Industry Committee on April 6th, 2021

[The Chair, Liberal, Sherry Romanado]

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

Welcome to meeting number 28 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 January 25.

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 entirety of the committee. To ensure an orderly meeting, I'd like to outline a few rules to follow.

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 either the floor, English or French. Please select your preference.

Before speaking, please wait until I recognize you by name. When you are not speaking, please make sure that your microphone is on mute. I also ask you, for the sake of the interpreters, to make sure that if you move your microphone when you're not speaking, you put it back in the position between your upper lip and your nose, and also that you do not talk over each other, because it will prevent the interpreters from being able to do their good work.

Please be reminded that all comments by members and witnesses should be addressed through the chair. As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention. I will hold up a red card when your time for your intervention has expired. Please make sure that you have the gallery view on your Zoom so that you can see me waving the card.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Friday, March 19, the committee is meeting today to resume its study on the proposed acquisition of Shaw by Rogers.

I'd like to now welcome our witnesses.

We have with us Professor Michael Geist, Canada research chair in Internet and e-commerce law at the University of Ottawa; Professor Dwayne Winseck, a professor in the School of Journalism and Communication at Carleton University; Ben Klass, senior research associate at the Canadian media concentration research project; and, from the Competitive Network Operators of Canada, Mr. Matt Stein, president and chief executive officer, and Mr. Geoff White, director, legal and regulatory affairs.

Also with us is Jean-Philippe Béïque, the CEO of EBOX.

We also have with us, from Red Deer County, Mayor Jim Wood, and from Vivic Research, Ms. Robin Shaban, co-founder and senior economist.

Each witness will present for up to three minutes, followed by rounds of questions. With that, we will start with Professor Geist.

You have the floor for three minutes.

[Dr. Michael Geist, Canada Research Chair in Internet and E-Commerce Law, Faculty of Law, University of Ottawa, As an Individual]

Thank you very much, Chair, and thank you so much for the invitation and the opportunity to come back and appear before the committee.

My name is Michael Geist. I'm a law professor at the University of Ottawa, where I hold the Canada research chair in Internet and e-commerce law, and I'm a member of the Centre for Law, Technology and Society. I appear in a personal capacity, representing only my own views.

To the best of my recollection, a three-minute opening statement is the shortest I've experienced for a committee appearance. In this instance, however, I think it's appropriate, as it doesn't take more than three minutes to understand what is at play and at stake with the proposed Rogers-Shaw merger.

To start, I'd like to make three points.

First—and I think this is stating the obvious—the deal will result in higher prices and less competition in the Canadian wireless market. There's no need to overthink this. Removing a company that some have touted as the best chance at a viable national fourth carrier leaves some of Canada's biggest markets—notably, Ontario, Alberta, and B.C.—without a much-needed competitor.

While some seek to justify it or explain it away, the simple reality is that Canadians already pay some of the highest prices in the world for wireless services. If this merger is approved, the situation is likely to get worse. Indeed, when Rogers promises that it will not raise prices for Shaw/Freedom mobile customers for three years, it effectively signals that it will be raising them as soon as the clock runs out on that timeline.

Second, this represents a major wireless policy failure. Successive governments have pledged to address high wireless costs, but have often instead taken half-measures or even backtracked at opposition from the incumbent providers.

The CRTC is little better, with the current leadership having dispensed with the prioritization of consumers. It's the CRTC that initially rejected mandated MVNOs. It was the CRTC that signalled it was supportive of increasing consumer broadband costs with new levies in its “Harnessing Change” report. It was the CRTC that sparked a consumer group boycott of the development of an Internet code that was ostensibly designed to protect consumers.

Third, what should the committee be recommending? The preferable choice is no merger, since it's likely to result in lost jobs, higher prices and less competition. If approved with conditions, the grab bag of goodies proposed by Rogers is really just asking consumers to ultimately pay for rural and remote connectivity initiatives. We need that connectivity, but funding it through a harmful merger is not the right way to do it. Instead, the focus should be on competition, particularly wireless competition.

For the purposes of this transaction, I think that means full divestiture of the wireless assets. More broadly, it means doubling down on policies designed to address wireless competition and, in particular, support for mandated MVNOs that would help change the competitive landscape, as well as efforts to increase foreign entrants into the marketplace.

I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Next we have Professor Winseck and Mr. Klass.

I understand you are sharing a six-minute slot. Please go ahead.

[Professor Dwayne Winseck, Professor, School of Journalism and Communication, Carleton University, As an Individual]

Thank you very much. It's a real pleasure to be here. If you would like to follow along, we have tweeted out our presentation under the INDU hashtag. We cover some data, and you can see some of the visuals that we made to go along with it there.

The proposed megamerger between Canada’s second- and fourth-largest communications and media conglomerates, Rogers and Shaw, would—if approved—significantly lessen competition. The merger would catapult Rogers even further ahead in the mobile wireless market, and it would become the biggest cable TV and Internet access provider in Canada.

It triggers all the criteria used by competition and communication regulators to assess these kinds of deals. It would also overturn a decade and a half of policies by successive Conservative and Liberal governments alike to foster a fourth maverick mobile operator in all regions of the country.

That policy has made solid progress: Vidéotron has carved out close to 20% market share in Quebec and the NCR, while Eastlink has roughly 10% of the mobile wireless market in the Maritime provinces and Shaw has gained just over 8% market share in B.C., Alberta and Ontario.

This transaction would eliminate Shaw-owned Freedom Mobile as a significant competitor in those three provinces, which include two of our biggest cities—Toronto and Vancouver—and the nation's capital, with knock-on effects across the country.

The deal would also significantly raise concentration levels nationally in the mobile wireless market. 5G will require substantial [Technical difficulty—Editor] handled similar challenges in the past though, and there’s no reason to doubt their capabilities now.

Shaw actually plows proportionately more of its revenue back into upgrading its fibre and mobile wireless networks than Rogers.

[The Chair, Liberal, Sherry Romanado]

Professor Winseck, one moment. I think we have a point of order.

Mr. Lemire.

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

There was a substantial pause in the interpretation, but it picked up again when I signalled it to you. We may have missed a sentence or two.

[The Chair, Liberal, Sherry Romanado]

All right. Thank you.

Professor Winseck, perhaps you could slow down a little—I know you're pressed for time—just so that the interpreters can do their work.

Please go ahead.

[Prof. Dwayne Winseck]

I'm very sorry, Mr. Lemire, and I apologize to the translators.

The merger, we need to recognize, is not the only option. Rogers and Shaw could build on existing network-sharing agreements like Rogers does with Quebecor in Ontario and Quebec, and as Bell and Telus do nation-wide, or they could strike deals to share fibre and radio access networks.

We also have to wonder about Rogers' debt equity load, which is twice that of Shaw and will soar further if this deal is approved in light of the upcoming 3,500-megahertz spectrum auction, and when it renews the Hockey Night in Canada rights in 2026.

How can Rogers and Shaw verify their commitments? How can they be tracked and verified?

While Rogers and Shaw anticipate deploying 5G and other wireless networks to meet their pledges, most communities want fibre, not wireless connections. Regardless, those communities that are trying to build their own networks across the country are facing endless obstructionist tactics from incumbents, rather than willing and reliable partners.

Canada’s lucrative $29.2-billion mobile wireless market is not a small market. In fact it's the eighth-largest mobile wireless market in the world.

I'll pass it over to Ben.

[Ben Klass, Senior Research Associate, Canadian Media Concentration Research Project]

Compared to the big three, Shaw offers more affordable wireless plans, more monthly data, no overage fees and other unique innovative features. Its presence has forced Bell, Rogers and Telus to respond by lowering prices and offering new features. This is how competition is supposed to work.

However, there is still room for improvement. Prices in Canada have fallen more slowly than in other countries, while data caps have not kept pace. This is confirmed by a preponderance of the independent research on Canada’s high wireless prices, shown for instance by the Wall-Nordicity reports commissioned for CRTC and ISED, the U.S. FCC, the OECD, the ITU, Rewheel and the Competition Bureau, amongst others.

With Shaw out of the picture, the trajectory of improvement that we’re currently on will be reversed. Rogers’ pledge, furthermore, to maintain prices for Freedom customers isn’t nearly good enough, even as an opening bid. We know this because Bell made a similar promise when it absorbed MTS in 2017. Today Manitoba’s mobile services, once the envy of the rest of the country, have lost their edge.

We need to be hearing about lower prices, more data and greater adoption of new services. These are all things that are delivered by competition, not consolidation.

For over a decade, adoption levels for mobile wireless services in Canada have languished at the bottom of the ranks amongst OECD countries. This merger promises to keep prices high and will, therefore, only help to cement our position as a laggard.

In addition to lowering prices, regional operators like Shaw have increased data caps. However, mobile data usage in Canada is still only one-half of the OECD average and about one-third of what it is in the U.S. We are about three to five years behind the U.S., and letting Shaw disappear would set us even further back.

Dwayne.

[Prof. Dwayne Winseck]

Twenty-five years ago, Rogers and Shaw carved up cable and Internet access markets into “cable monopoly east” and “cable monopoly west”. This lead some to believe that a tie-up today will have minimal to no effect on either of these markets. While it is true that they did not compete with each other head to head thereafter, Shaw's earlier embrace of new cable network and set-top box technology revealed it to be the more innovative of the two firms, while also forcing Telus to roll out IPTV and fibre to the home five years earlier than Bell in Ontario and Quebec.

Shaw's decision to not enforce data limits on Internet subscribers after Netflix arrived in Canada in 2010, while other big ISPs did, revealed these limits for what they are—artificial constraints on people's use of the Internet. If this deal goes through, Shaw's customers will have to get used to counting their downloads against the meter. The proposed Rogers-Shaw deal will also have a considerable impact on Canadian TV, film and culture.

Ben, take it home, please.

[Ben Klass]

Let's be clear: This merger is simply a play by Rogers to extend its dominance from coast to coast. Now is not the time, during the pandemic, for even more consolidation. This merger will result in higher prices and less innovation, when what we need is greater affordability. Regulators and policy-makers should do what they can to oppose this merger.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

I'll now turn it over to Competitive Network Operators of Canada for three minutes.

[Matt Stein, President and Chief Executive Officer, Competitive Network Operators of Canada]

Good day, and thank you. I'm Matt Stein and I'm appearing today as chair of the Competitive Network Operators of Canada, or CNOC. I'm joined by Geoff White, our director of legal and regulatory affairs. Geoff also teaches communications law at the University of Ottawa.

Unlike many of my co-panellists, I'm not an academic. I'm a business person. I'm the CEO of Distributel, one of the largest independent ISPs in the country. In other words, if you have questions about the state of telecom competition, I live it every day. CNOC is the industry association for the competitive side of the industry, the side of the industry that acts as a check on the market power of the large telephone and cable companies. Our more than 30 members use wholesale access to the large companies' wires to compete against them on price, innovation and customer service. It's called service-based competition, which is different from facilities-based competition. The difference is who owns the infrastructure. The infrastructure owners own the wires or the spectrum, and we lease part of it from them. That's all.

The Rogers-Shaw deal does not benefit Canadians. If it proceeds it will benefit only those two companies and Bell and Telus, unless our government and its regulators get on the same page about the need for service-based competition.

Simply put, there are only two ways this merger can go ahead. Freedom Mobile, originally Wind, was the competitive instigator in most of Canada's largest wireless markets. Eliminating that instigator is unacceptable. Without an adequate mandated MVNO regime that allows competition to flourish, Freedom Mobile, its customers, its network and, importantly, its spectrum must be divested to a party that is committed to service-based competition in all of its forms. Failing that, and only if we have an adequate, mandated MVNO regime that enables service-based competition to take hold in the wireless space, the Freedom brand and its customers would need to be divested, but still to a party committed to service-based competition.

Canadians need service-based competition. On the Internet side, with access to the big companies' wires, we offer innovation, better prices and better customer service. However, the incumbents have been trying to beat us down for years through lawyering and lobbying, because we threaten their world-leading returns.

Frankly, they're winning that fight, because small competitors, despite our innovations, lower prices and customer service, are a threat to those returns. We don't get a free ride, nor have we ever asked for one. We pay for what we use at the rates the CRTC designs to compensate the infrastructure owners for the use, plus a markup.

With the discussion of the business case challenges of building fibre and wireless networks, there's never going to be a business case for a new competitor to step in and build yet another wireless network.

I'll conclude. How do you preserve competition? The same way we did it for nearly 30 years, through service-based competition, just like in long distance, home phone and, as it was working, Internet.

Let me ask you this final question. If Canadians want more choice, better price and better customer service, have these large companies earned the benefit of the doubt?

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Stein.

Our next witness is Mr. Béïque.

You have three minutes. Please go ahead.

[Jean-Philippe Béïque, Chief Executive Officer, EBOX Inc.]

Thank you.

My name is Jean-Philippe Béïque, and I am the CEO of EBOX, the largest alternative telecommunications provider in Quebec.

EBOX provides services to more than 90,000 customers in major markets such as Montreal and Toronto, as well as in areas like Abitibi, where competition is scarce. The area has certainly felt the detrimental impact of the lack of competition. With service-based competitors Videotron and EBOX coming on the scene, retail prices have dropped by as much as half.

According to a Protégez-vous survey, EBOX scored highest in customer satisfaction of all the telecommunications providers.

Our critics like to call us resellers, but we actually invest tens of millions of dollars in our customer experience, transport network and data centres, as well as the in-house development of digital TV software. Those are just some of the many investments we make, proportional to the company's size.

We have spent every day of the past 20-plus years waging a David and Goliath battle. It goes without saying that the competition [Technical difficulty—Editor].

As far as EBOX is concerned, one question is fundamental: How is this deal good for Canadians?

In a market where all but the big players know that Canada ranks low on the service affordability scale, how can we turn to our members of Parliament and genuinely ask for more competition?

Shaw, a $5.4-billion company, claims that, without a merger, it will no longer be competitive. However, Videotron, a $4.3-billion company, is prepared to invest to achieve the same position, without having the benefit of an existing wireline subscriber base in the western markets. What an ironic situation, one that serves the current interests of already powerful business people.

Honourable members, the only real solution is to bring in regulations so that mobile virtual network operators establish market discipline. That model would allow for more than four companies in all the markets.

What we are looking for is not a parasitic presence in the market, but a solution to the competition problem. That means restrictions are needed to prevent the dominant players from using their power, for example, discount brand competitors owned by big companies, which very often price their services close to regulated rates in the hope of choking off the competition. To quote a popular saying, it takes a parasite to know one.

Lastly, you should know that EBOX, like many other companies, has made repeated attempts to become a mobile virtual network operator on commercial terms. Our efforts were unsuccessful; it was even suggested that we merge our activities with those of existing operators. It's unrealistic to think that mere trade negotiations will give rise to serious competition nationwide.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you, Mr. Béïque.

We couldn't hear you very well.

Mike, I'm not sure whether you were hearing it. The audio was really cutting out a lot. I just want to double-check Monsieur Béïque's connection.

[The Clerk of the Committee, Mr. Michael MacPherson]

Yes. I believe it's a connectivity issue. There's not much we can do in the room.

[The Chair, Liberal, Sherry Romanado]

Okay. Perhaps IT could reach out to him.

We'll go to the next witness.

Mayor Wood, you have the floor for three minutes.

[Jim Wood, Mayor, Red Deer County]

Good morning, Madam Chair, and good morning to the honourable members of the committee.

I am grateful for this opportunity to appear before you today regarding the Rogers and Shaw merger.

My name is Jim Wood, and I'm the mayor of Red Deer County located in the heart of central Alberta. Red Deer County is sparsely populated with a land mass of about two-thirds the size of Prince Edward Island.

My opinion about the merger is that while it may make financial sense for these companies and their investors, it will probably do nothing to improve the gap between urban and rural Internet service, and certainly nothing will improve in Red Deer County.

I've talked to people from Rogers and Shaw prior to this meeting and while their pledge to invest billions of dollars into rural areas will likely expand the Internet access footprint, improved services will only happen as profits allow. Often, companies choose to service cities and towns only and this leaves many rural areas with no broadband service at all. I know that there's no business case where serving fewer than 20,000 people over 4,000 square kilometres returns a profit on investment good enough for any of Canada's telecommunications companies. If there were, my county would already have the same services as Calgary and Edmonton. More competition, not less, is needed to ensure a healthy marketplace.

Government financial assistance to develop shared infrastructure and open networks is absolutely necessary. Legislation will also be needed to ensure that telecommunications companies share assets better, avoid duplication and reduce costs, creating technological equality for all Canadians.

However, my constituents can't wait for this to happen and that's why Red Deer County has invested millions of our own dollars into an open fibre optic network. We've partnered with a service provider that will be profitable without having exclusive control of the market. We are developing better, faster and cheaper services than the ones provided by the incumbents in Alberta's cities.

This do-it-yourself approach is not new. I remember as a boy, my father—a farmer—climbing poles and stringing wires so that our farm could get basic phone services.

Times have changed and our businesses now must compete in a global marketplace, but sadly, the system is broken and those few companies in Canada's telecommunications industry have no reason to change it. Unfortunately, much of rural Canada has poorer Internet and cellphone service than many third world countries. Merger or no merger, the impact on my citizens will likely be the same.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mayor Wood.

Next, we will go to Ms. Shaban for three minutes.

[Robin Shaban, Co-founder and Senior Economist, Vivic Research]

Thank you, Madam Chair, and the committee. It's a pleasure to be here with you today.

My name is Robin Shaban. I am the principal economist and co-founder of Vivic Research, an economic consulting firm. I am also a Ph.D. candidate at Carleton University studying Canadian competition law.

The focus of my research is the notion of economic efficiency that has come to be the core philosophy underpinning Canada's competition law. On March 16, I published an op-ed in The Globe and Mail outlining what I saw as a potential outcome of the Competition Bureau's review of this transaction. As you heard from other witnesses, Canada's competition law, the Competition Act, contains a provision that may make it impossible for the bureau to block this merger, no matter its impact on Canadians.

The provision in question is section 96 of the act, commonly known as the “efficiencies defence”. This defence allows businesses to merge even if it harms competition and consumers, because it creates cost savings for the business. Under the efficiencies defence, cost savings, often including layoffs, are weighed against the economic inefficiency that comes with higher prices after the merger. For instance, Superior Propane's acquisition of ICG Propane in the 1990s was permitted because of the efficiencies defence, despite it being predicted to increase the price of retail propane by about 8%. As a result, the merger created monopolies in 16 communities across Canada.

Unlike legislation in other jurisdictions, Canada's merger laws are not intended to protect consumers. Again, the Superior Propane case is illustrative. It was calculated that consumers would collectively pay about $40 million more per year due to higher prices, but this number was largely irrelevant because, according to economic theory, it does not represent an inefficiency.

Rogers and Shaw claimed in their press release that the transaction will create $1 billion in synergies or efficiencies per year. If their claim is truthful, then the bureau may be unable to take any action to protect competition in telecommunications markets. At this point, the only people who can assess the veracity of efficiency claims made by the parties are officers at the Competition Bureau and the members of the Competition Tribunal.

My intention here today is to provide information and insight into Canada's merger control laws, grounded in my academic research. My hope is that committee members walk away with a deeper understanding of competition laws relevant to this transaction, as well as inspiration to reform our competition laws to better serve Canadians.

Thank you. I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll now start our round of questions.

Our first round of six minutes will go to MP Dreeshen.

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

Thank you very much, Madam Chair.

Ostensibly, this meeting is to review the recent proposed merger between Rogers and Shaw. We've heard testimony from several witnesses opposed to the deal, and we've also heard from the companies involved about their commitments to invest in rural broadband networks and the 5G networks in western Canada.

It certainly seems to me that the one perspective we haven't heard from in this study is that of the rural communities who might most be impacted by the agreement and by rural broadband issues in general. There's a whole host of issues related to access to infrastructure in rural municipalities and what they face, and the local elected officials are on the front line and are having to deal with this.

I'd like to direct my first question to you, Mayor Wood. What are some of the challenges rural municipalities face in accessing adequate broadband services? As the mayor of a rural county, what experiences have you had in providing access to broadband services for communities in your area?

[Jim Wood]

Thank you very much.

In response to the question, I think one of the key things we've seen most recently is that COVID has shown the need for a really good broadband system. Currently, we have many of our children on and off going to school. They're required to be able to learn online. What we're finding is that we have a disparity between the ability of children in the urban centres versus rural centres to even learn at this time.

What we're also finding [Technical difficulty—Editor] many people would be able to work from home, but they're not able to do so because of the lack of the broadband services. Today, I drove 80 kilometres to my office. Typically, I would have liked to be able to do this testimony from home, but I do not have a good enough service at home that's anywhere near reliable enough to do this.

To the second part of your question—what have we done?—what we've done is realized that there is just not enough profit involved for any telecommunications company to come in and service our vast area with our sparse population. What we realized was that, if we could in fact put that backbone, that fibre and some towers, into the community, we could have companies come in and want to service our area.

I basically look at it as the same as building the first roads in our communities. It's the same as the first power line that was built by my great-grandfather in our area for the rural electric [Technical difficulty—Editor] where there was no power, or the gas co-op that just came in. I think that we need to, as levels of government, provide that service. I think that if we can do that together....

We've taken a huge bite out of this on the Red Deer County side, but I think that if we were able to get a little bit more help from other levels of government, we could set that backbone up so that we could have an access where we don't give this to one company or another. We, in fact, could share that road that we all drive on, because we don't need to build a bunch of roads. If we had one good road and everyone had shared access, we could have a system that would rival none.

I hope that answers your question.

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

Yes. Thank you very much.

We know that Shaw has benefited from access to cheap spectrum through the set-asides, but it has let much of that rural spectrum in Alberta go unused while it has focused its investments in urban areas of the province.

I guess one question is whether the federal government should be imposing a stricter deployment requirement, such as what is considered the “use it or lose it” licence condition to ensure spectrum is being put to use to connect rural communities.

Have you had any experience with Shaw that would indicate their seriousness about connecting rural parts of the riding?