Industry Committee on March 18th, 2010

[The Chair, Conservative, Michael Chong]

Thank you very much, Minister.

Mr. Dicerni, could you answer briefly? We have Mr. Braid who wants to question in the final round.

[Richard Dicerni]

The program for rural broadband remains in the same funding envelope as now.

Secondly, in terms of impact and reach, I would say this is a very evolving file, in the sense that Bell, Telus, and other companies are also massively investing in rural broadband. The CRTC has a deferral account. So there are many players involved in broadening access to rural Canadians. The program we have is one such element.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Dicerni.

We'll now go to the last round before the minister leaves, to Mr. Braid.

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

Thank you, Mr. Chair.

Thank you very much, Mr. Minister, and thanks to your officials for being here this morning.

I note that we just have a few minutes left. I want to pursue and have us elaborate on two topics, if we could. The first is venture capital, and the second is competition in the telecommunications sector, provided we still have time for that second one.

I'll start with venture capital. You touched on this in your concluding remarks, Minister.

I can certainly confirm that our decision to amend section 116 of the Income Tax Act has been widely applauded in my community of Kitchener--Waterloo. Could you please elaborate on why that change is important, first of all, and secondly, on what other initiatives our government has taken to encourage domestic venture capital through, for example, the BDC or other vehicles?

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Sure. I'll try to answer succinctly, Mr. Chair.

First in terms of the domestic market, basically what has happened in Canada and in many other countries around the world is that the VC market has crashed as a result of the world recession, and we've all been trying to pick up the pieces.

We launched a public-private venture capital fund, a $300 million fund called the tandem expansion fund through the BDC, contributing through the economic action plan. I believe it was $75 million that went into that fund, and then private sector partners are coming in. That will help, certainly in late-stage commercializations—that's what that fund was directed to.

One of the big problems—and I hope I'm not glazing eyes at this point—was section 116 of the Income Tax Act, which was a withholding provision that made it difficult if not impossible for American or European venture capitalists to invest in Canadian companies in situ. What was happening was that they were dissuaded from investing in a start-up in Cambridge or Waterloo or Montreal or wherever. They would say, “I would like to invest in you, but.... If you move to Boston or to California, we can invest in you there.”

What we were actually doing by having section 116 in place was migrating our start-ups to the United States, for the most part. We've amended that; we got it fixed.

I've already heard from the ICT industry that this was a huge win for the industry, and I believe it's going to have a very positive impact.

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

Very good.

Do we have time to continue with the telecommunications sector?

[The Chair, Conservative, Michael Chong]

Go ahead.

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

On this topic, Minister, in 2006 we had a telecommunications policy review panel, and in 2009 a competition policy review panel. Both panels made a number of specific recommendations for opening up the telecommunications sector.

I want to ask you, if you could, please briefly to highlight what some of those recommendations are and explain which of those recommendations are in the process of being implemented, and through which programs.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Thank you. In 2008 the competition policy review panel talked about the need for liberalization. They did so because it helps Canadian firms develop strategic global relationships and partnerships, it helps them participate more fully in foreign markets where foreign capital is found and not only Canadian capital, and generally it helps our industries become more competitive when we have that liberalizing trend.

What our Speech from the Throne indicated is that we're pursuing that, for the purposes of this committee, in two sectors: the satellite sector and the telecommunications sector. The satellite sector is being fast-tracked through the budget because it's fairly straightforward. The telecom sector, as I have indicated to my friends who stare at us across the way in the House of Commons, will require some input into the scope of this.

We're clearly not talking about broadcasting, for instance; we're talking about telecom. So how do we, in integrated companies, talk about liberalizing one while the other one is not liberalized? There are these issues that are more than technical, that are quite substantive, which will have to be dealt with in public consultations.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Braid.

Thank you very much, Minister, for coming to appear before us.

We're going to suspend for five minutes to allow the minister to depart. We'll reconvene to then hear further testimony from officials.

I just have one brief question of the minister. I wonder if he could update us on whether or not there are, as mentioned in the Speech from the Throne, any plans on copyright legislation.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

I certainly could update you on that, Chair. Our intention is to bring in copyright legislation this session for the consideration of parliamentarians.

The Hon. James Moore, who has a good chunk of the stakeholders, and I, as the minister responsible for the act, are working very closely together. We'll be seeking the advice of parliamentary committees, I'm sure, at the appropriate time.

[The Chair, Conservative, Michael Chong]

Thank you very much.

We'll suspend for five minutes.

[The Chair, Conservative, Michael Chong]

We're resuming and we're going to hear from our three remaining witnesses: Madam Gillis, Monsieur Dicerni, and Mr. Boothe.

We will begin with Monsieur Cardin. But he's not here.

We'll begin with Mr. Van Kesteren, and we'll go back to Monsieur Cardin when he comes back.

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

Thank you, Mr. Chair. Thank you again for appearing before us.

I had hoped that I was going to get a chance to talk to the minister, but I'm sure you all can also provide us with the answers I'm looking for.

I'm specifically interested in productivity. I know in the four years I've served on the industry committee, one of the areas where we've lagged behind in manufacturing and in much of the other sectors is productivity. I heard a report recently, in the last few days as a matter of fact, that we seem to have corrected that to some degree.

I'm wondering if you could first of all tell us where we have found that correction. Are we seeing a trend in something that has plagued us for a long time? What can we do in Industry Canada to continue to move in that direction? That certainly is going to be one of the primaries if we're going to come out of this strong and healthy in the next few years.

[Richard Dicerni]

I'll say a few things, and then my colleague Dr. Boothe will provide additional information.

I would say our major focus is innovation. The department has undertaken a number of measures designed to facilitate the manufacturing sector in enhancing productivity. These range from initiatives such as the strategic aerospace and defence initiative program, where we work in partnership with different companies to enhance their production capacity. It's the same approach with the automotive innovation fund.

We've also undertaken a more in-depth look at what explains the fact that the private sector does not invest as much in innovation. So we asked the Council of Canadian Academies to provide a more in-depth report on that, which it released about a year ago. That is a good basis to look at some additional aspects.

The minister referred to the review the government will undertake, which was noted in the budget, of various programs and tax measures the government has, such as the tax credit and some of those other incentive funds. I believe there's not one single answer to the question of productivity, but it is one that we are quite seized of and focused on.

Paul.

[Paul Boothe]

First of all, I would say--and I think you noted this--that we did get some positive news recently, a 1.4% productivity improvement. One announcement of good news by Statistics Canada is certainly not a trend and it's not time to begin celebrating--although all good news is welcome.

I think it's important for people to focus on what productivity really is. In its essence, it's quite simple; it's output per worker. When we look at firms, we look at how high their output per worker is, and also how it's changing; that's productivity growth.

Some of our productivity problems are measurements. For example, I could talk about the oil and gas sector, which has a high level of productivity, but productivity growth recently has been negative. How can that be? With very high energy prices, it's profitable for firms to exploit reserves that otherwise would not be profitable to exploit. When it comes right down to it, firms seek to maximize profits, not productivity, although in the long term they're linked. Even when you correct for that, we still have poor productivity performance; it's still a worry for Canada.

We've been trying to support firms that are innovating, as Mr. Dicerni said. We have some programs in that respect. In the budget and the Speech from the Throne, the government announced that we're going to have a review of the support for business innovation, and we hope we will get a better understanding through that review of what's at the core of our productivity performance and how we can improve that.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Boothe and Mr. Van Kesteren.

To answer your question, I believe the three areas in which productivity really jumped in the fourth quarter were retail trade, wholesale services, and the information and cultural sectors. That was in Statistics Canada's report for the fourth quarter.

We'll go to Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Good morning, ladies and gentlemen. I am pleased to meet you.

I had a fine question for the minister. Because it is more political, I won't ask you. I know you are wise enough not to get caught.

On December 11, 2006, the then Minister of Industry announced, by order, that telephone services companies could set whatever rates they liked in all geographic regions where there were at least three competing telephone companies. The Minister explained that the decision arose out of the government's concern for providing better services to the public at a low price, what the Minister was just telling us, in practice.

I would like to know whether, in fact, prices have actually dropped since the 2006 order, and by what percentage on average? I know that may be a somewhat complex question. You probably don't have the answer at your fingertips today. If possible, I would like to have it by region.

So give me your first impression on this. I would like the answer to be sent to the committee in writing.

[Richard Dicerni]

You're right, I don't have the specific statistics today. There are some points I could make, however.

First, there is more competition in the market than there was three or four years ago. If we look at the efforts Vidéotron has made in Quebec, we see that there is a lot more competition in the market and there are more products on offer to customers.

Second, to follow prices specifically, that's a bit difficult. The companies, and last night I met with the people from Bell, are increasingly doing packaging. There are wireless, Internet and telephone lines. They're doing bundling, which means that measuring a product over four years is a bit more difficult.

The CRTC has done price analyses on a relatively consistent basis. We could look at it with that agency and get back to you with more information.

[Serge Cardin, Bloc, Sherbrooke, QC]

Certainly in more urban areas there are specials offered relatively often. They thumb their noses a bit at old customers, but to get new ones, they offer specials.

In the regions, for example, there is not necessarily that kind of competition.

[Richard Dicerni]

Because markets are segmented, that policy would be adopted. As Mr. Bernier said, there has to be a minimum number of competitors in the market.

[Serge Cardin, Bloc, Sherbrooke, QC]

I would first like to address the subject of broadband in Canada.

The funds that were allocated were $225 million over three years. We can look at it by comparing with Quebec, for example. Quebec has already invested $150 million to help 60 school boards and over 800 municipalities. It is spending several million dollars more on this.

You have a very large number of applications. We're talking about some $900 million in applications, and you have $225 million to spend. Do you think that $75 million a year for three years is really enough to meet the needs and achieve the ultimate objective of expanding broadband Internet access in Canada?

[Richard Dicerni]

As you know, we in the public service have to work with the money Parliament gives the department. We have the money you referred to and we are doing our best to have the maximum effect. Comparisons are always difficult to make because not every country is starting from the same base.

Recently, Great Britain made a major investment effort. But it was starting from a bit farther back than Canada. As well, as we know, it is a country with a much higher population density than us. I think we are going to make real progress with the money available to us.

As I was just saying, we must not forget that this is not a static situation. Companies like Vidéotron, Bell Canada, Rogers and TELUS are continuing to invest because they want to get market share.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Dicerni.

Thank you, Mr. Cardin.

Mr. Gravelle, you have the floor.

[Claude Gravelle, NDP, Nickel Belt, ON]

I'd like to ask the indulgence of the committee to share my time with Niki Ashton.