Industry Committee on Feb. 14th, 2007

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McTeague.

We'll move on to Monsieur Crête. Monsieur Crête, six minutes.

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

Thank you, Mr. Chairman.

You quoted David Lloyd George, Mr. Hunter. He said, "Don't be afraid to take the big step if one is indicated. You can't cross a chasm in two small jumps." However, I would say that we do have to cross the chasm. We have to take the time to study the situation.

The minister, showing great good will, wanted to rush things, but he seems to have come to understand that the idea of reviewing the matter thoroughly was not so bad. This is what he said on February 9, 2007:

I would be very pleased to appear before INDU to discuss telecommunications with committee members. Since my schedule is very busy, I think February 19, 2007 would be the first date when I would be available.

So he seems to find the idea acceptable. He must respond by April 6. So we will try to give him some advice.

Later he said:

I am counting on the committee to make an important contribution to the discussions about these issues and to understanding them.

That even includes the issue of foreign ownership. Telephone service is one issue, but the entire strategic framework we have requires a more in-depth study.

That said, I would like to know whether you would be prepared to recommend any amendments to the minister's current directive. We need to determine whether we could take into account the comments we hear by consumer groups, for example, so that we feel we have adequate protection. The Commissioner of Competition referred to oil and gas. But the Conservatives do not seem to find this a very reliable model. Before we get into an operation of this type, they want to make sure there are adequate safeguards in place.

What do you think about this?

[Lawson Hunter]

I think there are modifications that could be made to the order to clarify the process. For example, a key issue is that in the three-competitor test it uses the word “throughout”. I think that's a pretty vague word, and it would be useful to try to clarify what that means.

I'm not sure what other issues you'd like me to address. I know that the small cable sector has raised particular concerns. I don't know whether something could be done there—perhaps there could. I'm not sure they need it, but they are smaller players.

By the way, I'm completely unsympathetic to the wholesale competitors. They're basically arguing that we should spend the capital and they should have access to it. According to every study that has been done— the TPR in the United States, the actions of the commission— encouraging that form of competition has really failed. We need to encourage investment, not “me too” type products. So I'm very unsympathetic to the issue on the wholesale side.

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

Do you think we should consider having a sunset clause that would set a time limit? The minister would implement his order with a few changes, including one that it be tested for two or three years or for some reasonable period of time.

Could these companies agree with such an idea? Otherwise, is it not simply too big to swallow?

[Lawson Hunter]

I don't think in local forbearance—because you'd run into the problem that you'd do it, we'd meet the test, you'd deregulate it, then obviously there could be re-regulation under the test.

On what I think should be done is this. There was a recommendation from this committee—or maybe Mr. Rock announced it at one point—that there be a five-year review of the Telecommunications Act. As you may know, that exists in the transportation sector. I personally think that would be a very good thing to do, because technology is what's driving this industry, and the problem we have is that the act is over 100 years old.

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

You are talking about a five-year period to review the act as a whole. However, I was referring more specifically to this: if there were a decision about competition in the area of local telephone service, before we have a more comprehensive report on the act as a whole, would you find it acceptable that there be this three or five-year period, which the government could extend? We would have to find the appropriate mechanism. In any case, as regards local telephone service specifically, is that something you could live with?

[Lawson Hunter]

To be honest—probably. I would worry about the practicality of how that would work, and what you would do once the horse was out of the barn. Getting it back in can sometimes be a problem. But the reason I would say yes is that I am so confident that there's going to be so much competition and choice. It's as plain as the nose on my face, which unfortunately is pretty noticeable.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Crête.

Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you, Mr. Chair.

Thank you very much to the witnesses for being here.

I was hoping you could clear up a contradiction. We've had the cable alliance here, and I guess Bell Canada has been quoted as supporting win-back restrictions on cable companies in the broadcast distribution market. But in this market you're not in favour—so how can you say they're good for cable companies but not for you? What's the difference?

[Lawson Hunter]

Let's give you a little history about what happened there. There were no win-backs on the cable industry at all. They, as you know, got deregulated when they lost 5% market share, which of course happened a long time ago. The basis of that was the presumption that satellite was a ubiquitous competitor to cable.

Now, the reality is, for any of you who live in condominiums or multiple-dwelling units, you know that satellite really isn't an effective competitor in those situations. You talk about high market share. We did a study of what Rogers' market share in video in multiple-dwelling units is in Toronto—which, by the way, is 40% of all households—we think it's in the high 90s, because there's no effective competition.

So we complained to the commission after we had this win-back rule imposed on us, saying maybe there should be a win-back rule. They gave them 90 days, and it's only in multiple-dwelling units, it's not anywhere else.

By the way, two years ago I said to Ken Engelhart on a public platform that I didn't believe in it and that I was willing to make a deal with him that we would both go to the commission and we would both say it should be withdrawn. Ken didn't answer me. I followed up afterwards and said I'd made him the proposal, that I was willing to support the removal for him if he would support it for us. What do you think he said?

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

They told us Monday that because their customers in win-back must notify the telephone company of their intention to move their telephone number to another competitor, the telephone company has a unique opportunity to unfairly target its win-back efforts to these customers.

How would you respond to that?

[Lawson Hunter]

How I'd respond to that is that the half-truths are really, really disturbing. If Mr. Engelhart said that, as he well knows, the commission has had rules in place for some time regarding the passage of information between our wholesale business and our retail business. We cannot; it's illegal for us to hand that information from the wholesale to the retail arm, which would be engaged in win-back activity until after it's happened.

So this cannot and does not happen. He cannot point you to an instance where it has happened. In fact, as you probably know, most of the cable industry now, when they sign up new customers, are signing them up to year-long contracts anyway. So they're locking them in to a service for a year.

So we can't pass that information. We have rules in place. We have firewalls between our systems to make sure our retail businesses don't have access to that information.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you for clearing that up.

Another thing we talked about was Bill C-41. If it were adopted, do you think it would help prevent the abuse of dominance in the market?

[Lawson Hunter]

Mr. McTeague knows this has been a hot issue in the Competition Act generally. We have said this is fine with us. Do I think it's necessary? No. But if this is something people think would be helpful to have as a special rule in telecom, that's fine with us.

[Colin Carrie, Conservative, Oshawa, ON]

One of the smaller companies said $15 million for a big company like Bell—I think they did say Bell—would just be the cost of doing business, that they wouldn't mind doing stuff like that. How would you respond to a comment like that?

[Lawson Hunter]

First of all, it's $15 million for every incident and every day, and it's not a little amount of money.

By the way, I think it is as big as the fine in the Competition Act for price fixing, which strikes me as much more egregious behaviour than what we're talking about here. So I think the fine is probably too high, to be honest.

People have to understand that reputation matters to companies like ours as well. It's not simply money.

[Colin Carrie, Conservative, Oshawa, ON]

Win-back restrictions, are they widespread throughout other countries, or is Canada alone in imposing them on the incumbents?

[Lawson Hunter]

The only other jurisdiction in the world we have been able to find that has any win-back rule—The U.K. doesn't have it, Australia doesn't have it, it doesn't happen in the EU. There are now in the United States, I think, seven—We did a survey of 38 states in the United States, and there's no rule with the FCC. The FCC in the U.S. has deliberately considered this issue and said it was anti-consumer and was not appropriate.

Seven states out of the 38 states we surveyed do have a win-back rule. The average length is 7 to 10 days, and the longest is 17 days. There have been constitutional cases in the United States that have struck down these rules as being contrary to freedom of speech.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you.

I have a quick question for Bell Aliant. You specifically mentioned Halifax as being highly competitive. Is that the only market in Bell Aliant territory that is highly competitive, or are there others?

[Denis Henry]

No, not at all. I'm not sure where to start here.

In New Brunswick, we have Rogers in Moncton, Fredericton and Saint John, which have about 30% of the population, and Rogers is about to enter Bathurst, Edmundston, and a couple of other cities, which have about another 30% of the population.

And we have EastLink in Sackville, New Brunswick. In Prince Edward Island, EastLink pretty much covers the whole island. In Nova Scotia, EastLink covers a vast portion of the province, and not just Halifax and Sydney. We've got Wolfville, Kentville, Mount Uniacke, Mahone Bay. I mean, they're quite small places.

In Newfoundland, we have Persona announcing its plans to enter the residential market in a big way, and we already have business competition through Rogers' acquisition of Group Telecom some time ago. So business competition in St. John's, Newfoundland, is quite vibrant.

And in Quebec and Ontario...it's all over the place. In Jonquière, Orangeville—

[The Chair, Conservative, James Rajotte]

Okay. I'm sorry, Mr. Carrie, but you're out of time.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

And thank you to our witnesses for appearing here today.

I want to back up a bit in terms of your opening comments. I don't want to start off with the wrong questioning here, but I do want to sincerely express that it's a little hard for me to believe you're just for the rights of consumers, given some of Bell's historic issues relating to pay equity among its workers and some of the customer service issues that my constituency has faced and the complaints that are coming in.

But I do want to take to heart that you're not able to offer services that that your competitors can. I think it's important to maybe get specifics or at least to paint the picture, because it's important that the ordinary customer who doesn't go through all this legalese relating to legislation can see the difference in terms of what's happening out there.

I would like to hear your case for that.

[Lawson Hunter]

Right, and unfortunately you're probably not going to be as satisfied as you would like, because what I wanted to try to convey in my remarks is that we are spending a lot of effort now to figure out the offers and promotions and bundles and pricing that we will offer consumers once we are permitted to do it. I think it's really unfair to ask us today to tell you that this is going to be the product and this is going to be the price, when we can't do it today. And if we did, we would telegraph to our competitors what we intended to do.

What I wanted to convey to you is, rest assured, we are not seeking this to do nothing. We're seeking this because we need to make these offers to consumers. We need to be able to compete.

Let me just give you an example of something we've obviously complained about and have been unable to do. We can't now engage in what is called price de-averaging, which basically means that if we want to lower our price, we have to do it for all our customers throughout our territory, or throughout Ontario and Quebec.

Let's take Quebec. We have Cogeco and Vidéotron who have entered into our markets and who have different prices from each other; Vidéotron's is lower and Cogeco's is higher. Now today, if we want to respond to Vidéotron at their low price, it means we would have to lower our price throughout the whole province, even where we didn't face competition—which is not really how markets work—and also where Cogeco has a higher price. If we did that, Cogeco would be screaming bloody murder that we were undercutting competition by pricing lower than they were, and if we did it in areas where neither one of them had entered, they would be screaming bloody murder that we're now pre-empting competition.

So we can't tailor our offers geographically to what the price is. So obviously that's something vitally important to us, as we have to be able to respond to competition as we find it, and we really can't today.

[Brian Masse, NDP, Windsor West, ON]

Okay, I think that's part of the problem in terms of the concern, to use your phrase, about going over a chasm. Is the concern that you could have a couple of situations where you actually have less competition if there is the joining of a couple of companies or mergers or buyouts, or whatever they might be, and then believing that these other products are actually going to compete with lower prices—a path that industries haven't always taken?

I do want to move, if I could, to your Ipsos Reid surveys. Would you be willing to table those reports to the committee here? Are those documents that could be provided? I don't want to go through the whole detail of them and the methodology here at this point in time, but I would be interested if those reports could be made available to the committee.

[Lawson Hunter]

Absolutely. In fact, I think we circulated a copy of the Ipsos Reid report to every member of the committee. But I'm certainly willing to table it with the committee formally.