Industry Committee on Feb. 12th, 2007

[Kirsten Embree]

I think the trend, at least in the Internet sector right now, is towards duopoly. Mr. Intven was here earlier and said that wasn't in Canada's interest or in consumers' interest. I'm not sure there's much more I can add to that. We'll have two players, perhaps, in a year or two's time who won't have any incentive to innovate or price competitively. It will be a comfortable and cozy arrangement.

[John Piercy]

I think you're going to end up with a sort of two-tier service. You're going to have the large towns, which will have a duopoly or maybe an unregulated service with lots of players, and then you're going to have the small towns, which will have a monopoly, and they'll continue to suffer the high price and the poor service. I think that's where we're going to end up.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you, Mr. Chair, and thank you very much to our guests for being here today.

Mr. Piercy, your association represents the small-market, independent cable companies. Are they mostly monopolies in their own markets?

[John Piercy]

They're mostly monopolies in the sense that they are the only cable operators in their markets. They have direct-to-home satellite competition and off-air competition. We're typically not the monopoly when it comes to the Internet. There are wireless Internet providers in these small communities, and others. None of us except a few of the larger members have entered the telephone market so far.

[Colin Carrie, Conservative, Oshawa, ON]

Your members are not subject to restrictions on win-back customers who move to satellite TV providers, are they?

[John Piercy]

Typically they are not. The win-back rules have long since been met. They were when they were launched--when direct competition came in, there were win-back rules, but they've got through the bar.

[Colin Carrie, Conservative, Oshawa, ON]

But you maintain that your members still need regulatory protection in the voice telephony market?

[John Piercy]

I think what you need is some ability to get into the market and actually have customers try your service before they're targeted to win-backs. If you actually allow the large companies to come right in behind the small companies and win back those customers, you'll end up with those small companies just giving up on trying to get into the market.

[Colin Carrie, Conservative, Oshawa, ON]

We've heard from a number of different companies. What we're seeing is that it's apparent there are significant advantages to cable companies that offer voice telephony. For example, these companies can bundle their services, and we've seen, as was mentioned earlier, that Rogers, I believe, has become the number one company in Canada in terms of what the company is worth.

There seems to be a great advantage for cable companies to offer voice telephony. With that fact there, doesn't it seem that your companies would be moving towards it anyway?

[John Piercy]

I'd love to be able to bundle the services that Rogers could bundle at my company. I don't have a wireless offer, for one, so that's one of the quad play that I can't bundle.

Bell Canada, in my territory, can bundle everything but local service. From that point of view, we're on level playing ground: they have three services they can bundle, and I have three services I can bundle. They're just not the same three services.

[Colin Carrie, Conservative, Oshawa, ON]

You mentioned that your company did make that investment and that decision because they see the future. They want to get into the voice telephony business, that's for sure.

What capital investments have your mrmbers made in providing voice telephony? Do you have numbers for us on how much your membership has put out?

[John Piercy]

I don't. The CCSA doesn't actually collect those types of statistics from their members. I could sit here and guess on the ones that have launched. We've probably $50 million to $60 million invested so far, but only five or six companies have gotten into the market so far.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you.

I have a couple of questions for Ms. Embree. I believe the cable companies have a larger share of the high-speed Internet or broadband market than the incumbent telephone companies. Is that true?

[Kirsten Embree]

Yes, but the incumbent telephone companies are catching up very quickly.

[Colin Carrie, Conservative, Oshawa, ON]

Who's the primary provider of wholesale high-speed Internet access to your members today?

[Kirsten Embree]

Without a doubt it's the telephone companies. The cable companies have a wholesale service, but thus far it has been technically impossible to use it, and it's also economically unappealing.

[Colin Carrie, Conservative, Oshawa, ON]

Do you mean it's more expensive to go the cable way? Is that it?

[Kirsten Embree]

Both the cable companies' wholesale service and the phone companies' services are priced far above actual cost. They contain excessive markups that result in a margin squeeze for an Internet service provider acquiring or buying those services.

I'll give you an example. In the late 1990s, ISPs complained to the Competition Bureau about the phone companies' pricing in the retail market for Internet services. They pointed out to the Competition Bureau in a formal six-citizens complaint that the phone companies were pricing their retail Internet services below the price of the wholesale offer that was being made available to Internet service providers.

The Competition Bureau made a factual finding that the phone companies were indeed pricing below cost, but they nonetheless allowed the phone companies to continue pricing in the retail market in the way that they had been.

[Colin Carrie, Conservative, Oshawa, ON]

But your members still continue to use the telephone, the ILECs, instead of the cable companies. Is that true?

[Kirsten Embree]

We have used the telephone companies' wholesale DSL services because the cable companies didn't have a wholesale cable modem service available until a couple of years ago.

[Colin Carrie, Conservative, Oshawa, ON]

Now that they do have it--

[The Chair, Conservative, James Rajotte]

That will be the last question.

[Colin Carrie, Conservative, Oshawa, ON]

Are they still staying with the telephone companies, though? That's what I'm asking.

[Kirsten Embree]

No; some are now using the cable company service, but again, as I said, they're both fairly uneconomic in terms of their pricing.