Industry Committee on May 4th, 2010

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you to our guests for being here.

Mr. Goldberg, you phrased an interesting part of this discussion with regard to the different levels of competition we have and also the different expectations you have as a Canadian carrier versus that of foreign competition coming in.

I think a lot of people assume that satellite will generally cover everything, as opposed to what's really.... It might even go up to cover specific zones, as you've noted. It's the type of investment, where it's placed, a whole series of things. I don't think people really realize that.

One of the things I'm worried about, though, is if, say, in the future we do open up foreign investment and Telesat is eventually owned, perhaps, by a United States company or some other foreign company. You mentioned that there's a set of rules that can claw back right now. What would stop that company, if it does emerge under foreign ownership at the end of the day in terms of controlling shares, from challenging any attempt to claw back for Canadian content and challenge that under NAFTA? They would have a situation where they could easily show that their competition doesn't have the same requirement to provide that type of relationship and it's a harm to their business and their operations.

[Daniel Goldberg]

There are a couple of things. Industry Canada's licensing authority is a giant stick. Take our U.S. competitor. At this point in time, while the FCC licenses many different operators, and a couple of them are actually headquartered in the U.S., none of them are owned any more by U.S. investors. I mention Intelsat, which everyone thinks of in my little sector as a U.S. company. Again, it's the giant in our industry. They're owned by a U.K.-based private equity firm right now. Now, why aren't the FCC and the State Department and the Pentagon worried that this U.K.-based private equity fund is going to ignore the licence conditions and behave in a way that's contrary to the public interest? The reason is that at any moment they can pull the licence and kick them out of the slot. When you have invested $300 million and built a business at that orbital slot, that stick over your head is everything. For instance, we scrupulously comply with our licence conditions from the Brazilians, from the Americans, from Tonga, the reason being that if we don't, we're at risk of having our licence revoked. Then we are in a terrible situation.

Listen, I made plain that it is galling in some respects to have to compete with our foreign-licensed larger competitors who come into Canada without being subject to all the rules that we, as a Canadian-licensed entity, are subject to. The same is true when we go into some of the overseas markets that we're participating in. But you just can't be subject to every single home jurisdiction's regulation. Otherwise there's this patchwork of inconsistent regulatory framework that emerges and the whole business model breaks down.

So, yes, it's true that in some ways they compete unfairly against us when they come to Canada. They're not subject to all these rules. Equally they could say that when Telesat comes down to the U.S., we don't cover all the U.S. The fact of the matter is we can't. We can't cover the far north and the tip of Florida. It just doesn't work that way.

We don't pay their licence fees because we're paying ours up here. It so happens that Industry Canada's licence fees are five times more than the FCC's, but that's another matter.

Other countries have found that there are adequate tools available to them to control the behaviour of the satellite operator short of trying to get at who actually owns the entities. You do it through licence conditions and, like we have in the Telecom Act, you do it through other statutory provisions. That has proven to be adequate in our sector.

[Brian Masse, NDP, Windsor West, ON]

You also mentioned in there that you might be getting some government space business with the new satellite coming up. Would there be any concerns? Some people might raise that having a non-Canadian government controlling the capabilities of the Canadian government is a national security issue. Could you address that, please?

[Daniel Goldberg]

The sad truth for our business is that today the Canadian government does more business with our foreign-owned competitors than they do with us. I think of Intelsat, which is a big supplier to the Canadian government. I think of Inmarsat, which is a very large supplier to the Canadian government.

We provide some services to the Canadian government. I'm miffed that we can't provide more. We're trying to provide more, but the fact of the matter is, I'd say today the bulk of the government's satellite requirements--at least the kind of capacity that we provide--they're not acquiring from Telesat; they're really acquiring them from our foreign-owned competitors.

[Brian Masse, NDP, Windsor West, ON]

Okay.

To both gentlemen, Mr. Bureau and Mr. Goldberg--real quickly--one of the things that has been put out there is that if we open up foreign restrictions, the consumer is going to benefit.

Can you put forth a case on how consumers are going to benefit under your scenarios? That's been the driving factor, saying that we'll have increased services, better services, and also cheaper services. Can you lay that case out, if you can?

[Daniel Goldberg]

I can maybe start with the satellite sector.

The fact of the matter is, if Telesat does become marginalized over time, it's going to reduce competition in this market, and that's going to hurt Canadian consumers. I don't know of any other way to put it.

We are scrapping day in and day out to try to compete with these larger operators. Because they're larger, their operations are more efficient. It goes back to my point of economies of scale--meaning that head to head, they can undercut our pricing in the market and still achieve greater returns on their investments than we can. We can't be in that situation. We need to continue to grow our scale, increase our productivity, so that we can maintain our role in the market as a vibrant competitor.

If we get marginalized over time, there will be less competition in this market, fewer suppliers for the broadcasters and for the other users--including the government--of satellite capacity, and that's not a great situation.

[André Bureau]

If I may, Mr. Chair, I have two answers to your question. One has to do with the content itself, or the access to a larger variety or diversified service. I'll take the service of pay TV, for example. In Canada, there are three operators of pay television. They offer everything that is available on five American satellite services on three. For the price of one, you get the entire offering of three American pay TV services. There's no shortage of access to diversified programming.

The second thing I think is important to both the consumers and the players in that field, because we depend on their strength and on their availability. The government has licensed--and the CRTC eventually licensed--a number of new players in the field of wireless. These new players are just coming into the business. They have invested hundreds of millions of dollars. If tomorrow we were, as a Canadian government, to authorize an American company--like Verizon or AT&T or any of them--to come into the market before these new entrants had even made their business case work and had started to gain from their millions of dollars in investment on Canadian territory, I don't think that would be fair. I think it's premature to look into that.

I think there is no rush to go in that direction. We will more than double the competition in those services within a year at a really high cost. To come today and say, “You've paid a lot of money to get here, but guess what, we're authorizing the giants from the United States to come and compete against you here”, I think would not be the proper approach for the government. I think it would be totally unfair to do that to these new entrants.

I think the consumers would not benefit from that.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Bureau.

Mr. Rota.

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

Thank you, Mr. Chair, and I'd like to thank the witnesses for coming out this morning.

I guess I'll start with Mr. Goldberg. When we look at satellite transmission providers worldwide, as you mentioned, there are four major players. You're the fourth player. The three others are considerably larger, and what we're seeing more and more of, with the liberalization of transmission in different vehicles, is consolidation. Telesat would be a great acquisition for one of these larger ones, and it would be a nice addition to their portfolio.

The concern I have is for Canadian users of the service. I understand that article 28 protects transmitters. Does it mention anything about the cost of the service? I'm concerned about northern Canada, which you now service, which is very important, because they rely on satellite service quite heavily.

When we look at southern Canada, the northern United States, and as far down south as you can go, what we see is a much denser population. The density is there. What is there to prevent a satellite company from redirecting its transponders so that it can service a larger, more densely populated area that is likely more profitable?

My concern is that we have a service--and sure, it's out there and it is up in our airspace--but suddenly it is directed somewhere else that is much more profitable, whether that's southern Canada or the northern United States. It doesn't make a difference because the people up in northern Canada still aren't getting the service they require. What's preventing that from happening?

[Daniel Goldberg]

What's preventing that from happening....

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

What will prevent that from happening down the road? We do have the space now. It's just a matter of throwing up more satellites or launching more satellites. What's preventing us from saying that all of a sudden we're starting to get tight on space and let's just redirect things and everything will be fine? Somebody has to lose on that.

[Daniel Goldberg]

We would be in violation of our licence conditions, bluntly, so we just can't do it. That wouldn't change if our ownership changed. We are required, under the terms of our Industry Canada licence, to cover all of Canada, and that's what we have to do.

It's very easy to tell whether the satellites are covering all of Canada or not. It they weren't covering all of Canada, Industry Canada would revoke the licence, and the shareholders at the time would incur a very significant loss. It would never cross anybody's mind to violate a licence condition like that.

I can tell you today that we do cover the north; we think there are good commercial opportunities existing there. We have a substantial amount of available satellite capacity today that we're hoping will be taken up to provide better services to the north. We're hoping some of this broadband stimulus funding will be used for those purposes. We're hoping that as part of the initiatives associated with northern sovereignty, some of that capacity will be taken up.

But in the first instance, I think the answer is that the licence conditions are very clear: thou shalt cover all of Canada. That's what we do, and that's irrespective of the ownership.

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

Let me explain why that question came up and why it tweaked in my mind. You made a statement about a patchwork of different regulations on different countries. That would make it very difficult on a multinational that wants to use one set of regulations right around the world, or wherever they operate.

A large multinational would probably have a lot of influence on a smaller government or regulation. Do you feel there might be some kind of change or some influence on that? And then suddenly.... It's nice to say we have it now because we have a regulated system now. Will that multinational or a transnational have the influence to change the policy within a country, and does that endanger Canadian transmission?

[Daniel Goldberg]

I don't think so. I described a situation where we have 12 satellites, eight of which are licensed by Industry Canada and four of which are licensed by other administrations. That situation plays itself out with our competitors as well. They have satellites in orbital locations authorized by a multitude of different administrations, and they, like us, are very careful to comply with all the different regulatory frameworks from those different licensing administrations.

If you get a licence from the Brazilian regulator, well, guess what, you're covering all of Brazil and you have certain public interest obligations. If you have a licence from Industry Canada, same thing; you're covering all of Canada and you have a separate set of R and D obligations, other public interest obligations. It's the same with all these different licensing administrations.

As an operator, a large operator...and I consider ourselves a large operator. I consider Intelsat and SES and Eutelsat larger operators still. All of us take very seriously...these authorizations are the lifeblood of our businesses. It's great to invest $300 million in a satellite and a launch vehicle, but if you lose that ability to make use of an orbital location, you're out of business.

Mr. Garneau referenced the fact that Telesat has been around for 40 years. This is not a new sector. This business has been going on now for decades, and I don't think there's a single instance of an operator, large or small, just flouting a licensing administration's requirements. I can't think of a single one.

[The Chair, Conservative, Michael Chong]

Thank you very much.

We're going to go to Mr. Van Kesteren right now.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you all for coming. I wanted to get back to the satellites themselves.

Mr. Goldberg, did you say 17,000 kilometres? Is that where you're orbiting?

[Daniel Goldberg]

I said 36,000 kilometres.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

It's 36,000 kilometres. Okay. So if the moon is--

[Daniel Goldberg]

You're talking to the wrong guy.

[Voices]

Oh, oh!

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I did 17,000, so you're talking about a quarter....

[Daniel Goldberg]

It's way, way, way up.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

It's 36,000 kilometres. Do all satellites operate in that range?

[Daniel Goldberg]

No, they don't. That is the geostationary arc, so a satellite located at that distance from the earth is orbiting the earth relatively at the same speed as the earth is turning.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Is that why it's at that distance, because the gravitational pull doesn't...?