Industry Committee on Feb. 3rd, 2011

[Serge Cardin, Bloc, Sherbrooke, QC]

Are all of your recent decisions in compliance with government instructions and, if so, how do you explain the Minister of Industry's dissatisfaction with respect to your decision 802?

[Konrad W. von Finckenstein]

You should ask him the question. I am not speaking on behalf of the minister.

[Serge Cardin, Bloc, Sherbrooke, QC]

Based on what you were saying earlier, are we to understand that, further to your decision, it is not the CRTC but rather the large corporations that are making the rules?

[Konrad W. von Finckenstein]

No. The large corporations do send submissions to us but we are the ones who decide. We have taken many decisions that the large corporations do not like at all. For example, we insisted that the big suppliers provide their services to small providers at the same speed they provide to their own clients. They do not like that. They appealed to the cabinet and appealed to the court. The cabinet ordered us to review the decision. We did so and decided a second time that this would not work and that the big providers should in fact sell their services at the same speed, otherwise there would be no market for ISPs. We determine de policy, not the large corporations.

[The Chair, Conservative, David Sweet]

Thank you, Mr. von Finckenstein.

Thank you, Monsieur Cardin.

Now we will go to the Conservative Party for seven minutes.

Mr. Van Kesteren.

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

Thank you, Mr. Chair.

And thank you all for appearing before us.

Mr. von Finckenstein, the Prime Minister and the Minister of Industry both have expressed serious concerns about the impact of this decision, what impact it will have on innovation and competition in the Internet sector. Specifically with smaller ISPs, their only incentive really is the unlimited Internet plans to make them competitive in the marketplace, and the CRTC decision was going to take that away.

Now, I'm a member of Parliament from southern Ontario. It's a rural riding. I'm very concerned about the decision and what that would lead to: higher Internet prices and less choice for my constituents. I have to say I'm very relieved to hear that you've agreed with the government to review this decision, but what assurances can I give my constituents and Canadians that the review will lead to a different result?

[Konrad W. von Finckenstein]

First of all, I did not agree with the government. We did it on our own. It was absolutely clear; it was our decision to do this.

Second, I cannot tell you what the outcome of the review is, but as I've said many times, I believe the ISPs are vital to having a competitive market. I quoted you one of the leading ISPs actually saying the same thing, that if it wasn't for our rules, they wouldn't exist anymore. We forced the large companies to sell to them at the same speed as they sell themselves. We insisted it be sold at cost-plus so that there was enough of a margin to obtain business. They are the drivers of innovation. That is absolutely clear.

It has happened that a lot of the very heavy users have become clients of those small ISPs who don't have a limit. What we are saying is most of the caps that will be imposed for people are for those who are really excessive users. If you are someone who uses far more than the ordinary Canadian, then you have to pay for it. This is the same thing as if you heat your house warmer than I do. There is an average rate that people pay, and if you really are an excessive user, or a heavy user—I won't say excessive, as it's up to you to determine how much you want—you have to pay for it. This is very simple.

I don't see why the general, ordinary user should subsidize the heavy users. This decision affects 500,000 people. We have 9 million subscribers. All of them are subject to caps right now. We are talking about those 500,000 customers, and not all of them, obviously, only those who are heavy users. We should put this in proportion.

We will make the decision on the basis of submissions that have come before us, and I'm sure people will say the way we did it was too rigid, and second, the discount of 15% is not enough. It has to be a higher one, and maybe that's it. We will look at it with fresh eyes and open minds. I don't have a fixed idea. The principle to me is clear. The ordinary guy should not subsidize the heavy user.

Are the modalities being used correctly or can we do it better? I don't claim to have a monopoly on wisdom. We made our decision on the basis of evidence before us, and thanks to this publicity, I'm sure there will be all sorts of new evidence come before us. As a result of it, the decision may be different or we may reaffirm. I can't tell you this right away.

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

You have a very difficult job. I don't think anybody in this room would argue that point.

Possibly one of the organizations you're talking about is TekSavvy. That is in my riding as well.

Did you convey that message to them? What was their response?

[Konrad W. von Finckenstein]

TekSavvy and some of its colleagues appeared before the commission about two weeks ago and made representations on our latest ruling. They said basically they liked the ruling, but they thought we went too far, and rather than averaging, we would make them impose it on individual users. That's something they had not told us before. It was never explained in that way, and I expect when we now have the hearing, TekSavvy and other companies will come before us and explain how we could do this.

I certainly did not get the impression from them that the whole idea of usage-based billing is anathema to them. But they feel we did not implement it in the best way for them to give the maximum flexibility, etc. They are constrained to say that we forced them to become like a big telco, that they are small companies and they wanted to be flexible. If this can be done, I'm all for it.

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

What I'm hearing is that you're looking for a compromise. Maybe we're putting the cart before the horse, but do you feel positive about that compromise? Do you feel that, working collectively with the main providers and the smaller providers, you can come toward some sort of compromise?

[Konrad W. von Finckenstein]

My job is all about that. It's all about balance between competing interests, between large providers and small providers, between providers and consumers, etc. That's what we do, and the way we do it is we have a hearing and we ask everybody to come forward with their best ideas. We try to sort out from the evidence what makes sense and what is just self-serving testimony and then come up with a solution that hopefully strikes an acceptable balance. That is exactly what we're going to do here.

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

Can you maybe expand a bit on those consultations, on how they were done? Do you feel at this point that you possibly need to expand a little bit further? You came to a decision. I'm just wondering why we may see it differently. That was my first question: why would we see a different decision if you—

[Konrad W. von Finckenstein]

As I said, we will issue a notice saying we are redoing this, please comment, etc. This is the principle I just enunciated here: the ordinary user should not subsidize the heavy users. You know what we did. Does this make sense? Do you have a better mousetrap? Where do you think we erred, and what do you suggest? I'm sure TekSavvy, from your riding, will come forward and say for you that's fine, but the discount on 15% does not take into account the cost that is imposed. If you do oppose a regime like that, the discount has to be at least 40%, or something like that. Somebody will put that.

I will ask him, okay, you're telling me 40%. Explain to me the cost of this position, etc. I don't want to hurt you. On the other hand, I don't want you to have a free ride on Bell, so let's figure out what is the appropriate one. They will present evidence, studies, etc., and Bell will come and presumably say exactly the opposite. At the end of the day, we will try to determine, based on the evidence, based on our verification of the evidence, where the truth is and where we should come down.

[The Chair, Conservative, David Sweet]

Thank you, Mr. von Finckenstein.

Mr. Van Kesteren, that's all the time you have.

Now we have Mr. Masse for seven minutes.

[Brian Masse, NDP, Windsor West, ON]

I'd like to thank the witnesses for coming so quickly, as we just had a motion on this on Tuesday. We appreciate that effort.

In the previous overturns that have taken place during your tenure, was there at least contact between your office and the ministers' offices, either to provide information or more detail about a decision you made? Was that the process in the past, or is it simply your learning through media clippings and you don't get a chance to provide additional information to enlighten the decision you've made?

[Konrad W. von Finckenstein]

First of all, there has been no overturn here.

Let me explain to you how it works. If we make a decision and you as a party are dissatisfied with the decision, you appeal to the minister, who then asks for submissions from other parties and then takes this decision to the cabinet to ratify it, and then they send it back to us to review, to reaffirm, to reverse whatever they want to.

We are not involved at all. We have rendered our decision; it's like an appeal to an appeals court. It's for them. They have their procedure. They do so and they tell us. If, for instance in this case, TekSavvy, one of the companies, had made an appeal to cabinet, then cabinet would deal with it. The minister, on his own motion, can also do it. In Globalive, he did it on his own motion.

That's the process that's laid down in the end.

[Brian Masse, NDP, Windsor West, ON]

Yes. It just seems to be an unusual process. I guess this is the new, modern, “Did you get the memo” version of things these days.

It would be argued by some that in 2006 the CRTC was issued a directive by the Conservative government that changed elements that would put a priority on the business end of it versus that of the consumer. Can you enlighten us about the 2006 change? That's one of the reasons, I believe, that led to your current decision. It's because of that 2006 directive.

[Konrad W. von Finckenstein]

The telecom act speaks in terms of broad principles and objectives. It leaves it up to the CRTC to put those into reality and make them work.

It also gives the government--to give us direction or guidance. This is what they used. They said they wanted us to interpret these broad principles. That is their right under the legislation, and they do that. We then apply those. That's what we've done in this case.

[Brian Masse, NDP, Windsor West, ON]

Yes. I think that's the real crux of the issue here. The Conservatives made us a digital backwater, when you look at the fact that we have had erosion of our position in the world's standings. With your directive change in 2006 to focus in this direction, it's not surprising that we've ended up in this situation.

I think that's what needs to be fixed if we're going to go forward on this. Simply just overturning this isn't going to work; there needs to be more work on what happened in terms of that directive. I am curious, though—I know you're using the terminology of electricity and oil as a measurement in those crude.... It seems a little simplistic when you look at, for example, residential use. Residential businesses use it. People use the Internet for research. It's not just Netflix. People use it for all kinds of different elements, and depending on the data you're downloading, it would affect your usage as well.

Are you not concerned that once again there are two standards, one for commercial and one for business? It's interesting. Some people have told me that's why it worked. They download there versus at home, because they got capped. That's not good for the workplace. First, if you get caught doing that, that's not good. Second, productivity is there.

You're not concerned we're going to create a culture where people are going to look for shortcuts that way? Shouldn't we be trying to solve that by increasing capacity?

[Konrad W. von Finckenstein]

You've made all sorts of statements here. I'll have to take them one by one.

First of all, we have a booming telecom sector. I don't think we're a digital backwater at all. We are leading. We're also leading in terms of the regulatory. For instance, last year we were the first country in the world to make a ruling on net neutrality or Internet traffic measures, which was widely copied around the world. So we are not a backwater.

Secondly, in terms of Internet traffic, there are no caps for business. If you want a business, you go and you make your deal with your provider, depending on your use. We're talking only about residential here, and I made that clear.

On the rules for residential, I think the best analogy is the cellphone. For your cellphone you do not have unlimited use unless you pay an extraordinary amount for it. Usually it's a plan that tells you how many minutes you have per month, or how much texting, etc., and if you go over it....

So that's a function of pricing in the market, and the same thing here; if you really want to have huge usage of your cellphone, and use it for all purposes, your cellphone bill will be much higher than mine, because I only use mine when I don't use my land line. That's the choice that you all make.

[Brian Masse, NDP, Windsor West, ON]

But the problem with that as an analysis is that you have businesses, and also sites or whatever, that if you want to connect into, or you rely upon, that actually can be more sophisticated than others, can have more advancements for innovation in terms of the types of data streamed over it and the product you're receiving, customers, people, don't necessarily always have a choice. When they click on a site, they won't know exactly, especially when they're using it for the first time, how much of that is going to actually be running their meter up.

You say that we're not a digital backwater, but we've ended in a situation here that's unusual to different countries. We're talking about throttling. We're talking about limited. We have these Internet billing caps that have been agreed upon. You don't set them, but we're allowing the large telcos to do so.

You know, I think there's a larger problem here that won't be solved just simply by undoing this. I'd like to see some analysis of the usage, because I don't believe it's just as easy, as black and white, as electricity and gas. The Internet is much more complicated than that.

[Konrad W. von Finckenstein]

First of all, we're only talking about residential. We're not talking about commercial, okay? This is the decision before us.

Secondly, on the caps, which is really the core of your question, if I understand it correctly, as I mentioned in my speech, our communications report says that on average, Canadians use 15.4 gigabytes per month. That was for 2009.

So for the various caps that the various companies have instituted--

[Brian Masse, NDP, Windsor West, ON]

Yes, but under this policy--

[Konrad W. von Finckenstein]

--they are way beyond that.

[Brian Masse, NDP, Windsor West, ON]

--the residents subsidize the business.