Industry Committee on April 20th, 2010

[Simon Lockie]

Thank you.

Certainly that was the recommendation of the TPR report and also of the Red Wilson report. That being said, the presumption that any investment in a company that is a start-up or that has less than 10% is in the public interest would take a lot of the administrative burden off.

As far as implementation goes--and I don't mean to sound flippant--I would expect that the government would give careful thought to the right way of structuring a regime like that, to use the word again.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

The concern I have is that I've seen some third world countries that allow a certain group to control everything. I don't want to see Canada go that way. It doesn't quite work, but that--

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Rota.

We're going now to Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair, and thank you to our company representatives for being here this morning.

We've heard through the presentations this morning, and from previous witnesses as well, that in Canada the market penetration for wireless is quite low. In fact, it's one of the lowest among our international competitors.

Perhaps, Mr. Krstajic, I'll start with you, given that this is a macroeconomic question. What are the adverse effects to our economy as a result of that lower penetration rate, in terms of productivity, innovation, new technologies, or whatever the case may be? Can you quickly tackle that one at all?

[Alek Krstajic]

Sure, and I'll try to be brief.

I was selling cellphones right out of university in 1986, when they were $5,000 and the size of a suitcase. You know, when they dropped down to below $1,000, more people started to buy them.

The one thing I remember saying to everybody when I was making a sales pitch was, “I'm going to work hard to convince you that your productivity is going to increase with this phone, but the minute you have it and you use it for a day, you'll wonder how you survived without it”. That's the reality: every new form of technology increases our productivity.

My wife used to say to me, “It bothers me that you use the BlackBerry when you come home”, and I said, “Well, then, I can stay at the office longer, if that would make you happier”.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

She said yes.

[Voices]

Oh, oh!

[Alek Krstajic]

She did. My kids wanted me home, though.

There is no question that access to technology, especially wireless technology, increases your productivity.

When I was running the high-speed Internet business for Rogers, a friend of mine had this great analogy. We had both grown up on the poor side of town. He said, “When we grew up, the difference between a rich kid and a poor kid was the poor kid only had one hockey stick, and the rich kid had one hockey stick for ice hockey and one for street hockey.” It's changed now: if you don't have access to the Internet, if you don't have wireless access, it has an impact on where you end up.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you for that.

I'll direct this question to both company representatives. We know that market penetration is less than 70%. Can you project over time, given the fact that you're now competing in this space, how market penetration levels may increase over the next five years?

[Alek Krstajic]

They're going up.

When you look at countries around the world.... Normally I can do this demo really well, but they took my BlackBerry down at security because the battery had run out. I carry a BlackBerry and a phone. That may seem counterintuitive to some of you, but if you're actually looking to save money, you take a lower-rate plan on your BlackBerry, you get one of the unlimited plans--such as Public Mobile, for example--and you carry one of our phones.

My parents immigrated to this country from Montenegro. Montenegro is a country of roughly 750,000 people. There are a lot of sheep farmers. More than half of the population are the peasant class up in the hills. Wireless penetration in Montenegro is in excess of 100%. It's multiple devices. Go figure that one out.

[Simon Lockie]

Thank you, Mr. Braid.

What I would say is simply that people want phones. People want mobile phones, and it's clear that the more competitive things are, the more people get them. You have in excess of 100% penetration in Asia and Europe. In the Unites States it's far higher than in Canada, but they have some work to do as well, so who knows?

I would say that ultimately, in a competitive environment, it will go up to 100%. That seems to be what the lesson is globally.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Good.

Given the power of the big three and the entrenchment of the big three, why enter at all as new entrants? What's the upside?

[Alek Krstajic]

Well, I was with two of the big three, so as I've often said to them, I don't just know where the skeletons are buried: I buried half of them. I look at the opportunity and I say their size is something to be respected, but also, in our case, if they were going to go after this low end of the market--the working-class Canadian--they would have done it by now. Their cost structures aren't set up to be able to create the kinds of margins they need and still go after this part of the market, so we're going after it. I've invested my money, and my partners have, because we think there's an incredible opportunity to serve that market and serve it well, but on a very different cost structure.

I think that when you try to be everything to everybody and go upmarket with smart phones and try to go down to the low end of the market with flat-rate unlimited, it doesn't work as well. We're a pure-play, one-rate plan, and that's the opportunity we're trying to seize.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Braid and Mr. Krstajic.

We're going to go now to Madame Lavallée.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Thank you very much.

Normally, I do not sit on the Standing Committee on Industry, Science and Technology. I am a member of the Committee on Canadian Heritage, where I mainly defend artists' interests. I am here because Quebec's cultural sector is deeply concerned about the introduction of foreign ownership in the area of telecommunications. This is the case because, among other reasons, telecommunications and broadcasting have merged into one, despite the fact that you will most likely disagree with that statement.

To make my case, I will present three arguments. First, as you know, those who control access, control content. To illustrate this point, I have here as an example a wonderful Bell Mobility advertisement offering 16 free applications that present cultural products Bell is selling to its mobile phone users. Second, there is the matter of convergence. The Wilson report mentions this issue. In addition, the CRTC also talked about it last week. Third, in the near future, “mobisodes,” which are episodes that can be watched on mobile phones, will become available. The concept is similar to that of “webisodes,” currently available on the Internet. I do not know if you are familiar with the idea of webisodes, but in Quebec we have, among others, Les chroniques d'une mère indigne and Têtes à claques. Soon, they will become available on smartphones. We will be able to watch short television shows on our phones.

The CRTC shared my opinion when it appeared before the committee. We are not only talking about the cultural sector. The CRTC made its point very clear: the Telecommunications Act and the Broadcasting Act should be merged.

By the way, Mr. Lockie, the CRTC did not make a mistake in telling you that you are not a Canadian company. What everyone has understood is that Globalive had access to Cabinet before participating in the auction where you spent $340 million. You had the right to appeal to the CRTC, but you took a different path and appealed to Cabinet, more specifically to Industry Minister Tony Clement.

In short, there is currently a loophole in the telecommunications sector that makes it possible to adopt a new corporate structure that would endanger Quebec's and Canada's cultural identities.

My question is simple, but it is at the same time open-ended, so don't hold back. What do you intend to do, as a telecommunications and, henceforth, as a broadcasting company, to protect Quebec and Canadian cultures, which are currently threatened by the arrival of foreign companies in the telecommunications sector?

[Alek Krstajic]

Maybe I'll take this one first. It will give you guys a chance to think about that.

I respect where you're coming from. I apologize for not being able to answer the question in French, but my French is not strong enough to answer this complex question.

I think there is a slippery slope you are identifying in the linkage between the broadcasters--the players who play there--and the players who are on the telecom side of the house. In our case, we have nothing to do with the broadcast side. You bring up something that is a complicating factor, because a lot of the incumbents play on both sides. If you deregulate one side of the house, how do you ensure that the slippery slope doesn't affect the other side of the house?

We believe that we are a Canadian company, and not by some legal test. My largest shareholder is Canadian. “Follow the money” was an old expression I heard from a forensic accountant once. Follow the money and you'll decide who actually makes the decisions. In our case, we are a Canadian company, full stop. Do I have some foreign money? Yes, I do. I have some American partners. But my largest shareholder is OMERS. The largest private individual investor is me. I am a Canadian. I was born here. So I look at that....

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

I am sorry, sir, but I have very little time remaining. I would really like you to talk about culture and about what you will do to protect Canadian and Quebec cultures. You say that this does not concern you, but unfortunately, it does. A number of witnesses sat in your chair and told us that, from now on, telecommunications and broadcasting are one and the same thing.

You currently offer a very simple product, I will even go as far as to say that it is a low-end product. Yet, we know how this kind of thing normally works. You get into a market with a bottom-of-the-line product, and then you start offering the smartphone. Therefore, you will be directly involved in culture. You will have to make some cultural decisions on what to make available on your smartphone. What will you do to protect Canada's and Quebec's cultural identities?

[Alek Krstajic]

The answer is that I will continue to operate within the rules as set out. So if the rules say that I must be Canadian, I will be Canadian, which is what we are today.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Thank you, Mr. Lockie.

[Simon Lockie]

Thank you.

As Alek noted, it is a complex question. The answer, though, is very simple. To return to the reports we are endorsing today, they considered this issue very carefully. In their view, and in my view, and in a globalized view, we are a pipeline. We are not a broadcast company. The Broadcasting Act has regulations and Canadian ownership control restrictions that we are not suggesting here today should be changed. We're saying to look at it and think about it. A lot of these questions come up with respect to the Internet as well, as I'm sure you appreciate. If there is a determination that in fact phone companies and Internet providers and so on are all broadcasters or all BDUs, that's a different discussion. Frankly, the conclusion reached by the reports is one we share, which is that they're not the same.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Lockie.

Merci, Madame Lavallée.

Mr. Brown.

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

Thank you very much, Mr. Chairman.

Thanks to our witnesses for coming today.

I happen to represent a rural riding just outside of Ottawa. Not that long ago, if you went a few kilometres off the main roads, you would lose your call right in the middle of a call. In the last couple of years that has changed quite dramatically. Maybe you can tell us a little bit about what your plans are to serve rural Canada. One of my concerns, of course, is that if we open this up as we have, the new entrants are just going to be serving a lot of the urban parts of Canada, maybe taking away some of the volume of business from the other companies and in no way improving service or access in having those lower-price options available to more rural parts of Canada. Maybe we can hear a little bit about that from our witnesses.

[Andrea Wood]

We do have spectrum in rural areas. That's an issue we've been giving a great deal of thought to. It's in our interests, of course, to ensure that all of the assets that sit on our books deliver value to our shareholders. We'd like to find a way to monetize that spectrum. Without wanting to give away any trade secrets, I would say we're looking at a variety of alternatives to ensure that the spectrum is used.

[Alek Krstajic]

We'll be a little more direct. We have a licence that covers Windsor to Quebec City. If we have all the capital we need, we will build out Windsor to Quebec City. We'll start with the urban areas, because that's where we'll actually get the payback allowing us to fund building into the rural areas. The people who live in those rural areas won't get our service as quickly as will someone who lives in an urban area.

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

Will access to more foreign capital make it more likely that you'll be able to get into more rural parts of Canada?