Thank you very much, Mr. Chairman and members of the committee. I am Dan Goldberg, president and CEO of Telesat. I am here today with Ian Scott, Telesat's executive director of government and regulatory affairs.
Thanks very much for inviting us this morning to discuss this important issue. At the outset I would like to emphasize that our comments are going to be confined to the Canadian satellite industry, Telesat is not in a position to discuss changes in the foreign investment regime for other telecom services.
The fact of the matter, as I will try to explain this morning, is that the Canadian satellite services industry is in a wholly unique position in terms of the need for reform of the foreign ownership rules. Because Canada's existing legal framework places us at a significant and unfair competitive disadvantage relative to our foreign competitors, we strongly believe the changes to the rules for Canadian satellite operators can and should be made in the near term. I'll give you a little bit of background on the reasoning behind my statement.
Telesat is a true Canadian success story. Since its inception in 1969, Telesat has brought essential and innovative satellite services to every part of Canada. Today Telesat is the fourth-largest fixed satellite service operator in the world. It employs more than 500 people in specialized high-tech jobs, more than 80% of which are in Canada. Last year Telesat had revenues of almost $800 million, which is a company record, and currently we have an asset base in excess of $5 billion.
Operated from our headquarters here in Ottawa, our global fleet of satellites is capable of serving virtually every country in the world. At this time, approximately half of our revenue comes from outside of Canada, and our desire and overriding strategic imperative is to continue to grow our business both in Canada and abroad.
Telesat is often described as a carrier's carrier because we don't provide service directly to consumers. What we do in the most basic sense is pay one company to construct a satellite and another company to launch it into space. Then we operate it in space, and for a fee we provide transmission service using the capacity on the satellite for broadcasters, telecom carriers, network integrators, and governments all over the world.
Let me now try to explain what makes the satellite industry different from other telecom services. First, satellite technology is inherently international. Like all fixed satellite service providers, our satellites are located in a geostationary orbit roughly 36,000 kilometres above the equator. Depending on their design, an individual satellite is capable of providing service to any location within an area about one-third the size of the earth's surface. Satellite technology does not respect national boundaries. This technological characteristic and the move towards free trade in telecom services over the past dozen years has led to wide open and intense global competition in the satellite industry.
In recognition of the fact that satellite services are inherently international, in 1998, as part of its commitments under the WTO agreement on basic telecommunications, Canada agreed to open its satellite services market to foreign competition. As a result, Industry Canada has authorized more than 75 foreign-licensed satellites to provide service to, from, and within Canada. Most of those satellites are owned by our larger competitors.
That's another critical and important distinction between satellite services and virtually every other Canadian telecom service: satellite services have been opened to foreign competitors. With the exception of undersea telecommunications cables, no other telecom service in Canada is subject to competition from foreign-owned carriers.
In addition to being inherently international, the satellite industry is characterized by economies of scale, meaning operators that achieve significant scale enjoy substantial competitive advantages over their smaller rivals. The competitive benefits that flow from scale are manifold. Larger operators, for example, have the ability to offer customers more varied and comprehensive geographic coverage; additional capacity to meet their expansion requirements; and higher levels of redundancy in the event of a satellite failure, which are key offerings in a field as competitive as ours.
Larger operators have greater negotiating leverages when purchasing satellites and launch vehicles, which are the two largest costs associated with our business. They can self-insure in the event of a satellite loss or failure, saving tens of millions of dollars in annual operating expenses. They have more diversified revenue streams and lower overall risk profiles, meaning that their borrowing costs are lower, which is important given how capital-intensive our industry is.
In short, the competitive advantages associated with scale in our business are enormous. Every participant in this business faces a strong strategic imperative to scale up; an operator's long-term viability literally depends on it.
In recognition of this, Telesat has been urgently scaling up over the past few years. In connection with our sale roughly two and a half years ago by BCE to our current shareholders, Canada's Public Sector Pension Investment Board and Loral Space and Communications, Telesat integrated the satellite fleet of Loral Skynet Corporation into our own larger fleet. This allowed us overnight to offer our customers global satellite solutions and to expand our satellite constellation by roughly 50%.
As I mentioned earlier, today we're the fourth-largest satellite operator in the world. Reflecting the global nature of our business and how our company is different from virtually every other Canadian telecom company, roughly half of our revenue is coming from outside of Canada.
Notwithstanding the fact that we're one of the largest operators in the world and enjoying a good measure of success of late, we have no illusions about our position in the broader industry. Put plainly, Telesat remains dramatically sub-scale relative to our three much larger competitors, all of whom have been authorized by Industry Canada to serve Canada and none of whom are subject to foreign ownership restraints by their principal regulators.
Let me say a few words about who our key competitors are so you have a sense of what we're up against. Telesat today has a fleet of 12 satellites and we have two more under construction.
Intelsat, the world's largest operator, has 56 satellites in orbit today and eight more under construction. It's based in Washington, D.C., headquartered in Luxembourg, and is controlled by a U.K.-based private equity firm.
SES, with 42 satellites in orbit and 12 more under construction, is headquartered in Luxembourg and publicly traded, principally on the Euronext stock exchange in Paris.
Eutelsat, with 23 satellites in orbit and four more under construction, is based in Paris. It's also traded on the Euronext exchange in Paris and has as its major shareholder a large Spanish infrastructure fund.
There are two ways we can try to increase our scale to close the gap between us and our much larger competitors, competitors who are two to five times larger than we are today. We can grow either organically or inorganically.
In terms of organic growth, we have invested or are investing roughly $2 billion in new satellites that have either come into service over the last 36 months or will come into service over the next 36 months. However, the problem with growing organically is that it takes nearly three years to build and launch a new satellite. We need scarce orbital locations, and we don't have orbital locations that are capable of serving the fastest growing markets in the world today, like Africa, the Middle East, and Asia. It costs roughly $300 million for each new satellite, which presents certain challenges for our business given that we don't have unlimited borrowing capacity. Canadian ownership restrictions limit our ability to access the global equity markets to finance our future growth.
In many ways, inorganic growth--which is to say growth through mergers and acquisitions--can be more desirable than organic growth. By acquiring another operator, we can grow much more quickly than the three years it takes to launch a new satellite. We can benefit from the synergies that arise from consolidating operations and functions. And we can very quickly gain access to scarce orbital positions, local market knowledge and relationships, regulatory licences and authorizations, and new customer bases. These things would take many years to put in place organically.
We expect that our industry will continue to consolidate and that our competitors--who got so big in the first place by consolidating--will keep seeking to acquire, merge, or form strategic relationships with other operators to continue to increase their scale and productivity. They may take their companies public, or, for those that are already public, they might issue secondary equity offerings to raise fresh capital to expand their operations and diversify their ownership further.
Telesat is keenly interested in remedying its sub-scale position in certain markets by acquiring other operators and gaining access to additional capital. We need the same flexibility that our foreign competitors enjoy if we're going to be successful. Given our highly skilled employees and the substantial investments we've made in our state-of-the-art Canadian facilities, we're well positioned to capture additional growth. However, the problem for Telesat is that Canada's ownership restrictions materially impede our ability to grow through acquisitions and they limit our access to capital in the global equity markets. Put simply, if we issue shares to acquire another operator or to raise new capital, we'll dilute our Canadian ownership and place ourselves in violation of the ownership rules.
In the past, sales of satellite operators have been highly competitive processes, and the larger satellite operators have been active bidders as they seek to get bigger and bigger. Our expectation is that we will be required to compete with our large competitors in these future sale processes. Because our competitors aren't subject to ownership restrictions, they'll have much greater flexibility than we will to fashion offers that are of maximum interest to the prospective sellers on the other side of the table.
I want to be clear about something. Telesat strongly supports open and competitive markets. We need open markets, given the global nature of our business and given that half of our revenues are coming from overseas markets. We compete head to head with our larger and smaller competitors day in and day out, both here in Canada and all around the world. But we must increase our scale if we are to survive longer-term. The simple truth is that Canada's current ownership rules significantly impede our ability to do so.
To address this serious situation, the government has introduced proposed legislative amendments to the Telecommunications Act that will exempt satellites from the ownership requirements. The effect of these amendments will be to permit Canadian-licensed operators to compete on a more level playing field with foreign operators and gain the skill required to be more effective global competitors.
It's equally important, though, to understand what the proposed legislative amendments will not do. The proposed amendments to the Telecommunications Act are drafted very narrowly. Satellite carriers will continue to be Canadian carriers for the purposes of the Telecommunications Act, and all other provisions of the act will continue to apply to Canadian operators. This is important to Canadian broadcasters, because the CRTC will continue to have broad authority to ensure that they have adequate satellite services for their requirements.
In addition, Industry Canada will continue to be able to advance all of its key public interest objectives by imposing licence conditions on Canadian satellite operators, which require, for instance, operators to provide satellite services to all regions of Canada, including the far north, and to ensure that there are adequate satellite services available for Canadian broadcasters. Finally, the Investment Canada Act would continue to apply to Canadian operators.
In conclusion, the satellite services industry is one of the most competitive industries in the world. Telesat is a successful Canadian company operating within that globally competitive industry, but we need to attain additional scale if we're to continue to succeed and prosper longer-term. The proposed amendments to the Telecommunications Act will remove a significant barrier faced by Telesat and other Canadian operators to achieving that vital objective. At the same time, parliamentarians can be assured that the Government of Canada has maintained all necessary measures to ensure that the interests of Canadian satellite users are protected.
That concludes our remarks this morning. Thank you very much.
