Industry Committee on May 4th, 2010

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

If Mr. Garneau built you five satellites tomorrow, where would you put them?

[Daniel Goldberg]

We would put a couple over the Atlantic ocean region, but more east, so it would be a satellite that could cover the eastern portion of Canada and the United States, in order that you could connect to that market, but it would see as far east as possible. It would see all of Africa, it would see the Middle East, it would cover...and there are satellites that can do this. Sadly, we don't have any of them; our competitors do. It would see Afghanistan, it would see into the “stans”, part of the world that is growing significantly. We would put some there, and then we would put some further east still, so we would have some satellites that would serve southeast Asia, northeast Asia, southwestern Asia, so the Indian subcontinent, Pakistan--it would see that geography. We would love a couple of satellites out there. And when we think about M and A activity, it's animated by a lot of that, wanting to have more exposure to those geographic regions.

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

Thank you.

A final question for Mr. Bureau. With respect to the telecommunications sector, do you feel one of the issues or challenges or obstacles that we face is the fact that BDUs are too powerful?

I thought I would save that one until the end.

[André Bureau]

As a communications consultant, one is surely aware of a number of things related to these types of issues.

We don't believe they are too strong. We believe the fact that there are at least four or five big ones creates enough competition among themselves, except for the French language market. You have to realize that in the French language market, Vidéotron has 66% of the subscribers in the province. It means that if you're not on Vidéotron, you cannot survive. That's probably one of the very few particular instances of insufficient spread in the competition among the BDUs.

[The Chair, Conservative, Michael Chong]

Thank you very much, Monsieur Bureau.

Go ahead, Monsieur McTeague.

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

Thank you, Chair, and I thank the witnesses for being here.

I'll go very quickly to you, Mr. Goldberg. I got a kick in the shin from Mr. Rota, and I think he probably got one from Mr. Garneau. We may be sharing a few questions. Let me go to mine very quickly.

You spoke to one disadvantage of being licensed in Canada, and that's the question of the fees you pay, which are, if I understand what you said earlier, five times greater than those in the United States.

Assuming a scenario in which control and ownership are changed, what would stop a company like yours from relicensing in the U.S. if it looked more profitable?

[Daniel Goldberg]

There's a wonderful barrier to that: Canada has the rights to these orbital positions. The orbital positions are scarce, they're desirable, and Industry Canada would not allow this valuable Canadian resource to be abandoned and given over to another administration. There are very clear rules and priorities in terms of which countries have rights to which orbital locations.

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

Then there's a possibility they could be shifted or taken away from you in favour of someone else.

[Daniel Goldberg]

If we violated our licence conditions, yes, that's right. I have every expectation that Industry Canada, maybe after a reasonable cure period, would revoke our licence and make the rights to those particular orbital locations and frequencies available to one of our competitors.

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

One of your competitors would also have the same makeup of a substantial amount of leveraging or support from international foreign credit or foreign ownership, correct? Would it be fair to say that no other Canadian player could assume the position you currently have with respect to those satellites as we speak?

[Daniel Goldberg]

There's another Canadian operator today. They're called Ciel. We battle with Ciel at Industry Canada for orbital locations, and based on Ciel's behaviour in various regulatory processes, I think they'd be very keen to get access to our orbital slots.

I also think that if we were ever so idiotic as to allow some of our slots to be made available to other entities, given the strength of the business that we've established at those orbital locations, there would be no shortage of entities coming forward and applying to Industry Canada to make use of those resources.

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

I'm wondering if we may be entering into what could be called devil's bartering, in which you have to give up ownership and control in order to achieve the greater mantle of international access and to compete with the larger ones at the same time. To do it, you might possibly have to give up your own backyard in order to survive.

[Daniel Goldberg]

I don't think so. I would emphasize that every other developed country that plays host to a major satellite operator doesn't have these restrictions. They are in many ways relaxed about the ultimate ownership of these entities because they know that they can achieve all their policy objectives through licensing mechanisms and the other statutory requirements that these operators have to comply with.

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

Would that be every country?

[Daniel Goldberg]

Would it be every country? No. I'm thinking about the countries where our larger competitors are, meaning the U.S., France, and Luxembourg. None of those entities, even though they're headquartered in those countries, is owned by a preponderance of individuals or institutions that are resident there.

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

We've had difficulty in the past, or I certainly have, with the nature of hedge-funders, leveraged buyouts, etc., and I don't need to raise the spectre of Goldman Sachs, Lehman Brothers, or anything like that. Let me put it from a more positive perspective. If something along the lines of liberalization were granted by Parliament--by regulation, by order in council--are you prepared? Have you targeted potential investors who currently don't know the value of your assets?

[Daniel Goldberg]

No, I wouldn't say we've done that at all. We've had some conversations with different banks about maybe taking Telesat public at some point. If we took Telesat public, the likelihood is that there would probably be a dual listing, potentially, where we would list both in Canada and in the U.S.

Beyond that, no.

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

You don't see a situation where a company such as, say, SES comes in and acquires you, as they did Verestar just a few years back.

[Daniel Goldberg]

Our desire to have these rules reformed is to help us grow, and to really—everyone uses the term—level the playing field. But look at our playing field. It's not level. Our foreign competitors aren't subject to these rules when they do business here.

If it were to happen that one of our larger competitors that has been trying to consolidate the sector came to Canada and wanted to acquire Telesat, they would have to demonstrate under the Investment Canada Act that there's a net benefit to Canadians. The government would review that, and unless they're able to persuade the government that there is a net benefit, the transaction would be rejected.

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

That sound was the second kick in the shin from Mr. Garneau. I'll let him proceed.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

That hardly answered the question, but looking into the future, let's say hypothetically the budget implementation plan passes, part 23 of Bill C-9 goes through, and one day, 10 years from now, SES or Eutelsat makes a bid to buy the whole of Telesat. Am I right in assuming that the Investment Canada Act would apply here because it's a total foreign takeover?

[Daniel Goldberg]

Absolutely.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

And that would be the only consideration, as far as I understand. We're not talking about any other acts coming into play.

Is that correct?

[Daniel Goldberg]

Yes. Under the Investment Canada Act, someone would have to demonstrate a net benefit, and then, as I understand it--and I'm no expert--there are also national security considerations that can be taken, which are part of the act.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Those are part of the act. But the Telecommunications Act, the Broadcasting Act...none of that would come into play.