Evidence of meeting #42 for Industry, Science and Technology in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was competition.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Jean Brazeau  Vice-President, Telecommunications, Shaw Communications Inc.
Yves Mayrand  Vice-President, Corporate Affairs, COGECO Inc.
Kenneth Engelhart  Vice-President, Regulatory, Rogers Communications Inc.
Luc Lavoie  Executive Vice-President , Corporate Affairs, Quebecor Inc., Vidéotron Ltée
Ted Chislett  President and Chief Operating Officer, Primus Telecommunications Canada Inc.
Chris Peirce  Chief Regulatory Officer, MTS Allstream Inc.
Joe Parent  Vice-President, Marketing and Business Development, Vonage Canada Corp.

4:40 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you very much, Mr. Peirce.

We'll go to Mr. Parent, please.

4:40 p.m.

Joe Parent Vice-President, Marketing and Business Development, Vonage Canada Corp.

Thank you for the invitation to appear.

For those members who aren't yet familiar with Vonage Canada, we're a leading independent provider of innovative consumer-friendly broadband telephone service, also referred to as voice over IP or VOIP. We've been in the telecommunications business for a little over two years, and within that time we've created over 200 well-paying technology sector jobs in Canada.

We believe Canadians are hungry for innovative and well-priced alternatives to the services of the large telephone and cable companies. We want to continue to build our high-growth business and provide that choice to consumers and businesses.

The committee study is on telecommunications deregulation. Vonage Canada supports the goal of a deregulated telecommunications market structure that will ultimately produce lower prices, greater choice, and increased innovation for Canadians in our economy. However, we cannot simply wish such a competitive market structure into being. The CRTC, an independent regulator, conducted an extensive proceeding and developed a sound plan for the transition from a market still dominated by former monopolies to robust and sustainable competition. By contrast, the minister's proposed order varying the local forbearance decision assumes a competitive market regardless of the overwhelming evidence that the former monopolies still dominate. It does so in contradiction of the Competition Bureau's criteria and in contradiction even of the Telecommunications Act.

But the main reason we felt it important to address you today is that the proposed order takes Canada in the direction of less innovation and of less choice, not more. The minister's proposed order would replace the CRTC criteria with a singular focus on the presence of a competitor's network in the geographic market. This competitive presence test ignores completely the market power a telephone company continues to exercise.

A small provider like Vonage Canada is David to Bell's Goliath. We cannot ignore the former monopoly's market power, which is real and manifests itself every single day. Bell and TELUS can and do preclude competition by denying Vonage Canada access to their online advertising properties and by limiting the supply of broadband connections used to provide VOIP.

Moreover, under the proposed order, Bell and TELUS would have the ability to contact each and every new customer signed up by Vonage Canada at the very moment that customer acts on his or her decision to switch. Using the knowledge that they obtain through their monopoly position, the telephone companies will be able to offer those customers, and only those customers, a special deal. The vast majority of their customers will not experience lower prices as a result.

In our view, the competitive presence test adopted in the proposed order will simply transition the market from a telephone company monopoly to a duopoly including the cable company. These companies share a mutual incentive to protect their market share, but lack the incentive to compete aggressively for Canadians' business by innovating or contributing to our national productivity. The cable companies have simply matched the product and price offered by the telephone company. This may be in their commercial self-interest, but it does not result in true choice or innovation for Canadians.

Canadians will not and should not be satisfied with such a limited choice and poverty of imagination, nor, in our view, should the government.

Thank you.

4:45 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you very much, Mr. Parent, and thanks to all of you for being brief in your opening statements.

We will go to questions from members. I should have pointed out last session, but I will do so now, that members have a very limited time in which to ask questions, so we ask you to be as brief as possible in order to allow other panellists to answer. They have six minutes in the first round and five minutes in the second--not too much time for questions.

We'll start with Mr. McTeague for six minutes.

4:45 p.m.

Liberal

Dan McTeague Liberal Pickering—Scarborough East, ON

Thank you for being here today and thank you for the frankness and the brevity with which you presented your concerns here today. I can tell you that on the opposition side we are deeply concerned about the rush by the minister to proceed notwithstanding the number of recommendations made in the TPRP.

I wanted to point out for my colleague Mr. Shipley that Bill C-41's genesis was Bill C-19, and it was this member of Parliament who had everything to do with making that happen. Unfortunately, we had a lot of opposition at that time, including that from your party.

I realize, Mr. Shipley, you weren't here at the time, but I want to make it abundantly clear that the issue of fines concerns us. Fines, if they are limited only to administrative monetary penalties that go back to general revenue, assuming the time it takes to even get a fine, cannot possibly help you, the aggrieved party.

Tell me, from your perspective, how you see these fines--assuming that your various companies have been found to be in a position of having been egregiously violated--helping your company stay in business, or will you be gone by that point?

4:45 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

I think, to start off quickly, I would say that I agree completely that the problem with the AMPs approach is that there is nothing remedial about it. If you had a competition act that actually granted access to private interests to pursue a remedy, that would be different, but as Ken Engelhart mentioned in a previous panel, in terms of quality of service, there already are fines.

We just received another cheque for over $300,000 from Bell for inferior-quality service provided in the fourth quarter of 2006. They've clearly decided that the fines are just a cost of doing business, and that they are better off paying the fines than providing improved quality of service.

So to us, the act needs redefinition in terms of what constitutes anti-competitive behaviour in telecommunications, because the fines on their own don't make that any sort of avenue of relief for us.

4:45 p.m.

President and Chief Operating Officer, Primus Telecommunications Canada Inc.

Ted Chislett

We don't see the fines as being any detriment. The real issue is that the Competition Bureau, in our opinion, is not the right organization. The CRTC has the industry knowledge. They'll be dealing with wholesale in the future, and they'll be able to step in and order things other than fines. That's where it should be.

The test you have for trying to prove the purpose and the activity as a practice, and all the legal things about the Competition Bureau, make it unworkable, together with the length of time it takes to do it.

4:50 p.m.

Vice-President, Marketing and Business Development, Vonage Canada Corp.

Joe Parent

I completely agree with that. While the intent is there, the process would take so long that it would be irrelevant, from the position of Vonage Canada. We would be out of business by the time any damages were levied. We think it's much more effective to consider policy direction that would prevent the activity from happening in the first place, as opposed to fining it after it's determined to have happened.

4:50 p.m.

Liberal

Dan McTeague Liberal Pickering—Scarborough East, ON

We in the opposition are very concerned about what has happened in the United States, with the rush to do the same thing. Of course, now there's less competition, higher prices or at least stable prices, and very little in the way of innovation.

Mr. Peirce, you may be the best one to speak to this. I saw something here on the Industry Canada website about the potential violation of the Telecommunications Act; that it may be deemed ultra vires. Can you enlighten this committee as to how your company sees this to be the case?

4:50 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

Right now the Telecommunications Act calls on the CRTC, under section 34, to find as a fact, on a case-by-case basis, that sufficient competition is present to justify the granting of forbearance to a incumbent provider.

The telecom policy review admittedly says that section of the act should be replaced, but the way you replace that is through an amended piece of legislation. One test you could relate to this proposed forbearance order--the one Sheridan Scott was referring to--talks about various indicia of market power. But the problem is that the applicant gets to choose the test, and the test any applicant will choose is the one that isn't about market power; it's just about counting whether or not there are providers in the marketplace.

On the question earlier about what would happen in a rural or a more regional municipal setting, if small cable companies to which we'd provided the wholesale provider were looking to get into telecommunications and knew that as soon as they even existed in the marketplace the incumbent would be able to apply for forbearance, they'd be very hesitant to get involved. That's why we say that section is effectively replaced by this proposed forbearance order.

4:50 p.m.

Liberal

Dan McTeague Liberal Pickering—Scarborough East, ON

The TPRP made about 127 recommendations. In the view of the opposition here, I think it's very clear that some serious cherry-picking took place.

Do you believe there are some egregious omissions in this order? You've alluded to a few of them regarding market share and the hybrid being created by the CRTC and the Competition Bureau--sort of a band-aid solution, from our perspective. I'm wondering if you would agree and could live with this committee's recommending that the government endorse the entire report before proceeding with its order.

4:50 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

We endorsed most of the findings of the telecom policy review report. The ones we had problems with were around wholesale access, as Ted has raised. Thanks to the hearings of this committee in late 2006, the policy direction was amended to recognize that gap and deal with the issue of wholesale access.

With that proviso about the importance of wholesale access, proceeding more holistically with the telecom policy review report is certainly a better route than acting only to deregulate the incumbents that still possess, even according to the best analysis, 80% to 90% of the market today. It's important to remember as well that 70% of the Canadian market is deregulated now. The date of deregulation, the date of forbearance in any service that's been forborne in Canada, represents the high-water mark for competitors. Competitors don't gain market share post-forbearance; incumbents do.

4:50 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

We'll go to Monsieur Vincent.

4:50 p.m.

Bloc

Robert Vincent Bloc Shefford, QC

Thank you, Mr. Chairman.

I would like to ask two questions.

Mr. Pierce, on page 5 of your brief, you say:

But most importantly, we are concerned with the legality of the Proposed Order which supplants the statutory obligations of the CRTC with the Mere Presence test. The Proposed Order effectively repeals subsections 34(1) and 34(3) of the Telecommunications Act.

Obviously, Cabinet cannot itself amend the statute. In our respectful view, the measure proposed will not withstand judicial scrutiny.

Could you please elaborate a bit further on this matter?

4:55 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

As I mentioned in response to Mr. McTeague's question, subsections 34(1) and 34(3) both call on the CRTC to find, as a fact, that there is competition present sufficient to protect the interest of users before granting an order of forbearance to an incumbent, a former monopoly provider, that applies to be deregulated from the retail business. So on a case-by-case basis, it's a statutory obligation of the CRTC to look at the situation, find competition, grant forbearance.

This order says, don't do that. It says, count providers. If there's more than one facilities-based provider offering service, then that's sufficient. You then must grant forbearance. Pay no attention to the market power of the incumbent; pay no attention to the other indicia of market power, which is what competition is all about--if those providers are offering service, that's sufficient. If the incumbent provider has 95% of the market, and there's one other provider with 2% and another with 3%, you must deregulate. You can't look at any further assessment of market power. We say that is effectively repealing section 34 by executive order, which would be really ultra vires the executive branch.

4:55 p.m.

President and Chief Operating Officer, Primus Telecommunications Canada Inc.

Ted Chislett

I think we have a slightly different perspective, only for the fact that I think you can forebear for retail rate regulation and falling of tariffs in advance, but you need to establish a proper regime afterwards to monitor it. That's what I see missing from the CRTC, and there's no direction to change that. There should be some ongoing requirement and obligation under the Telecommunications Act to monitor what's happening and make sure that what is happening is in conjunction with the objectives of the Telecommunications Act, even things like having people send in rates for information, file rates, not to intervene beforehand but so that the CRTC has it on file, so the CRTC has files with the quality of services for retail service as well as wholesale, so they can see if there's a difference and if there's discrimination.

From our perspective, it's really about what the monitoring regime is going to be. I'm less concerned about whether it's 20% or 25%, or whether it's two players or three players. Let's have a regime afterwards. You can't just wash your hands of regulations and say, okay.... We don't know what the right number is, whether it's 25% or 30%, so we have to monitor it afterwards and put this in place. That's the big thing I see missing in both the CRTC's...and not varied by the direction as it stands today.

4:55 p.m.

Bloc

Robert Vincent Bloc Shefford, QC

My next question is for Mr. Parent.

On the second last page of your brief, you refer to companies that have a mutual incentive to protect their market share. You stated, and I quote:

...but lack the incentive to compete aggressively for Canadians' business by innovating or contributing to our national productivity. The cable companies have simply matched the product and price offered by the telephone company. This may be in their commercial self-interest, but it does not result in true choice or innovation for Canadians.

The way I see it, cable or telephone companies will set a price and the players who want to latch on to these companies will be stuck, because they will have to pay in order to reach the network. They will have to pay and therefore they will not be competitive.

I would like to hear your comments on this matter.

4:55 p.m.

Vice-President, Marketing and Business Development, Vonage Canada Corp.

Joe Parent

First of all, I should explain the comment regarding simply price matching. If you look at the products that have been brought to market by the cable companies, it would seem they have almost intentionally been structured to exactly, or very closely, match the products that are already on the market from the telephone companies. So you simply buy a local access service and then you pay on a permanent basis, or you bundle for a block of long distance minutes and so forth.

There has not been, in our estimation, any significant innovation in terms of the way those products are brought to market, the way they're priced and packaged, and in fact, in the value that's baked into those. As an example, if you look at a Vonage service, it is essentially packaged to eliminate the concept of local versus long distance; you buy a service that provides you access across North America. It's that kind of innovation that we feel will only be brought to market by smaller players because it is not in the business interests of the cable companies or the telephone companies to change the structure. They are simply in a battle for market share, which will ultimately--hopefully, in their perspective--result in the highest possible prices and the highest possible returns for their business, whereas with smaller companies like Vonage, we must innovate or we die. If we don't come to market with something different, we don't have a business to bring.

To go forward with the policy as it's espoused could essentially result in a market structure that results in no significant change in the product that's brought to market, with no significant across-the-board improvements in pricing or competitiveness of the players that are left in the market.

5 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

We'll go to Mr. Van Kesteren, please.

February 7th, 2007 / 5 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

Thank you, Mr. Chair.

Thank you for coming this afternoon.

I want to separate this thing. I want to go right back to basics again. As you know, the members opposite brought forward a motion a few weeks ago that would impose a six-month moratorium on the application of the policy direction. We're talking about the policy direction at this point.

Considering the minister brought forward this proposal in June and there was ample time for reflection from the industry and then you responded to that, I have to ask you a really basic question. Do you think--and we're talking now about the policy direction--would it have been prudent, would it have been constructive, to wait another six months for that direction to come into force?

5 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

The policy direction has been issued. We think there were important amendments that the policy direction made as a result, in part, of the hearings in front of the committee. Once those amendments were made, we supported the policy direction and were quite comfortable with it being issued.

5 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

So, Mr. Peirce, you're on record as supporting that policy direction?

5 p.m.

Chief Regulatory Officer, MTS Allstream Inc.

Chris Peirce

Yes, in its final form we support the policy direction.

5 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

Mr. Parent.

5 p.m.

Vice-President, Marketing and Business Development, Vonage Canada Corp.

Joe Parent

The policy direction as espoused by the minister, the concept itself, we are on record as supporting. The issue we have with it is that we don't believe the actual implementation of that policy direction will deliver the results or the objectives that are espoused as part of that policy objective. We're concerned it's moving forward without taking that into account.

5 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

We're talking about the policy direction at this point. We're not talking about forbearance or any of those issues?