Industry Committee on Oct. 19th, 2006

[The Chair, Conservative, James Rajotte]

I'm allowing the question, Mr. Masse.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Thank you.

I'll finish the question. If you commented, would you share that? If you haven't, have you commented since they've put out the report, and would you share that? And if you haven't in either case, would you care to comment to us?

Thank you.

[The Chair, Conservative, James Rajotte]

Ms. Yale, would you like to respond?

[Janet Yale]

I can tell you that our position on liberalization of foreign ownership restrictions is that it should be permitted in the case of infrastructure--and that would be telecommunications as well as cable--but not in the area of content; it would be carriage, but not content.

[The Chair, Conservative, James Rajotte]

Is there anyone else?

[Lawson Hunter]

To be honest, I forget if we said in our response to the TPR whether it was relevant there.

Philosophically, we're not opposed to removing the foreign ownership restrictions at the right time. We think that regulatory reform is a precondition to that, because it's very important that we don't expose Canadian companies in weaker positions—there are enough of them being taken over as it is—to foreign takeovers any more than they would otherwise be. That's been our position.

I recognize, however, that the issue of content gets very difficult. By the way, it's going to get more difficult. As you know, the Internet is being used today to carry all kinds of content. We can't separate those things quite so easily.

[The Chair, Conservative, James Rajotte]

Mr. Meldrum.

[John Meldrum]

Our position at SaskTel hasn't changed since we appeared before the Senate committee that looked at it. We don't support foreign ownership changes.

[The Chair, Conservative, James Rajotte]

Thank you for being here. We are a bit over time, so we want to thank you for your very brief responses and brief opening statements.

I would ask panel two, cable television companies, to come immediately to the table.

We have, from Rogers Communications Inc., Kenneth Engelhart, vice-president of regulatory. We have Yves Mayrand, vice-president of corporate affairs, from COGECO. From Shaw Communications we have Jim Shaw, chief executive officer. From Vidéotron we have Luc Lavoie, executive vice-president of corporate affairs, Quebecor Inc. We will go in that order.

Gentlemen, if you can limit it to three minutes, we'd appreciate that very much.

We'll start with Mr. Engelhart.

[Kenneth Engelhart, Vice-President, Regulatory, Rogers Communications Inc.]

Thank you, Mr. Chair.

Competition in Canada has been good for consumers. It has spurred innovation, and we support it thoroughly. I guess much of the debate you'll be hearing today is going to be around how to get to competition and how to get to the benefits for consumers most quickly.

We've done quite a lot already in Canada. Twenty years ago we had a monopoly in the telecommunications sector in almost all areas, and now we have unregulated competition in 70% of the telecom market. The last regulated area is the local telephone market, and that's what a lot of the debate is about.

My main point today is that competition is very different in the consumer market and in the business market for local telephone service. In the residential or consumer market, as you've heard, cable companies have entered with their own networks and are providing services. But most cable networks don't go into the business market. In most business buildings there is no cable infrastructure. Most competition in the business market is not facilities-based. How do carriers compete in the business market? Generally speaking, it's by using access facilities that are mandated by the CRTC--local loops and other networks. Those are hugely important.

Last year Rogers acquired Call-Net, a very large provider of competitive telecommunication services to Canadian businesses. The former Call-Net, along with our wireless and cable business marketing and sales groups, are combined in Rogers Business Solutions, a $600-million-a-year company. But almost all of our access facilities are dependent on CRTC-mandated access facilities, and less than 5% of those facilities are self-supplied. We are beginning to build networks into the business market, but it will take an awfully long time. So the business market and the residential market are very different.

We're very concerned about what the direction had to say. The direction specifically told the CRTC to have a hearing and review this. I am concerned that the interpretation the CRTC will take is that they should provide fewer mandated facilities to allow competition in the business market. If that's the way the direction is interpreted, I think the results will be very bad for competition in the business market. Any significant reduction in the availability of tariffed wholesale services and facilities could greatly reduce competition in Canada's business telecommunications market.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Engelhart.

We'll now move to Monsieur Mayrand.

[Yves Mayrand, Vice-President, Corporate Affairs, COGECO Inc.]

Thank you, Mr. Chair and committee members, for this opportunity to provide COGECO Cable's views on the telecommunications policy direction to the CRTC.

Over and above the points covered by my fellow cable panel members today, I'm going to leave you with a few basic thoughts that you and the government will hopefully take into consideration.

First, this policy direction can neither supercede the provisions of the existing Telecommunications Act nor replace the need to reform Canadian telecommunications legislation, as contemplated in the report of the expert panel. Since a new bill on telecom is expected to be tabled soon, the purpose of this policy should be to provide focus and clarity within the four corners of the law as it now stands and only until the law is effectively changed by Parliament. So in legal as well as in practical terms, we all remain subject to the forbearance regime under section 34 of the existing Telecommunications Act until the law is changed, and that includes the government.

The TPRP's version of the proposed text of a policy direction indeed contained an explicit reference to that existing provision of the act, in connection with economic regulation of telecommunications services. The actual policy direction should as well.

Second, a key concept underlying the TPRP Report on economic regulation or deregulation of telecommunications services is the concept of significant market power (SMP). It is a fundamental concept of competition law around the world, whether in telecoms or in any other industry sector. When SMP is found to be present in a relevant market, economic regulation may need to be extended or reinstated. The TPRP' s version of the proposed text of a policy direction contained an explicit reference to that concept in connection with economic regulation of telecommunications services. The actual policy direction should as well.

Third, the establishment of an ex post regulatory regime as the new default regulatory framework for telecommunications requires credible and efficient enforcement in situations of anti-competitive behaviour. The TPRP Report contains a full chapter on this critical requirement. At this juncture, in markets where incumbent telephone companies are found to have SMP, ex ante economic regulation is the only credible and efficient deterrent to anti-competitive behaviour, and there is no credible replacement solution at hand.

Fourth, and finally, while the TPRP report advocates the use of policy directions by the government to the CRTC, it also clearly advocates getting rid of cabinet review of individual CRTC telecommunications decisions. The TPRP report points out that we are alone in the western world with the concurrent availability and use of those two powers under our domestic telecom law. It is fundamentally important to have an independent expert tribunal, rather than politicians, rule on specific files based on detailed evidence and proper procedural safeguards. With the issuance of a policy direction under section 8 of the act, the government should commit to refrain from interfering with specific decisions of the CRTC or its successors henceforth.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you. We'll go right away to Mr. Shaw.

[Jim Shaw, Chief Executive Officer, Shaw Communications Inc.]

Good afternoon, committee members.

Listen, I hope no one asks me about policy 8.2.630, because I think I'm the only one appearing today who's not a lawyer. It's also my pleasure to note that I'm not--thank you--the only Shaw here today.

We're a large provider of cable services, with some three million customers, including our satellite base. We are busy and active in direct-to-home, cable TV, and VoIP. We're the largest Internet provider in western Canada right now. Last week we brought VoIP competition for the first time to a town called Medicine Hat. Today we launched in a town called Lethbridge. Next week we'll launch in a town called Red Deer. All three towns have never seen competition at any time in Canada's telecommunications history and yet have seen a lot of broadcast competition across the board.

We have a couple of ideas of what we think would be good, what I'll call “work ahead” ideas for the committee to consider as we roll forward.

Currently only two million of our customers have the availability of voice-over-Internet phone, or digital phone, as we call it. We have a long way to go and are actively pursuing that competition. We still have competitors--TELUS, SaskTel, Manitoba Tel--that have four million lines, and we're only talking about homes passed, with the 170,000 customers we have to date.

We believe we don't need a lot of time to establish competition; we need just a bit. We're more of the component that one year would be a good timeframe for substantial competition--let you guys pick the date for when it happens--so that small towns in Canada get the competition. Only the big towns have it right now.

At this time, the monopoly telcos totally manage and run the system. It's hard for us to arrange number portability. It's hard for us, as Ken Engelhart pointed out, to access support structures and rights of way. We're told constantly they're full, or will be used for their future facilities down the road. We really need it to be clear that one priority we have is access to provide Canadians....

Shaw is a company that serves a lot of small towns, whether it's in British Columbia or Manitoba, such as Prince Albert or Moose Jaw or Swift Current--I call it “Speedy Creek”--or other places like that. We need access, and if we don't have some kind of ability to ensure that we can bring the competition there, it's going to be really awkward for us. That's all we're saying. So if that's the whole mandate, that's what we'd really like you to consider.

We also think that broadcasting needs a change. We know it's not the mandate here today, but I think any kind of guidance that you or this committee could give to help Canadians have a further choice in Canada would be greatly accepted by all constituents of all parties here today.

As we see everything go down to iPods and digital television, with everything accelerating--get 'em any way you can--Canadians are forced to be limited by restrictions they're not used to. People from western Canada go to California, or Hawaii, and watch a show. They come back. They can't watch the show. They phone me and ask, “Jim, why can't I watch the show?” I say, “Well, have you seen the broadcasting book? It's about that thick, and it has more rules than you've ever seen.” I can't even explain it to them. So that's part of the issue.

I think it's the same thing in telecom. We need to boil it down and have a healthy broadcasting system that responds to what Canadians want. It's the same thing on the telecom side. You will always have competition....

Just one second, Mr. Chair. Sorry, but these are important.

If we keep Canadians on our side, we will always win, and these big companies will roll on.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Shaw.

We'll go to Monsieur Lavoie.

[Luc Lavoie, Executive Vice-President, Corporate Affairs, Quebecor Inc., Vidéotron Ltée]

Thank you very much.

Mr. Chairman, members of the Standing Committee, ladies and gentlemen, I am Luc Lavoie, Executive Vice-President, Quebecor Inc.

As you know, we control Vidéotron, the largest cable operator in Quebec and the third largest in Canada.

The concept of competition has been set down in Quebecor's genetic code since its creation by Pierre Péladeau more than 50 years ago. Quebecor has always operated in an extremely competitive environment, in newspapers, magazines, printing and television. It goes without saying that we support the minister when he expresses the desire to see the natural free market forces govern the telecommunications industry to a greater degree.

Competition, wherever it is established, benefits consumers, citizens, first and foremost.

We have just witnessed the implementation of a decision made by the Parliament of Canada more than 10 years ago, the decision to open the residential telephone market to competition. For the first time in history, telephone rates have dropped substantially. This is unheard of. It has taken more than 10 years for Parliament's decision to be implemented because our old monopolies, mainly the biggest of them all—obviously I mean Bell Canada—have made every effort to remain monopolies.

Bell Canada has made every effort to prevent the cable companies from providing residential telephone service. It has taken the will of one man, supported by his team—I'm talking about Charles Dalfen, the current Chair of the CRTC—for competition finally to be come a reality. That no doubt explains Bell's vicious public attacks on the CRTC. The monopoly has finally been dismantled, and Bell is having trouble recovering from it.

So I would like to take advantage of my appearance before you to pay tribute to the courage of Charles Dalfen, whose term as Chair of the CRTC is drawing to a close. He leaves Canadians a great legacy: competition in telephone services and all the benefits that result therefrom.

Ladies and gentlemen, I want to warn you against the cajoling approach the old monopolies are taking toward you and the massive lobbying campaign they are now deploying in Ottawa, both with the public service and with you, our elected representatives. The approach they're taking is nothing more than one of sophistry and distraction. Faced with a century-old monopoly, it is impossible for competition to be established if the appropriate conditions are not put in place. That is what the CRTC has done in the case of residential telephone service, and it has worked.

Sooner or later, pure free market rules will have to apply, and we accept that, but we should not precipitate matters and fall once again into the traps set by the old monopolies.

Some of our competitors have been vicious in their condemnation of the CRTC's actions in managing the transition to a competitive situation in the residential telephony sector. But for what cause?

In local telephony, competitors are finally making meaningful inroads after almost a decade of starts and failures. The CRTC has laid out conditions for deregulation that in all likelihood will be satisfied in the large urban areas of the country during the course of 2007. But Bell and TELUS cannot wait that long. They want complete deregulation now while they still hold over a 90% market share.

The CRTC has laid out a plan for local telephone competition and deregulation, and the plan is working. Companies like Vidéotron are providing consumers with new services at lower prices, and consumers are responding.

Indeed, if we are looking for ways to benefit Canadian consumers, I would suggest that we might all be looking in the wrong place. Although the policy directive before us today does not specifically address the case of mobile telephony, I will take advantage of my presence here today to suggest to you parliamentarians that you should begin to be seriously concerned with the prevailing situation in this sector in Canada.

Mobile telephony is currently concentrated in the hands of an oligopoly, and while third-generation technology is rapidly penetrating the U.S.A., as well as countries in Europe and Asia, here in Canada we are lagging farther and farther behind. Beyond just having to support outdated technologies, according to the OECD, Canada is in 29th place among the 30 member countries of the organization in terms of mobile telephone penetration, ahead only of Mexico and behind Turkey. All the while, Canadians pay 60% more than our southern neighbours for inferior mobile telephone services.

This is very worrisome in several regards, in particular because third-generation mobility is much more than telephony. It is the vehicle of the future for culture, whether it be music, film, television, or news.

This monopoly must be broken, in the shortest possible time frame. Otherwise, Canadians will find themselves treated like citizens of a developing country.

Thank you.

[The Chair, Conservative, James Rajotte]

Merci beaucoup.

I'll now go to Mr. St. Denis, a former chairman. Welcome back to the committee. You have six minutes.

[Brent St. Denis, Liberal, Algoma—Manitoulin—Kapuskasing, ON]

Thank you, Mr. Chair. I'll probably not use all the time, so that'll help you out.

I represent a rural riding, so I'll ask my question on behalf of members here and not here, who have rural constituencies. I'll try not to be biased, but I will mention that in my riding office located in a town of 6,000, when I moved I wasn't able to get high-speed from the incumbent. I had to get high-speed from the cable company. I thought that was kind of interesting. I didn't have a choice, as it turned out.

If I were trying to convince a group of farmers in a rural part of any riding in the country, where they are not in a village but are out on the township roads, where if they have television it's probably satellite television, and if I were trying to make an argument, say, on behalf of the newer entrants to the industry to that kind of front-line retail service, what government directive could I point to that would tell them that it's going to get worse for them, that their prospects of getting high-speed, broadband, or any other of the new and emerging services...? What arguments could you give me to help me convince them that we need to maintain this chance for the new entrants to have a run-up, to have a chance to get some momentum before they face full competition from the incumbents?

I would leave it at that, Mr. Chair. If there are a couple of comments, I'd appreciate it.

[Kenneth Engelhart]

Perhaps I'll go first, and I'm sure my colleagues will jump in.

You heard statements from the panel before that no one is suggesting deregulation for the rural markets, but I think this direction is. This direction was built on a direction that was contained in the telecom policy review report, and that draft direction in the report said “deregulate unless there's significant market power”. Those words were deleted from this direction, so this direction does not provide any guidance to the CRTC whatsoever on the need to continue to regulate in those rural areas where there is no competition.

One can presume that they're going to look at this thing through the lens of logic, but that is how they're regulating today. This direction is telling them to change the way they're regulating. This direction removes the words “significant market power”, and as Mr. Mayrand explained in his opening remarks, that is a state of affairs that I think will increase uncertainty and provide less clarity than the current state of affairs.

[The Chair, Conservative, James Rajotte]

Who would like to go? Mr. Mayrand or Mr. Shaw.

[Jim Shaw]

I only have one comment, Mr. Chairman. Being the only satellite operator of the group here, as far as I know, there are some options on the K-band side. I'm not saying they work really well, but they do provide an option for rural Canadians. I do think, just as they'll have to put more gas in their truck to drive to town, they'll have to put more gas in their truck to get high-speed Internet. Hopefully, the technology advances will allow it to go from 64K to 256 to some kind of broadband, but it's really based on a penetration level and capacity and capital market argument, for either a cable company or a telco.

[The Chair, Conservative, James Rajotte]

Mr. Mayrand.

[Yves Mayrand]

Very briefly, I think one of the big conundrums with the policy direction is, as Ken was pointing out, that some specific references, at least in the draft of the TPRP report, are not to be found in the version that was published by the government. It all goes to the point that there has to be, somehow, the hard and dirty work of going market by market--and I mean also geographically speaking--to determine what has to occur in each of those relevant markets, geographically in terms of the actual service, for deregulation to occur.

It's a big concern really for smaller markets where competition is simply not there, and I could give you a number of examples in our cable footprint, of smaller-sized markets where the actual incumbent share is 100% still. That has to be dealt with. Is the commission going to be better equipped under this proposed direction to do that dirty job of setting the criteria? I'm not at all sure.

[The Chair, Conservative, James Rajotte]

Mr. Lavoie, do you have a comment?

[Luc Lavoie]

No.