Industry Committee on April 20th, 2010

[Alek Krstajic]

Yes.

[Simon Lockie]

Yes.

[Gord Brown, Conservative, Leeds—Grenville, ON]

Okay. That's what I was interested in. Thank you.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Brown.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Maybe I can follow up on that. Using that logic, you get a lower rate of return from rural than you do from urban. It costs more to service and develop the business plan for that. What would be the motivation for a foreign investor to get controlling shares--since they can actually do this now--to actually invest in that type of a product?

[Simon Lockie]

With respect, if I could put the question back to you, rhetorically, what would the difference in motivation be for a foreign-controlled telecom company in Canada versus a Canadian-controlled telecom company? A certain amount of rural build-out occurred as a condition of free spectrum being issued. We obviously didn't have that ability. I would suggest that the government has other tools—subsidies, tax breaks, that kind of thing—to encourage in various ways rural build-outs to make them a more attractive economic proposition. Bell, Rogers, Telus, MTS, Shaw, Vidéotron, and all of us are rational economic operators.

[Brian Masse, NDP, Windsor West, ON]

This is where I still don't buy the answer, in terms of the motivation of a foreign investor to do that. Then we're basically back to the same scenario, in many cases, of it being the consumers and government subsidies that have been expanding the footprint across Canada. There has been some other investment because of the regulations we have in place, but the deferral accounts and other types of budgetary allocations have been put into funding, and some of it hasn't actually gone out the gate yet. We heard that the other day in testimony from the clerks, their office.

Why would somebody overseas want to invest in a lower rate of return for that expansion?

[Simon Lockie]

I think the answer to that question is not that foreign control is a solution to your problem but that it's a necessary condition to solving the problem. You need competition, and you can't say if we open up the restrictions on public interest and this sort of thing—incidentally, the public interest part of that could have a rural component to it.... The issue is that you need capital to build. To incent people to build is a different question, but that isn't a different question for a Canadian-owned and -controlled company versus a foreign-owned and -controlled company, with respect, in my opinion.

[Brian Masse, NDP, Windsor West, ON]

It's good that you identify this at the beginning, Mr. Lockie. I think it's part of the honest debate that needs to happen when you mention it is about controlling shares, because that's often thrown aside. You can have as much foreign investment as you want; it's the controlling shares where the limitations are.

[Simon Lockie]

In theory.

[Brian Masse, NDP, Windsor West, ON]

In theory, but if it's applied....

We've seen some of the sectors where we have that consolidation. I look at the oil and gas industry, the insurance industry and so forth, and Canadians don't think there's real competition there. I wouldn't say there is collusion; it's not necessary, because there isn't the competitive nature in those industries. You don't see them getting a value back on their return. you don't see the competition you would normally expect. And they have their models as an example.

So what would be the incentive for Canadians then to lose Canadian iconic companies, lose control to foreign interests that end up making decisions about the next wave of development this industry takes maybe 20 years from now?

[Alek Krstajic]

Mr. Masse, I think Simon's point is valid. Whether you're a domestic billionaire or a foreign billionaire, you got to be a billionaire by making good economic decisions.

Here is the reality: you build networks to serve customers. If I have a choice between building out Toronto or building out a rural part, I'm going to build out Toronto first because I'm going to get more customers there. In our case, for example, we cover 19 million people. That Windsor to Quebec City corridor is about 16 million people. It makes sense to cover all those people, so you build out for that reason.

On the issue of control, again, I'm not the lawyer, so I can't comment on these complex structures, but here's what I learned a long time ago. There's this thing called the “golden rule”, and ironically it was Michael O'Connor, who works for these folks, who taught me the golden rule. When I looked at potentially joining them before I joined Public Mobile, I was asking a bunch of questions about how the company was going to be run. I was wondering where these decisions would be made. Michael told me that Naguib Sawiris believes in the golden rule. I asked him what the golden rule was, and he told me, “He who provides the gold rules.”

At the end of the day, controlling shareholders do make decisions. The golden rule will always hold true.

[Brian Masse, NDP, Windsor West, ON]

I think we have to start looking at this in a bit of a different way as this debate opens up.

When Canadians look at the profits that have been made from the current system and the new entrants coming in, I think they need to decide one or two things. First of all, the public spectrum that has been auctioned off is the public spectrum. It is something we own and it has been paid for. Allowing certain sectors of Canada to be cherry-picked and exploited as the entrant and then making profits and not expanding markets into rural and other areas might be philosophically looking at a change in regulatory behaviour, by Canadians' expectations.

Once again, the consumers are paying for all of this. I don't think it's fair for either old entrants or new entrants to come in and expect consumer or public subsidy to entirely do this. That's not the way Canada has developed.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Masse.

We will go now to Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

And thank you to the witnesses for coming today.

I want to start by talking a bit about some of Mr. Masse's earlier comments with regard to good returns from incumbents. We've heard a few times that incumbents have good returns and therefore it should be attractive to come into the market.

It makes sense on a really basic level, but maybe you could clarify that I'm hearing you correctly. I think I'm hearing that when you combine the good returns that those incumbents are getting with the sheer size of the incumbents, the scope of their business, it makes it very difficult, first of all, for a start-up company to come in and compete. They have these big companies, but they are also healthy and able to put up a pretty good wall when you try to compete against them. Second, it makes it very, very difficult to compete for capital. Because they do have good returns, they attract all of the capital--it would seem to make sense--and that makes it very difficult for a start-up company to get capital.

Am I reading that correctly?

[Simon Lockie]

I would qualify it somewhat, to say that what you describe as a challenge is also the opportunity. As a start-up, a new entrant, you are looking to introduce competition, and there's a ton of room out there.

The other point I would like to make is that our company is 12 years old. We've competed with the incumbents for a long time and we've been successful. We are the fastest-growing company in Canada. We have won numerous awards and have been deemed one of the 30 best work places in Canada.

The reason I point that out is that we do not underestimate the competitive power of the incumbents. We are ready, willing, and able to successfully compete against them. We require capital on reasonable terms to do that, and we can't get capital on reasonable terms under the existing regime.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

All right.

[Alek Krstajic]

On capital, if you have an organization like Public Mobile where there is no one dominant, controlling shareholder, whether you're talking about voting or non-voting shares, all the money didn't come from one guy. You can get money, and we did. I think we've been able to carve out a niche we're going to go after that the incumbents aren't targeting. We have Canadian shareholders with deployed money. So while funds in Canada are limited, we've been able to come up with a plan that works.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

We heard from Mr. Rota and Mr. Masse earlier. It sounds like they're concerned about the ability of Canadian companies to compete, in a sense. There are worries that somehow, if you open up foreign ownership, Canadian companies are going to get swallowed up and not necessarily be able to compete.

One of the things we've seen in broader terms with foreign investment is that Canadian companies are expanding. When we relax foreign ownership restrictions and other countries do the same thing reciprocally, Canadian companies are expanding to the tune of about 20% more into foreign territories and being successful on the foreign stage.

I want to ask that question as we go down this road, assuming that other countries are going to take similar measures and make it possible for Canadian companies to compete in foreign jurisdictions. Maybe you could speak to the ability of Canadian companies, your companies, to compete on the world stage. You're obviously just getting started here, but in 10, 20, or 30 years, what are we looking at in terms of our ability as Canadian companies to compete on the world stage?

[Simon Lockie]

Thank you.

There are a couple of elements to my response. First, the public interest component of the recommended approach from the TPR report and the Red Wilson report can go a long way toward addressing concerns people might have about companies getting swallowed up. That's speaking to a concern you raised and repeated.

The other point is that whether it's ourselves, Bell, Rogers, Telus, Public Mobile--you name it--a competitive environment creates innovative, fast-moving, aggressive, and lean corporations that look for opportunities. Quite frankly, there hasn't been a lot of impetus, if you are one of the incumbents, to look beyond our borders. There's a pretty good situation for them right here.

I think competition is the answer to a lot of ills.

[Alek Krstajic]

I'm not disagreeing with anything Simon says, but the reality is that if we're here telling you we need more capital to grow within Canada in our planning horizon over the next five years, we have our hands full growing and competing here. We're not looking to acquire abroad.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Lake.

Thank you to our witnesses.

We'll now go to Mr. Scarpaleggia.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Thank you.

Mr. Krstajic, you said that owning a cellphone is a right. Did I understand that?

[Alek Krstajic]

I said our position is that everybody talks, and we believe that having access to wireless should be a right, not a privilege.