Industry Committee on March 21st, 2007

[The Chair, Conservative, James Rajotte]

Okay. We will call the 50th meeting of the Standing Committee on Industry, Science and Technology to order.

The orders of the day, pursuant to Standing Order 108(2), are continuing our study on the deregulation of the telecommunications sector.

Members, before we get to the witnesses, I want to have the committee adopt the agenda. We had a subcommittee meeting yesterday in which all parties agreed to the agenda for March, April, and at least the beginning part of May 2007. Everybody should have it in front of them. This was agreed to by all parties. I want to have the full committee adopt the subcommittee agenda.

Can I get someone to move it?

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

I so move.

[The Chair, Conservative, James Rajotte]

It's moved by Mr. Shipley, and seconded by Mr. McTeague.

(Motion agreed to)

[The Chair, Conservative, James Rajotte]

Thank you very much.

We will now go directly to our witnesses. We have five witnesses with us today, for two hours.

I'll remind members that we have votes. I think we have two hours of votes tonight, and we'll have to finish by 5:30.

Each witness will have five minutes for an opening statement, and then we'll go directly to questions from members.

I'll briefly introduce the witnesses. We have Mr. Robert Proulx, president of Xittel Telecommunications Incorporated. Secondly, we have Patricia MacDonald, a lawyer with the British Columbia Public Interest Advocacy Centre. Thirdly, from the ARCH Disability Law Centre, we have Phyllis Gordon, who's the executive director. Fourthly, from the Quebec Coalition of Internet Service Providers, we have Sophie Léger, the spokeswoman. Lastly, from the Terminal Attachment Program Advisory Committee, we have Mr. Claude Beaudoin, laboratory director, certification and engineering bureau.

You'll each have up to five minutes for an opening statement. We'll start in order and work our way down the list.

Monsieur Proulx.

[Robert Proulx, President, Xittel Telecommunications Inc.]

Good afternoon, and thank you for inviting me to appear here today.

My name is Robert Proulx, and I am President of Xittel Telecommunications Inc., a broadband service provider specializing in providing services to rural communities. We provide both VOIP telephone and Internet services. At present, we serve over 50 communities in Quebec and Ontario. Our business plan projects adding 100 new communities to our network in 2007-2008. For the most part, we have already signed agreements with communities to provide services. In most cases, we serve communities in which we are the only broadband provider at this time.

In Quebec, we have contributed to the Quebec government's Villages Branchés program, which has resulted in investments of some $220 million and the construction of a 20,000-kilometre optical fibre network. We have had the privilege of being involved in the program as engineers, carriers and operators in 25% of the deployment.

In 2001, CANARIE awarded us the IWAY prize for our contribution to the development of private-sector optical fibre networks for universities and teaching institutions. More recently, we have concluded a partnership agreement with the government of PEI, to build and operate a provincial network involving some 500 kilometres of cable, to serve government buildings and PEI communities which do not yet have broadband access.

Appearing at the later stages of your hearings has given us the opportunity to read the 262 pages of committee proceedings transcribed so far. I can assure you that these hearings will have an impact on the history of Canadian telecommunications. This is a turning point in the history of Canadian telecommunications. Increasing competition in urban markets is leading some former monopolies to feel the cards are stacked unfairly against them, and they want the system to be deregulated immediately.

However, we should bear in mind that the market involves players other than former telephone and cable distributor monopolies. Players like Xittel Telecommunications Inc. are making a genuine contribution to society by deploying new broadband telecommunication infrastructure in rural areas which have been and continue to be poorly served by current providers. We do not see how there could be a better return on investment in the future, since there was none several years ago.

We have read that the committee was preparing to send the minister a letter in order to focus its recommendations on the test that would be applied in order to permit accelerated deregulation of local telephone services. Here, there are some requests we would make of you. We have also read that the committee was asked by Minister Bernier to draft a comprehensive report analyzing each of the review panel's recommendations. Here again, we would have some demands to make of you.

We will shortly submit a brief to the committee, a brief that we hope will be useful to you in drafting your letter and your report. If I may, I would like to share some of our requests with you now. Those requests were communicated to Minister Bernier when he came to Trois-Rivières.

Our position can be stated as follows: competition among local telephone service providers should be permitted only after barriers to the entry of interconnections and the competitive availability of infrastructures demonstrated as perfectly substitutable has been eliminated. It would be idealistic to believe that a company like Xittel would acquire several million dollars' worth of equipment, as demanded by the dominant firms, to connect with the public network in order to serve the several thousand clients we wish to serve.

Technologies that enable low-cost interconnection are available, and are in fact used by the dominant companies, but new entrants are required to invest in extremely costly technology. This constitutes an entry barrier for small players in rural areas.

Moreover, the CRTC and Competition Bureau must recognize that access to infrastructure is a crucial factor in competition, and that there is no point in continuing the deregulation process if the main issue is not to ensure that conditions conducive to building new infrastructure are maintained. Allow me to give you an example. We are now implementing a project in Prince Edward Island. We are being groundlessly denied access to 500 kilometres of fiber optic cable. The reason for that is simple: if the project is sufficiently delayed, profits generated by the dominant company will be sufficient to pay the lawyers' fees.

The Competition Bureau must demonstrate, in practical terms, empathy for companies building new infrastructure by protecting them from abuses of power perpetrated by former monopolies. Moreover, the government must set competition objectives for rural areas and formulate a strategy to achieve those objectives in order to ensure that regional and rural markets no longer have funds diverted from them to finance competition efforts in the cities.

We also believe that the government must take action in order to provide an effective regulatory framework for optical fibre data transmission over large distances. There is little competition for that in regional and rural markets.

The Magdalen Islands are a perfect example of this. There, we pay 10 times more to connect with a public network, even though the undersea cable construction was financed through provincial and federal public investment. We consider that unacceptable.

We believe the government must follow up on the review panel's recommendations that promote competition, and do everything in its power to ensure quick, affordable access to support structures and other essential infrastructure. Our survival depends on it.

Thank you.

[The Chair, Conservative, James Rajotte]

Merci beaucoup.

We'll now go to Ms. MacDonald.

[Patricia MacDonald, Staff Lawyer, British Columbia Public Interest Advocacy Centre]

Thank you for the opportunity to provide comments to this committee.

In my work I have the privilege and the responsibility of representing the most vulnerable of consumers: the elderly, those who are disabled, persons on income assistance, and tenants.

Basic telephone service is an essential service. Having a telephone connects people to family, friends, employment, and a multitude of providers, including government, doctors, and emergency services. It is vital that all Canadians have this service.

Many of the consumers I represent are on fixed incomes. Increases in the cost of the services they need take up a greater percentage of their monthly income than it would for those of us in this room. For low-income consumers, access to affordable telephone services is paramount. While many consumers want choice and are willing to pay a premium for it, those on a low income do not have that luxury. These consumers are the least likely to have access to alternatives for regulated service.

I represented seven low-income consumer organizations in the last CRTC public hearing into the price caps. In that hearing, the evidence showed that the vast majority of Canadians, over 92%, obtained phone service from the regulated monopoly providers.

There are two alternatives to this regulated service: voice-over-Internet service through cable or computer and mobile phone service. Voice-over-Internet service is still in its infancy, and in B.C. and Alberta—the provinces I'm most familiar with—they only have approximately 4.5% of the market share. Consumers have had the choice of switching to mobile phones for the last five to ten years, but since then, only 5% to 6% of consumers in Alberta and B.C. have done so.

Why do the vast majority of Canadians prefer their regulated monopoly service?

Let's examine the costs. In B.C. the cost of regulated phone service, which provides unlimited local calling, ranges from $23 to $29 per month. In B.C. the major cable provider offered a package that included unlimited local calling for $55 a month, approximately double the cost of the regulated phone service. This service had six options included in that price, but for those customers who do not want the options or cannot afford these options, there is no choice. They will continue to keep their regulated phone service.

The price for mobile phone service is also not comparable. A customer must obtain a mobile phone and then purchase a monthly package of prepaid minutes or a monthly package. Both of these plans are expensive. l am sure you need only look at your own phone bill to see the truth of that. A Telus survey reported that, on average, consumers spend $79 a month on mobile phone service.

The evidence in the hearing also revealed that there are other problems besides price. For mobiles, they can be difficult for the elderly and disabled persons to use; multiple mobile phones would be needed for families to switch to that service; consumers need a reasonable credit rating or must pay a large deposit; and prepaid plans have limited use.

For voice-over-Internet service, some problems are, again, that computers can be more difficult for the elderly and disabled persons to use. They have unreliable 911 service, and the service does not work if the power goes out. Low-income consumers cannot afford computers.

It is a false assumption that the presence of competition equals competition. Despite having a choice of switching to mobile phone or voice-over-Internet service, over 92% of Canadians have not done so. We say this because the service and the pricing of the alternatives are not yet comparable and there is no regulation.

Competition may be developing; however, until then, consumers should continue to enjoy the protections of the regulatory regime designed to ensure that all Canadians have reliable and affordable telephone service.

If all this falls on deaf ears, my second point is that if telephones are no longer regulated, the terms of service will also not be regulated. Telephone companies will be free to rewrite these terms of services, and these terms can be disadvantageous for consumers. For example, in B.C., if you want to cancel your Internet service with Telus, you will be charged $120. This is a significant penalty and a disincentive to switching providers.

We have consumer protection legislation in B.C. However, the B.C. government has taken the position that consumers who have problems with their telephone, Internet, and cellular phone service will not be covered under the B.C. legislation, as these matters are under federal jurisdiction and there is no federal consumer protection legislation.

This means that if you have a dispute with your telephone company, you must go to court. In B.C., a consumer who has a dispute--using the example of the $120 I mentioned earlier--would have to pay $100 in order to have the matter heard in court. Clearly that is disproportionate to the amount in dispute, and for low-income consumers that fee would be unaffordable.

If deregulation occurs, we recommend that the federal government ensure that consumers are protected by consumer protection legislation, either through provincial legislation or by enacting its own legislation. All consumers deserve that protection.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. MacDonald.

We'll go now to Ms. Gordon, please.

[Phyllis Gordon, Executive Director, ARCH Disability Law Centre]

Thank you very much for the opportunity to attend.

I'd like to start with some comments about disability in Canada, and point out that every Canadian is likely to have a disability at some time or other. Many people have had a disability all of their lives, while others may have a disability caused by an accident or an illness. It could be temporary or permanent. The process of aging brings various impairments of function that often lead to permanent disability.

Whatever the origins of disability, people wish to live as independently as possible.

In Canada, of adults over 15 years of age, approximately 16% have disabilities. Of adults over 65 years, approximately 42% have disabilities. About 23% of Canada's population will be over 65 by 2040, as compared to 12% in 1995. Canadian seniors are living longer than ever before, and as they age their experience of disability increases. The increase in the numbers of older people in our population has emphasized the importance of viewing disability within the mainstream and not as a fringe issue.

People with disabilities are determined to press for respect and dignity, and to participate in all aspects of Canadian life. Key to that participation is full and equal access to telecommunications. The current barriers are very lengthy to describe, so I'll make only a few comments with regard to telecommunications for people with disabilities.

It's important to remember that the problems experienced by people with disabilities in using telecom services are diverse, because disability is diverse. There may be problems in using the terminal and there may be problems in obtaining connections across the network. Problems with terminal equipment include inability to see markings and displays, inability to hear the ringer or the received speech, and inability to handle the instrument and its controls.

For example, individuals with little capacity to control hand movements have insufficient motor control to use keypads, given the small numbers and lack of space between the numbers. People with weakness and chronic joint pain may find it impossible to press the buttons, and even to turn the phone on or off.

All of these problems can be resolved, or at least lessened, with suitably designed terminal equipment. Frequently, however, no such suitably designed equipment is available. This situation can only be viewed as a failure of the market, which would justify regulatory intervention.

Problems in obtaining connections across the network frequently involve the terminal to some extent. People who communicate slowly or with irregular voice patterns find that the speed and inflexibility of automated services cut them off, and they become anxious when they're rushed.

For people with disabilities, access to the telephone network is governed by the performance of the telephone terminal to the same or greater extent than performance of the network itself. So facilitating telecommunication services for people with disabilities or thinking of universal service while at the same time excluding the regulation of terminal equipment will simply prove hollow.

I want to talk very briefly about the Telecommunications Policy Review Panel and its report. One of the main reasons is that in the proposed revisions of the objectives of a new Telecommunications Act, they clearly indicate that to enhance the social well-being of Canadians and the inclusiveness of Canadian society, one goal will be to facilitate access to telecommunications by people with disabilities.

An initial comment is that if you're looking at that report, the list in section 7 of social goals is a finite list. We think this cuts off the potential to regulate for the social good about matters that aren't evident at this time. So we draw that to your attention about the telecom policy's review.

Secondly, with respect to that report, they mention that there should be a facilitation of telecommunications services for people with disabilities. It's our view and our submission that this doesn't meet the standards in Canadian law, and in fact the policy should be to ensure access to telecommunications services for people and Canadians with disabilities.

There are two recommendations of the report that are very important that we'd like to underscore. One was recommendation 2-6 of the telecommunications policy report. That was the one where the CRTC “should be empowered to directly regulate all telecommunications service providers” and not pick and choose.

The second is the development of a consistent application of policy by amending relevant federal legislation to ensure that all government departments and agencies that implement telecommunication maintain the consistency of telecommunications policy. This consistent application of policy is very important for people with disabilities because it is the way that Canadians who have disabilities will eventually be able to have terminal equipment that is accessible. It is essential that Industry Canada be regulated with respect to this issue as well.

[The Chair, Conservative, James Rajotte]

Okay.

[Phyllis Gordon]

I see my time's going.

[The Chair, Conservative, James Rajotte]

Unfortunately, your time is up, Ms. Gordon, but we'll get to you during questions, and we do have your full presentation before us here today. Thank you very much for that.

We will now go to Ms. Léger for five minutes, please.

[Sophie Léger, Spokeswoman, Quebec Coalition of Internet Service Providers]

Good afternoon.

Thank you for giving me this opportunity to express the views of the Quebec Coalition of Internet Service Providers, which I represent.

In Quebec, the innovation which the Internet represents came from members of the coalition. At the end of the 1990s, the incumbents took control of the high-speed—DSL—and cable modem technologies, and started limiting access to their infrastructure. That infrastructure to date remains as essential as it was then, both for consumers and for Internet service providers.

The major problem members have faced in the past three years is the change from a positive wholesale gross margin generated by the low-speed products to a non-profitable high-speed product.

This is the result of uncompetitive behaviour by incumbents, who sell the high-speed products to attract new customers to their network as a loss leader, financed by the highly profitable products, for which they still have a monopoly.

This is why we have not seen any reductions in our telephone or cable television bills in the past ten years. In fact, those bills are gradually going up to fund the non-profitable activities of cable distributors and incumbents.

We will also be conducting an extensive review of the 127 recommendations made by the TPRP, and submit those to you to help you in drafting your report.

With regard to Internet service providers, the coalition cannot comment on the effectiveness or role of the CRTC with respect to radio and television, because that is not an area we know.

When it comes to the Internet, however, the CRTC and the members with whom we have dealt over the past seven years helped us a great deal, so much so that two or three years ago CRTC members told us their hands were tied by continuing pressure and intensive, effective lobbying by incumbents on Parliament Hill. The effects extend as far as the CRTC. They recommended we take more political action to get our messages across. We believe that the CRTC has fulfilled its role, particularly with respect to the latest decisions and directives from Industry Canada on the deregulation of Internet services.

There are three major points I would like to make. The coalition is happy about the comments made by Maxime Bernier, Minister of Industry, before this committee on February 19. Minister Bernier said that in any restructuring of the telecommunications industry, it must be ensured that wholesale services and access to them are maintained in their current form. We have appended an excerpt from Mr. Bernier's speech, which you can read at your leisure.

There is one opinion by the Competition Bureau that we find very troubling. In our brief, we have included excerpts from the Competition Bureau's testimony. The Competition Bureau submitted evidence concerning CRTC public notice 2006-14, and expressed opinions demonstrating that it cannot provide objective data to the CRTC or to the tribunal that was to be established in accordance with TPRP recommendations, simply because it concludes the telecommunications industry would be competitive using the infrastructure of the current duopoly.

We do not know on what basis the Competition Bureau reaches that conclusion, but the economics expert we hired said the opposite. This means that the Competition Bureau's latest opinions are extremely disturbing, and demonstrate the bureau's lack of objectivity.

Lastly, for the edification of committee members, we have highlighted the link between the retail gas industry and the telecommunications industry. If the industry were deregulated and the CRTC or competition tribunal was no longer involved in the process, consumers might suffer the same fate as all those drivers paying high prices for their gas today. With no regulated minimum price, consumers would not be protected at all.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Léger.

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

[Claude Beaudoin, Laboratory Director, Certification and Engineering Bureau, Department of Industry, Terminal Attachment Program Advisory Committee]

Mr. Chairman, members of the committee, thank you for your invitation to appear before the Standing Committee on Industry, Science and Technology this afternoon.

I am pleased to have the opportunity to discuss the terminal attachment program and its advisory committee, the TAPAC.

For many years, the Terminal Attachment Program Advisory Committee, or TAPAC, has ensured that wireline telecommunications equipment connects safely to public telecommunications networks without interfering with or degrading the service of other users. The terminal attachment program exists to prevent harm to the telecommunication service providers network and personnel and to ensure that telephones sold in Canada afford access to telecommunication service to the hearing-impaired. This program deals with terminal equipment such as telephones, facsimile machines, modems, and digital subscriber lines, DSL equipment that connects through cord or wire to public telecommunications networks.

The terminal attachment program was called upon by telecom decision 82-14 of the CRTC in 1982. This decision allowed customers to connect their own telephones to the public telecommunications network. The commission pointed to TAPAC as the appropriate forum to develop the standards that would permit the implementation of this decision.

Industry Canada, back then Communications Canada, was the only body authorized to test and certify terminal equipment. The program has evolved over the years while constantly streamlining its regulations. As a result, all testing is now performed by recognized private sector testing laboratories. Certification was replaced with a less onerous process called supplier's declaration of conformity. The technical requirements that terminal equipment must meet are now based on regional or international standards. This has significantly reduced the burden on the industry, while ensuring that basic requirements to prevent network harm are met. The program regulatory requirements are updated about twice a year to include new technologies or to remove obsolete requirements.

TAPAC acts as a direct consultation mechanism between Industry Canada and the telecommunications industry. It is well attended and has proven to be very effective in providing the industry with a forum to openly discuss the requirements of the program and to advise the department.

By design, TAPAC has a balanced representation matrix from all sectors of the telecommunications industry, and I have put a copy of the terms of reference of TAPAC on the table for your information.

The terminal equipment environment has changed over the years, but subscribers are still served through shared access facilities, which have been in place for decades. The need to ensure trouble-free access to telecommunications service has intensified with the introduction of technologies such as DSL that try to stretch the reach and speed of the access facilities.

The program also covers technical requirements that implement social policies. I am referring here to hearing aid compatibility and volume control requirements for telephones. These requirements are increasingly important as our society ages.

Other aspects of the terminal attachment program that go beyond the actual advisory committee and requirements development work are compliance measuring, technical verification, and the enforcement process. These activities ensure compliance with technical requirements and are conducted by different groups within Industry Canada. These groups derive their authority from the Telecommunications Act and the Department of Industry Act.

The Federal Communications Commission, the FCC, in the U.S. has a similar approach to our terminal attachment program. Canadian and U.S. requirements have been harmonized to a large extent. It is important to note that in the U.S., the FCC held a hearing to review its terminal attachment program in July 1999. The commission found that the industry was adamant that mandated and enforced requirements were still required. Although some processes were changed, the FCC still has terminal equipment requirements in their rules.

Similarly, in Canada, comments received in response to the questions posed by the Telecommunications Policy Review Panel during its consultation process indicated that, in general, the Canadian telecommunications industry continues to believe that the program and its advisory committee are still relevant and necessary.

In conclusion, the program is under constant review to ensure relevancy as technology advances and every opportunity is taken to deregulate.

The ongoing need for the program is evidenced by an active participation in TAPAC from a good cross-section of the telecommunications industry. The program and TAPAC play a vital role by protecting the integrity of the public communications networks and by providing access to telecommunications services to the hearing-impaired.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We will now go to questions from members. I'll just remind members and witnesses that members are limited in their time, so if you could, make questions and answers as brief as possible. Second, if a member directs a question to a certain witness, and someone else would like to answer it, just indicate it to me, and I will try to ensure that you have some time, as well.

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

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

Thank you, Mr. Chairman.

I would also like to thank our distinguished witnesses who took the time to be here today. There are many points in your presentations that certainly constitute food for thought.

My first question is to Patricia MacDonald.

In your report to us, you give an example of British Columbia, where if you want to cancel your Internet service with Telus, you'll be charged $120. This is a significant penalty and a disincentive to switching providers.

Given the lack of a precise arbiter in this circumstance, and as deregulation goes forward, April 6 hangs like a red-letter day for many. How serious do you take the prospect of consumers being poorly served should deregulation go ahead, as proposed by the minister, which for most of us here is really only a number of recommendations chosen by the minister from the entire TPR report?

[Patricia MacDonald]

It's quite serious. The monopoly telephone companies have been fairly used to and fairly comfortable with dealing with consumers with their terms of service. Now that deregulation is looming, I think there's a free-for-all out there, and I say that because of the consumer calls I get.

That instance I mentioned is a woman I'm representing. She ordered her Internet over the telephone, did not, subsequently, receive terms of service in the mail, and had no idea that there would be a penalty. And now she's fighting with them. Of course, they're threatening to shut off her local phone service because she doesn't want to pay the $120 penalty for cancelling the Internet. That's not the only instance I've heard of. It is happening.

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

Let me turn to Ms. Gordon, who gave us a wonderful presentation, as well.

You talked a little earlier about facilitation of services, the requirement for better access, for regulated activities, and for all departments to be consistent. In terms of the non-requirement under this order by Minister Bernier to provide or guarantee existing quality of service, how is this going to affect disabled people in Canada, overall, if this proceeds on April 6?

[Phyllis Gordon]

I'm not sure that I can really answer that question. We're looking at a broader thing.

For quality of service, I guess the one aspect I can speak to is people who are using broadband for data or text transmission, in particular, who have disabilities and with VOIP can really benefit from the many different kinds of communications and transmissions that can occur. If quality of service is not maintained at a very high standard, there can be degradation of the actual communication that's received--packets get lost--and the quality of service itself can be extremely detrimental for people with disabilities. Our pitch, primarily, is that social regulation not get lost.

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

If I am to take you correctly, you have pointed out that section 7 in the Telecommunications Act suggests the enhancement and social well-being of Canadians and the inclusiveness of Canadian society by.... And you list these. Is there a risk that these conditions will be lost in the minister's selective undertakings, setting aside the CRTC and setting aside the TPR report? Is there a danger here that disabled people in this country are going to be left out in the rush to go to what he proposes is an open market version?

[Phyllis Gordon]

If he does not preserve what goes along with in the report, which is to maintain social regulation, we're in a very serious situation. Absolutely, we're in a serious situation. One of the things I have pointed out that I didn't refer to is that currently, if you're using a TTY or long distance, and a person is deaf, you get a reduction in price. Are they going to allow the same kind of price control for somebody with a disability who may require a higher quality of transmission that might cost more? There are a lot of questions. If the deregulation goes through without any oversight for social regulation, then we really are in serious trouble.

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

Chair, how much time do I have?

[The Chair, Conservative, James Rajotte]

You have a minute and a half.

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

We're concerned that that there is no oversight at this point. There is no discussion of an ombudsman on the proposal if it goes ahead on April 6. There is no provision to have the Competition Bureau bring its position forward. Of course, the Telecom Competition Tribunal will not be put in place to provide those kinds of safeguards.

I should perhaps put my question to Ms. Léger, who is sitting beside you.

Ms. Léger, without protection measures, do you believe the risks are even greater than those we now see in the retail gas industry, which you mentioned earlier?