Industry Committee on March 29th, 2021

[Brian Masse, NDP, Windsor West, ON]

Well, they can't go up, that's for sure.

[Joe Natale]

Well, Canadian prices sit right in the middle of the pack with respect to any of the analyses done by the OECD, the Wall report, the monetary report, and my goal is to keep driving that affordability. Despite the geographic disadvantage, despite the population density disadvantage and despite the cost of spectrum and equipment in U.S. dollars, etc., we're committed to continue driving prices downward, and 5G will give us the next big opportunity to do that.

Everyone keeps talking about the killer apps around 5G and all the great things that it will do for IoT and mobile edge computing, etc. The first real killer app of 5G is dynamic spectrum management, the ability to make more efficient use of spectrum and therefore bring costs down. By bringing costs down with 5G, we have the opportunity to transfer those savings on to the consumer, and that's been the beginning, the middle and the goal of our industry every step of the way. That's why prices have come down.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I only have a couple of minutes, so I'll be really quick with this question, Madam Chair.

I agree that some good things have taken place, and I know it's costly to get to certain areas, but is it not true that you have certain areas where your profit margins are at 44% as well? Is that true?

[Joe Natale]

If you look at the true economic profit of Rogers over the last five years, you see that it roughly sits at about 8%, on average, over the last five years. I would say to you that for the first 25 years of wireless, we made no money. We were not cumulative cash flow-positive until about 10 years ago.

In any country, you make more profit and more money in more densely populated areas, and less money in other areas.

[The Chair, Liberal, Sherry Romanado]

Mr. Natale, my apologies, but you're over time.

[Brian Masse, NDP, Windsor West, ON]

Thank you to the witnesses, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

Thank you.

We'll now start our second round of questions.

Our first round of questions will go to MP Dreeshen. You have the floor for five minutes.

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

Thank you, Madam Chair. Hopefully my feed is coming in okay. I was part of the reason we were a little late this morning, and I apologize for that.

Certainly, I'm looking for adequate rural and remote broadband. Like so many families, friends and so on in rural Canada, here in rural Alberta we've been asking for online education and all these things for a number of years.

My first question is for Rogers. I know your company has made some very impressive commitments to my constituents and for all of western Canada if your merger agreement with Shaw is approved. Of course, one of the wild cards in all of this is the upcoming decision of the CRTC on wholesale access rates. We know it was August 15, 2019 when the CRTC set final wholesale Internet rates to facilitate greater competition and promote innovative broadband services and affordable prices for consumers; but the final rates that were announced were lower than the interim rates announced in 2016 and retroactive to the date on which they were set. The announced rates were 15% to 77% lower than the interim rates.

When the Liberal government's order in council was released in August 2020, it effectively called into question the expert opinion of the CRTC, which had spent six years studying the issue. Then on May 14 of last year, we heard testimony from Rogers, which said, “Should those rates go into effect, there would be a dramatic loss of revenue. This certainly would put pressure on the infrastructure builders and make it more difficult to expand our services.”

My question is this. If the CRTC upholds its decision on wholesale access rates or only slightly modifies them, will Rogers uphold the commitments that you've made with respect to jobs, connectivity and investments? Are you prepared to confirm to this committee that you will still follow through on what you've promised?

[Joe Natale]

Thank you, Mr. Dreeshen. Why don't I start, and then ask Mr. Prevost to comment?

You have my word and my commitment that we will make the investments we've talked about in western Canada, around connectivity to rural Canadians, around investment in jobs and 5G.

You're quite right that the interim rates, and then the rural rates, don't make us happy. They sit at about 70% below our cost, so it's very hard to build a network where a reseller gets an advantage that's below the cost of building that network. We've seen different countries across the world where that's happened. The large infrastructure-based providers have slowed down or stopped building, and the last thing I want to do is get into a place where people stop building.

As I said to you, with respect to this coming together of Rogers and Shaw, you have my commitment.

Dean, do you want to spend a quick moment on this topic, because this is something that's near and dear to your heart in your role?

[Dean Prevost, President, Connected Home, Rogers for Business, Rogers Communications Inc.]

Absolutely. As a Calgarian, MP Dreeshen, just south of you, this is incredibly important to me. The billion dollars we've committed is part and parcel of being a telecom company where building is at the heart of what we do. We design, we build, we operate, we invest and maintain it; and then we go to new territory that we haven't built in and continue to do the exact same thing.

The opportunity here is to extend where we never could have otherwise, to take the money that would move from duplication into addition faster and further than we would have otherwise gone, and to bring added competition to single-carrier communities and new services to communities that have never experienced it before. It's at the heart of who we are.

As a Calgarian, with my family here, my commitment is to build and extend that billion dollars across this province, and across B.C. as well.

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

When you mentioned the billion dollars—and that's where I want to go next—basically you said that these new synergies are expected to exceed a billion dollars annually.

Can you explain exactly what those synergies are, what we can expect to see? Again, the key thing is being willing to commit to that without downsizing. We're looking at the job numbers that are being mentioned, and I'm certainly excited about the new tech jobs that are coming here to use the great mental capacity that we have in this province.

Could you explain to me what you see as the synergies that you're describing on that billion-dollar investment?

[Joe Natale]

I'd be happy to do that, Mr. Dreeshen.

Think of it this way. The Shaw family and the Shaw corporation, for over 50 years, have been building fibre throughout western Canada. The Rogers organization, the Rogers family, has been doing the same thing through Ontario, New Brunswick and Newfoundland, the places where we have traditionally been the cable TV and Internet operator. That fibre is incredibly valuable to the future. It's incredibly valuable, not just to the Internet business—

[The Chair, Liberal, Sherry Romanado]

Unfortunately, Mr. Natale, we're over time again. My apologies.

[Joe Natale]

I'm sorry.

[The Chair, Liberal, Sherry Romanado]

I'm going to remind members to please keep an eye on the cards. We're already running late, and I want to make sure that everyone gets their turn.

With that, I will now turn it over to MP Lambropoulos.

You have the floor for five minutes.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you, Madam Chair.

My questions are going to go to Rogers as well. A lot of the topics I'd like to cover have already been covered to some extent, but I would like to get clearer answers.

For years, big telecom companies, such as Rogers, have been saying that connections to rural and indigenous communities are projects that are perhaps too capital-intensive to be profitable, so there's been resistance. Even when governments have tried to incentivize this type of infrastructure and have tried to incentivize big companies to do it, the answer has been no, because it's not worth it for the companies.

Now all of a sudden, when you're trying to get an approval for this merger, you're committing to billions of dollars to be put into this type of infrastructure that would connect rural and indigenous communities. I'm wondering what changed and what you can tell us about that convenient timing.

[Joe Natale]

Sure. I'll start. Dean, please feel free.... It will also help answer Mr. Dreeshen's question that I went over time on.

Fibre is the backbone of our networks. Whether it's our wireline networks for cable or our wireless networks, they require fibre to work, especially in a 5G world. By bringing the companies together, we get the full benefit of the fibre that has been built by the Shaw organization over the last 50 years, combined with our wireless capability. There's synergy in that. The Rogers organization would spend in the neighbourhood of $1 billion to $2 billion over the next many years replicating that fibre. The opportunity here is to leverage that synergy and then reinvest it into going further and going faster overall.

The average capital we look at today is measured in about 10-year payback. That's today's capital, in urban and suburban Canada. In rural Canada, the payback shoots way up, and that has always been the challenge. If we can find ways of driving synergy and reinvesting it in rural, that's a good thing for Canadians, for the future of the industry.

[Dean Prevost]

Thank you, Joe.

Let me add that this is on top of what we were already doing prior to the announcement of the combination, in partnership with SWIFT, with EORN, the Eastern Ontario Regional Network, which was announced just over a week ago, and then over a billion dollars that was committed as part of the universal broadband fund. This is all additive to the efforts that we have under way.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Obviously the reason we're here is the competition issue. We would like to see prices drop with regard to Internet and telecommunications in general. It was one of our platform commitments going into the last election, and our government has that as one of its goals.

We've often said that we may be imposing things in the near future, mandating things, and one of those things is that you grant access to smaller providers. You've said in the past that if we were to do [Technical difficulty—Editor] investments and invest less in infrastructure on the ones that you are allowing access to smaller companies.

Does that threat still stand at this [Technical difficulty—Editor]? If you do offer the best service, why exactly is it a problem for smaller companies, which have to pay you anyway for access, to actually gain access to your networks?

[Joe Natale]

We've come to a place in Canada around 4G networks where we have some of the best in the world. That's been based on the premise that if you put your money in the ground and invest in great networks where the payback is 10 years or more—in the case of wireless, it's 25 years—there's an opportunity to get return on that capital.

We have no aversion to reselling parts of our network on a wholesale basis to a provider that might come along with the value proposition as a whole. We take opposition to mandating that resale because, in that particular case, we then change the forward economics of the industry. It curtails our ability to invest in rural Canada. We are the ones who will end up investing in rural Canada; it won't be the resellers. We will have the balance sheet, the capability and the ambition to connect every Canadian or make 5G the focus across every corner of Canada.

Where there have been reseller markets across the globe, they've largely focused in highly, densely populated urban centres. Given the fact that prices have been coming down across all brands, the government's own telecom quarterly report said that prices have dropped 10% to 18% since January 2020.

[The Chair, Liberal, Sherry Romanado]

Mr. Natale, my apologies. I'm not sure if you could see me waving, but unfortunately you're out of time.

Our next round of questions goes to MP Lemire.

You have two and a half minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Madam Chair.

I will continue asking Mr. Natale some questions.

Don't you think that in order to get authorization from the CRTC, Canada's Competition Bureau and from Innovation, Science and Economic Development Canada, it would be better to sell Freedom Mobile? Then there would be four wireless service providers instead of the three there are now. As we know, when there are at least four service providers, the prices become more affordable.

[Joe Natale]

Thank you for the question.

Of the Shaw corporation's business, 80% is cable, landline, Internet and TV. It's roughly 97% of the company's cash flow. The CRTC will review whether the licence for the cable and Internet business should be transferred to Rogers as part of this proposed merger.

Those businesses really do not overlap in any material way. We are the cable provider in Ontario, New Brunswick and Newfoundland. Shaw is the cable provider in the four western provinces. We will certainly put our thoughts forward with respect to the CRTC, but we fully expect that, as the cable industry has grown up through the process of combination and amalgamation, this is yet one more opportunity to combine for strength and amalgamation.

Bear in mind that even when Rogers and Shaw come together, we would still be smaller than Bell Canada as it relates to the wireline business. That critical mass and balance sheet will only serve to support the future needs of Canadians.

As it relates to the wireless question, we're open and flexible as to how to best solve any questions the Competition Bureau may have on that front. Once we have a chance to sit down with the Competition Bureau through a public process that will listen to voices from across all corners of Canada, I'd be happy to have a discussion about how to best strike that balance. It's premature at this point to do or say something, when we haven't really started that process in earnest.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Mr. Shaw, what do you think of the idea of selling Freedom Mobile as part of the transaction to ensure competition in the market?

[Brad Shaw]

Thank you for the question.

I think Joe said it very well. When we look at what's required going forward, I think when you look at the overall investment and what Rogers is committing into the combined company....

I'm sorry; do I have a red card already?