Industry Committee on Dec. 8th, 2020

[The Chair, Liberal, Sherry Romanado]

Good morning, everyone. I call this meeting to order.

Welcome to meeting number 10 of the House of Commons Standing Committee on Industry, Science and Technology. Today's meeting is taking place in a hybrid format pursuant to the House order of September 23.

The proceedings will be made available via the House of Commons website. Just so that you are aware, the webcast will always show the person speaking rather than the entire committee.

I'd like to give the members an update on the schedule because we've had some changes. If you'll bear with me, I'd like to provide that to you.

For the INDU members, as you know we passed the motion on Tuesday last week. Just so that you know, all four witnesses have accepted the invitation to appear. The problem has been scheduling. The clerk and I have been working on this since the minute the motion passed. Right now this is where we stand. Again, I'm assuming that INDU is going to be sitting on Tuesdays and Thursdays from 11 o'clock to 1 o'clock in the new year, but things may change. I want you to bear that in mind.

Right now, with respect to the vaccine manufacturing study, we have the PHAC president for Tuesday, January 19. This is an added meeting date if we can get authorization for a hybrid sitting. We also have Minister Hajdu for Tuesday, January 19, on that added meeting date—again if we get authorization for a hybrid sitting. Minister Bains, unfortunately, was not available this Thursday and we couldn't move our INDU time slot. We were even trying to see if we could switch with another committee or even add another time slot this week, which wasn't possible, unfortunately, but he's given us three meeting dates when he is available for the first three meetings when we're back in January. Minister Anand is scheduled for Thursday, January 28.

With respect to the affordability and accessibility study, as you know, we had the representatives from Bell scheduled on December 1, but we had that Standing Order 106(4) meeting, so they had to be rescheduled. They are holding Tuesday, January 26, for them to come back.

I want to give you guys all of the information that I have. We've also, as I said, inquired with the clerk, the head clerk and the whips, about adding meetings next week, week of December 14. Negotiations amongst the parties are still ongoing, including discussions about extended hybrid sittings.

I've also let all of our witnesses know that, should we be able to add additional meetings outside of those dates, I will be back in touch with them to see if we can get them in sooner.

I wanted all of you to have the same information at the same time so that you can schedule accordingly. For any updates that we have, the clerk will definitely send you that as soon as we have it.

With that, I'd like to go over the rules for today's meeting.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of the floor, or English or French. For members participating in person, please proceed as you usually would with the whole committee meeting in person in the committee room. Keep in mind the directives from the Board of Internal Economy regarding masking and health protocols.

Before speaking, please wait until I recognize you by name. If you're on the video conference, please click on the microphone icon to unmute yourself. For those in the room, your microphone will be controlled as normal by the proceedings and verification officer.

I remind you that all comments by members and witnesses should be addressed through the chair and that your mike should be on mute when you are not speaking.

With regard to the speaking list, the committee clerk and I will do our best to maintain the order of speaking for all members. If there are any changes, please notify the clerk and he will notify me accordingly.

As is my normal practice, you will see the yellow card when you have 30 seconds remaining in your intervention, and I will wave the red card for when the time for your intervention is up. I ask that you please respect the time limits so that all of the members can get their questions in.

The House of Commons Standing Committee on Industry, Science and Technology is meeting today to continue its study on the accessibility and affordability of telecommunications services in Canada.

I'd now like to welcome our witnesses, and for the sake of time I won't read all of your titles, because they are in the notice of meeting.

From the Canadian Communications Systems Alliance, we have Mr. Jay Thomson and Mr. Ian Stevens; from the Public Interest Advocacy Centre, Mr. John Lawford; from the Canadian Wireless Telecommunications Association, Mr. Robert Ghiz and Mr. Eric Smith; from TekSavvy Solutions, Mr. Andy Kaplan-Myrth; from FSET Information Technology, Mr. David Brown; and from the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic, Mr. Tamir Israel.

With that, each witness will present for up to five minutes, followed by our rounds of questions.

We will start with the Canadian Communication Systems Alliance. You have the floor for five minutes.

[Ian Stevens, Board Member and Chief Executive Officer of Execulink Telecom, Canadian Communication Systems Alliance]

Thank you, Madame Chair, and committee members.

My name is Ian Stevens, and I am a board member of the Canadian Communication Systems Alliance, or CCSA. I'm also CEO of Execulink Telecom, based in Woodstock, Ontario. Joining me today is CCSA's CEO, Jay Thomson.

Thank you for this opportunity to participate in your important deliberations regarding accessibility and affordability of telecommunications services. Mr. Thomson and I last appeared before you in May, when you were examining Canada's response to the COVID-19 pandemic. At that time, Mr. Thomson presented our opening remarks. Today, it's my turn.

CCSA's members are small and mid-sized, facilities-based communications companies serving mostly rural parts of Canada. Our members are helping the government achieve its universal broadband goal by delivering speeds to their communities that meet or even exceed the 50/10 objective. Our members would also like to bring the benefit of mobile competition to the communities, but in most cases the incumbents are preventing them from doing so.

It is an economic reality in this country that government help is needed to extend broadband to Canadians who remain unserved or underserved. Government help is also needed so that more Canadians can access affordable, competitive mobile telephone services. I think it is fair to say that, because of my role at Execulink and in the CCSA, I've gained intimate and practical knowledge regarding what works and what is still needed to advance accessibility and affordability in telecom services in rural Canada. My company has benefited from various government funding awards to help extend or improve broadband service in southwestern Ontario, including in a first nations community. None of those projects has had a standalone business case. It took government funding to make them happen.

Central to government funding programs is the goal of affordability. Generally, affordability is assessed by comparing prices to be charged in a rural setting to urban prices. We are aware of situations where Canadians are paying more than $200 per month only to receive extremely poor service. Those situations certainly don't seem affordable to us. That said, we caution against strictly using urban prices as a benchmark for affordability in rural Canada. As committee members from rural ridings know, the time and cost to visit every constituent's door increases in proportion to the geography they serve. The same applies to us. While urban ISPs contemplate doors served per kilometre, in rural areas it's kilometres per door.

On a per customer basis, it simply costs more to build and maintain broadband services in rural areas. That means that absent government funding to offset those extra costs, rural retail prices must often be higher than urban prices, even with one time capital injections available from current broadband funding programs. That means that unless the government is willing to subsidize rural operating costs, funding programs should not penalize rural providers who must charge higher prices to serve their rural customers.

Madame Chair, we share the view of other witnesses that Canada needs a coordinated broadband strategy. Currently, we have a myriad of municipal, provincial and federal funding programs. They all have similar goals and strong support, but those programs are not aligned on their timing, their objectives, their focus or their commitment to execution. As a result, they compete for potential applicants' limited time and resources. For that reason, we fear that in terms of solving the rural broadband problem, those various programs will actually end up accomplishing less than the sum of their parts.

Furthermore, given that consumer consumption always increases and that it takes time to build out advanced broadband networks, government programs need to invest, not to meet today's needs but those of 2030 and beyond. To that end, fibre should always be the first choice where possible. All other technologies will require constant reinvestment and a hope for technology breakthroughs to meet the needs of Canadians. In our business, hope is not a strategy. Fibre, however, will continue to serve Canadians for generations to come.

CCSA thanks you again for this opportunity, and we look forward to responding to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We now move to Mr. Lawford. You have the floor for five minutes.

[John Lawford, Executive Director and General Counsel, Public Interest Advocacy Centre]

Thank you, Madam Chair.

The Public Interest Advocacy Centre is a national non-profit and registered charity that provides legal and research services on behalf of consumers, particularly vulnerable consumers. PIAC has been active in the field of communications law for over 40 years.

Yes, we have a broadband problem in Canada. PIAC has consistently attempted to change this at the CRTC; in submissions to the government; as part of coalitions with ACORN Canada and the National Pensioners Federation, making demands for low-income and seniors groups; and with OpenMedia in a project called Get Canada Connected during COVID-19. However, progress is elusive, even to the point of our despair.

Lower-income Canadians' broadband Internet penetration levels are lower than the highest-income Canadians'; that is 70% versus 98%. Similarly, rural and remote access is considerably lower, especially at the higher speeds, such as the CRTC's 50/10 Mbps target speed for broadband Internet. Rural access is at less than 40%, and first nations land at less than 30%, whereas the all-Canada average, including urban, is well over 80%.

Full coverage of rural and remote Canada is promised only for 2030, at which time the 50/10 Mbps speed undoubtedly will be inadequate for the functions of broadband then enjoyed in cities. This too late.

PIAC believes that broadband access and affordability can be addressed in four steps.

First, Canada should adopt a clear universal service obligation, such as that in the United States. The broadcasting and telecommunications legislative review panel's final report in January of this year recommended a USO for Canada. Canada has never had a legislatively mandated universal service obligation. A true USO means that telecommunications carriers and regulators and the government must all work together to deliver service to all. It's the law. It can be measured and enforced. Parliament can make this change. Without this legal basis, nothing else is possible.

Second, PIAC recommended in two research reports on telecommunications affordability that communication services are affordable where, as a guideline, they make up, at most, 4% to 6% of a household's income. Low-income Canadians pay about 8% to 10% of their household income at the moment, often for fewer services than other Canadians. Canadians are willing to pay through their telecommunications bills a small levy to support affordable, universal service for Canadians. PIAC asked Environics Analytics to survey Canadians in 2016 as part of submissions on a major broadband proceeding at CRTC. It showed that most Canadians would pay 50¢ more per month on their Internet bills to support low-income broadband access. Without a statutory USO with affordability as a clear goal, the CRTC consistently has refused to create a subsidy for broadband access. This divides Canadians.

Third, the CRTC has undermined the broadband project by recently moving to phase out the national contribution fund or NCF. For decades, the NCF has funded above-cost-operation telephone service in rural areas. It should be transitioned to a broadband contribution fund. Operating broadband in rural areas will always be above cost in many places. The U.S. has such an operating support for broadband. Without it, we will have networks that we cannot afford to run outside of cities.

Fourth, Canada continues to pump billions of dollars into building broadband infrastructure. Everyone in this space—from the smallest co-operatives to the largest telcos, consumer groups, MPs—complains about the fragmented Government of Canada operation of these funds. Bring them all under one body and call it a “broadband czar”.

Those are our thoughts, and we look forward to your questions.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

Our next witness is the Canadian Wireless Telecommunications Association.

You have the floor for five minutes.

Mr. Ghiz, you're on mute.

[Robert Ghiz, President and Chief Executive Officer, Canadian Wireless Telecommunications Association]

Perfect. There we go.

Thank you very much. It's a pleasure to be here this morning to represent the wireless industry.

The pandemic has altered the lives of Canadians. It has changed the way we work and access critical services. It has also highlighted how vital telecommunications services are to our health and safety, and to sustaining the country's economic and social activity.

During the current crisis, Canada's facilities-based providers have been focused on ensuring Canadians can continue to rely on the high-quality networks and services to which they are accustomed. Years of investing in network infrastructure have resulted in networks that are incredibly resilient in the face of intensified traffic and altered use patterns. In fact, according to Accenture, 90% of Canadians surveyed said their service provider's response to COVID-19 has met or exceeded their expectations.

While the vast majority of Canadians have access to reliable advanced telecommunication services, the impact of COVID-19 also highlighted the fact that some communities remain underserved. Closing this gap in connectivity is imperative, as the future of many communities and their citizens depends on having Internet access and being able to participate in the digital economy. That is why, working in partnership with governments at all levels, Canada's facilities-based carriers are continuing to expand telecommunications infrastructure into hard-to-serve communities.

But just as today's network performance is the result of past policy decisions, securing access to high-quality and affordable telecommunications services for all Canadians requires the right regulatory framework, one that balances the three key objectives of quality, coverage and affordable prices. Canada's telecommunications policy has long recognized the importance of facilities-based competition as the best way to drive competition while also encouraging the level of private sector investment needed to build world-class networks.

In Canada's mobile wireless industry, facilities-based competition has resulted in intense competition amongst national and regional network operators. This has led to a steady decline in prices, higher-quality service and expanded coverage. For example, according to the CRTC, the price per gigabyte of mobile data declined by 56% from 2015 to 2018. PwC has also recently estimated that the introduction of unlimited data plans is expected to reduce the cost per gigabyte of data by 50% from 2018 to the end of this year.

Equally important, Canada's facilities-based carriers are continuing to invest in upgrading and expanding the reach of Canada's wireless networks. To date, Canada's facilities-based wireless providers have invested over $50 billion in capex to build Canada's wireless networks and have also spent more than $20 billion on spectrum costs.

As a result of these investments, Canadians enjoy the world's top-performing mobile wireless networks. Even in rural areas, Canada's networks perform better than the overall networks in most other countries, including all but one of the G7 countries.

With respect to coverage, the CRTC reports that 4G LTE coverage was accessible to 99% of Canadians where they live as of the end of 2018. CRTC data also shows that rural 4G LTE coverage has expanded rapidly over the last few years, increasing from 35% in 2013 to reaching 95% of Canadians living in rural communities in 2018.

We know that more work and more investments are needed to expand our networks and to introduce 5G, yet at a time when investing in the expansion and upgrading of Canada' digital infrastructure is more important than ever, regulatory measures are being considered that, if they proceed, will discourage private sector investment.

With respect to the wireless industry, the CRTC is currently deliberating over whether to require wireless network operators to give resellers, or MVNOs, access to their networks at regulated rates. PwC has estimated that this will have a major impact on capital expenditures and that the communities that would be disproportionately impacted by these cuts are those that are the hardest to serve.

While other developed countries are implementing policies and strategies to accelerate the rollout of 5G, it is estimated that mandating MVNO access in Canada would reduce the effective coverage of 5G in Canada by 2030 by 20%. This delay would result in an estimated cumulative loss of at least $57 billion in GDP. Simply put, mandated access, and particularly mandated access at less than arm's-length negotiated rates, negatively impacts network operators' capacity to invest in digital infrastructure.

Let's build a stronger Canadian digitization economy.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Ghiz.

We now move to Mr. Kaplan-Myrth.

You have the floor for five minutes.

[Andy Kaplan-Myrth, Vice-President, Regulatory and Carrier Affairs, TekSavvy Solutions Inc.]

Thank you, Madam Chair, vice chairs and committee members. Thank you for the opportunity to speak with you.

My name is Andy Kaplan-Myrth, and I'm VP of regulatory and carrier affairs at TekSavvy, an independent Canadian Internet and phone service provider based in southwestern Ontario and Gatineau, Quebec.

TekSavvy has been serving customers for over 20 years. Today, we have over 300,000 customers in every province.

TekSavvy has always defended some very important values concerning the Internet. We believe in affordable, competitive access, as well as network neutrality and our customers' privacy rights.

In our home territory in southwestern Ontario, we connect customers on network facilities that we build. Elsewhere to reach customers where we have not built our own networks, we buy wholesale services from the large incumbent carriers.

Wholesale-based competitors like us serve more than one million households and businesses. Seven months ago, I told this committee that the entire framework for telecom competition was at a breaking point, and competitors were at risk of disappearing. The situation today is dire. If we don't protect broadband competition, especially during the uncertain times of this pandemic, then the result will be less affordable Internet services and less investment in underserved communities.

Since my last appearance here, TekSavvy and the competitive broadband industry have seen some victories and some setbacks concerning wholesale rates and our access to modern fibre networks.

After the CRTC set final rates in August 2019 correcting inflated rates going back four years, TekSavvy passed on the benefits of those lower rates to consumers by lowering our prices. However, the incumbents got a stay preventing those rates from coming into effect. They also filed multiple appeals.

In August, the Governor in Council responded, and while it did not overrule the CRTC, its decision adopted the incumbent's false position that investment and competition need to be balanced against one another.

In September 2020, the Federal Court of Appeal unanimously dismissed the incumbents' appeals to that court saying their issues were of dubious merit.

Despite that ruling, competitors had another setback when the CRTC suspended their own final rates leaving in place the inflated rates that the CRTC itself already found to be unjust and unreasonable.

Meanwhile, the incumbents have been targeting us with anti-competitive retail prices that are below the wholesale rates that they themselves inflated. In February, TekSavvy filed a complaint with the Competition Bureau seeking an inquiry into some of that anti-competitive conduct.

After being squeezed by incumbents for years and having lowered our prices expecting the CRTC to implement its final rates, by late 2019 TekSavvy was losing money. As a result, TekSavvy had to make the difficult decision to raise prices twice in the past year. In some cases, absurdly, we have had to set our prices higher than those of the same incumbents who sell us wholesale services, and now instead of losing money, we're losing customers.

We remain hopeful that the CRTC will reaffirm its earlier rates, and that the government will trust these experts who have spent years poring over thousands of pages of evidence. Those rates that are retroactive correction to years of overpayments are critical, not only for competitors, but also for connecting people in underserved areas.

Despite the widespread rhetoric, TekSavvy and other competitors do invest in network facilities. TekSavvy's five-year investment plan funded by ownership and private capital totals over $250 million including over $100 million for high-speed network facilities connecting 60,000 residents and businesses in underserved communities across southwestern Ontario.

As important as they are, all of these issues about wholesale rates are for access to aging legacy technologies. Five years ago, the CRTC determined that competitors need access to modern fibre to the home networks, but we still don't have access to them, and that's not to mention the mobile sector where we have no service-based competition and where mobile rates remain some of the highest in the world.

Canada needs to accelerate the deployment of networks to underserved areas. To accomplish that, a broadband plan must include competition by design, and it must reject the false dichotomy between investment and competition.

TekSavvy is demonstrating that we can have both.

Thank you. I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We will now go to Mr. David Brown.

You have the floor for five minutes.

[David Brown, Chief Executive Officer, FSET Information Technology]

Good morning everyone. I'm happy to be here to speak to everybody about the work we've been doing and some of the challenges we have in northwestern Ontario.

My name is David Brown. I'm the CEO and co-owner of FSET. We're an information and technology services company based out of Kenora, Ontario. We provide services and solutions to both the public and private sectors. We have more than 50 years of combined experienced within law enforcement and another 40-plus years in health care.

Our customers are based out of Ontario, Manitoba and Quebec. We're doing some other work, not just here in Canada, but conversations outside.

I've spent the last two decades navigating infrastructure and communication challenges for indigenous communities across the region here in northwestern Ontario and advocating on their behalf. In September 2020, I reached out to our local telco within the region in an attempt to purchase and upgrade much-needed bandwidth for the community of Pikangikum First Nation.

At the community's discretion and direction, and with money in hand, my instructions were to do whatever I had to do to improve their situation. This was my first attempt at improving their situation, but it certainly was not theirs. The lack of usable broadband available to them meant an inability for programs and services to be delivered to the community—for health, education, mental health, justice, local government, financial services, legal services and the list goes on. We're not talking about recreational use. We're talking about quality of life here for these communities.

These attempts through traditional means, as was often the case in my 20 years of trying to do this for indigenous communities, did not prove fruitful. Traditional services, terrestrial-based solutions, telcos.... This is what it's like for indigenous communities to try to work with the big three companies within Canada.

It is not because they provide the best or most reliable service. It is not because they are cost-effective. It is not because they are agile and scalable. They are just the opposite. It is a slow, cumbersome process and there is no sense of urgency with regard to their deliverables. Terms and contracts are lengthy; they are typically looking for seven or ten years. They're looking for early termination fees ranging anywhere from 50% to 100% of those seven to ten years. Pricing is uncertain and additional fees and services often can and do apply.

When we reach out to a telecommunication company, this process, from the initial dialogue and conversation to the actual delivery of service, takes years. I've never been involved in a situation, a dialogue or a project where this hasn't taken a couple years or three years. Sometimes it can prove even more difficult. This isn't just putting a shovel in the ground. This is just having dialogue to move these types of things along.

This is what “business by default” looks like. Again, there simply have been no other options. These companies don't have to be efficient; they just have to be the only game in town. Therefore, it's the only option for indigenous services to work with and try to navigate. That hasn't worked. It doesn't work, and it's kind of the way things have been.

After eight months of trying to navigate this process yet again for the community of Pikangikum, the telco came back and offered 10% of the available bandwidth that this community already had. The 100% they had before I started this process was not enough. It was one gigabit of fibre to the community and that was being shared through a cable plan for 400 homes and businesses and 2,000 residents.

I liken that to an apartment complex or a hotel with hundreds of users all turning the tap on and you're trying to get water out of a half-inch main. When that happens, nobody gets water. In this case, nobody was getting Internet access.

That led us to approach things differently. I began the process of trying to reach somebody within SpaceX to think differently and to do something differently. Twenty years was enough for me, so I was tapping out.

Satellite is agile, scalable and timely. With SpaceX Starlink, the cost and pricing can be easily calculated per home, per community and per region. This is true whether it's one, 100 or 1,000 homes. From the time of purchase to serviceability, the process takes days, not years. The installation is simple. It takes minutes before you're online, and just about anyone can do it.

Consumers are under no obligations, there are no contracts and commitments, there are no early termination fees and seasonal use is an option.

Thanks, everyone. I look forward to your questions and providing feedback on the work we did in Pikangikum.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Brown.

We will next go to Mr. Israel.

Mr. Israel, you have the floor for five minutes.

[Tamir Israel, Staff Lawyer, Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic]

Thank you, Madam Chair and members of this committee.

My name is Tamir Israel and I am staff lawyer with the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic. CIPPIC is a public interest technology law clinic based at the University of Ottawa Faculty of Law. I'm testifying before you today from my home in Ottawa, which sits on unceded territory of the Algonquin nation.

Thank you to the committee for inviting us to testify before you today and for undertaking this important study. The ongoing pandemic has emphasized the essential nature of connectivity in Canada. Now, more than ever, it is critical to ensure that Canadians may not only access, but also afford, data services.

Canada continues to experience connectivity challenges, particularly in remote regions. Our communications complaints body recently identified quality of service problems to be the third highest source of complaints against fixed and mobile companies. Better documentation of current and ongoing challenges is an important step to securing high-speed connectivity for all Canadians.

Additionally, the government's ongoing contributions to improving Canada's broadband networks are encouraging. However, this investment falls short of ambitious programs undertaken by governments such as Australia.

While investments through programs such as the universal broadband fund will certainly improve Canadians' ability to connect to the Internet, a national approach might allow for more strategic government investment and deeper coordination across different funding programs.

A national broadband plan could also address the management of key inputs such as spectrum and access to poles in a more strategic and coordinated manner. Such a plan might best be generated through the auspices of the CRTC, even if elements of its implementation might be dependent on other government bodies.

CIPPIC is encouraged to see affordability acknowledged as a central pillar in this committee's study. Particularly in mobile, Canadians receive a poor value proposition by global standards. In fact, Canada's mobile costs have been persistently high in comparison to its global peers for years and it's important to understand the different ways this undermines adoption.

First, many Canadians do not subscribe to mobile data at all, despite relatively wide national coverage. Canada is 31st out of 37 OECD countries in terms of the number of per capita subscribers.

Second, even among subscribers, high costs prevent Canadians from realizing the full potential of mobile data connectivity. Canada ranks 30th out of 36 OECD countries in terms of the amount of data used by an average subscriber in an average month, with Canadians using only half of the OECD average.

We continue to fall further behind our peers on both these metrics with average mobile subscriptions and data usage growing faster throughout the OECD region than in Canada.

Finally, Canadian subscribers are too often called upon to choose between maintaining their mobile plan and other life necessities. A 2019 survey found that 20% of Toronto respondents who have had to skip meals indicated that their monthly phone bill was the cause. Rent and transportation were the other two top causes.

Connectivity is essential, and Canada must do more to improve accessibility and affordability of its services. First, it is critical that we apply the wholesale model that Canada has developed in the wireline context to mobile. There is an upper limit to how many wireless competitors will organically emerge. Mandating virtual access to mobile networks on a cost recovery plus basis is the only way to increase connectivity. Similarly, unused spectrum in rural areas must either be returned or be made available to competitors on a wholesale cost-recovery basis.

Second, we should consider amending the telecommunications policy objectives to emphasize factors such as affordability. Too often, critical affordability measures are defeated out of concern that these measures might impact investment in rural broadband. This largely presents a false choice.

Profit margins among incumbent service providers in Canada are high by global standards. A 2014 analysis by The Brattle Group found that Canadian wireless providers were generally earning above normal returns on their investments. These profit margins are sufficiently healthy to absorb a more competitive marketplace driven by wholesale on a cost recovery plus basis in both wireless and wireline.

Our current regulatory model for connecting remote areas relies on a combination of service targets and a contribution fund to incentivize projects that would help meet these targets. If incumbent providers continue to respond to regulatory pressures by favouring world-leading profit margins and shareholder dividends at the cost of rural investment, the CRTC should increase the contribution fund amounts accordingly or move toward imposing direct service obligations.

Finally, a fairer mechanism for imposing temporary wholesale rates should be explored. The rate-setting process is inherently complex and it is important that the process is ultimately correct. However, the current process incentivizes incumbents to propose favourable rates at the outset, and as a result, competitors are persistently at a disadvantage.

Given the degree to which a regulatory system is currently dependent on wholesale mechanisms from imposing price discipline, it is of central importance to expedite the availability of more accurate wholesale rates while the final rate-setting process resolves itself.

Those will be my opening comments for today. Thank you. I welcome your questions.

Thank you for your patience with my audio difficulties.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Israel.

We'll now start our round of questions. The first round goes to MP Dreeshen. You have the floor for six minutes.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much, Madam Chair.

I think what we have heard this morning from all of the witnesses is that there is quite a disconnect between some of the things that we hear are going to happen, whether it be government policy or telcos' commitment to grow broadband or some of the other things that are happening on the ground. This is part of what this study is about. We've been working on this for years to try to get some sort of certainty associated with it. I think we've heard the diverse views here today.

I'd like to start my questioning, first of all, with TekSavvy.

As you pointed out, in early 2019 the CRTC announced a review of the Canadian wireless industry, with the goal of enabling competition through mandated wholesale services for competitors known as the mobile virtual network operators, or MVNOs. Of course, we've seen the same process unfold for Internet service providers.

In your final submission to the CRTC in July 2020 you noted:

The value MVNOs can provide to Canadians comes not from simply lowering prices but rather from creating new, innovative services that target underserved [or] unserved market niches that are not being served by existing players.

We hear on the other side that these MVNOs are causing issues for other groups.

First of all, I wonder if you could expand on the idea. How would MVNOs do a better job of providing wireless services in, let's say, central Alberta than the incumbent carriers?

[Andy Kaplan-Myrth]

Thanks for the question.

The CRTC has taken a preliminary view that MVNOs are a necessary way to introduce more competition in the mobile mobile market, and now of course we're waiting for a decision from them.

MVNOs, of course, as a competitive option should introduce pressure on pricing, so there are obvious competitive benefits for consumers in terms of pricing. TekSavvy also highlighted that MVNOs serve particular market niches, typically in countries where MVNOs exist. Actually, we saw this play out in Canada, not with MVNOs, but with small, facilities-based providers like WIND. I'm going by memory because we have to go back several years to remember these mobile competitors that were introduced—Public Mobile, maybe. They appeared in cities. They were facilities-based. They introduced a competitive alternative, and they eventually were swallowed up by Canada's dominant incumbents.

MVNOs serve communities, but of course within the footprints where the MVNO networks exist. In rural Alberta, of course, an MVNO with wholesale services is only going to be available in communities where a dominant provider already has a network with services. But when we talk about surveying communities with unmet needs, then we're talking more about population groups. It may be affordability, but may also be particular cultural groups. It may be particular subsectors of society who are just not served by the existing packages that are available.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Going back to TekSavvy again, in February 2020 you filed a complaint with the Competition Bureau against Bell and Rogers, as you mentioned in your remarks, for anti-competitive practice.

Can you tell the committee what the gist of that complaint was?

[Andy Kaplan-Myrth]

Yes. Just to pivot away from mobile, of course, and to look back at the wholesale services that are really our bread and butter, it specifically addressed Bell and Rogers' anti-competitive practices where, on the one hand, in front of the CRTC, they have inflated for years the wholesale rates that wholesale-based competitors like us pay. That effectively keeps our competitive pricing high and doesn't allow us to discipline their pricing, thus keeping all retail Internet pricing high across Canada.

At the same time, starting in about 2016, Bell and Rogers both introduced flanker brands, which pretend to be competitors but are not. They're brand names of the incumbents. They introduced pricing that was specifically targeted at undercutting competitors' pricing. So, on the one hand, they were keeping our pricing high, and on the other hand, they were undercutting us in the market.

Our complaint makes the argument that this is an “abuse of dominance”, and it has really squeezed us for the past years. We are unable to price our services low enough to discipline their pricing, which is what a competitor should be able to do, and if we raise our pricing so that we operate within the rates they've set, then we lose customers, because flanker brands are offering services at lower rates.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

I see that I only have a few seconds left, so I will save them for a later round.

Thank you.

[Andy Kaplan-Myrth]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you so much, MP Dreeshen.

We'll now go to MP Erskine-Smith.

You have the floor for six minutes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

My first question is for Mr. Ghiz. We have a long-standing reseller market when it comes to broadband. Why would a reseller market be so detrimental when it comes to mobile?

[Robert Ghiz]

That's a great question.

I think you have to look at the difference between the two. In the mobile market, it's a relatively new market [Technical difficulty—Editor] speaking. It's really only 15 or 20 years old. Both governments' policies over the last 20 years have been to create more competition to help have quality networks that have good coverage and are affordable, but it's taking a while for that to happen.

You have the three incumbents, and you also have the new entrants that are now coming in and starting to make a difference in the marketplace. If mandated MVNOs come in.... We do have MVNOs already in Canada. We just don't have mandated MVNOs. If mandated MVNOs come in, the first target they're going to go after is these new entrants or regional players that are trying—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Can I pause this just for a second, though? All of those arguments apply to the mandated reseller space for broadband, so why are you making these arguments in the one context but not in the other?

[Robert Ghiz]

Number one, I just represent the wireless industry, and there are differences associated with it, so I can just really answer from the wireless industry. Plus, you're also seeing it on the other side on broadband as well, which is not necessarily my file, but when that TPIA decision came out we saw where all players, including the smaller players in Canada, were arguing that it was going to hurt them in being able to make investments.

At the end of the day, the point we're trying to make is that mandated MVNOs in the wireless industry will first of all undercut the new entrants, which are the ones that are creating the competition that's helping to drive down prices and to do more build-outs across the country.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

For TekSavvy, does any of that make sense to you?