Industry Committee on Feb. 7th, 2007

[The Chair, Conservative, James Rajotte]

Members, I call the 42nd meeting of the Standing Committee on Industry, Science and Technology to order. Pursuant to Standing Order 108(2), we are continuing our study on the deregulation of the telecommunications sector. We have two sessions today. Each is one hour.

In our first panel we have representatives from four cable television companies. First, from Shaw Communications Inc., we have Mr. Jean Brazeau, vice-president of telecommunications. Second, from COGECO Inc., we have Mr. Yves Mayrand, vice-president of corporate affairs. Third, from Rogers Communications Inc., we have Mr. Kenneth Engelhart, vice-president of regulatory. Fourth, from Vidéotron Ltée, we have Mr. Luc Lavoie, executive vice-president of corporate affairs, Quebecor Inc.

Gentlemen, we will start off with opening statements from each one of you of up to three minutes. Then we'll have about 45 minutes for questions from members.

We'll start off with Mr. Brazeau, please.

[Jean Brazeau, Vice-President, Telecommunications, Shaw Communications Inc.]

Thank you, Mr. Chairman, and members of the committee. Shaw certainly welcomes the opportunity to appear before your committee to provide its views on the government's initiatives in the local telecommunications market.

Shaw has publicly stated its support for the minister's order and directive because these initiatives recognize that consumers must come first. Canadian consumers can best be served by an approach that relies on market forces and facilities-based competition. The minister's initiative implements these principles, and consumers across Canada stand to benefit. However, Shaw believes that three issues must be addressed in the order.

The first is interconnection and access to rights of way and support structures. Interconnection to the public telephone system and access to support structures and rights of way are the foundation of facilities-based competition. Without interconnection, facilities-based competitors cannot serve their customers. Without access to the telephone companies' poles and conduits, we cannot build out our own networks. Timely and effective interconnection arrangements and access are therefore necessary for durable facilities-based competition. However, arbitrary delay and denial of access and interconnection are not uncommon in our business.

In order to be consistent with its policy of promoting facilities-based competition and to ensure that consumers realize the full benefits of the proposed order and directive, the government must direct the CRTC to ensure that facilities-based entrants are able to obtain efficient, timely, and effective interconnection and access to the support structures and rights of way we need to build our networks.

The second issue is winbacks. The proposed order provides for the immediate removal of winback restrictions. The telephone companies want forbearance in order to be able to win back customers through targeted marketing initiatives. The telephone companies have little or no interest in implementing broad-based price reductions for their local services; it is removal of the winback restrictions that the telcos really want, in order to retain their dominant market share. It is not forbearance. Shaw believes, therefore, that the winback restrictions should not be removed until such time as the criteria for forbearance have been satisfied.

The final issue is the need for a level playing field for telcos and cablecos. If cable is to compete effectively while delivering full benefits to consumers, then existing regulatory restrictions on cable companies must be made more flexible. At present, cable companies are subject to an extensive regulation under the Broadcasting Act. This regulation restricts their ability to respond to consumer demand. These regulations should be reviewed and replaced to the maximum extent possible by market forces. This will ensure that cable companies have full flexibility to compete aggressively with the telephone companies. More importantly, it will ensure that consumers realize the maximum benefits from competition.

In conclusion, Shaw supports the proposed order and the minister's directive; however, the three changes that we have put forward will, we believe, allow consumers to fully benefit from the minister's approach.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Brazeau. We appreciate the conciseness of your opening statement.

We'll go right away to Monsieur Mayrand.

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

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

Thank you for this opportunity to provide Cogeco Cable's views on the government's proposed order varying the CRTC's decision on regulatory forbearance for local access telephone services of incumbent telephone companies in Canada. The time allotted is short, and I will be brief.

First, let me voice our deep concern that political decision-making now appears to be the norm in Canadian telecommunications, taking precedence over quasi-judicial decision-making by the independent administrative body formally entrusted by Parliament with the job of ruling on telecommunications regulatory issues, including forbearance. As a result, independent fact-finding, proper evidentiary assessment, and due process have all taken a beating, in our view, with a resulting loss of trust in the due process.

The Canadian government' s official vision for smart regulation includes trust in addition to innovation and protection of the public interest. The proposed order, in our view, is at odds with that vision.

Second, the proposed order is also at odds with basic principles of competition law, as it completely ignores significant market power and market share of the incumbent telephone companies where SMP still prevails. As a result, incumbent telephone companies with up to 100% market share in some local geographic markets would be deregulated based on the mere presence of alternative wire line and wireless facilities providing alternative local access services.

Third, the proposed order would immediately eliminate the incumbent telephone companies 90-day win-back restrictions throughout Canada, even where alternative local access services are still not available. In practice, this means that in local exchange areas where Cogoco Cable has not been able to launch an alternative service yet due to facilities or interconnection constraints—and there are still a number of those in our footprint—the incumbent telephone company could immediately target in those local markets each and every new customer signing up for our alternative service with special and confidential offers, thus making it uneconomical for us to launch there.

Fourth, the proposed order is at odds, in our view, with several recommendations of the report of the government's own experts, the Telecommunications Policy Review Panel, published less than a year ago, on the way to manage the transition to deregulation of incumbent telephone companies.

But more importantly, when will the government focus on a new Telecommunications Act instead of rewriting the decisions of its regulator?

Thank you for hearing us out. We will be pleased to answer questions you may have on these issues.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We will now go to Mr. Engelhart, please.

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

Thank you very much.

If we take a look at the CRTC's forbearance order, they said, as many regulators around the world have said, that they will deregulate once the incumbent phone companies lose significant market power, and they assessed a 25% market share loss as the point at which significant market power is lost. We agree that this is the right number. But if you look today at the numbers for the market share losses the phone companies have incurred in most of their major markets, they're already at the 25% level, or quite close.

Why is it that they have not simply applied for deregulation under the CRTC process? Why are they so opposed to the CRTC process and so in favour of this order? There are really two reasons, which my colleagues have alluded to.

The first is that the proposed order, unlike the CRTC decision, immediately eliminates the winback rules. Those rules are eliminated as soon as the order is promulgated, whereas the CRTC required the phone companies to lose 20% market share before the winback rules are eliminated.

The second is the quality-of-service standards. Those have been watered down by the proposed order.

I think those two changes are very significant.

Dealing with the winback rules first, those rules say that for the first three months after you get a customer, the incumbent cannot phone up that customer to make them a special offer.

There were the same rules in cable television. In fact, in cable television we still have those same rules today for apartment buildings and condominiums, to protect Bell ExpressVu, who argued for them long and hard. The reason for those rules is that in a network business they know exactly what customers they have and know exactly when they've gone to the competitor. It's a way to try to give the competitor a chance to get started before competition just gets knocked out of the box.

The quality-of-service standards are also important. They're important because what they say is that when you get interconnection facilities or services from the incumbent; or business solutions, for companies like Rogers, which gets unbundled loops for the business market; or high-speed pipes from the phone companies; or, for companies such as Rogers that offer telephone service where we don't have cable—we offer it in Montreal and Calgary and Vancouver and have no cable there and need to use phone-company loops—they have to give you the same quality of service on those wholesale facilities as they give for their retail customers. And they never do; they always fall short on that quality of service.

Once the CRTC made it a requirement that they had to meet those quality-of-service standards to get deregulation, we started to see some rapid improvement in the quality of service, a dramatic improvement that I believe will come to an end now that the proposed order, once it becomes a final order, will successfully water down those quality-of-service standards.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Engelhart.

We'll go to Monsieur Lavoie.

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

Thank you very much, Mr. Chairman.

I will be very brief and I will not repeat what we said publicly when the minister announced his decision last fall.

Vidéotron and its parent company, Quebecor, are basically in agreement with the approach advocated by the minister, mainly an approach based on the free-market system, market forces and as much deregulation as possible.

It is true that we appeared before you last fall in order to seek a longer transition period. However, as you may know, yesterday Vidéotron announced in a press release that we now have in excess of 400,000 local and residential telephone service subscribers. As a result, we believe that market forces can now fully come into play.

The consumer is the first to benefit. This is demonstrated by the fact that when Vidéotron launched its residential telephone service in January 2005, the cost of telephone services went down for the first time in the history of Canada. The costs were cut dramatically. This pressure on the market was beneficial to consumers.

Basically, we said, and we repeat, that we would encourage the minister to continue along the same path, to carry through with his reasoning and push, with all of the political might that he has, to deregulate the entire cable industry as well.

With the digital revolution that is unfolding before our eyes, cable companies are acting less and less like cable companies and more and more like telecommunication companies that must be active in all telecommunication sectors. Cable companies must currently deal with complicated regulations that are not in the interests of the consumers, the market or the Canadian economy.

We would encourage the minister and the government to continue moving in the direction of deregulation and a free-market system, and we would encourage the government to accelerate the arrival of new competition in the mobile telephone sector. We believe that this sector constitutes the next frontier and that new competition in the mobile telephone sector will enable Canadians to stop having to pay 60% more than their American neighbours for their telephone services. As far as the penetration rate is concerned, Canada currently is ranked 30^th amongst OECD countries.

Canadians do not have access to the latest technology as they should. Right now, the most recent technology is becoming the norm in Europe, Asia and very quickly in the United States. Canadians are lagging behind whereas this new generation of technology encompasses much more than mobile telephone services: it is a portal to culture, music and television programming which will become a universal communication vehicle.

We would therefore encourage the government to do what is needed so that there is more competition in this sector.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Merci beaucoup.

We will now have questions from members. We'll start with Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much, and welcome back before the committee.

I represent a rural and small-town riding, and like a lot of members of our House and some members of this committee, I'd be very interested in your view as to the impact of the minister's decision on rural and small-town Canada in terms of services, the potential for competition, and the pricing for services in those communities.

[Kenneth Engelhart]

I've spoken to quite a few small cable companies who serve some of those smaller markets. Quite frankly, some of them are not at all sure they're going to enter the telephony market. Even for a big company like Rogers.... We have a number of small rural systems in New Brunswick and we're scratching our heads and wondering whether it really makes sense; it's a bit of an economic challenge to serve them in the first place, and then you have the prospect that the very first customer you serve will get one of these winback offers--and the second one, and the third one, and the fourth one. At some point you'll just throw up your hands and get out of town.

I don't think the proposed order is good for those smaller communities.

[Scott Brison, Liberal, Kings—Hants, NS]

What would be an appropriate period--a blackout period, if you will--on winback that you would be comfortable with, in terms of the period that you think would balance the ability of smaller competitors to enter a market with a reasonable ability for the incumbents to respond?

[Kenneth Engelhart]

I think the CRTC had it right in their order, but what we said in our comments to the proposed order was that if the government was anxious to remove these rules, they should at least say six months, so that the rules would be in place for six months after you turned up the service in a market. That would give you some opportunity to launch your service and establish a bit of a beachhead before the winback offer started.

[Scott Brison, Liberal, Kings—Hants, NS]

I believe the CRTC decision was 90 days.

[Kenneth Engelhart]

Yes, the winback period would always be 90 days. I'm not proposing to change that.

But what the CRTC said is that this 90-day rule stays in place until the incumbent has lost 20% market share. While we support that fully, if the time interval to lose 20% market share seems excessive or uncertain, we would propose a six-month interval instead, but leaving the 90-day rule in place.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Brazeau.

[Jean Brazeau]

Our position, as we tried to elaborate it today, is that our big concern with winback—and Mr. Engelhart mentioned some timelines—is that these restrictions will be removed even before we enter certain markets. At a minimum, these rules should apply until we enter that market; then, whether additional time is required is certainly debatable—but at least until we enter the market, which will not be the case under this order.

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

Mr. Engelhart, I'm interested in finding out whether or not winback rules even exist for the cable industry. I don't think I heard you clearly. We seemed to hear Mr. French suggesting yesterday that the cable industry had quite a presence and had a level playing field. Is this correct?

[Kenneth Engelhart]

When satellite service was launched, the CRTC put a winback rule in place that stated that cable companies could not call our own customers for 90 days after satellite won them over, so it was exactly the same situation. We were not allowed, if they won one of our customers, to contact that customer for 90 days.

That rule continued for about four years for all customers and is still in place today for apartment buildings and condominiums. If Bell ExpressVu wins a customer from Rogers today in an apartment building, we cannot call them for 90 days.

It's sort of ironic that the very same Bell Canada that says these winback rules make no economic sense in the telephone market is a big proponent of them in the cable market.

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

Let me ask about quality-of-service regulations. Could you, and Mr. Brazeau as well, give me an example of some of the interconnection problems your company is facing? What communities are we talking about?

Again, the CRTC try to paint it that we had a great, wonderful competition across the country, and the bureau, of course, said we can add this whole new system of law and competition policy specific to this industry, now that we have forgotten about the competitive process.

[Jean Brazeau]

To give you an example, we are a facility-based carrier. This policy, or the government's direction, is certainly to promote facilities-based competition. But we need to interconnect those facilities to the incumbent's existing network. They really control the local network. I need to call them to interconnect my network; they do not call me. We've had some challenges to ensure that this interconnection happens on a timely and effective basis.

An example is Vancouver. It will take us probably a minimum of nine months to interconnect our local network with TELUS in Vancouver. The challenge we have is that we're interconnecting all of our network in a number of cities in Alberta, B.C., Saskatchewan, and Manitoba. Getting the incumbents focused on ensuring that this happens effectively is very challenging. You can certainly call the CRTC and ask them to intervene, but they're reluctant to—in their view—micromanage the process. You are left begging and sometimes yelling on the phone to try to get the incumbents motivated to complete the interconnection.

If we're not interconnected, then we can't provide our service and we're not seeing the competition we're supposed to be seeing. That is our big challenge.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Crête.

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

Thank you, Mr. Chairman.

First of all, I would like to thank you because it was your testimony, given last October, that prompted committee members to ask for a postponement, until March 2007, so that we could examine the situation. In December, the minister decided to circumvent our motion, but since that did not suit the committee, we passed a motion to do an exhaustive study on the whole issue of regulation.

Would you agree that the minister should wait for the results of our consultations, which will take place during the course of eight meetings, before deciding which instructions he will be issuing with respect to deregulation?

I'd like to have an answer from each of you. I see that there is strong opposition in three out of the four briefs.

Mr. Lavoie does not appear to be opposed, but I would like to hear his opinion on the relevance of conducting a study to ensure that the model we decide to use will be determined by an acceptable democratic process.

[Luc Lavoie]

If I may, Mr. Crête, I would like to speak first.

I do not feel that I am in any position to determine whether or not the committee should undertake a study. You are the parliamentarians—

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

I would like to know whether the minister should wait for the results.