Industry Committee on April 15th, 2010

[Chris Peirce]

I have a couple of comments.

My argument would not be that there's no innovation in our telecommunications industry. There is, but it's patchy. It depends on the sector and the extent to which competition has reached the sector. Our small and medium-sized business community is lagging, and that's one of our problems in building the economy. It's having our small and medium-sized business community be quicker adopters of new technology of things like ICT. One of the problems in that sector is that's the most difficult sector for a competitor to get to. We have arguments at the CRTC all the time over access to incumbent infrastructure. That's one piece of the equation. The other is where a competitor can find the money to invest in that risky venture. Mr. Hennessy is right, risk capital is very difficult to find in sufficient pools in Canada to warrant that kind of investment by someone who doesn't have that existing ubiquitous network. So innovation is present, but patchy.

We have an urban-rural divide in Canada. We also have an emerging digital divide between large and medium-sized enterprises and smaller enterprises. Small business is the main source of employment in the country, so that's a really important feature.

In terms of the carriage content, the problem, as both have said, is that the same network is carrying the TV and the data or other type of signal. So all of us transmit TV signals, data, and voice all through the same network infrastructure. So if you're not to liberalize for BBUs, for the carriage element, then I don't see how that would be workable for anyone. But you can easily liberalize for that carriage while protecting all of the content issues you're talking about. It's just like saying if someone is coming in to invest in our oil sands or oil and gas industry, they have to follow the environmental rules of Canada.

[Serge Cardin, Bloc, Sherbrooke, QC]

Pardon me, Mr. Peirce, I would like to give my colleague the opportunity to ask one last question.

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

How much time do I have left?

[The Chair, Conservative, Michael Chong]

A minute and thirty seconds.

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

A minute and thirty seconds, wonderful. Thank you, Mr. Chair.

Since I do not have much time, I will speak quickly.

You said two things, Mr. Hennessy, that really struck me. The first being that it is easy to separate the ownership of broadcast channels from that of telecom companies. The second had to do with prohibiting foreign-controlled carriers from owning TV channels. That really surprises me because we can no longer separate TV channels from telecom companies—wireless on one side and TV on the other. Wireless service providers now have their hand in broadcasting, as well.

And to illustrate my point very clearly, I will refer to a Bell Canada ad, which comes from our friend here, Mr. Bibic. The English ad, shown in Ottawa, promotes 16 applications. It clearly offers customers Maclean's magazine, CBC Radio, Scotiabank and Disney. Bell offers some free applications and is clearly involved in broadcasting. It has a hand in broadcasting. Also on the way are short TV episodes, which will be called “mobisodes”. They are episodes for wireless mobile telephones. There is a clear involvement in broadcasting. It will no longer be possible to separate the two, and they will become more and more intertwined. So that is not possible.

Given these circumstances, I do not think you would recommend a division of broadcasting: TV channel owners on one side and wireless carriers on the other. It cannot be done. You can even speak to the Rogers representative, who was here this morning, or to Quebecor.

[The Chair, Conservative, Michael Chong]

Thank you, Ms. Lavallée.

Mr. Van Kesteren, you now have the floor.

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

Thank you, Mr. Chair.

Thank you all for appearing. I mean that, too. I really appreciate your testimony. It's remarkable to listen to you, and the achievements that you've made in this country are commendable. I think you need to be told that, as well.

There's one element, though, and I'm going to touch on that at the risk of possibly exposing myself as a base capitalist. I'm an auto dealer, and, like you, I went to work each day. We like to talk about our achievements and the things we've done, and they sometimes need to be acknowledged. It was Adam Smith, I think, who said something to the effect that it's not for the benefit of the butcher that the baker gets up in the morning and bakes his bread, and I think that's something that we have to recognize. There's nothing wrong with that. If we're basically honest, we can say that too.

What I'm trying to translate to you is this: the good things that you do for consumers, you do for profit. You know what? There's nothing wrong with that. That makes sense. That's how our system works.

Understanding that, accepting that, and admitting to that, when you look at competition, each one of you has said that you really don't have any objection to that. I know the former panellist said something to the effect of how they had built up capital, and that's an incredible advantage. If somebody's going to enter the field and offer a new service, he has to go through all those painful endeavours that you've gone through, and you're now at a plateau where you can say “Bring it on”.

So having said that—and I think this is the real crux of the issue here—what is better for the consumer, competition or a form of regulations? I'm going to ask each one of you individually if you want to touch on that.

[Mirko Bibic]

The best option, I think, is as much competition.... We welcome competition. And less regulation--we are far too highly regulated in telecom and broadcasting today. The amount of regulation we have in this country and the regulatory fees and charges that are imposed on us constitute a major drag on additional investment, notwithstanding the $6 billion that we've done in the last two years. If we had fewer of these fees imposed on us, we'd do even more.

All we're saying is, number one, if you're going to liberalize the foreign ownership rules, make it symmetrical. We all should have the opportunity to get cheaper access to capital. What we tried to put forward is a proposal. We're dealing with the facts on the ground, frankly. Let's put a proposal forward that liberalizes foreign ownership but is realistic and can be implemented. You have to balance the issue of access to foreign capital, Canadian jobs, rural deployment of broadband, cultural concerns, and we have to deal with the minister's indication that the Broadcasting Act won't be touched. So we put together a model that addresses those issues. It's realistic, 49%. By the way, that can be done without amending the Broadcasting Act.

So we put a pragmatic proposal forward: new entrants will have greater access to foreign capital in that way; we'll have greater access to foreign capital in that way. Competition.... We have a lot of carriers coming in on the wireless side.

And the last final point is that on the wireline side that Mr. Peirce is actually focusing on, I would urge you all to read the FCC's national broadband plan in the U.S. Here's what they said: the wireline business is a high-fixed-cost, high-sunk-cost business. Let's be realistic, and let's not expect that we're going to have a multitude of wireline providers coming in and offering services. It's just too expensive. But wireless offers great hope for additional competition, and in Canada we'll have eight and nine carriers. We're in pretty good shape.

[Chris Peirce]

You're exactly right. Monopoly got us so far. Competition is now getting us to a whole different stage. But to get to competition from what was a monopoly, there's a need for good regulation, as the government displayed with the wireless auction process. That was good regulation to get to more competition.

In this case, the foreign investment restrictions currently affect those who would compete more than they affect those who are, as you say, already in the market with their networks deployed.

Just one point on my friend's comments: wireless calls don't fly from one phone to the other through the air. They find a network, and then they go along that network. Our network is one of the largest backhaul providers to some of those new entrants. So the network will always be important, and finding people, new and existing, who will invest in that network is really crucial, and that's why the investment restrictions are a direct limiter on that.

[Michael Hennessy]

Absolutely competition.

Regulation is fine. We don't like it, but regulation is fine as long as it's applied equally to all competitors.

Unlike my friend Mr. Peirce, I would say the last auction was a disaster. It forced Canadian companies to pay probably about a $2-billion premium because of the way the rules were set up to get spectrum. That's money that is lost forever in terms of reinvesting into bringing broadband to rural areas.

I'm not sure that the cost of bringing in new entry is worth the price, and that's a perfect example of bad regulation.

[The Chair, Conservative, Michael Chong]

Go ahead, Mr. Wallace. I believe you have a brief intervention.

[Mike Wallace, Conservative, Burlington, ON]

I'll be as brief as possible.

This is a yes-or-no question. Does any one of your three companies have investments in telecommunications in other countries?

[Michael Hennessy]

Yes.

[Mike Wallace, Conservative, Burlington, ON]

You do. And were there foreign investment regulations that controlled how much you could invest and where you were?

[Michael Hennessy]

No. There are small rules. Every country has its own laws and rules, but the general answer is no.

[Mike Wallace, Conservative, Burlington, ON]

So as Canadians we're looking at opening up the market for foreign investors, and you, as Canadian companies that are progressing elsewhere, haven't had any issues with those countries with restrictions. My biggest frustration as a politician, not just in your industry but in other industries, is that....

We like to look at our own navel here. Why are you not big players in the world if you're that good as leaders in telecommunications? Why isn't Bell the AT&T of the world? Why aren't we looking elsewhere and being leaders?

I'll be happy to hear what your answer is.

[Chris Peirce]

I think that's an excellent point. We have a history of companies that were active beyond the borders of Canada to a far greater extent than they are now.

But with the restrictions--and where you're going, to my mind, is right--once you describe the sandbox as being within Canada in terms of investment, that's where ambition stops. That's why to promote ambition of our Canadian companies globally, removing the restrictions is important as well.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Peirce.

Before I go to Mr. Masse, perhaps Mr. Peirce and Mr. Bibic could briefly answer the question on whether you have investments outside of Canada.

[Chris Peirce]

We're a licensed carrier in the U.S., but we don't have investments outside of Canada.

[Mirko Bibic]

Our investments are very small, Mr. Wallace.

But to your question about other countries and the restrictions, I don't know of any other country that imposes restrictions that allow foreign entry but handcuff its own providers. The rules are symmetrical, and that's what we're arguing for.

[The Chair, Conservative, Michael Chong]

Thank you very much.

The last intervention goes to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

And thank you for being here today.

There has been a lot of discussion about the advances that a number of companies have made in rural and other small-market areas. How much of that investment is from the deferral accounts decision?

[Mirko Bibic]

None of the investments, none of the $6 billion I talked about relates to the deferral account. That deployment program hasn't begun. It has all been our own shareholder capital that we've put in--over a billion dollars--just on wireless alone last year. It was $3 billion in total, $3 billion again this year.

We're itching to use the deferral account moneys that are there--$450 million--to deploy broadband to the 102 approved communities, and that's still working itself out.

[Brian Masse, NDP, Windsor West, ON]

To the researcher, can we get an update on that?

So the committee is aware, there's quite a large sum of money in deferral accounts, which were overpayments by the public, that is going into rural and broadband development. Maybe we could have a summary of other government programs and subsidies that are available or still pending for use. I think that would be helpful for the public as well.

[The Chair, Conservative, Michael Chong]

Certainly. We'll get the research analyst to produce some information for you.