Industry Committee on Feb. 19th, 2007

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is the 45th meeting of the Standing Committee on Industry, Science and Technology, and as per the orders of the day, we have with us the Minister of Industry, the Honourable Maxime Bernier. He is here to discuss, pursuant to Standing Order 108(2), our study with respect to the deregulation of the telecommunications sector.

Welcome again, Minister, to the committee.

We'd also like to welcome two officials from the Department of Industry. First of all, we have Mr. Richard Dicerni, the deputy minister. Welcome, Mr. Dicerni.

We also have with us Mr. Ron Parker, visiting senior assistant deputy minister from the Department of Industry.

Minister, as you know, we've been studying this issue for a couple of weeks, and we look forward to your comments. You have at least a 10-minute opening statement, if not a few minutes more. We look forward to your comments and then we'll go immediately to questions from members.

Welcome.

[Maxime Bernier, Conservative, Minister of Industry]

Thank you, Chair, and thank you, everybody. I'm very pleased to be here today.

I'm very happy to have this opportunity to speak with Committee members today.

This committee's work is very important, and I'm following your study closely. I have read with great interest the testimony of some of the witnesses who appeared before you last week and the week before. As always, it is a pleasure for me to be able to speak to you today.

As you know, the telecommunications sector plays a critical role in Canada's economy. Over the next two hours I want to take some time to describe the decisions I have made and the reforms we have proposed to date to modernize the dynamic telecommunications sector.

Upon being appointed Minister of Industry, I moved quickly to set priorities. I strongly believe that opening the telecom sector to decreased regulation will increase competition, increase our national competitiveness and productivity, and, most importantly, it will be a great benefit to Canadian consumers.

It was obvious that modernizing the policy and regulations that guide the telecommunications sector had to be a priority for our government. In April 2005, the government appointed the Telecommunications Policy Review Panel to study the policy and regulatory framework governing this industry. They were mandated to analyze the telecom sector and to make recommendations that will help transform the industry and turn Canada into a strong, internationally competitive player, all for the benefit of Canadian consumers.

A fundamental finding of the panel was that competition in telecom has evolved to the point where market forces can be relied upon, and they concluded that the need for regulation in certain markets should no longer be presumed. Giving due consideration to the panel's finding and 127 recommendations, the government is pursuing a course of policy and regulatory modernization in the area of telecommunications.

As you know, the concept of greater reliance on market forces is in keeping with the government's overall objectives of improving competitiveness and productivity in the Canadian economy; it is also consistent with the government's vision for a stronger, more prosperous country, as outlined by my colleague, the Minister of Finance, in the document entitled Advantage Canada.

Last June, I tabled a policy direction in Parliament instructing the CRTC to rely on market forces to the greatest extent possible and to regulate only when necessary. This was followed by our decision concerning Voice over Internet Protocol, commonly known as VoIP.

Stating the need for greater reliance on market forces, the CRTC was asked to forbear from the economic regulation of access independent Voice over Internet Protocol (VoIP) services offered by traditional telephone companies.

In the best interests of Canadian consumers, in December, the government proposed to amend the CRTC's decision to forbear from regulating local telephone services.

In its ruling, the CRTC laid out its criteria for determining when it will refrain from regulating retail local telephone service on the basis of a market share test. However, the CRTC is still inhibiting competition beyond what is necessary, as it may take up to two years under the CRTC plan before deregulation comes to major urban centres. In the meantime, consumers are deprived of the benefits of competition.

The government is proposing to replace the CRTC's market share test with one that emphasizes the presence of competitive infrastructure. In markets where consumers have access to telephone services from a traditional telephone service, a cable company, and at least one non-related wireless provider, deregulation can occur. Under this test, service providers will no longer need CRTC approval to set their prices for residential services in markets where there are at least three facilities-based telecommunications service providers owned by three non-affiliated companies.

In a competitive market, consumers, not a government agency, should determine the prices they pay for telephone services. In a competitive market, there is no reason to regulate some companies while allowing others to offer the services they want at the prices they want.

In addition to leaving in place existing safeguards that protect consumers, such as a price cap for stand-alone residential service and continued price regulation in regions where there's little competition, we are proposing to amend the Competition Act. In December, I tabled in Parliament Bill C-41, An Act to amend the Competition Act. This bill will establish financial consequences for companies that engage in anti-competitive behaviour in deregulated telecom markets. This measure will aid in the reduction of unnecessary regulation and act as an effective deterrent to prevent anti-competitive behaviour and, where necessary, help to rectify such behaviour.

Let me just say, once again, how pleased I am with your work. I very much hope to take a closer look at the comments made as part of today's discussions. However, as you heard from Hank Intvent, the Telecommunications Policy Review Panel stressed the need for timely action by the government in terms of deregulating the telecommunications industry, where necessary. Why is that?

Well, the telecom industry is driven by innovation and high technology. As well, the landscape changes rapidly, and the government has to be responsive to the pace of this industry.

We should remember that the CRTC had already initiated a review of its frameworks surrounding mandated access to wholesale services, something addressed by the policy direction. As well, all statutory requirements under the Telecommunications Act were completed and extensive consultations have taken place.

Moving forward with this direction provides an intended course of telecommunication policy in Canada to the market, to the CRTC, and to the world. The reforms we have introduced will benefit Canadian consumers, providing them with even more choice of better products and services.

Thank you, and I'm very pleased to be here with you. I am now ready, with my officials—Deputy Minister Richard Dicerni and Ron Parker—to answer your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for that opening statement, Minister. I understand that you are here until 5:30 p.m. today, so we thank you for your time.

We will start immediately with questions, and I'll just remind members that this is for discussion. We should always keep our questions very respectful, and also allow the minister and his officials time to answer.

We'll start with Mr. McTeague for six minutes.

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

Thank you, Chair.

We are very pleased to welcome you and your officials to the Committee today, Minister. We believes that you were to give us some time. In fact, according to our calendar, we were to carry out a telecommunications study starting in mid-October. We were therefore rather surprised when you made your announcement.

Like you, I am very interested in the report released by the Telecommunications Policy Review Panel. You said at the outset that it contained 127 recommendations. Could you explain why half of them are not even mentioned?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you for that question.

To begin with, I would like to explain the government's general position on telecommunications.

As you know, the government issued a policy direction to the CRTC on December 14, pursuant to Section 8 of the Telecommunications Act.

These policy directions set out, for the benefit of the CRTC, the market and the general public, the overall orientation that the government intends to follow as regard Canada's telecommunications policy. It establishes a regulatory framework for the CRTC, more specifically, as a means of implementing our vision, which was the inspiration behind the policy direction issued last December. I should also say that last March, as you pointed out, we received the report of an expert panel containing 127 recommendations. These experts criss-crossed the country for a year and listened to what Canadians had to say. They also called on international experts. They released their report in March 2006. One of their recommendations was to issue a policy direction to the CRTC asking it to rely on regulations as little as possible where market forces are present and where there is competition. That is exactly what we did. Following that, there was a lot of discussion as the review panel went across Canada.

We are proud to have issued that policy direction. It is in keeping with the objectives of the Telecommunications Act. It asks the CRTC to consider market forces when drafting regulations, in addition to concerning itself with social regulation.

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

Thank you, Minister.

I wanted to point something out to you from page 2-14 of the TPRP panel report. Under “Consistent Application of Policy” there is a recommendation that Mr. Intven, whom you cited a little earlier, was party to:

Canada’s telecommunications policy objectives should be implemented in a coherent and consistent manner by all such departments and agencies. These policy objectives should therefore apply not only to the CRTC in the performance of its duties under the Telecommunications Act, but also to the Minister of Industry in the implementation of telecommunications policies and programs.

Minister, we're very concerned that you've cherry-picked half of the recommendations from what was an excellent report. We agree with you on the objectives. We believe it's the right direction to take. But we believe that the way you've gone about it is absolutely wrong. It's wrong because you've taken out some of the important safeguards that were recommended by this blue ribbon panel. I'll cite a few of them.

The removal of something that is extremely critical was the establishment of an understanding of significant market shares as they exist today. No OECD country has ever proceeded with deregulation before having that kind of an analysis. You, sir, have done that.

Second, there is a recommendation here for a telecom competition tribunal, a quasi-hybrid between the Competition Bureau and the expertise of the CRTC. That has been thrown away in favour of something you refer to as a competitor presence test, which isn't even understood by the Competition Bureau. It probably is, but that low threshold almost guarantees that if I open up an apple shack and decide to call it “Dan's Telecom”, chances are it's going to constitute, in your view, some kind of competition.

The other one that's missing is CRTC's expertise and of course the concern about no consumer ombudsman.

Minister, I'm looking at many of the recommendations here, and they make sense. They must be done as the commission, as the panellists, have suggested: in a holistic way, in a comprehensive way. You cannot possibly state, as you have done now, that what you have proposed is faithful to what has been suggested by this blue ribbon panel, which both sides of this table agree with.

[Maxime Bernier, Conservative, Beauce, QC]

I do not share your views with respect to the comprehensiveness of this reform.

We have taken concrete action. There is competition in certain markets, and it is now time to deregulate those markets. The CRTC itself, using its market share test, admitted last fall that it wanted to review that test because it has realized that based on new data, there is very strong competition in certain urban centres. By using a test based on competitive infrastructure, we will ensure that where there is competition, there will also be deregulation that benefits consumers.

It is important to say that we are currently studying all of the panel's other recommendations and that, following that review, we will act on the other recommendations at the appropriate time.

I agree with you: many of the panel's other recommendations are of interest. We are in the process of reviewing them. So far, we have issued one policy direction to the CRTC — it was one of the recommendations deemed by the panel to be a priority. We brought that forward. We also tabled Bill C-41, an Act to amend the Competition Act, which will provide for consumer protection.

Our vision is a comprehensive one, because if telecommunications carriers or former monopolies adopt behaviour that is not in keeping with the Competition Act, as you know, financial penalties can be imposed. The Competition Bureau and the Competition Tribunal will have the power to impose fines of up to $15 million. We believe this will act as a deterrent and result in competition which is as harmonious as possible in deregulated areas. That is a power that the Bureau already had when we deregulated the airline industry, and it is a power that the Competition Bureau was asking for.

So, we are acting on several different fronts. We are taking action through the policy direction given to the CRTC, on the forbearance decision, and we are also acting to protect consumers.

[The Chair, Conservative, James Rajotte]

Thank you very much, Minister.

I'll go to Monsieur Crête.

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

Thank you, Mr. Chairman.

Minister, there is just one problem: in working with the review panel, you have treated it as though it is the board of directors of a company, when you are in fact a minister of a government. Furthermore, announcing the policy direction and the consultations on December 14, during the holiday period, left the impression that the whole thing was a sham and not particularly serious.

Fortunately, comments by consumers and small Internet service suppliers led to Committee's current round of hearings. The Committee passed a motion, and is holding hearings; as a result, the consultations that did not occur are taking place now, and I am very pleased about that. In fact, the testimony we have heard thus far clearly shows that there was much to be said. And we still have many witnesses to hear from.

Today, you talked about a competition test. But I have a test for you: are you prepared to change your policy direction based on the feedback we receive? I will give you a couple of examples, although I'm not asking for a definite answer today: for example, including a sunset clause that would limit the period of time during which the policy direction would apply; also, small cable companies and Internet service providers made it clear to us that they haven't had an opportunity to take advantage of what the CRTC had provided for, which was up to 25 per cent. Because of your policy direction, they automatically became subject to competition overnight and they may well disappear from the market entirely in very short order. The report also recommended that there be an ombudsman, to keep an eye on things.

So, are you in fact prepared to amend your policy direction, so that if we quickly submit comments on this, you will be able to make an enlightened government decision that reflects the Committee's views, and we will be able to carry out our future work on all deregulation, knowing that you may listen to what we have to say?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

You referred to two issues. The first is the policy direction to the CRTC last December asking it to rely as little as possible on regulation and as much as possible on market forces. The history of that is quite simple: the Committee held consultations for a year and made that recommendation. We looked at it and brought it forward.

The other part of your question has to do with the forbearance decision with respect to local telephone service. All industry stakeholders and consumers had an opportunity to appear before the CRTC and present their views before it announced that decision a year ago. So, there was considerable consultation at that stage.

Also, as you well know, we issued a draft policy direction last December, which was followed by a 30-day consultation period. I can confirm that that consultation process was a success because, over a 30-day period, we received 175 briefs…

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

Those were private consultations, Minister.

[Maxime Bernier, Conservative, Beauce, QC]

Yes, that's correct, but it's important to point out that we did receive 175 briefs during that 30-day consultation period. On the subject of the policy direction to the CRTC, we only received 71 briefs over a two-month period of consultations. Furthermore, the two Houses of Parliament spent 40 days reviewing that policy direction.

The 30-day period was therefore extremely useful, since many Canadians had a chance to express their views. People expressed their views through the 175 briefs or submissions that we received from various groups. As well, I noted that what you are hearing today and what you heard last week clearly reflect what people told Industry Canada.

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

As well, Mr. Minister, are you prepared to consider draft amendments to your policy direction—for example, with respect to small cable operators?

If the Committee drafts a letter or unanimous report and you get it before making your decision at the government level, would you be open to the idea of amending the policy direction accordingly or will you continue to simply bulldoze your way through this?

[Maxime Bernier, Conservative, Beauce, QC]

No, I can tell you both our consultations and those held during that 30-day period were very helpful to the government. It is quite probable, I guess, that technical amendments will have to be made to that policy direction. So, I am quite prepared, if the Committee would like to send me a letter in the next few days, as you have just said, with…

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

But what is your timeline, realistically speaking?

[Maxime Bernier, Conservative, Beauce, QC]

Well, as soon as possible because, as you know, April 6 is the date on which the government has to make a final decision.

So, I would be very pleased to look at such a letter following your consultations and the ones we have already held, if you do have any worthwhile amendments to recommend to the government. I would be very pleased to look at such a letter, just as we are currently reviewing the recommendations that have been made.

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

Are you prepared to consider my two suggestions in relation to the examples I gave—namely, small cable operators, small Internet service providers, and the sunset clause?

[Maxime Bernier, Conservative, Beauce, QC]

Let's talk about the sunset clause. As you know, deregulation will only occur in markets where there is competition. We believe this will benefit not only consumers, but all other industry sectors, and that it will result in better prices and lower service costs.

As regards small cable operators, you raise an important point. I believe you were saying that the CRTC gave cable operators, like Rogers, Vidéotron or Shaw, a certain amount of time for the 25 per cent market share to be attained. Thus they were able to capture part of the client base. What you are saying is that small cable operators who do not yet provide cable telephone service will not have the benefit of that same timeframe. That is something that should be considered.

We will be pleased to look at any suggestion or recommendation you may have.

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

That's great.

Next, let's talk about a review of the telecommunications policy. Has everyone reached the conclusion that we need to change the way we do things? Once we have submitted our comments on local telephone service, can you give us assurances that you will wait to see those comments and propose real changes to the Telecommunications Act, so that we stop doing things piecemeal, thereby causing a lot of uncertainty both for users and businesses operating in that market?

At the present time, only the large companies feel secure.

[The Chair, Conservative, James Rajotte]

Okay, Minister.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you, Mr. Crête.

Last week, or two weeks ago, I sent a letter to the Chair of this Committee asking that it carry out a more in-depth analysis of the 127 recommendations. So, I do indeed want to hear the Committee's suggestions so that, when the time comes to make a decision or make a recommendation to my Cabinet colleagues regarding the Telecommunications Act or a comprehensive review of that Act, I will have a full understanding of all the different perspectives on this issue.

So, I would like the Committee to continue its study and issue a report. When that report is issued, I will look at it, just as I've looked at all the other submissions I've received, with a view to pursuing the reform of the telecommunications industry.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Carrie for six minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Thank you very much, Mr. Minister, for being here. It's wonderful to have you here in person to clarify the government's direction in this very important sector.

As you know, I come from Oshawa. In Oshawa we're very competitive. We have the auto industry; we have a great hockey town; and I have to tell you, with the services we have now in the telecommunications sector, we have wonderful competition. I've got to tell you that when I go back home and talk to my friends, a great many of them are no longer with the former monopolies. I just wanted to know your opinion.

I like this idea of the competition. Are these win-back restrictions widespread in other countries or is Canada alone in imposing them on these incumbents? I think we want to see this open up to have better benefits for the local consumers.

[Maxime Bernier, Conservative, Beauce, QC]

It's a very good question.

Concerning the win-back, I want to let you know that Canada and the U.S. are perhaps the only jurisdictions to have this kind of restriction on their telecommunications industry.

What win-back means is that you don't permit the former monopoly to communicate with the customer—they must wait 90 days—after losing a client.

The telecom panel, in one of their recommendations on win-back, said that making offers and counter-offers to the same customer is the very essence of competition, and that win-back campaigns should not be restricted by a regulator.

We want to follow this recommendation. I think it's a very good one.

Why is it a good recommendation? Because it allows consumers to receive information about the products and services available in the market and because information is what consumers base their decisions on. Well-informed consumers will know about all the products that are available in the market and will be able to make a better choice.

We believe that restrictions should be eliminated as quickly as possible to allow for more dynamic and intense competition here in Canada. It is also important to note that winback rules are in place in both Canada and the United States. In the U.S., only a couple of states have regulatory standards—specifically, Florida, Georgia, Louisiana, North Carolina and South Carolina. It should also be noted that they restrict the right to make counter-offers to a seven-day or fourteen-day period only, not 30 the way it is here in Canada.

We conducted a study that indicated that most of the larger states—31 out of 38—have no such restrictions in the telecommunications industry. In my opinion, the time has come for us to drop this kind of restriction here in Canada, because they do not benefit consumers. In that regard, I would like to quote the Federal Communications Commission.

It's the American CRTC.

They said, in a decision:

Winback restrictions may deprive customers of the benefits of a competitive market. Winback facilitates direct competition on price and other terms, for example, by encouraging carriers to “out bid” each other for a customer's business, enabling the customer to select the carrier that best suits the customer's needs.

It's very clear, for the regulator in the States, that the win-back restriction is a kind of restriction that is against competition. We don't need that kind of restriction to ensure that we have all the information and good competition here in Canada.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Minister.

One of the things we've heard, too, is about the forbearance decision. We hear the number 25%. It seems the witnesses couldn't quite agree whether this was a good or a bad thing. They weren't quite sure whether 25% was the way to go.

You've proposed a different idea, a different test. I was wondering if you could, in front of the committee, explain your test—the three-three test—and what you would like to see in that regard.