to fine if they're not willing to find anybody guilty in the first place.

Let me give you an example. We have had a dispute with Quebecor to get TVR content on our video-on-demand. The rules explicitly state that they have to provide that content. That goes back to June. We still haven't seen it.

We've had disputes with Shaw over access on the other side of the business that go back to May. In that period, Shaw has been able to put an offer in for Canwest Global, take the application to the CRTC, go through the hearing process. CRTC renders a decision. They get it. They get their licence renewed. We're still waiting for resolution of the complaint, either for or against.

Unless you're willing to act and make things timely, I find the issue of whether the penalties are strong enough becomes quite irrelevant. It's not helpful.

[Charlie Angus, NDP, Timmins—James Bay, ON]

You talk about the issue of greater clarity. Is that greater clarity at the CRTC? Is that greater clarity when we write the agreements for the Canada Media Fund? What do we need in terms of clarity to ensure that consumers are not being denied access to content?

[Michael Hennessy]

In the case of the CRTC, you want explicit rules. The rules are explicit in video-on-demand, so you have to have action. That's number one.

Let me take your earlier example on the Canada Media Fund. I agree, it has public funding. Table stakes that everything it produces should be available on a non-exclusive basis. Same with CBC. But I would also say that it is also foreign programming or sports or big media stuff that really funds the system in the first place, and it requires us to make contributions to things like the Canada Media Fund, or to the system as a whole. So if we're denied access on one platform, that limits our ability and it limits money flowing through to the system.

Mr. Bibic's point that you can get it on CTV is showing you something he's about to buy and saying that today it's available on an independent platform, but he didn't guarantee you it's going to still be available on that independent platform when they buy CTV, because it's not independent any more.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Hennessy.

Thank you, Mr. Angus.

Madam Crombie.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Mr. Chairman, I think you heard me say earlier that I'm not sure which I'm more concerned about as a consumer, the increased concentration in the industry and the oligopolistic marketplace that we're creating, or the vertical integration.

I have to tell you that one of you play a very, very large role in my life and in my chequebook. You are my cable provider. I have five phones and data plans, BlackBerrys and iPhones, Internet provider, and now long distance.

I wonder if you think there might be consumer push-back to all that monopolistic control.

[Michael Hennessy]

We can certainly try to help you out with your wireless plan.

[Voices]

Oh, oh!

[Michael Hennessy]

You know, I think there is clearly a consumer push-back, and at the end of the day, the more disputes you see in the industry, the more negative I think the push-back becomes. At the end of the day, I don't think that's good for any of us. I can't give a better example than, ultimately, how silly we all looked with those commercials going constantly on television about “Save local TV” versus “Stop the TV tax”. I don't think I had a friend anywhere in the country who would talk to me, because they were so burnt out about being bombarded by corporate rhetoric over an issue like that when they knew that at the end of the day the money was going to come out of their pocket one way or another.

So it is a problem, and I think it's incumbent for us to address as Canadian corporations, before there aren't any Canadian corporations left.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

I'm really looking forward to Mr. Engelhart's reaction.

[Kenneth Engelhart]

Thank you.

One of the things we see is that a lot of bundling such as you've described increases the level of customer service that customers get, because if you were a poor service provider and you lost someone's telephone account, that was of course terrible, but now, if you annoy a customer, you can lose their wireline phone, their Internet, their cellphone, their video service.