Industry Committee on Feb. 14th, 2007

[The Chair, Conservative, James Rajotte]

We did get the December one. We have the Ipsos Reid one actually. We do have the one from December, yes.

[Lawson Hunter]

And if you're talking about the earlier one, the Decima one in 2005, which PIAC participated in, absolutely. It's a public document. It was part of our filing to the TPR Panel.

[Brian Masse, NDP, Windsor West, ON]

And can I get the opinion of maybe both of you gentlemen with regards to foreign ownership?

[Lawson Hunter]

That's an interesting topic. Let me tell you what Bell's position has been on this. It has been that in principle we're not opposed to changing the foreign ownership rules, but we have said that it's important for us that the regulatory system get fixed, because if you open up foreign ownership in an environment where we are constrained, you may encourage more foreign takeovers than you otherwise might want. So we think that the two of them need to go hand in hand. I think the steps the minister is taking are certainly very important in that process.

The other side of it, as you know, is that telephony in its old sense—if you could separate that from the broadcasting content side of the world, and just say, okay, we don't really care about that—might be easier to do. But in today's world, as you know, where the Internet is a major source of content distribution, and all of the cable companies and all the telcos have broadcast licences as well, then if you just change it in the Telecommunications Act but don't change it in broadcasting, I'm not sure what you've accomplished.

[The Chair, Conservative, James Rajotte]

Let's get Mr. Henry on this. We're running out of time.

[Denis Henry]

Our position is very similar on that. In short, it would be putting the cart before the horse to implement foreign ownership relaxation with the current regulatory regime. You have to get that fixed first, or at the same time.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Masse.

We'll go now to Mr. Byrne, for five minutes.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thanks very much, Mr. Chair.

Thank you, gentlemen.

One of the things we keep hearing--and I apologize for the quick notice on these particular discussions here today--is a consistent message from each and every participant in the telecom industry, from wholesalers to net-based to facilities-based to cable--you name it. Everyone loves the TPR report. Everyone thinks it's the best thing going. Very few actually want to see it fully implemented.

Mr. Hunter, your statements here indicate that the minister is actually not going fast enough. Would it be your recommendation that the Government of Canada should look at the TPR Panel report and just implement it, as is, where is, without cherry-picking?

[Lawson Hunter]

I don't think it's cherry-picking, because the report said to do what you can now because legislative change is going to take a long time, and that's what the government is doing. So it's very consistent with what the report said.

What I am saying, as I said before, is that doing what you can under their current regime still doesn't fundamentally change the law, doesn't change the test in the act. And that, in my view, still needs to happen. So I think there's still work to be done here.

But the report itself says that you can't do it all at once; it's not going to be a big bang. And as I said, I do think there are very important things in the report about the ICT sector and its importance in productivity, and about broadband availability, which needs to be addressed too. Those aren't legislative changes, necessarily. But on the regulatory side, as I said, I think they're going very far. But it's not done. It still needs to get at the basis of the legislation. The objectives in the legislation need to get changed, and that's going to take more time.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Who should decide what can be done? Is it the CRTC? How does that process work, in your mind?

[Lawson Hunter]

When you have proceedings in front of the commission, then there is the current legal regime, and the minister is using what he can through cabinet appeals or directives or whatever, and the commission does what it does. So that's operating within the framework. When you talk about legislative change, then obviously that's not the commission's responsibility. That's the minister's and the executive branch's responsibility. And, I suppose, parliamentarians can propose amendments as well, of course.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

What struck me about some of this is that there's a notion that it's David versus Goliath in this industry, that there are the big players and small players. You pointed out that Bell Canada Enterprises is a pretty big guy, and so is Rogers. In terms of market capitalization, Rogers has now exceeded BCE.

In the larger urban markets, you've demonstrated that there's a significant amount of competition. Some may argue that it's still fragile and that under certain orders it could be eliminated fairly quickly.

I want to zero in on places that don't get a lot of attention sometimes: rural markets, high-cost service areas. We haven't seen a whole lot of activity in my home province in the more remote communities regarding competition, despite the fact that it has been available. Facilities-based competitors still seem to dominate, and Bell Aliant is basically the only show in town in most cases.

Where is this going in terms of rural communities? If these changes were put in place, in particular for my interest, where do you see Bell Aliant going?

[Denis Henry]

There's no doubt that there will be some rural communities where there is no choice, and the current regime will apply in that case. There will be full price regulation. Now, that will change over time as competitors roll out.

In other places, as I pointed out—They don't have to be very large for cable companies to enter. To the small cable companies that come in here and say they will not invest, I would use Lawson's line: don't get fooled again.

It's all about bundles; they have to invest. As Mr. French said, the future is all about bundles.

I looked on their websites yesterday, and most of them provide high-speed Internet, which means they're already IP-enabled.

There's a recent report by one of the financial houses saying that the cost for cable to get into local telephony is three times less than the cost for telephony to get into video. The cable companies have a huge advantage. Once they have this high-speed network, the upgrade cost is very reasonable. In fact I think the report I saw said that for a cable company, 70% of their capital expenditures are demand-driven. For a telephone company, 70% is fixed. That means these networks are very scalable. They'll be there; I have no doubt about it.

EastLink has proven it, and I remind you that EastLink has a circuit-switch network. These other companies are going to be moving to VoIP-based, IP-based networks. So they're probably going to have a cost advantage even over EastLink.

There's never been a cable company that's failed when it entered local telephony. Internationally nobody's buying this argument that I can find, this argument that we need win-backs or we'll be out of business. Why does no one in the rest of the world have these, including the U.S.? They don't buy these arguments.

[The Chair, Conservative, James Rajotte]

Mr. Henry, can you conclude quickly?

[Denis Henry]

Let me conclude with one remark. When Sheridan Scott, the Commissioner of Competition, was here earlier in the week—and I would agree—she said that we have to have policy that protects the competitive process, not particular competitors or a set of competitors.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Byrne.

We'll go to Mr. Shipley.

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

Thank you, Mr. Chairman.

Thank you for coming out today to be part of our discussions on telecommunications. It's been an interesting learning experience, maybe more for some of us than for others.

I have some pointed questions, and some of those you've referred to. The win-back issue has come up at every turn about the unfairness that it will create in some respects. I would like your comments on the notion, which we've heard, that win-back restrictions will drive your competitors out of the market.

[Lawson Hunter]

I absolutely do not believe that. As Denis said, and as I pointed out about the United States, there are no win-back restrictions there to speak of. It hasn't driven anybody out of the market there. The cable companies and others have entered the local market, and I don't believe it.

As well I will say here to you, as I said before, that if you're talking about the cable 90-day rule in MDUs, there's nothing stopping the cable industry from applying to the CRTC today to have that win-back restriction removed. If this order in council gets passed, we will support that application.

So there's no unfairness. We're quite willing to live with a world of no win-backs.

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

If you go back a few years, back to 1993 when long-distance telephone rates got deregulated, when that deregulation was brought forward the concern at that time was that it's “the same government that keeps on spinning the same tired line that deregulation is going to save consumers money. We can rest assured that it is not going to save money for the average consumer in the small, remote areas.” That is a quote that came back many years ago.

I live in a rural area where it wasn't immediate. But now we obviously have all the competition, and I can tell you that we pay a lot less in terms of long-distance telephone rates than we did not too many years ago. Many people still fear that deregulation of the local telephone service will lead to re-monopolization. We have called it monopolization or duopolization of the industry.

I'm just wondering, can you add some comments to that?

[Lawson Hunter]

I think what's going to drive that is the economics of who can make money here. As for the cable industry, as is witnessed by my comment that in a year their market capitalization has increased to 61%, $14.4 billion, that's the market saying that these people can provide a cost-effective product here.

You may recall that Jim Shaw--and I don't know whether it was when he was here—in one of his quarterly analysis calls said that they had—I don't know what it would be, but I would say maybe a couple of hundred thousand subscribers, which isn't a lot in this business, but they were already profitable. Their EBITDA margin was 40% and he expected it to go to 50%. Those are pretty sweet margins. He also said, nobody's driving us out of this business.

So there's money to be made here, and they're going to stay here, and that's good for consumers. To be honest, as I've said before, the regulatory regime we have today prevents us from competing, which is a bad thing for consumers, and it doesn't make the other guys compete, which is a bad thing. They don't have to compete; it's being given to them. And we can't. That is fundamentally in the long run what is wrong with this regime.

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

We've had a lot of discussion around the CRTC and the Competition Bureau in terms of the roles that they should play, and about the Competition Bureau not being effective in terms of being able to react in time. I'm wondering if you could comment quickly about the role of each of those in terms of their effectiveness in terms of this deregulation.

[Lawson Hunter]

I don't have a lot of good things to say about the commission, unfortunately, because I think they have been witness to this massive wealth transfer--if not the architects of it, as I said, which I think is completely inappropriate from a public policy point of view.

As you may know, I used to be the head of the Competition Bureau, and in fact I think the act we have today was largely my doing. Maybe I'm biased in my view about it, but at the time—and I think still to this day, if you look around the world, Canada has one of the best pieces of competition legislation in the world. It's world class, it's consistent with what other countries do, and I think we're well served by it.

The commission I think will continue to have a role, though. I think on the technical side of regulation, on social regulation, there's clearly still a role for the commission. But I think that, as the TPR recommended and as other countries are doing, we need to be moving the economic regulatory portion over to the bureau and leave the social and technical to the commission.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Shipley.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

You spoke earlier about the Ipsos-Reid poll. I know it was done provincially, but do you know whether it was done by regions or by major cities? Because there is a difference between the two.

[Lawson Hunter]

The survey, if you look at it, breaks it down—according to my recollection—by province or by region. It doesn't break it down between rural and urban. To be honest, partly because our territory is the province of Quebec, if you will, we wanted to over-sample in the province of Quebec so we would make sure that statistically the results of it were as good in Quebec. So we did overrepresent the province of Quebec. By the way, if you look at the results in Quebec, I think you'll see those high numbers that I already gave you, and in some instances the results in the province of Quebec were higher than in other provinces. I forget exactly what they are, but you can go through it province by province. There were very high numbers in the province of Quebec, and we did try to ensure that it was statistically valid in Quebec. It doesn't have a breakdown between rural and urban.