Industry Committee on Feb. 14th, 2007

[Robert Vincent, Bloc, Shefford, QC]

We're talking about maintaining healthy competition, but there must be three players involved to have that happen. In rural regions, the low population density discourages those who would like to come in and compete with the major players already in place. It's simply not cost-effective for them. They do not want to invest the funds required.

Is it possible that in Quebec, Bell Canada and Videotron might let a competitor take over 2% of the telephone or cable market, so that they could demonstrate to the Competition Bureau that there is a third player and that there is, therefore, competition?

[Lawson Hunter]

I have two or three answers to that.

First of all, wireless is in most of the country and most rural areas too, and there is competition there. Telus will be offering the service in rural parts of Quebec where they're not offering wired service. We're also going to see in the future—and I can't tell you it's now—with the advent of better wireless technologies—WiMAX, for example--really wireless high-speed Internet access. That will start replacing the wire-line network as well

As for whether there will be other players, we already have mandatory wholesale obligations. In our view it goes too far, but for truly essential proportions of our network we think there's still a need for that, and we're quite happy to make truly essential portions of the network available to third parties.

But there's something you need to be careful about here. All of the studies, including the TPR report, said that type of resale competition was assertive and artificial competition. If you think about it, they're really just taking our product, re-branding it, and calling it something else. They're buying it from us, so they have our cost base. Their margin to manoeuvre is pretty limited no matter what, because it's basically our service. That's why I think the notion of encouraging people to own their own facilities really will produce a more sustainable type of competition.

That's what is perverse about the commission's wholesale regime, because it basically discourages people from investing in building their own network. That's just bad public policy, as everyone who has looked at it has said. In fact, the commission just two weeks ago came out with a decision. We're a CLEC, one of those little guys out west, and we buy from Telus. The commission came along and lowered the price of Telus' services. We used to buy equipment and own our own facilities, but we looked at it and said, “Why would we do that? We'll just buy from them.” That's not going to produce the type of competition we really need here.

[The Chair, Conservative, James Rajotte]

Thank you very much, Monsieur Vincent.

Members, we have votes this evening at 5:45, and future business at 5:30. We also have another group of witnesses, so we are going to suspend for a few minutes.

Thank you very much to our witnesses for being here for the first hour. We appreciate your testimony. If there's any further information, whether it's the polling information or anything else, please submit it to the clerk for us.

We'll suspend for a few minutes and ask the other witnesses to come to the table.

[The Chair, Conservative, James Rajotte]

Members, let's take our seats now for the next witnesses.

For our second session, we were scheduled to have both Telus Communications and SaskTel. On behalf of SaskTel, we were supposed to have John Meldrum, the vice-president of corporate counsel and regulatory affairs. He sends his sincerest regrets, but he is unable to appear today. It was unavoidable. His flight could not take off from Regina due to a famous western Canadian snowstorm, so we will hopefully try to have Mr. Meldrum at a future date. We do have his comments here. I believe they have been distributed to the members in both official languages.

We do have two guests from Telus Communications. First of all, we have Janet Yale, the executive vice-president of corporate affairs. We also have Mr. Ian Scott, who is vice-president of federal government and corporate affairs.

Welcome to both of you.

Ms. Yale, I believe you'll be speaking on behalf of Telus.

[Janet Yale, Executive Vice-President, Corporate Affairs, TELUS Communications]

Yes, thank you, Mr. Chairman and members of the committee.

I would like to thank you for inviting TELUS to come and meet with you today.

As you know, Telus is a leading national telecommunications company, with $8.5 billion in annual revenue and 10.5 million customer connections, including close to 5 million wireless subscribers, 4.6 million wireline network access lines, and 1.1 million Internet subscribers.

We provide a wide range of communications products and services and face intense competition in every market where we operate. We believe, in fact, that competition has altered the very nature of our business. Basic telephone service, once a monopoly, now accounts for only 37% of total revenues, down from 72% in 2000. That's a huge change in just six years.

We fully support Minister Bernier's initiatives to bring the benefits of telecommunications competition to Canadians. We believe this will result in more choice and flexible pricing for customers and greater productivity for the Canadian economy. At the same time, the minister has been careful to ensure that Canadians without a choice of telecommunications suppliers will continue to enjoy reasonable rates and that all Canadians will be able to acquire stand-alone basic local telephone service at a capped or fixed price.

Competition in local phone service has taken off with the entry of cable companies into the business. Canada's major cable companies—Rogers, Vidéotron, Cogeco, and Shaw—are aggressively selling local phone service. Cable is now considered a more attractive area for investors than telecommunications, at least based on recent financial analyst recommendations.

Consumers have shown that they are ready and willing to change their local phone service provider. In our territory, Shaw has signed-up close to 300,000 customers since launching its phone service in February 2005. Just to give you some context, they've acquired more telephone customers since February 2005 than all competitors in that market had acquired prior to Shaw's launch. It's been a staggering entry, and very quick.

Two years after launch, Videotron has more than 400,000 telephone customers and describes the growth of its telephone service as "steady and impressive."

The cable companies are powerful new competitors to the so-called incumbent telephone companies. Unlike the struggling entrants of a few years ago, cable companies have sophisticated digital facilities that pass most Canadian homes. Unlike the competitors of days past, Rogers, Vidéotron, and Shaw have large financial resources, recognized brands, established customer bases, and the ability to bundle services into attractive packages. As has been noted here already today, Rogers' market capitalization recently surpassed the market capitalization of BCE. Perhaps most importantly, cable companies are the low-cost provider of a bundle of services, including high-speed Internet, digital TV, and, in many cases, wireless.

Cable companies are not the only source of competition. The Internet has shattered the economics of entry into local telephony, enabling more than twenty foreign and domestic companies to provide service in Canada. In addition, the substitution of wireless for wireline has grown to 8% of households in Alberta and 10% in the Lower Mainland of British Columbia.

The cable companies have told you they oppose the removal of the win-back rules prior to deregulation. We don't think that's what competition is all about. It's not about denying consumers our best offers. To make matters worse, the win-back rules mean that our competitors are under no pressure to make their best offers, since their customers are prevented from receiving win-back offers from Telus. That's just not real competition.

As the TPR panel suggested to you on Monday, restrictions like the CRTC's win-back rules are from a different era, when competitors leased facilities from incumbent telephone companies. At the time, the CRTC considered that this would help them get a stable customer base.

The situation today is much different. Cable companies already have stable and extensive customer bases and digital cable facilities now pass about 90% of Canadian households. As a result, vigorous competition already exists in major markets.

All of the evidence in Canada and abroad suggests that in a deregulated environment, widespread and vigorous competition results in an explosion of new and innovative choices for consumers. You don't have to look any further than the U.S., where cable telephony operating in an unregulated market has resulted almost overnight in the provision of widespread and vigorous competition in local telephone service.

The government's policy direction is the right one at the right time for Canada. It takes into account the major changes I've described in the competitive landscape that were ignored by the CRTC. Most importantly, it ensures that consumers, who are really at the heart of the policy framework, will receive all of the benefits that derive from a healthy, competitive marketplace.

Thank you.

I would now be pleased to answer any questions you may have.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Yale.

We will now go to Mr. McTeague, for a six-minute opening round.

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

Ms. Yale, thank you very much for being here as well. I've know both you and Ian from previous work in the past. It's good to see both of you here today.

Right off the bat, I would like to offer my most appreciative comments, but I may have a conflict of interest, Chair, as I have so may Telus workers who live in my riding. The actual head office is right next to my riding, right across the street from CTV. There's no irony there, of course.

If I could, Ms. Yale, I wanted to ask if it's possible that you have taken into consideration the document that was prepared by the Economics and Technology Inc., by Lee Selwyn and Helen Golding, “Avoiding the Missteps Made South of the Border: Learning from the US Experience in Competitive Telecom Policy”. A number of recommendations are made in that, but the comment here is that “the US telecom industry will soon be almost as highly concentrated as it had been prior to the 1984 break-up of the ‘old’ AT&T.”

There is grave concern that without taking into consideration every single recommendation made by the panel report, which we agree with and which is confirmed by Mr. Intven, it should be taken from a whole perspective. Do you believe we should proceed with a change in telecom policy by following this? Or do you believe we should be doing it only with the recommendations by the minister, which are really a very small number of the recommendations made in the TPR report?

[Janet Yale]

We obviously believe the minister should proceed quickly to implement the final order.

I would say a couple of things. We believe the TPR report should be implemented holistically. The first piece was to implement the direction to the CRTC, which has been done. The second piece of the report is to look at changes that can only be made through legislative reform. We are very supportive of proceeding to see comprehensive implementation of those recommendations.

I see this piece of it as somewhat different, because forbearance, as you know, was specifically not addressed by the panel. It was a matter in front of the CRTC at the time. From our perspective, it therefore really stands apart from the rest of the recommendations in the TPR report. We believe the minister has done the right thing in changing the CRTC decision, and we believe the changes that are set out in the proposed order in council should be implemented as quickly as possible.

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

I thank you for that.

[Janet Yale]

I hope I answered your question.

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

You have. Thank you.

One of the recommendations that was made has certainly created some concern. You may have seen the exchange between Mr. Hunter and me on the whole issue of the competition issue as it relates to more specifically understanding the markets that we are to deregulate as proposed by the minister. Would it be fair to say we'd be the first country to proceed with the deregulation of its telecom industry without knowing the kind of market we're deregulating in, in your experience?

[Janet Yale]

I'm not sure I agree with your supposition. I think we do know the markets we're operating in, so I'm having a hard time understanding the premise of your question.

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

In chapter 3, recommendations 4 and 5, the panel not only suggested that we have a hybrid CRTC and Competition Bureau institution or framework to govern the changes should deregulation take place, it also suggested that analysis of market forces should take place to understand the market as it relates to significant market power. That should be a first step before proceeding with all the other recommendations.

Setting aside the fact that the minister has only chosen a few of the recommendations in the report, I'm wondering if it's foolhardy for us to proceed with changes. You may understand the market, and we're trying to understand what the market is, let alone what market share or what market definition is. Would it not be prudent to at least first understand the market we're making changes in prior to jumping in because there's a group of people who say we're behind the eight ball?

[Janet Yale]

Well, I think I've already indicated to you that I don't agree with the premise, which is that the minister is implementing a subset of the recommendations in the TPR report. In fact, forbearance was specifically not covered by the panel, because it was a matter in front of the CRTC at the time. So the minister has exercised his prerogative under the act to intervene with respect to changes to that CRTC decision. I have to state that at the outset.

With respect to the markets in question, there is no doubt that for the time being, the CRTC has explicit jurisdiction over the entire telecommunications sector. It's only post-deregulation that we start to look at the interface between the CRTC and the Competition Bureau. Those two, between them, have more than ample authority, we believe, to address any issues that come up.

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

You say between both of them, but the CRTC is sort of set aside here. Would that not create some difficulty for you?

[Janet Yale]

I don't agree that it's set aside. In fact, there are quite a number of safeguards. There's actually an appendix to the CRTC's forbearance decision that lists all the safeguards that continue to operate post-deregulation, both for consumers and for competitors who rely on our networks.

One is the one I referred to in my opening comments, which says that post-deregulation, consumers are entitled to get stand-alone primary exchange service at the same rate that was in effect prior to deregulation. That's a very significant consumer safeguard, and it is untouched by the minister's order.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McTeague.

We'll go now to Monsieur Crête.

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

Thank you, Mr. Chairman.

Ms. Yale, we have some major difficulties. One of them lies in the last sentence of your presentation. You said:

Importantly, it ensures that consumers—who are at the heart of the policy framework—will receive all of the benefits derived from a healthy, competitive market.

On the other hand, the Union des consommateurs, the people who represent consumers, came and told us their main concerns and said that the whole issue had to be studied thoroughly before getting caught up in this. Who are we to believe in this matter?

[Janet Yale]

In my view, at the end of the day, we all say that what we're doing is in the best interest of consumers, and it's public policy that has to decide who's right, with appropriate safeguards. We believe, certainly in our markets right now, that consumers are not getting the full benefits of competition because of the restrictions under which we operate.

Let me give you a good example. Shaw has a package of services they offer that includes local service, flat-rated long-distance service anywhere in North America or Canada, depending on what you want, high-speed Internet, and so on. We can't match it. We are not allowed to offer flat-rated long-distance service with local service, as a result of regulation.

Do consumers understand that they are not getting those kinds of offers from Telus because of regulation? Maybe they do, maybe they don't. But we know. We know that we can't match those offers and that we can't make those best offers to our customers. We believe that the experience of deregulation will prove to customers that they are not getting the best offers they can to date, not just from us, but from not keeping Shaw on their toes. Because of course Shaw is not, therefore, held to that same competitive standard.

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

I quite liked the expression "a healthy, competitive market". If we do have some doubts about what will be introduced under the minister's directive, are there any amendments that you could suggest to the minister that would make it possible to achieve an acceptable consensus?

My comparison may be somewhat clumsy, but we are told over and over again that the gasoline market is a healthy, competitive market, but not even 20% of people think that. It may be competitive from time to time, but it is not healthy for the economy overall. At least that is my perception. We have already had an example of that.

In light of the minister's directive in its present form, what guarantee do we have that in five years we will not find ourselves in a situation in which we will say that we knew and that we came up with the same thing?

Would you be prepared to suggest some safeguards that we could include in the directive that would make it reasonably acceptable? As far as Bell goes, I spoke earlier about the possibility of a sunset clause. Would you be prepared to consider this and other similar measures?

[Janet Yale]

I would have two comments. One is that I think there are some safeguards already in the commission decision that people don't really understand, like the one I said with respect to freezing local rates for customers post-deregulation. The second, I would say, is that we believe the minister's order should be implemented as quickly as possible.

Having said that, if the committee wanted to suggest there could perhaps be a review of the state of competition after three years, not the order itself, but how competition has progressed post-deregulation—in other words, not slow down deregulation but suggest that we have a review in three years—I wouldn't have a problem with that.

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

If the government were to decide to table a bill that would allow things to work properly, that is a bill that would overhaul the Telecommunications Act, a temporary decision about local telephone service could be implemented until the new legislation comes into effect. I do not agree with you. I think the minister has simply taken a piece of the puzzle, and we do not know how things will stand up if this measure is acted upon.

[Janet Yale]

Well, I think I agree we should get on with the project of implementing the new legislation. I do think it's time to overhaul the legislation, and perhaps a good place to embody, if you will, the kinds of reviews you're talking about being in the new act itself.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Crête.

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

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

Thank you, Mr. Chair.

And thank you both for coming.

I only have one question. My concern is with the smaller companies, the companies that weren't absorbed by Ma Bell way back in the twenties and the thirties, the ones that still exist in northern Ontario and in some of the other areas. We've heard some concerns from some of those.

What about their ability to stay in business and to compete?