Industry Committee on March 31st, 2021

[John Lawford]

Yes, you're right. The CRTC MVNO decision is going to probably allow mobile virtual network operators, but the details are the devil here. There are some hints in the hearing that it was only going to be for players that had facilities already, like Cogeco, like TekSavvy, that own their own stuff, not people who would come in and start a true mobile virtual network, a light MVNO.

If that's the case, then, I think that trying to take out Cogeco would have been smart because it has facilities. Then you take out Shaw, which also has facilities. Then you pretty much have very small or no MVNOs to compete with. That may be the strategy.

[Brian Masse, NDP, Windsor West, ON]

Yes, and that decision is going to either open up.... I didn't realize it was on until you had their.... I don't always follow the hearings. I appreciate that.

Ms. Tribe, with regard to the previous panel, we had Vidéotron appear. They actually sold part of their spectrum. They granted the Toronto licence they had to Rogers. Mobilicity is also gone. We're actually strewn with castaways over the last 10 years with start-ups and so forth. You're just saying right now, don't even provide some type of.... I guess I would use it as a Frankenstein type of approach: to try to bust up Shaw in pieces and hope they stick together to other components and create competition, and we'll still have less.... Is that correct?

[Laura Tribe]

Yes, that is correct. When we look at the ways that companies are, you can carve them up and try to shave them into something that is not quite too big, by whatever standards, but if they're already too big to start with and you're still letting them combine their capacity in one way or another, it still leads to a problem. I think that's why the entire approach, when you talk about Mobilicity or you talk about Wind, which is now Freedom, which may soon be Rogers.... All of that is based on this approach of facilities-based competition, which is that you have to build it yourself to be able to compete.

I understand the Shaw family struggles. It is hard to go up against companies like Bell, Telus or Rogers, which have had decades of a head start, and to start from scratch. That's where, to the point about wholesale, this is so important.

[Brian Masse, NDP, Windsor West, ON]

Thanks, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions will go to MP Kelly.

You have the floor for five minutes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

I'd like the witnesses to comment on the extent to which this deal is either a problem in and of itself, two large companies merging that may reduce competition, or rather a symptom of a broader problem that existed before and will exist after. I refer to the spectrum auction system and other aspects of our telecommunication regulatory framework that got us to this point.

All three of you can comment on that if you like.

[John Lawford]

Can I start by saying that it's both yes and...? It's both that the specific deal is a problem and also that it shows the destruction of 15 years of trying to have a fourth wireless player. This is the last chapter, and it will kill the policy if it goes through. This specific deal is bad, because in going forward to three, prices will go up. We had a merger in Austria, for example, from four to three, and prices went up 95% for the player that got taken over.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay.

I'll let each of the other two witnesses have a quick word and then, hopefully, I'll get another question in.

[Andy Kaplan-Myrth]

I also think it's both, but my main concern about it is that it's a systemic problem—or systemic issues, I guess—to the extent that, on the network side of the business, they can enjoy efficiencies because it's better for one company to be building one network than overbuilding, or two companies in different regions. That's clearly going to continue to happen. Those realities of business might just be the case, and it seems that this industry tends toward monopolies and duopolies, so I think that will continue to happen.

On the service side, the reason this is a problem is that we haven't really supported wholesale-based competition for a long time in this country.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Go ahead, Ms. Tribe.

[Laura Tribe]

I'm not sure how much time we have, but I would agree that it's both.

I think the deal itself is a problem, and I think the outcomes of the deal are a problem. The fact that this deal is even being proposed goes to show just how big our companies are and how much bigger they think they need to get in order to be able to keep growing. That's what the goal of these companies is. It's growth, and it's continued profit. This is the way they think. They think they need to do that next based on the way the current system is set up.

They also think it's okay. They think it's reasonable, and they think they can get away with it, which is why they're going for it in the first place and why they talk about it with such certainty. I think that is another thing that raises concerns around our Competition Act and the Competition Bureau. It's the fact that they don't even think there are questions when they put this forward for something of this scale.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'm doing my best to try to be open-minded enough to hear all of the arguments for and against this transaction. I certainly share the concerns that I get in these emails about both competition and the impact on my local economy. The promise had been, I think, of 500 new research jobs to go into Shaw, but at the same time, I'm really struck by the absence of being able to hold any entity to any of the comments made at the beginning of a merge.

The last word on the difficulty is the tremendous investment that's required to get us into a 5G system across Canada that gets into the communities that are so terribly underserved and provide competition everywhere so that we can get better rates.

Will a larger entity that will compete with the other remaining entities...? Should there be an expectation that this large, new entity could provide competition to the other two?

[Laura Tribe]

I'll go quick and I'll try to leave John some time.

When you look at the underserved areas that we have now in rural, remote and indigenous Canada, it is because explicitly the companies have said that they do not find those areas profitable. There is nothing about this deal that suddenly makes those areas profitable to serve, which is why we have the universal broadband fund. It's why we need subsidies and support to guarantee that those areas get connectivity.

At the end of the day, there are still areas those companies are not going to want to serve, so I think the size of this company and some sort of megamerger does absolutely nothing to change the financial incentive to build it to those areas. That's why we need additional programs for that.

[John Lawford]

Just briefly, I would add that we don't know, if these two merge, how much Shaw and Rogers would have spent collectively. It's not clear from what they have said. They've just said they're going to spend $2.5 billion on 5G, but how much would Shaw have spent plus Rogers have spent in the absence of this deal? It may be the same number.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our last round of questions goes to MP Lambropoulos.

You have the floor for five minutes.

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

Thank you, Madam Chair. I likely won't be using my full five minutes.

I'd like to ask Ms. Tribe a question. OpenMedia has commented in the past about the Bell MTS transaction. I was wondering if you can tell us about what has happened since then to competition in Canada and if we've seen a noticeable difference. We'll start with that question.

[Laura Tribe]

The clearest case to be seen is looking at cellphone services and wireless services in Canada. When you used to look at the provincial prices and you looked across, you immediately saw there was something that stood out in certain provinces, and it was that where there is a regional carrier or a fourth provider, those prices are lower. That included Manitoba, Saskatchewan and Quebec. Then you would see it in some pockets where Wind, or then Freedom, was evolving at the time in urban areas in Ontario and B.C. in particular.

With MTS being sold to Bell, Manitoba no longer fits into that category anymore. They look the same as every other province across the country who has Bell, Telus and Rogers and all of their flanker brands and nothing else.

Even in urban centres where Freedom has that footprint, if you look at Vancouver or Toronto, you can get different deals based on what area of the country you live in. The same thing extended to Manitoba, but as soon as MTS was no longer that fourth option, we saw prices go up really quickly.

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

Can you talk about the barriers that currently exist for new competitors? Why is it so difficult for them to pierce into the market?

[Laura Tribe]

It depends on the type of new competitor. When you look at cellphone services in particular, it's the fourth carrier strategy that's really based on that idea of facilities-based competition. If you want to be a competitor on cellphone networks in Canada right now, until the CRTC rules otherwise in the MVNO decision, you need to come into the country with billions of dollars, you need to find a way to bid on spectrum to be able to purchase the air waves themselves to be able to build the network and then you need to start building cellphone towers across the country from one end to the other so that you have a service to sell to customers. You can't make any money until you've built that network.

That's why we've seen so many companies go the way that Wind did in being sold to Shaw. It's so hard to get off the ground when it's so long between starting and having your very first customer.

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

Thank you.

I know, Mr. Kaplan-Myrth, that you may have comments on that one as well. If you'd like to chime in, you can. If not, that's it for me.

[Andy Kaplan-Myrth]

On the mobile side, in a way, because of this strategy of encouraging a fourth player, we have this inefficient overbuilding that we don't have on the wireline side. With the wire line, to overbuild, you would need to have more wires coming into your home. Right now you have a phone company and a cable company. However, if Rogers just rolled out a network in Calgary and overbuilt, they would run new wires to people's homes in Calgary. That would clearly be inefficient.

In a way, what we've done on mobile is encourage this very inefficient fourth-player overbuilding model as though that is going to introduce enough competition. As Laura Tribe just said, it does lower prices in some markets where a fourth player becomes powerful enough to influence prices. However, clearly, because of the situation that we're looking at with Freedom right now, it doesn't create a long-lasting, robust model of competition that can survive a simple merger of two companies. We're always going to be one business deal away from the end of competition if that's our only strategy.

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

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

That is our time for today. I'd like to thank the witnesses—

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

Madam Chair, with your permission…

[The Chair, Liberal, Sherry Romanado]

Do you have a point of order, Mr. Lemire?