Industry Committee on March 1st, 2018

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Mr. Chair, I'll be splitting my time with my colleague to my right.

My first question is for Mr. Poole.

What would you say is the value difference between replacing the battery and replacing an entire phone? Is there a significant difference in the value to Apple?

[John Poole]

The value to Apple right now, especially considering that they're operating the battery program at a severe discount.... I unfortunately can't speak to the particular costs of a new battery versus a new phone. It's a lot more revenue for Apple to sell a consumer a new phone than it is to sell them a new battery. We're talking perhaps in the order of magnitude of $100 for a battery before the program versus $1,000 for an iPhone.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

That's what's really interesting to me, because as a layperson who doesn't have the experience of someone like you, I expect our phones to just get slower over time. When that degradation happens, I think many of us would say to ourselves that perhaps it's time to get a new phone. When these slowdowns happen and they're due to batteries, not the phones themselves, I think many people will go and buy a new phone.

Would you say that this issue has led to a great growth of magnitude and value to Apple, as opposed to what would have been the case if it had been more transparent and had told people about the battery changes?

[John Poole]

It's hard to say how many people went out and bought a new phone versus replacing their battery due to this issue. I know anecdotally speaking that a number of our customers came to us after we published these results and said exactly that, that they had had a slow phone, that they had been confused and thought simply that it was time to upgrade, so they went out and purchased a new iPhone, realizing now in hindsight that they may have been able to replace the battery and have a phone that operated much faster than it had before.

I do know several analysts who have commented that this iPhone battery replacement program, the severe discount that Apple introduced in December, could have a material impact on the number of iPhone units that Apple ships this year.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Would you say that because people are now aware of this battery issue, that will have a material negative impact on Apple's sales of new phones?

[John Poole]

I know several analysts are suggesting that, and their reasoning seems sound to me.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

You stated that it's unfortunate that it wasn't transparent, but you couldn't really say whether this was planned obsolescence. Would you say, then, that this lack of transparency essentially created a great deal of value for Apple?

[John Poole]

It's entirely possible that it could have. With consumers encountering a slow phone and deciding to upgrade, it could have shortened an upgrade cycle. Perhaps if the consumer would have held on to a phone for three or four years, then maybe this issue would have caused them to replace the phone after a year and a half instead.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Thank you.

Ms. Gendron-O'Donnell, speaking more broadly and comparing our competition systems with those in other countries, I note from a number of articles that France is pursuing a criminal probe, and other jurisdictions seem to take very tough actions when they see these things happening. Do you see a reason for Canada to move in that direction?

[Alexa Gendron-O'Donnell]

As I mentioned before, Canada does have both civil and criminal provisions in its act. In terms of things like deceptive marketing and abuse of dominance, we do have quite strong provisions already, even if they are not identical to those of our counterparts. Obviously, the changes to the law itself rest with the department and ultimately with Parliament. I would say that if you look at the penalties available under our act, we have some quite strong ones.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Sorry, I guess I took all the time from my colleague.

My final question would be, do we have a law in Canada against planned obsolescence?

[Alexa Gendron-O'Donnell]

The laws in Canada that we enforce don't often name specific types of conduct. We tend to have laws that are broader, for example, against deceptive marketing, against abuse of dominance. I think I described them a bit earlier, so you have a sense of what they cover. The idea is that those laws are designed to capture deceptive marketing generally, ensure truth in advertising generally, and look at abuse of dominance generally. This is kind of where those laws lie.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

In your opinion would it be helpful to your department to have more direct wording, such as specifically stating planned obsolescence, like they do in France?

[Alexa Gendron-O'Donnell]

As I said before, the Competition Bureau doesn't hold the policy function with respect to its laws. The department would be the one to speak to you. I'm not in a position to comment on that.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Okay. Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We'll move to Mr. Sheehan for five minutes.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Mr. Chair, before I begin my questioning I just need a point of clarification.

In our package we received a letter from the CRTC, addressed to you, dated February 26, 2018. In this letter the commission identifies how many complaints they have received related to the iPhone performance. Are we able to share that? Is that public information?

[The Chair, Liberal, Dan Ruimy]

Yes. It was circulated to the entire committee, so there is no objection. We'll actually put that letter on our website as well.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Okay.

That leads into my first question, which is for Alexa from the Competition Bureau.

We have this letter from the CRTC where they identify the number of complaints they received, that being 20. I'm wondering if the Competition Bureau would be able to identify the number of complaints they have received related to iPhones as well.

[Alexa Gendron-O'Donnell]

As I mentioned previously, we keep information, including complaints, confidential. We are a law enforcement agency, so we conduct our work in confidentiality. That's written into our act and that's also our procedure. We do that to maintain the integrity of our investigations until we get to a point where something can be made public. Alternatively, a party or a third party participating in our process can make anything public at any time, but the bureau itself maintains confidentiality.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

You're different from the CRTC in that sense, then, because we have information from them, but you don't....

[Alexa Gendron-O'Donnell]

That's right. I can't speak to the CRTC, but I can say that the bureau itself is a law enforcement agency. We work with confidentiality.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Fair enough.

Mr. Poole, I caught an interview you did with CNBC back in December. You made some statements that were interesting. You told them that you felt that Apple could have been more transparent with its changes to software, and that it may not be the best idea to skip future updates. You also felt that their communication was not “well”.

Could you explain to this committee what you meant by those two statements?

[John Poole]

Here's what I meant by the first statement commenting on Apple's transparency, or lack thereof. I was disappointed when we discovered this, to realize that this was a change that Apple had introduced with basically no notification to the user. I think when they changed the performance, when they changed the way the phone functions in such a fundamental way, that should have been transparent to the user from the very beginning.

Also, if the battery was degrading to the point where it was affecting other functions on the phone, to have some sort of notification on the phone that would indicate that this was the case would have been great. We had users who'd gone through and said they were experiencing the slowdown. They'd go into the settings application on their phone to look to see whether there was any sort of report to advise people to take their phones or their batteries in for servicing, something which Apple does on other products that they provide. Their laptops, for example, will indicate if your battery is outside of spec and should be replaced. There were no notifications in this regard on the iPhone.

This was very much done under the radar without any real disclosure to customers that this was happening or what steps a consumer could take to either mitigate or remedy this sort of issue.

I would make another comment on encouraging consumers to continue to update their phones. When Apple releases new iPhone software updates, these software updates can include unfortunate changes like this which could affect the way the phone operates. They do also, however, include important security updates. If a user refused to update their phone, they could leave themselves vulnerable to various security issues which could cause nefarious third parties to compromise their phone, their personal information, their banking, and any sort of information that might already be on their phones.

I think as much as consumers have lost some trust in Apple, and the contents of their updates, I think it's still important for consumers to continue to apply the updates for these security reasons.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you.

I'm going to split the rest of my time with MP Longfield.