Finance Committee on May 30th, 2012

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

It's about the size of the spectrum.

[Simon Lockie]

It's that you need spectrum and you need capital. We also need capital to get spectrum, which is a distinction between us and the incumbents; they got it for free. But once you've got it, you have to deploy it, and that's hugely capital intensive.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Bibic, are there any regulations that compel you to go to rural areas and to do other things—from the CRTC?

[The Chair, Conservative, James Rajotte]

One minute, Mr. Simms.

[Mirko Bibic]

No, but the way the spectrum policy has been designed for the upcoming auction, it says that if any provider has access to two blocks of spectrum, either through ownership or through combining with pooling its spectrum with somebody else, then you have an obligation to build to 97% of your existing footprint.

For Bell that would basically mean all the rural areas. But if you don't have an existing footprint or if your existing footprint is only Toronto and Montreal, like my friends, then they have absolutely no rural obligations.

[Simon Lockie]

Sir, I want to clarify one thing. When he says “all the rural areas”, what Mr. Bibic means is all the rural areas where you already have coverage, so nothing incremental to that.

[Mirko Bibic]

That means Bell is everywhere today, so it's 97% of everywhere, and my friends are in Toronto and Montreal and it means 97% of Toronto and Montreal, so no rural obligations.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

That's what I'm trying to drill down to here, which is the fact that I know he's in my area, but you're not. Can I expect someday to receive a great amount of competition in my one rural area where they are and you're not? That's all I'm asking.

[The Chair, Conservative, James Rajotte]

A brief response.

[Simon Lockie]

Briefly, we will build out rurally when the economic case for it exists, and that is something that can only happen if there's access to capital and the attendant policy decisions that allow us to succeed and flourish so that we can expand. That's what competition is: you look for opportunities for growth.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mrs. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

I have to make a quick observation. The back and forth of the smaller and larger proponents is not unlike politics, in terms of what we get to enjoy on a regular basis. It's a very different debate, but I think you're bringing to the table very important perspectives, which I appreciate.

Mr. Coles, I represent a rural riding, but even if you are only representing an urban riding, one of the biggest complaints all the time is the cost. One of the things we're trying to do is move towards competition. I understand that the costs, even in our urban areas, are very significant.

Do you believe Canadians should pay lower prices for their access, and why or why not?

[David Coles]

We have done extensive research that is not in these documents because of the restrictions you have. There's no evidence in any of this discussion going on that competition will generate lower rates. Everyone wants better service and lower rates, but worldwide, show us apples to apples and oranges to oranges.

For example, I get this phone for free. In Europe you pay $600. You add that to your phone bill and all of a sudden their rates are higher than ours. There's scads of evidence of that.

I would be cautious that this debate, which I am enjoying, should be larger and not part of the budget bill.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I guess I'll get feedback from some of the other folks at the table.

Are there any comments on that issue?

[Simon Lockie]

I don't want to hog the mike, but I'm happy to speak to it.

In my view, you've already started to see the impact of competition. I could sit here and argue that competition creates lower prices and more innovation. I don't think that's even debatable. I think people recognize that, so I won't spend a lot of time on it.

I will say that even with our modest presence in the market since late 2009—we have about 450,000 subscribers and we're in five major urban centres—we're already seeing a dramatic price impact. That is the tip of the iceberg.

On the way it works—and it's very simple to think of it this way—once you've established a real network footprint and a retail presence, the incumbents look at that. They have an ARPU, average revenue per user, at around $57 or $60 per user. Our ARPU is down around the $27 or $28 range. So you do the math. If they want to compete with us once we get a level playing field, they will have to come down in price.

That terrifies them, because every dollar of ARPU they go down costs them about $500 million in enterprise value. There's no amount they won't spend to stop that competition, slow it down, and continue with the kinds of obstacles that have allowed them to establish themselves as an oligopoly. The foreign ownership rules are the primary one.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I represent a large section of rural area. We know there's maybe 96% coverage, but I'm probably missing about 10% to 15% coverage.

Through this kind of spectrum auction, is there any opportunity...? I think the satellite companies are moving into those one-offs in the very remote places. Does this provide any opportunities for them, or will nothing get that last 3%?

[Mirko Bibic]

The last 3% in the most remote areas will ultimately need to be served via satellite. Wireline fibre Internet is being offered by multiple companies in the urban and suburban areas. But if you want that coverage it will be through wireless broadband using LT technology, which offers phenomenally high speeds. That service will be delivered to 97% of the country by the national players, who are putting a lot of capital on the ground and employing tens of thousands of people—Bell, Rogers, and Telus.

As for pricing, I'll give you an example. These are facts on the ground, not price rhetoric we read in the newspapers. They were verified today in advance of coming here. If you look at AT&T's iPad plan, for a fairly decent chunk of data usage it's $50. The very same plan through Bell Canada is $35. It's significantly cheaper here in Canada than in the U.S.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

So when people come back from the United States and tell me they have this cellphone that they're paying significantly less for, I should wonder about the accuracy.

[Mirko Bibic]

They're misperceptions based on empty rhetoric, basically ivory tower papers.

The fact is if you take an iPhone now—not an iPad but an iPhone—and you compare the exact same number of minutes and the exact same wireless Internet plan, for AT&T it's $90 and for Bell Canada it's $85.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Ms. LeBlanc, you have five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much.

As a member of the Standing Committee on Industry, Science and Technology, I would really like to have heard you speak at that committee, rather than at a finance subcommittee, to do a truly in-depth study of this telecommunications issue.

In the government's deliberations that led to the rules that govern this auction, it would seem that there were issues that, first, as has already been mentioned, were intended to increase competition to lower prices to consumers. That would seem to be one objective.

Also, I think that any good government that represents not just the urban areas, but also the rural areas, must have another objective. The regulations governing the next auction should contain incentives for companies so that they can be deployed not just in rural areas, but remote areas as well.

Do you think the rules that are currently in place attain these two policy objectives?

We could start with Mr. Kirby.

[Bruce Kirby]

Yes. The challenge in trying to support services in rural areas, as we've been discussing, is that you have to have the capital to build out, and you have to have access to adequate spectrum that allows you to efficiently serve those areas. Bell and others have been able to do so because they've had many, many years in which to build out. They've had many, many years of profits coming out of other businesses as well to help them build out, and they've had spectrum that favours that.

We don't have that situation. This is one step in getting us better access to capital. There is still work that needs to be done to get better access to spectrum that supports building those areas.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

But in the rules that have been presented, are there incentives for the people who get the opportunity to deploy their network or provide services at a reasonable price, and not a two-tiered service, for the remoter regions?

Mr. Lockie.

[Simon Lockie]

Very quickly on that, the reality is I don't think that the recently released policy will achieve anything in respect of covering areas that don't already have coverage. That's by definition because the so-called rural build requirement requires you only to cover your existing HSPA Plus footprint. That's just a straightforward description of what the policy does.

I want to be clear that Wind Mobile going up to the policy was on record in the media and when meeting people in Ottawa as being in support of meaningful rural build-out requirements. It's a cost that you incorporate into buying the spectrum. If buying the spectrum required you to set a big pile of money on fire every month, that would be incorporated into the cost of the spectrum, the difference being that it doesn't achieve any policy objectives.

We were on record saying we support those types of restrictions. Now, having said that, I just want to observe that, in my view, it's not the most efficient way to get a rural build going.

This is veering off topic considerably, in my view, from the foreign ownership question, which is about access to capital for smaller companies. That said, what I will say is that the types of measures would be that you require people to do it or you incent them to do it. The policy that was recently announced doesn't do either with respect to areas that don't already have coverage.