Evidence of meeting #13 for Industry, Science and Technology in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was satellites.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Daniel Goldberg  President and Chief Executive Officer, Telesat Canada
André Bureau  Chairman of the Board, Astral Media Inc.
Sophie Émond  Vice-President, Regulatory and Government Affairs, Astral Media Inc.

10:15 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

I don't know, quite frankly. The family--

10:15 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Sorry, not controlled from a business sense. How are they regulated now, in terms of making sure they carry Canadian programming?

10:15 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

In cable, Rogers, Vidéotron, Shaw, and Cogeco, who are the bigger players in the field, are all regulated under the Broadcasting Act because they play a role in our activities. We like to call them a partner--sometimes we have to remind them they are--but they really are very fundamentally linked to our operations. We use them at a cost, but we use them to distribute our services, and they are governed or supervised by the CRTC. They are regulated by the CRTC because of that, so if you're only a telecom provider, like, for example, some of the new entrants will be at the start, in that position they are only regulated by the Telecommunications Act. But the minute they start distributing broadcasting services, they take the role of a BDU--broadcast distribution undertaking--and then they fall under the Broadcasting Act, and that's where we belong in terms of the sector itself.

10:20 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

I guess the next question that follows from that is this. You're comfortable that Rogers has rules in place that make them, in effect, carry your programming. Why wouldn't that apply to anyone operating here in Canada under the Broadcasting Act?

10:20 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

It does apply to all cable operators, all satellite operators like Bell ExpressVu and Shaw. They are regulated by the CRTC under the Broadcasting Act.

10:20 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

But it applies to them on the basis that they're operating in Canada, under Canadian law, not that they're owned in Canada.

May 4th, 2010 / 10:20 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

They have to be owned and controlled by Canadians, under the Broadcasting Act. They have to prove that they are Canadian-owned and have effective control of the operation in Canada.

10:20 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

But what makes them carry your programming is the operational fact--the rules that state they have to operate in a certain way if they're going to operate in Canada. It really has nothing to do with ownership, right?

10:20 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

The law requires that those distributors of programming services be Canadian, be under the control of Canadians, and effectively control their operations.

I'm trying to answer your question, because I have to start from the legislation itself.

The minute an entity starts distributing broadcasting services, they fall under the Broadcasting Act. But they have to be Canadian. In other words, if the U.S. company Comcast wanted to come into Canada and distribute services, either by satellite or by cable, they could not because they are not owned by Canadians and they are not controlled by Canadians.

10:20 a.m.

Conservative

The Chair Conservative Michael Chong

Thank you very much, Mr. Lake and Monsieur Bureau.

Mr. Masse.

10:20 a.m.

NDP

Brian Masse NDP Windsor West, ON

Thank you, Mr. Chair.

Mr. Bureau, one of the things that's been suggested by the CRTC is to open up to 49%. What is your opinion on that?

10:20 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

First, you should all realize that having the guts to challenge the CRTC is not very good for our operations. I'll start with that. I've been chairman of the CRTC, so I know how I used to behave.

We're saying we should start by looking at it. We've done that for the competition law and the telecom law, so why don't we do it for broadcasting also, to determine whether it's a good move, a good change? Let's look at how it should be done.

If the government felt it was urgent and they didn't have time to do that study, we would look at the proposal offered by the CRTC chair that would let them go up to 49%, provided they were still controlled by Canadians. We're just saying, let's look at the overall picture and make sure we analyze it properly.

The system is in an accelerated mode of change. Why not look at it and determine how it should be supervised, governed, and regulated in the future? Then we can come up with some solutions that will benefit all parties.

10:25 a.m.

NDP

Brian Masse NDP Windsor West, ON

One of the scenarios that's been floated, even by the chair of the CRTC--and it's one of my concerns--is that if we open it up, it would be very attractive for one of the world giants to gobble up some of the companies we currently have so that they have an immediate footprint and a beachhead in Canada. From there they could roll in their massive-scale operations to compete. That could lead to one or two others thinking about doing the same, or some convergence. At the end of the day, the consumer would be left with maybe three or four operators in the market.

Can I have your opinion about that scenario? Some have painted it as a doomsday scenario, but I think it's quite real when you look at the size of the other operations that would then have access to the unfettered market.

10:25 a.m.

Chairman of the Board, Astral Media Inc.

André Bureau

When we look at the possibility of foreign ownership, of course, we think they will probably be Americans. It's not the capital funds that will come and buy the Canadian assets here in this sector; it will be the major players in the United States. They already provide us with some programming. They already have some relationship with us. It would be a natural thing to come and gobble up the operations here. So it's not a far-fetched story to imagine that it could happen. That's why we say let's look at the situation as of today, and in its developments with the Internet, with the mobile services that will exist, let's look at what our system should be in the future. Let's determine what are the rules that are essential to maintain, according to the Broadcasting Act, our distinctive culture and our distinctive identity. Let's look at those that can be modified and what are the possible new rules that could be put in place to make sure we maintain the objectives of the Broadcasting Act.

So we're not saying don't do anything; we're saying we're prepared to sit down and discuss with a panel of experts to see what could be developed for the future.

10:25 a.m.

NDP

Brian Masse NDP Windsor West, ON

Mr. Goldberg, I've asked other proponents of this difference of.... Right now there is no restriction on foreign capital. One of the things that's never distinguished enough is that controlling shares is where the restrictions are. And some of the companies that have been presented here have very good returns, over several years, that are very attractive for people to invest in, but they still want the opening up of the investment.

What's the difference in terms of when you're going out to get capital versus the non-controlling and controlling shares in the market? What's the value for you? I'd like to understand it from your perspective.

10:25 a.m.

President and Chief Executive Officer, Telesat Canada

Daniel Goldberg

We've been very successful, I would say, in raising debt financing in the market. I think that, bluntly, investors outside of Canada have a better understanding of the nature of our business and are more comfortable lending to a business like ours. That's where most of the satellite financing comes from. It's coming from Europe, it's coming from the U.S., and those are the sources of capital that we tapped when we did our debt financing.

Why is that inadequate, just the ability to raise debt, or why is it inadequate to be able to raise equity financing but through non-voting shares? One, there is a discount that non-voting shares will trade at relative to voting shares. You have to have somewhat complicated capital structures, and there are some funds that are restricted from buying non-voting shares, so you've immediately taken yourself out of that tier in the market. Two, if you want to use your stock as an acquisition currency, it's just not that attractive to a selling shareholder to be given a stake so that they can be part of this new, more efficient, larger entity, but they have no say whatsoever in terms of the governance of that new entity, which is what happens when you get non-voting shares.

That's why, for us, just having access to the debt markets and having access to the equity markets but with non-voting shares just doesn't get us to where we need to go.

10:30 a.m.

Conservative

The Chair Conservative Michael Chong

Thank you very much, Mr. Masse.

Mr. Braid.

10:30 a.m.

Conservative

Peter Braid Conservative Kitchener—Waterloo, ON

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here this morning. It has been very educational.

Mr. Goldberg, starting with you, please, you mention in your presentation that you feel that Telesat Canada is at a competitive disadvantage vis-à-vis your foreign competitors in terms of your ability to do business in Canada. Can you give us sort of a tangible example of how the current scenario has adversely affected your ability to do business or to compete effectively in Canada?

10:30 a.m.

President and Chief Executive Officer, Telesat Canada

Daniel Goldberg

I think the issue is that because these ownership restrictions are in place, it does limit our ability to continue to grow Telesat. I've said that I think we have reasonable good scale in providing a service here in North America. We have eight, almost nine satellites that are really dedicated to serving North America. But what we don't have are orbital positions that allow us to expand our overseas business adequately.

In Canada, for instance, we've lost business for DND. Defence needs access to capacity to serve overseas markets. We would like to be able to add orbital positions and launch new satellites that are capable of serving some of these overseas markets. I'm thinking in particular, for instance, about Afghanistan. We had—and we have—good coverage of Iraq with our existing satellite fleet, but guess what, most of the government's and the allied governments' interest has shifted from the Iraqi theatre to Afghanistan. We don't have an orbital position that has good coverage there. As a result, we're just not well positioned to even capture some of the Canadian requirements that would serve that market. So I'd say that is an example, and there are others as well.

10:30 a.m.

Conservative

Peter Braid Conservative Kitchener—Waterloo, ON

That is very helpful. I presume because of the strength of the Canadian dollar, perhaps, conditions are ripe for an acquisition.

10:30 a.m.

President and Chief Executive Officer, Telesat Canada

Daniel Goldberg

We are maybe one of the few companies in Canada that I think benefits from a strong Canadian dollar. We report our numbers in Canadian dollars, so when the Canadian dollar strengthens, it actually has the effect of reducing our revenue. We have a lot of non-Canadian dollar revenues, so when we translate into Canadian dollars, when the Canadian dollar is stronger, it tends to understate or depress our Canadian reported revenues in EBITDA, but most of our capital expenditures are in U.S. dollars. Our two big capital expenditures are buying satellites and buying rockets, and the supplier of those pieces of hardware tend to sell in U.S. dollars. So yes, when the Canadian dollar is strong, it helps us a lot.

I also mentioned that we have a significant amount of debt, and as I mentioned, most of our borrowings were achieved outside of Canada. The U.S. market simply has a better understanding of our business, and U.S. lenders as a result are more willing to lend to us. Most of our debt is in U.S. dollars, so when the Canadian dollar is strong, we translate that U.S. debt over into Canadian dollars, and as a result our debt is reduced. That helps us.

10:30 a.m.

Conservative

Peter Braid Conservative Kitchener—Waterloo, ON

If you're not provided the opportunity to make an acquisition, what potential adverse consequences might that have?

10:30 a.m.

President and Chief Executive Officer, Telesat Canada

Daniel Goldberg

The adverse consequence is that there will be more consolidation in this sector. We know that when we participate in these consolidation exercises, we will be up against our foreign competitors. They're looking to continue acquiring and integrating other companies as well. What will happen is we will lose out. They'll acquire the entity; we won't. We'll have lost an opportunity; they'll have gotten bigger still, exacerbating our already sub-scale position.

That's the point of what we're talking about, the increasing marginalization of our business over time. I wouldn't be so stark as to say that in the absence of the elimination of these restrictions, Telesat is out of business 24 months from now. It's not going to be like that. What it will mean is that we'll be less and less productive relative to our larger competitors. We are not going to be able to expand to these overseas markets, and those overseas markets are growing more quickly than the North American market. We'll simply become marginalized, and we won't be able to sufficiently leverage not only the investments that we have made in our facilities and our satellites, but we'll not be able to leverage our people. That's not good.

10:35 a.m.

Conservative

Peter Braid Conservative Kitchener—Waterloo, ON

Your explanation of how orbital space works was interesting. Is orbital space a factor of geographic space? For example, does Canada have more orbital space because we have a larger geography, or does it not work that way?

10:35 a.m.

President and Chief Executive Officer, Telesat Canada

Daniel Goldberg

It doesn't work that way. Think of an orbit as a circle. It is 360 degrees. Satellites typically need to be at least two degrees apart from each other so that they don't interfere with one another in space, so if you take that 360 degrees and divide it by two for the two-degree orbital separation, you are talking about roughly 180 useful orbital positions.

As you can imagine, they are distributed evenly around the world. But I would say that the space over...there are some portions of the geostationary arc that are more desirable than others, because of the geographic areas they can serve.