Industry Committee on Feb. 5th, 2007

[The Chair, Conservative, James Rajotte]

Ladies and gentlemen, we'll call the 41st meeting of the Standing Committee on Industry, Science and Technology to order. We are here today, pursuant to Standing Order 108(2), for a study on the deregulation of telecommunications.

We have two sessions today. The first is with the CRTC, and the second is with the Department of Industry and the Competition Bureau.

We have an hour with three representatives from the Canadian Radio-television and Telecommunications Commission. The first person we have is Mr. Richard French, vice-chair, telecommunications. The second person we have is Mr. John Keogh, senior general counsel. The third person we have is Ms. Fiona Gilfillan, acting associate executive director.

Welcome.

We have up to ten minutes available for a presentation, and then we'll go directly to questions from members.

Mr. French, I believe you'll be leading off.

[Richard French, Vice-Chair, Telecommunications, Canadian Radio-television and Telecommunications Commission]

Thank you, Mr. Chairman.

We're very pleased to be here. We won't be speaking for ten minutes; it will perhaps be three to four minutes.

I'm here to speak for the CRTC.

Our new chairman, Konrad von Finckenstein, has asked me to communicate his regrets to the members of the committee. As you may be aware, he's been in office exactly one week. He's very busy getting up to speed on the commission and his new responsibilities.

He is looking forward to appearing before you at your convenience, once he has mastered the various issues which face the commission. And that will not be long because he works very hard.

We're very pleased to have the opportunity to join the committee for an hour to discuss the important issues in the turbulent environment of telecommunications. We know the debates you undertake are important in a democracy. In industrialized democracies, the function that we have of independent regulation, carried out within the laws and policies that are the product of responsible government, is also important.

We hope that today we'll be able to help you to frame the issues. As I said, the environment's been a rapidly changing turbulent one for the companies we regulate, for the consumers who use telecom services, for the various public interest groups, and for the CRTC itself.

It is our role to adapt as rapidly as possible to all forms of change, in pursuing the objectives of our act.

It's what we've been doing, and it's what we will continue to do.

The status of a quasi-judicial tribunal, which is ours, imposes a certain constraint on my candour today. It is incumbent on the commission, for example, to forswear a full participation in public debate. As much as we would like to express our views fully and freely, we can't always do so. I hope the members of the committee will understand that I can't always be as frank and as complete in my responses as you would wish.

The commission cannot, by the words of its members such as myself, bind itself with respect to issues that may subsequently come before it. For example, if I were to be asked my views on something the commission might have to implement or rule upon, I could not express myself in definitive fashion without creating an impression of bias.

However, I want to stress that I will remain available to provide as much information as possible in order to assist members of the committee and instruct them in their reflection.

We'll do our best today to overcome those limitations and to try to ensure they don't defeat your purposes.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. French.

We will go directly to Mr. McTeague, for six minutes.

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

Thank you.

There'll be no comment from the bureau at this point, Chair, until an hour after?

[The Chair, Conservative, James Rajotte]

Yes, they're here for the second hour.

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

Thank you, Chair.

Thank you, colleagues for being here today. I wish you didn't have to be here.

First of all, on behalf of my party, I want to compliment you on the work you've done to enhance competition in wireless, the Internet, and long distance.

Of course, our view is that the order was done prematurely, so I have a very specific question for you, Mr. French, or your colleagues.

Given that section 34 of the Telecommunications Act calls for a factual determination of the level of competition, in that we all know market power is crucial in terms of determining how the CRTC can make a determination by counting the numbers of companies supposedly offering services, what if there are three companies, but one has a 90% market share and the others each have 5%? Are you certain the interests of consumers will be protected by deregulating the pricing of the company with 90%, without knowing more under the circumstances?

[Richard French]

Mr. McTeague, I think that the taking of a photograph of a market like that might appear to be a very simple answer to the problem of who has market power and who is dominant, but in a dynamic environment like the one we're living with, there are a range of other issues you want to examine. The commission, in its original decision, used a market share parameter along with a number of others. If I may say respectfully, before we can give a fair answer we probably need to have a whole range of other information. Quite clearly the question of market share, while not irrelevant, can't be the final determinant of whether or not significant market power exists.

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

The issue of forbearance in the market has often been a question that most have assumed might come at some point down the road. I've spoken to many in this industry, consumers and people on both sides of this equation, who have wondered quite rightly what impacts this will have after we have prematurely or hastily rushed to this order.

In your view, what will it mean in the long term—if you could give a snapshot—if we only have at least two of the former monopolies reasserting their market share without an opportunity for others, the CLECs, from coming back in or being given an opportunity to at least have a foothold in terms of competition? Do you see the future of local telephone as positively as we've seen with the CRTC's intervention in the three other areas I've identified?

[Richard French]

Well, I don't share all of the premises of your question, Mr. McTeague.

I recognize that the incumbent telephone companies will be formidable competitors. I must note that the rapidity with which they have lost market share in those areas where major cable companies are offering voice-over-Internet protocol gives me reason to be optimistic about the vitality of that particular competitive pairing. Whether or not other players will come into the marketplace I think is an important consideration and not one on which any of us can necessarily see clearly enough into the future.

Perhaps I'd just make a neutral observation that doesn't come from the commission, but in placing the forbearance scenario traced out by the commission in its decision, and comparing or placing it beside the draft order in council, the financial analysts have asked themselves if it would result in faster forbearance, greater or less competition. They've suggested that forbearance would be advanced by a matter of six to ten months under the order relative to what it would have been under the original CRTC decision. I guess we have to ask ourselves whether those six to ten months in the major markets where large cable companies are presently competing represent a major danger to the vitality of competition or not.

I really don't feel I can go much further, because it raises issues the commission may find itself grappling with in the coming months.

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

I'm wondering if you have been aware in the last year or so of Bell Canada having raised the telephone rates some several percent in terms of its requests in the past. This is supposed to be a boon to competition, and yet I understand there has been an increased rate. Is this correct?

[Richard French]

Are we talking about local service rates?

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

Local service rates in the past year and a half.

[Richard French]

Fiona is going to correct me, but Bell Canada has proposed to us a change in the structure of their local rates, the effect of which would be to reduce the cost of initially bringing in Bell Canada service and to increase slightly the regular monthly rate to compensate for that reduced service charge. The commission, to the best of my knowledge, has not yet made a determination on that application. It is argued that the proposal is revenue neutral, and we'll have to look at it in that regard.

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

There was an increase of 7% in 2006 on application. Is my understanding correct that you've approved that increase?

[Richard French]

Not to my knowledge.

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

Let me sum this up. There are decreases and increases that could take place. The current rules, however, certainly suggest a more inviting environment. I'm wondering, if the increase does not take place or there is no 7% increase across the board for local telephone rates, perhaps you could clarify in the next minute or so, or to other questioners, as I understand my time may be running out, whether or not in fact there is an application before you for such an increase.

[Richard French]

There's an application before us that wishes to remove the service charge associated with either connecting or reconnecting with Bell Canada, and I guess also with Bell Aliant, and to add to the money that they would have earned that way a small increment in the local rate of something like 80¢ a month. It's purportedly a revenue-neutral proposal. That's the only increase in local rates of which I'm aware.

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

Is that revenue neutral for consumers?

[Richard French]

Yes; you take the quantum of money forsworn by the service charge and add it to the monthly rate.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Crête is next.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

Thank you, Mr. French. I agree with you that this is a very important process for democracy. We are taking steps today, and I hope that we will put an end to the minister's blundering in this file.

What exactly has changed in terms of the decisions the minister has made since June 13 regarding the guidelines and the consultation periods?

[Richard French]

Are you referring to market prices and activities?

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

No, I am talking about the regulations, the impact of the June decision and the December decision. What impact are these decisions having? Are they effective or not?

[Richard French]

Briefly, there was a change in the access-independent VoIP services regulations. I must say that this a fairly minor change in daily terms.

The CRTC must respect the various elements of the guideline we received. For example, we implemented a procedure over an 18-month period, which represents a great deal of work. The purpose of this procedure is to revise the overall regulations for incumbent telephone companies and ensure that their competitors have an opportunity to take advantage of their overall network. This process is the result of the panel's report and the minister's response to that report. We began an ongoing process in cooperation with the Competition Bureau. You can talk to the woman responsible for this subject.

Basically, we are taking our cue from the panel's report, the minor change to the regulation on VoIP, and management. There is clearly a lack of enthusiasm and support from the minister with regard to the CRTC's activities, which seeks to guide the market so as to promote competition.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

To this end, Mr. French, subsection 34(3) of the Telecommunications Act forces the CRTC not to refrain from regulating:

[...] if the Commission finds as a question of fact that to refrain would be likely to impair unduly the establishment or continuance of a competitive market for that service or class of services.

How do you balance this legal requirement with the minister's order?