Industry Committee on Feb. 12th, 2007

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

For the second part of the question, I want to go back to the report itself in terms of the panel.

You had mentioned earlier in response to a question that you had some 200 submissions to the panel, plus public forums, and then you did some travel to other countries and you mentioned a handful or two of those that you had gone to. Does the report clearly reflect those consultations and the move to deregulation?

[Hank Intven]

Yes, we did our best to reflect what we learned in the report. There is a trend, certainly on this side of the ocean, towards pretty substantial deregulation. The Americans have gone much further than we have in Canada in some areas, particularly the area of abolishing their mandated wholesale access regime, so there's a trend toward deregulation.

In Europe it's a little different, but their markets are very different. They do not have a vibrant cable industry in the way we do where they have facilities-based competition, so they've developed different approaches. So when looking at the European market or any market, I would always encourage you to look at the differences in the markets.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Even with some of those restrictions they have over there, they've still moved ahead with deregulation.

[Hank Intven]

They've relied much more on a competition-based regime. And yes, in the U.K., for instance, in many areas they've moved strongly towards deregulation.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

One of the things that has been brought up by some folks is that they fear the deregulation of the local telephone services will lead to a re-monopolization of the industry. Do you have a comment, or do you agree with that?

[Hank Intven]

There's a concern less about re-monopolization than duopolization. There's a concern we'll end up with two big players, the telephone companies and the cable industry. We talked about that quite a bit on the panel, and there is a concern. We think it's the job of government policy, and the way we recommended is to ensure that barriers to competition for third and fourth and fifth entrants are removed, and that includes getting lots of spectrum out there for new competitors to allow them to enter the market, empowering the CRTC to allow new competitors to access utility poles and share tower space and all that.

So rather than having the regulator direct market outcomes, you simply remove the barriers to competitive entry, and that should get rid of the concerns about re-monopolization. Because telecom markets are so dynamic now and there are so many different potential routes to the customer, if you include satellite and wireless technologies in the mix, it should be possible to maintain a pretty vibrant non-duopoloistic regime, a truly rivalrous, competitive regime.

[The Chair, Conservative, James Rajotte]

Okay, thank you very much, Mr. Shipley.

We'll go to Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

In your view, for there to be healthy competition, must all players have the same tools? Do you think that the players have all the same tools for that competition?

[Hank Intven]

No, clearly, some have more than others, and that's because of what economists I think would refer to as some of the economies of scale and scope and density that exist in the industry. Clearly, a larger player will have more of an advantage. It's just like the McLaughlin Motor Car Company found it hard to compete with General Motors and finally we ended up with a smaller number of car companies.

We don't think it's the role of government policy to simply protect smaller businesses because they find it harder to compete with the bigger ones. It should be the role of government policy, we think, to encourage a framework of competition so that the consumer benefits the most, not the particular competitors.

[Robert Vincent, Bloc, Shefford, QC]

But how can small companies be given an advantage if the big players don't let them penetrate their markets? Transmission, both by cable and wire, belongs to them. So how can small players buy something that belongs to the big players so that they can subsequently compete with them? It seems to me there's something obscure in this decision.

[Hank Intven]

Telecom markets are very dynamic. There are small players that have grown to be very successful, if they find the right business model rather quickly. People always point to Google, but there are many others who have found a way to use existing networks to compete very effectively.

It's the same thing with the wireless industry. We think this is an area where government policy should promote more competition. Today there are a number of quite successful small entrepreneurs becoming competitors in the more rural and smaller markets. We think they will and can succeed, and hopefully based on what they can offer the consumer, not based on the fact that they get government support because there's an idea that there should be a predetermined number of competitors in a market.

[Robert Vincent, Bloc, Shefford, QC]

You also talked about competition policy.

Can you tell us what you think competition should be?

[Hank Intven]

In a competitive market, I think there should be two or more players who compete to provide customers with high-quality, low-priced services. In the telecom markets, you can measure this by looking at what's happening in other countries. If our prices in Canada became much higher than European or American prices, for instance, or the roll-out of new services or new technologies were slower, then I think we'd worry about it. But if you look at the statistics, actually Canada does very well. Competition is providing consumers with a product and service that looks very good compared with what's happening in other countries in the world. We think that's the ultimate test of whether competitive markets really are working in Canada.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Robert Vincent, Bloc, Shefford, QC]

Do you believe in the free market?

[Hank Intven]

I have watched telecom markets for 30 years now, and I believe the competitive market works better than the old regulated monopoly market we had.

[The Chair, Conservative, James Rajotte]

That's a good note to end on.

We'll go now to Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair, and thank you, sir, for attending.

Boy, I'll tell you, I've certainly learned a lot. When we entered this debate I was just appalled at some of the things, but I'm really getting a different picture.

In a nutshell—and I don't want to put words in your mouth, so just tell me if I'm right or wrong—would you agree that the recommendation basically allows for the free market to enter the realm of telecommunications, and that we need not fear all these Chicken Little scenarios; that we're going to see better prices for consumers, and better services? Am I right? Is this something that your report might...?

[Hank Intven]

Mr. Van Kesteren, I think you have half the story right. This is a point my colleagues, when I spoke with them, were asking me to encourage you, as members of the committee, to remember. Our fundamental recommendations were, first, to let the market work where it does—and in most cases it will: telecom markets work better in a less regulated environment. But there are some cases where they don't. Interconnection is a classic example. It would be possible for a large telecom carrier in some areas to prohibit or deny interconnection to other telephone companies or service providers wanting to interconnect with it. In that case, we don't think the free market would work properly; you would want some regulatory oversight in situations like that.

I use that just as an example. There are some areas of consumer protection that would probably warrant some protection as well.

The goal is, as I think we said, that Canada needs to move more quickly to deregulate in areas where the market will work, but in the few areas where it won't, then use smarter, more targeted, less interventionist techniques to achieve the remaining policy goals.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

But you have safeguards in your recommendation to protect those areas—

[Hank Intven]

Yes, we tried to cover those areas.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

—because you're absolutely right, there are areas where there is no competition.

[Hank Intven]

Correct.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I want to ask you a question about foreign ownership. Do you think we should advocate any relaxation of foreign ownership restrictions?

[Hank Intven]

This is a big and difficult question in the telecom area. I think what we said in an afterword to our report is that the reasons that Canada has maintained its foreign ownership restrictions in recent years....

You may recall that we didn't have foreign ownership restrictions in the telecom area until 1987. The policy announced, interestingly enough, by Flora MacDonald was the first policy to establish that. That was established to help give Canada a bargaining chip in the Canada-U.S. free trade negotiations, because the U.S. had foreign investment restrictions and we didn't. So we thought it was appropriate for Canada to have them. That's how they came into place. Before that, we had none.

Since then, removing them has been very problematic, largely because people are concerned about the impact on the broadcasting industries and on the cable industry, which is the major medium of broadcasting content distribution in this country. So what we recommended in our afterword is that there be some further study. This broadcasting policy was not part of our mandate, but the purpose of that further study would be to try to separate the foreign ownership rules as they apply to content, and maintain them there, from those that relate to carriage, where frankly there's less policy rationale for any restrictions in that area.

Basically, as regards carriage providers, whether they're pipes, wires, cables, or wireless provision, what we need in Canada is the lowest cost, most efficient, most advanced services possible, and I think the nationality of the provider has relatively little to do with that. So we recommended a gradual move to transition towards a regime where the carriage area would not have the foreign ownership restrictions, while respecting the valid concerns about Canadian ownership in our broadcasting and cultural industries.