Industry Committee on Oct. 19th, 2006

[The Chair, Conservative, James Rajotte]

Good afternoon, ladies and gentlemen. We are having the 21st meeting of the Standing Committee on Industry, Science and Technology pursuant to Standing Order 108(2), a study on the policy direction to the CRTC.

We have three different panels before us today and about two hours and fifteen minutes, which is a very tight timeline. We're going to try to keep to the timelines as much as possible. I encourage all of our witnesses and members to be brief in their statements, questions, and answers. This will certainly help things proceed better.

We have in the first panel before us here today all the incumbent local exchange carriers. We have four representatives, and I understand there's been agreement on who will be presenting first, second, third, and fourth, and I'll go in that order.

From Bell Canada we have Lawson Hunter, executive vice-president and chief corporate officer. Presenting second will be Michael Roberts, vice-president, regulatory and government affairs for Bell Aliant Regional Communications. Presenting third will be John Meldrum, vice-president, corporate counsel and regulatory affairs for SaskTel. Fourth, from TELUS, we have Janet Yale, executive vice-president, corporate affairs.

I understand that you've all been told that there will be three-minute maximum opening statements from each of you, and then we'll go directly to questions from the members.

Mr. Hunter, would you like to start us off, please?

[Lawson Hunter, Executive Vice-President and Chief Corporate Officer, Bell Canada]

Thank you, Mr. Chairman, and good afternoon, members of the committee.

I am happy to be here today to express Bell Canada’s support for the proposed policy direction to the CRTC. The urgent need to reform Canada’s telecom policy framework was well established in the landmark report of the telecommunications policy review panel, which reported last spring. This expert panel identified the paradox that while “Canada has one of the most competitive telecommunications markets in the world, we continue to have one of the most detailed, prescriptive and costly regulatory frameworks”. That's a quote from the panel.

Their assessment that our telecom sector has fallen behind internationally lent urgency to their recommendation to begin reform through policy direction grounded in three principles.

First, place more reliance on market forces to achieve the CRTC’s policy objectives, allowing Canadians to finally derive the full benefits of competitive markets where, in the panel’s words, “service providers have incentives to reduce costs and prices and to innovate services in order to increase their profits or simply remain in business”.

Second, where regulation remains necessary, or where market forces are unlikely to achieve a policy objective, be streamlined and efficient. Fewer regulatory proceedings and minimally intrusive regulations that rely, as the panel recommended, on simple rules enforced through after-the-fact remedies rather than on prior approvals would free service providers to better respond to customer needs.

Third, reform the CRTC’s existing wholesale access regime, which the panel found actually undermines the commission’s--and by the way, the panel's--goal of increased facilities-based competition in this sector.

These are sound principles based on extensive analysis by the TPR panel and they are widely accepted in other jurisdictions.

The Telecommunications Act dates from 1993, when few of us had even heard of the Internet and when those of us with wireless phones carried them in briefcases. Today, companies like Canada’s own RIM sell the BlackBerry--which most of us thought was a berry back in those days--that weighs no more than a couple of ounces, yet uses the Internet to provide voice, e-mail, web access, TV, video recording, and digital photography. That is the norm.

This technological revolution has opened the door to vigorous facilities-based competitors: cable companies like Rogers, Shaw, Vidéotron, Cogeco, and EastLink, with market capitalizations in the billions, multiple service offerings, and millions of subscribers; and global giants like eBay's Skype, with a market capitalization of over $40 billion U.S. and access to over 200 million registered users of their voice-over-Internet service. Their results have exceeded most expectations, and they will not stop simply because we are allowed or encouraged to engage in normal marketing practices. Rather, they will have, as will we, every incentive to innovate faster, providing more and better services.

The policy direction, in our view, is a necessary first step in making Canadian telecommunications policy, once again, a world leader in this sector. Other countries are eliminating ex ante price controls and marketing restrictions--CRTC staples--in favour of market forces. Indeed, the United Kingdom recently, just last July, ended retail price controls, or price caps, in an industry where cable reaches only 25% of all households, in contrast to Canada, where it reaches 98%. In contrast, the CRTC concluded hearings on its next multi-year price cap regime just this week.

I will leave the last word to Canadians themselves. According to research conducted by Decima on behalf of TELUS, us, and the Public Interest Advocacy Centre, and submitted to the TPR panel, the vast majority of consumers--in fact, 89%--believe that the same rules should apply to telephone companies and cable companies when it comes to local phone service. That is why we have urged the government to proceed with implementing the policy direction as recommended by the TPR panel.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hunter.

We'll go right to Mr. Roberts.

[Michael Roberts, Vice-President, Regulatory and Government Affairs, Bell Aliant Regional Communications]

Thank you, Mr. Chair and members of the committee.

I represent Bell Aliant Regional Communications. Bell Aliant is the successor to the companies that for many years were the telephone service providers in the four Atlantic provinces. As of July this year, we also became the service provider for large territories in Ontario and Quebec. Our serving territory includes some of the most rural and remote territories in Canada—Labrador, rural Newfoundland, and areas of northern Quebec and Ontario. Bell Aliant was created to focus on regional markets. We have achieved a lot in providing state-of-the-art communications to our customers in the Atlantic region, and we intend to continue to do the same for our new territories in Ontario and Quebec.

I want to tell you why we believe the proposed direction of the CRTC is important to us, to our customers, and to all Canadians. We believe that competition brings a number of benefits to customers and that restriction of competition limits those benefits and stifles investment and innovation. In case anyone tells you that the direction is unnecessary because the current regulatory approach promotes competition, we are here to tell you that this has not been our experience. In our view, the CRTC must change its approach and welcome rather than restrict competition for the benefit of new competitors.

Let me tell you a bit about our experience. It may surprise you that our territory includes the most competitive telecommunications market in Canada. The CRTC's most recent monitoring report shows that at the end of 2005, of the 86 markets across Canada, three of the six most competitive residential service markets are in our territory in Atlantic Canada. The Halifax market was the most competitive of all, with a competitor share of just under 35%.

Now keep in mind that the markets defined by the CRTC are large and include areas where the new entrants choose not to offer service. The market share of our competitors in those areas, such as Metro Halifax, where they're actually operating, was much higher than that.

By any reasonable assessment, those markets, particularly Metro Halifax, are vigorously competitive and have been for years. Nevertheless, Aliant's application for forbearance or deregulation took two years to be processed by the CRTC. At the end of that, our application was refused because the CRTC created new rules that made it more difficult to be deregulated.

The result is that the competitor continues to grow, but customers are denied the benefits of having all players freely competing for their business. We are restricted from bundling our services and restricted in offering promotions, restrictions that our competitors do not face. This means that customers are not getting the benefits of our competitive response, benefits they would receive if the regulatory restrictions were removed and market forces were allowed to prevail. That is why we strongly support the work of the telecommunications policy review panel and the proposed direction to the CRTC.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Roberts.

We will go to Mr. Meldrum, please.

[John Meldrum, Vice-President, Corporate Counsel and Regulatory Affairs, SaskTel]

Thank you for the opportunity to provide the committee with SaskTel's opinion on what the policy direction means to us.

First of all, for those of you who may not be familiar with us, SaskTel is the incumbent telephone company in the province of Saskatchewan. In terms of size, SaskTel is less than one-half the size of Shaw Cable, one-eighth the size of TELUS, and about one-fifteenth the size of Bell.

In our view, the policy direction is a positive step for the telecommunications industry in Canada and, more particularly, for Canadian consumers. Paramount in that view is the direction for the CRTC to rely on market forces to the maximum extent feasible.

Today, CRTC decisions are often designed to curtail market forces, with the goal of forcing artificial market share losses on SaskTel and the other incumbent phone companies. An unlevel playing field in telecommunications has been created to achieve this objective. Let me bring this unlevel playing field concept to life for you with an example.

SaskTel and Shaw compete against each other in Internet and cable television and will soon compete in local telephone service. As competitors, we are both faced with the prospect of winning back lost customers, but the rules each one of us faces are totally different.

When SaskTel loses a telephone customer to Shaw, we will be unable to contact that customer for a period of three months to try to win them back. Even when we do contact the customer to try to regain them, we will have virtually no pricing flexibility or opportunities to offer them a promotion, waive installation charges, or bundle their local service with other SaskTel services. Those are the CRTC-imposed rules.

On the other hand, when Shaw loses a cable television customer to SaskTel, 75% of the time Shaw can contact that customer immediately, often before we even complete our installation. They can and do offer those customers various incentives to return to Shaw, such as reduced monthly charges and free months of service. They are also free to bundle their television service with high-speed Internet or any other services they provide in the market.

For customers, curtailing market forces means less competition, less innovation, and ultimately higher prices than would otherwise be the case. Today, the fiercest competitive battles are fought in front of the CRTC rather than in the marketplace. The time has come for this culture of regulation to end.

In our experience, you don't need regulatory assistance to successfully compete. With partners, SaskTel successfully built and operated a local telephone and cable company in both Leicester, England, and Wellington, New Zealand, in the 1980s and the 1990s. In New Zealand, there was not even a formal regulator in place when we took on Telecom New Zealand, yet we succeeded, and customers benefited from the unbridled competition that occurred.

In closing, the telecom policy review panel report recommended major regulatory reform in Canada: rely on market forces; let consumers decide; and assure fairness among competitors. We believe the proposed policy directive is consistent with those fundamental principles, and we fully support it.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Meldrum.

We'll go to Ms. Yale.

[Janet Yale, Executive Vice-President, Corporate Affairs, TELUS Communications]

Thank you, Mr. Chairman and members of the committee.

When Parliament enacted section 8 of the Telecommunications Act, it intended to permit the Minister of Industry and the cabinet to take responsibility for a matter that should clearly be their responsibility, and that is the fundamental policy of the government in this critical sector of telecommunication.

The proposed policy direction is a means to allow the minister and the Cabinet to take the leadership role in regard to policy. It will provide guidance from the government to the CRTC regarding how it should exercise its day-to-day mandate as a regulatory agency.

TELUS supports the proposed policy direction and urges the government to proceed with finalization and formal issuance of the direction. In our view, the direction is both necessary and timely. It's necessary because the CRTC's actions in recent years have made it clear that without such a policy direction, the CRTC will not adopt a more market-based approach to implementing the Telecommunications Act.

Secondly, the direction is timely because it represents an important first step in the reform of Canada's telecommunications regulatory framework as set out in the TPR report.

As I mentioned, the CRTC has clearly demonstrated over the last few years that it would prefer to continue to regulate rather than moving forward with the reforms that most other advanced industrialized economies have adopted.

A couple of recent examples. In the spring of this year, the cabinet asked the CRTC to reconsider its decision to regulate voice-over-Internet services as if they were identical to traditional wire-line local telephone service. The cabinet noted the recommendations of the TPR report, which favoured no regulation of such services. Surprisingly, on September 1 of this year, the CRTC reported to cabinet that it would not change its policy of regulating voice-over-Internet services. Having been invited by the government to adopt a more modern approach, the CRTC refused.

Another illustration of the CRTC's reluctance to recognize and accept change is its policy regarding wireless or mobile telephone services. As you know, wireless services have been enormously successful in Canada and elsewhere, and there are now about 17 million wireless phone customers in Canada.

Many people now regard the wireless phone as their primary and most important phone service, and an increasing number of Canadians adopt wireless as their only form of phone service, giving up their wire-line service altogether. In our service area, in our largest urban market, greater Vancouver, Stats Can reports that 10% of households are now wireless only, and that number is growing every year. In spite of this, only in the last few months has the CRTC been willing to acknowledge that wireless phone services might be a substitute for and competitive with traditional wire-line service.

These examples, in our view, illustrate the clear need for policy direction by the government to the CRTC, and that proposed direction is well drafted; there's no question it's legally valid and falls squarely within what Parliament intended when it enacted section 8 of the Telecommunications Act.

So, in closing, I'd like to draw your attention to what the minister himself said on the day he released the proposed direction:

We want to ensure that Canada's telecommunications industry is internationally competitive and successful, and is shaped to best support our ever-evolving and rapidly changing telecommunications needs.

A critical first step in the fulfillment of that objective is to finalize that policy direction, and we urge the government to do it as quickly as possible.

Thank you, Mr. Chair and members of the committee, for inviting Telus to provide you with its views on this important matter.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Yale.

We'll now go directly to questions. I just want to remind members to be as brief as possible with questions and to keep them relevant to the policy directive sent to the CRTC.

I have Mr. McTeague on the list. Is that correct?

Mr. McTeague, for six minutes.

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

Mr. Chair, thank you.

Thank you for being here on such short notice. I know this issue is of immense importance to all in the telecommunications industry, as it is to this committee. We are dealing, however, with the issue of manufacturing, and if time were to permit, perhaps down the road....

Very quickly to the questions. I would leave this to any one of you, but perhaps you, Mr. Hunter, can start first. Does the direction overrule the Telecommunications Act in any way, shape, or form, as you read it?

[Lawson Hunter]

No, in my view it does not. As Janet said, I think it falls squarely within the power given by Parliament to the government in section 8 of the act. In fact, it is slightly modified from what the TPR panel themselves recommended, but I think it falls squarely within the powers the government is given in section 8.

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

We could argue that the direction contains a number of very broad principles, and I'm sure there'd be others who would argue that point. How, in your view, will the CRTC know if they're complying with the direction?

[Lawson Hunter]

Others can answer, but that's a good question. I've mentioned to the chair of the CRTC that we're going to have to operationalize this general policy direction. Then, of course, that's why we think it is within the powers of section 8, because it only allows the government to make general directions to the commission; it can't decide individual cases.

It obviously has to find a minimally intrusive way of operationalizing the principles that are set out, using the type of regulation that's most efficient. So they're going to have to take this and come up with some tests or some standards to make sure they're complying with the government's wishes.

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

Obviously, the committee is interested in the concepts of market dominance, market power, and who has those. There have been some questions as to the experiences south of the border with respect to recent rulings there on the dearth of competition and, more importantly, whether or not VoIP or wireless serves as a substitute in many homes. The question of the evolution of the technology is not there.

In your estimation, Ms. Yale, you had talked a little bit about the increase of 10%, you cited, in some markets--that's developed over a period of time. Do you see that growing, or do you continue to see the distinct possibility that market is tapped out, that there will continue to be a very large and dominant market for wire-based technology, of which you are the incumbents?

More importantly, to all four of you on the subject of business, what is the competition picture like as far as the business penetration by some of the CLECs?

[Janet Yale]

Maybe I can start.

Certainly our experience in western Canada has been the explosion of wireless as an actual substitute for local telephone service. As I said in my opening remarks, we're in a situation now where 10% of households in the Vancouver area do not have a wire-line telephone service, notwithstanding the obligation of all telephone companies to have a line to every home. I think that's good evidence that wireless is an increasing substitute, in many people's minds, for local telephone service. It doesn't have to be for everybody for it to be meaningful competition. In Alberta, the number is about 8%, on average, and it has almost doubled in the last year. Every year, over the last number of years, we're seeing a virtual doubling—

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

Of people who use wireless exclusively?

[Janet Yale]

—of people who use it exclusively. On top of that, you obviously have the explosive growth in wireless services. It's not to say it's the only form of competition, but it's certainly meaningful competition and broadly available to most consumers in Canada.

It really is important to recognize that in many markets today there are three facilities-based alternatives: the telephone company, the cable company, and at least one, if not multiple, wireless providers who are not affiliated with the telephone company in the marketing question. Our view, obviously, is that it's time to rely on that competition to ensure that the best offers are available to consumers and not have the regulatory handicap in place.

On the business side of the market, we are moving east into Ontario and Quebec in a facilities-based way, and we have been growing that business and taking on Bell and other competitors increasingly.

[The Chair, Conservative, James Rajotte]

You have about a minute, Mr. McTeague.

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

What I was really alluding to is that while there may be competition from a consumer point of view, I'm trying to figure out the number at which land lines would dominate. By the numbers you've given me, it still looks as though, between VoIP and wireless, we're still dealing with the old technology—the old land wire—being at least 80% to 90%—

[Janet Yale]

You can't look at national averages and draw conclusions about the competitiveness of particular markets.

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

This may be more in urban centres.

[Janet Yale]

In urban centres, obviously, we're at or near the 25% threshold mentioned by the CRTC, in many markets, particularly if you include wireless only. It's our position, as you know from our appeal to the cabinet, that this threshold itself is too high.

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

My question, though, is more to the issue of whether, as far as business competition is concerned, cable companies can get access to businesses through your landwires.

[The Chair, Conservative, James Rajotte]

We're out of time.

Does someone want to offer a brief response here?

[Lawson Hunter]

Let me quickly comment on the business market. The business market, in our view, is the most competitive market we face.

Mr. McTeague, if you like, I could give you some information about what has happened to prices in those markets.

Certainly under some wholesale access regimes they can. Rogers just announced.... There was an article in the Globe and Mail on October 10 saying they intend to aggressively enter the business market. So it's not only the telcos; the cable folks themselves are clearly entering these markets. Vidéotron has announced the same.

It's a very competitive market, and arguably, as I say, the most competitive in the country. It's a struggle for all of us I think to make a reasonable return on investment.