Industry Committee on March 30th, 2010

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

Thank you very much, Mr. Chair, and thank you to all of our witnesses for being here this morning.

I would like to start with Mr. Globerman and then I'll move to Mr. Morrison.

I appreciated your remarks, Mr. Globerman. In the end they were very coherent, despite your cobbling them together overnight, so I thank you very much.

If I heard you correctly, you seem to suggest that the record in R and D on the part of Canadian telecommunications companies isn't as good as it could be. Could you elaborate on some of the reasons for that?

Secondly, could you outline any other policy suggestions you might have, in addition to this review of opening up foreign investment, that could improve the investment in R and D on the part of Canadian telecommunications companies?

[Dr. Steven Globerman]

Thank you for your comments, Mr. Braid.

If I have said that the record of Canadian telcos in performing R and D was unsatisfactory, I may have misspoken. In point of fact, and I think this is going back to some work that I knew was being done in the 1980s and 1990s, the R and D of Canadian telecommunications carriers was to my mind not necessarily worse in terms of dollars per sale than that of carriers elsewhere in the world.

The important issue is what really encourages any company in Canada to do R and D. Clearly, if it's a private company, it's the opportunity to earn profits. Part of that is what the quality of the workforce is, what the quality of the tax system is, whether it penalizes, whether it favours. There's a host of things that promote an environment in which R and D is more or less likely to be done.

It's difficult to say with any precision that there's any one thing that would really be important in Canada, but one thing is clear. That is, that access to larger markets and customers helps. One thing that I think we haven't talked about is the reciprocity of Canadian companies being able to serve other markets and the risk that if we are in a meaningful way protectionist here, this might open up the potential for reciprocity elsewhere, so that successful Canadian companies would have trouble competing abroad. That certainly would discourage research and development at the margin.

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

Thank you very much.

Mr. Morrison, as you know, we're looking at a review of our telecommunications industry and considering opening it up to greater foreign ownership, if appropriate. The stated policy goals to do that are more foreign investments, which will lead to greater competition, which will in turn provide better service to Canadians and reduce rates. Many of us would suggest that these are important and noble policy goals.

Do you have any suggestions for how we achieve those important policy goals while at the same time responding to some of the concerns that you've laid out?

[Ian Morrison]

One idea, going back to Mr. McTeague's question of the industry officials last week, is that if there is indeed a threat that an 800-pound gorilla is going to be created through a merger, maybe in anticipation of this rather than after the fact the government might consider what an appropriate maximum share of market for any one provider might be—40%, 50%, 30%, something like that—in order to head off the unintended consequence. That would be one practical suggestion.

I move to the cable side of things—what your constituents would think of as cable, not as BDU. There would be all kinds of ways. Mr. Paradis' comment about profitability is completely accurate, right to the decimal point—I notice he said 25.1% profit before interest and taxes for the cable industry in the year ending August 31, 2009. When you look at something like that, from the point of view of customers it could be thought of as perhaps an excessive profit. From our research we have found that more than half of cable customers do not feel that they have a choice. I myself live in a building in downtown Toronto, Mr. Braid, where the orientation of my apartment would not enable me to use satellite service, and the condo rules would not permit me to have an antenna, so I am a captive of Rogers.

Your constituents would be aware of the continuous increases in their rates. The CRTC used to control the rates for basic cable, and companies had to ask for increases and justify them. In the year 2002 they stopped doing that. Guess what? The consumer price index since 2002 has gone up 14%, and the rates that Rogers charges for basic cable in the Toronto and Ottawa markets, where we have researched the question, have gone up by 85%. Now, that's not really in the interest of consumers. It's a territorial monopoly for a majority of people, and yet its rates aren't regulated.

So there is a whole range of activities that could be done, within the power of government, to give people a better deal in this country.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Morrison and Mr. Braid.

We'll go to Madame Lavallée.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Thank you, Mr. Chair.

Mr. Globerman, could you please put your earpiece in, since I will mostly be speaking to you?

First, I would like to clarify that I do not normally sit on the Standing Committee on Industry. I am a member of the Standing Committee on Canadian Heritage. I am here today because Quebec's cultural sector feels very threatened by the Conservative government's change of position on opening telecommunications companies to foreign ownership. When I say cultural sector, I do not just mean broadcasters, but also producers, filmmakers, artists, musicians and craftspeople of all kinds. Everyone feels very threatened by the opening of this market.

You said it yourself: telecommunications and broadcasting are becoming increasingly difficult to tell apart. Mr. Paradis and Mr. Morrison also said so. Even Mr. Wilson's study, which was published two years ago and which is the reason for today's meeting, states that it is becoming increasingly difficult to differentiate between telecommunications and broadcasting. To the point that a lot of people would like to see the two acts merged. The threat to companies and cultural products is very real in Quebec and in Canada. Ours was the first country in the world to sign a cultural diversity treaty. In all free trade treaties, there is a rather unique exception made for culture. We must protect this culture and help our artists, lest we let ourselves be invaded by the American empire right next door to us.

It has become clear that those who control access, control content as well. We need not go further than the wonderful Bell advertisement offering 16 applications to their users, just for cellphones. The ad contains highly cultural elements that are very artistic, in the broadest sense of the word. In the ad, Bell offers Disney movies and information on Air Canada or the National Film Board. Out of its 16 applications, at least six are not Canadian, and those that are aren't very representative of Quebec.

If the intention was to make the applications more representative of Quebec culture, Bell would have chosen the magazine L'actualité instead of Maclean's, Société Radio-Canada instead of CBC Radio, Caisses populaires Desjardins instead of Scotia Bank. I think that all Quebeckers are members of a caisse populaire, in Quebec. I do not want to list everything, but I would like to go back to the fact that those who control access control the content.

Nowadays, telecommunications are getting into broadcasting. An American-made cellphone arriving on the Canadian market will contain American cultural products, that much is clear. This will be a threat to Canada and Quebec's cultural activities, but especially to the French language.

I know that you are a distinguished academic and that your theories apply to everything from soup to nuts. However, given the particular nature of broadcasting, in the telecommunications sector, I do not think that your theories apply to the world of telecommunications and broadcasting, or to cultural life in general.

[Dr. Steven Globerman]

Mr. Chairman, I hope you give me a few moments to respond to that.

I apologize for not being the best exponent of multiculturalism, as I need to use this translation.

Let me tell you an interesting story.

[The Chair, Conservative, Michael Chong]

One moment, Mr. Globerman.

I'll ask the clerk to see what's going on. There's no translation, so just wait one moment until we get this straightened out.

Okay. Go ahead, Mr. Globerman.

[Dr. Steven Globerman]

I live in Bellingham, Washington, and my wife, who is unfortunately not with me, is fully bilingual. She listens to French radio on Comcast Cable, which is the local cable provider and about as American-owned as you can get. She has access to at least three or four private stations--I'm not talking about French CBC--that broadcast music and news in French. She listens to them all the time. Unfortunately, my French has not picked up fast enough to learn it.

I think the point is that the means of transmission carries the content, the means of transmission doesn't determine the content; consumers determine the content.

There happen to be a lot of Canadians who live in Whatcom County, where I live, which is just south of Vancouver. I'm sure Comcast finds that it's not a big profit-maker, but they find it worthwhile to dedicate a small portion of their broadband capacity to providing French-language services to their subscribers. That illustrates the power of the market to produce solutions for minority consumers. I'm very fond of giving that little example.

It is a relevant challenge to say that telecommunications isn't like anything else, because it carries content, and content is culture, and culture has diversity--different people like different culture--and therefore we can't apply economic principles to telecommunications. I would turn that completely on its head. I would say it is the opportunity for new suppliers to find new uses for their capital to meet the needs of new consumers. That really is the power of the marketplace.

Can I say that every consumer in Canada would be happy with the market system that might be created if we allowed unrestricted foreign ownership? No, I can't say that. The market isn't perfect. There may be certain types of cultural demands that really are not profitable to provide.

What do we do about that? One of the things we can do is to be honest to society and say that we value this culture even though it can't generate a profit for even the most efficient producer, so let's subsidize this directly. I don't think we should say the market system is the villain so let's throw it out, when we can solve that problem by being honest in saying this is a social need so let's subsidize it directly.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Globerman.

Merci, Madame Lavallée.

Mr. Van Kesteren.

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

Thank you, Mr. Chair.

Thank you to our witnesses for coming this morning.

Mr. Paradis, nobody has asked you any questions, so I have one for you. You are kind of quiet in the corner there.

You made a statement--and I believe this is your conviction--and I'm wondering if there is any study, or what angle you were coming from when you said that too much competition is detrimental. I want to understand that. Could you elaborate on that?

[Richard Paradis]

I don't want you to think I am against competition; I think it is extremely important and good for the marketplace. I was just trying to give caution. We have opened the market in Canada to competition over the last 20 years. It is taking maybe more time than we would have liked for people to be a lot more competitive. Maybe it's because when we decided to have competition the market was so open to accepting new players that without offering necessarily competitive rates they were able to get customers and become the companies they are now, with the profit margins we saw this morning.

It's about being very careful about introducing new foreign or other players in the marketplace. There is only a certain capacity of frequencies that are accessible for the market anyway. Right now we are probably at about eight or ten companies that have access to spectrum for mobile service in a very small country. If you look, Great Britain and France wanted to have more companies and they've had to pull back.

When satellites were developed in the early 1980s, the British government decided to have competition in the availability of signals through satellite in the British market. There were two players, and even in the British market the economy couldn't support two. So now there is only one player in Great Britain for satellite service.

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

Okay, so you're qualifying that with the example of other countries, and there may be other reasons for that. But that's good. I wanted to hear that.

I have another question, but I have to move rapidly, because we have only a few minutes.

Mr. Morrison made the statement, and I share it, because I have the same experience in my apartment. It just drives me that I'm stuck with one company. So I want to give Mr. Globerman an opportunity to respond.

I understand, sir, what you're saying. At one point they were regulated with their increases. We've eliminated that, and you're right, the rates have gone up. What would opening up to more competition do directly in terms of that problem? That's a real burr under my saddle too.

[Dr. Steven Globerman]

I don't want to sound flippant in saying this, but I have to say it, because this is a fact; it's true.

You made a choice to live in an apartment. You can move to another apartment. You might say this is truly an academic economist just talking complete and absolute nonsense, but in point of fact, apartments did compete on the basis of offering different access to different types of telecommunication set-ups, and that will continue. Part of the package you're buying is the telecommunications capacity of the apartment.

A friend of mine lives in Tokyo. She lives in her apartment because it has a unique telecommunications capacity. It's one of those smart houses that does everything: cooks your food, runs your shower, etc. At some point, the prices may go up. She may not like it. There are other apartments to change to. There's always a first mover problem, just as we have in this country. We have a huge terrestrial network that's outdated, and over time we're going to have to evolve our way out of that. You can leave your apartment a lot more quickly.

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

Then, finally, I want to know if our Canadian geography and our social uniqueness is a breeding ground for innovation and creativity that will maybe spawn the growth of companies, if we allow, as you said, possibly some of the companies that are involved in the same type of geography and have been more successful. Could we become a breeding ground for innovation?

[Dr. Steven Globerman]

There's no doubt about that.

I just want to close with one observation. I don't think the committee should be fixated on numbers of competitors. What really matters is the opportunity to enter a market, and it's the threat of competition out there that really motivates the competitors that are already in the market. Sometimes takeovers are required to really shake things up. The real key is to keep the market open to new technology, to new suppliers.

This is a big world. There are a lot of potential suppliers out there. Why do we want to deny ourselves that opportunity? Canada is a very attractive market, in large measure because it does have tremendous capacity to innovate. We have a lot of smart people. We have a highly educated workforce. We have good rules, good property rights regimes. We are an attractive place to do business.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Globerman.

Now we'll go to Mr. Davies.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Globerman, I want to drill in on the efficiency argument a bit, because to me there's something different between broadcasting content and culture and widgets. You said that having foreign ownership improves efficiency in the host economy. But the question going through my mind is, what if preservation of culture is not efficient?

The example I have—and perhaps it's a bad one, so forgive me if it's a bad analogy—is that we have a policy in this country of official bilingualism. It would strike me that it's probably not the most efficient policy. Probably it would be very efficient to be unilingual, but we've decided as a country that it's an important part of our culture and we're prepared to sacrifice some efficiency for a greater expression of our cultural uniqueness.

Would you not agree with me that, while what you said is accurate, efficiency might not be the complete picture when it comes to determining our cultural content?

[Dr. Steven Globerman]

Yes, I agree, and I tried to make that point before by saying that preserving rural areas and giving them access to technology may not be what the market wants to do because it's not profitable, so we subsidize it because we think it's important.

Certainly we think culture is important. We think minority culture is important. The question is, how do we want to support it?

Do we think that by discouraging foreign ownership we are in fact supporting it? The point I made earlier was that a privately owned Canadian company has the same concerns about providing unprofitable services as a foreign-owned company in Canada. It's the job of the government to provide those public services, including culture, through the tax system, or if you want—which is second best—through regulation, but those regulations would apply to everyone.

A U.S.-owned company doing business in Canada would have to contribute to the Canadian broadcasting fund, the same as a Canadian company would.

[Don Davies, NDP, Vancouver Kingsway, BC]

I have a similar sort of question, playing the devil's advocate, about your statement that consumers determine the content. I'm not so sure that has a completely accurate ring to me. I think something you just said may actually have supported my thought, because it might be government or policy that determines content, and not just the consumers.

I remember that in large parts of the early 1970s I witnessed the development of Canadian content in television. Let me charitably say that not all of it was of the highest calibre, but it seemed to me that we made a decision to nurture a nascent Canadian-content industry in order to build up that expertise.

I'd be interested, Mr. Paradis, in your views on that aspect. Do you agree with the statement that consumers determine the content?

I don't mean to shut you up, Mr. Globerman; if you'd like to comment too, I'd be interested in your view.

Maybe that's not the entire picture; maybe there's a role for government policy to ensure that we have content reflecting who we are as a country.

[Richard Paradis]

To come back to the reference by Madame Lavallée to the advertisements, if you have an iPod and you're looking for applications in the Apple Store, it comes down to this: when you look at your screen and there are 16 options, how many of them are going to be Canadian? There is no obligation for iPod or the Apple Store to include four Canadian applications in every 16. The only way you're going to do that is through regulation. That's the way we've done it historically.

[Dr. Steven Globerman]

I don't think the 1970s are today. The broadband world will allow almost anything to be broadcast if there is a small but significant number of consumers. We can go on and on about that, but I won't.

Let me say that I agree with you that government policy can contribute to the growth of talent, which then becomes in demand not just on the part of Canadians, as we know, but all over the world. There are incredibly successful Canadian performers. That doesn't gainsay my point that consumers ultimately dictate what broadcasters are going to supply. What it says is that government can, through intelligent subsidy mechanisms, encourage the growth of certain types of talent that then become in demand.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Davies, Mr. Globerman, and Monsieur Paradis.

Mr. Wallace is next.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

First I have an apology to Mr. Morrison. I came in a minute or so late, after you got started. I had a previous meeting. I try to make these things on time, but am unable to....

[Ian Morrison]

I apologize, Mr. Wallace; I didn't notice.