Industry Committee on April 6th, 2021

[Matt Stein]

There were a few things in there, but in the interest of time, I think I'll start at the back.

What you're referring to, when you talk about splitting up the major telcos, is structural separation, separation where the infrastructure.... I referred earlier to the infrastructure owners. The underlying infrastructure is owned by one company and the retail operation—the brand, the customers and so forth—is in another. By setting it up that way, as has been done in some other countries around the world, very large economies, the retail body ends up buying on well understood and well disclosed terms from the infrastructure body, but at the same time, other retailer bodies can do so at the same rate, with the same tools, with the same prices, with the same timelines and so forth. This enables service-based competition, which is exactly what I was referring to earlier.

Did that cover your question?

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

Yes, thank you very much.

Perhaps now I could go back to Mayor Wood.

We've been discussing some of the concerns and issues, and I think pretty well every one of us—the witnesses and the people from our committee—has talked about the importance of municipalities being able to do what is necessary to make things work for them.

Could you expand somewhat on what you think the federal government could focus its efforts on to encourage smaller companies to provide broadband services to rural areas?

[Jim Wood]

The first thing is that they're just not going to do it. They will not come in if the dollars are not there. If we're going to, in fact, make this happen, we have to have that open competition to be able to use that network that is already there. If they can use that network that is already there and be competitive in providing that service, we know that the free market will work.

What's happening right now is that the free market is not working, because the cost of the investment is so high that no one can afford to get into these more rural markets. I'm probably going to sound like I'm repeating myself again, but I think it's extremely important that we partner among all levels of government to build that fibre backbone into the most rural areas. If we do that and create an open network, and I saw lots of nods earlier on talking about this, that will be the way that we encourage these small companies. They will come up.

The company that's providing service for us right now is a small company. What I've noticed is that, if we gave them the opportunity to tender in and tender against the larger companies, what we found was that we were getting tenders of 50% less than the major companies—I'm not going to say the names; that wouldn't be fair because it was a tender—but we got 50% less cost and larger service than we were providing.

I would suggest that what we need to get into a competitive network is to build this backbone and have the governments—federal, provincial and local governments—work towards somehow establishing this. We would be very willing to share the part that we've done already. The problem that we're having right now is that we undertook this particular project with some hope that we might get some help from others, but we were not going to wait forever. We've already outlined, as we've heard from many, that this is an essential service across Canada and having a decent.... If we're going to remain competitive in the world, we have to be able to compete.

In rural Alberta where I live—I'm a farmer when I'm not the mayor; I'm very proud to be a fifth-generation farmer—we need technology. The technology is growing, and I'm finding that we now have people who are sending me emails saying that, if we bring this technology into Red Deer County, they want to move here and they want to bring their business here. We're an area of extreme growth. We're a little different from most, but we're fortunate enough to have a few dollars to put into this. Some of my neighbouring municipalities are not as fortunate as we are, and I—

[The Chair, Liberal, Sherry Romanado]

Thank you.

We'll now move to MP Erskine-Smith.

You have the floor for five minutes.

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

Thanks very much, Madam Chair.

Ms. Shaban, you talked about the efficiencies defence. It was brought to my attention from a competition lawyer that we're also unique in some ways in the competition context here in Canada in that if the transaction is approved, the bureau can't review an M and A transaction after a year. Other jurisdictions are able to look back much further. Is this your view as well? Do you think that's another area we might want to consider changing, going forward?

[Robin Shaban]

Yes. Something that's interesting about the merger review process in Canada is that there are two types of clearance. One type of clearance commits to not even reviewing a merger after it's been approved. I understand too that even if there are these review condition time frames, they may be smaller than in other jurisdictions.

There are all sorts of smaller aspects of the act that, when you take them all together, really hamper the Competition Bureau's ability to do its job not only to monitor competition but also take action when competition is threatened, both in the merger context and in other parts of the Competition Act.

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

It's beyond the purview, I think, of our focused study on the Rogers-Shaw deal. If you could submit a brief at some point to the committee outlining some other areas of concern in the Competition Act, I personally would find that invaluable.

[Robin Shaban]

Gladly.

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

Thank you very much.

I'll move to Mr. Stein and Mr. White, specifically as it relates to service-based versus facilities-based competition. I put the same questions to the telcos when they come to our committee.

There's the resellers space when it comes to broadband, so why not recreate the resellers space as it relates to MVNOs? It seems pretty sensible, from a consumer point of view, to drive down prices. At the same time, if we put the argument back that the telcos make, that we need to build out network more and they hold out this great promise of 5G, how do we...?

When you say that service-based competition can deliver what Mr. Wood wants for his community, isn't it the case that we do want private investment building out additional network, and that if we open up that space immediately there may be disincentives to make those investments? How do we square that?

[Matt Stein]

First off, you referred to what Mr. Wood would want, but earlier today Mayor Wood talked about the story we all remember of long distance. Most of us should remember spending 30¢ a minute per call from Montreal to Toronto. Those days are long behind us because of service-based competition. We would all remember paying $40 or $50 a month for home phone. Those days are behind us due to service-based competition. It's much the same with Internet, although it's sort of faltered in the past couple of years. That's important to understand.

The other side is regarding investment. There are two pieces there. Number one is that the CRTC designs these rates with the cost to build it [Technical difficulty—Editor]. They take the cost of capital. They take the cost to build. They take interest. They take everything, and plus they apply a markup. All the [Technical difficulty—Editor] ability to directly monetize, or even over-monetize, Canadians. That's all that service-based competition limits.

The other thing I'll just throw out there is that we're talking about the same companies that are receiving millions, or in many cases billions, of dollars of public money and then whining that they need to get a better return. Public money—

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

I hear you on that. They'll get no sympathy from me on that front.

[Matt Stein]

Well, I just feel it's important to....

Sorry.

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

No, I completely agree with the comment.

With the limited time I have left, I have a question relating to this particular transaction. If the CRTC were to say that MVNOs are completely open, away we go, and we're growing competition, would that have an impact on your view of this deal? Are we going to care as much about this deal if MVNOs are approved in full?

[Matt Stein]

I think you still care, but the most important thing is that there is an instigator of competition. MVNOs, if starting from zero, eventually will build up to become instigators of competition. Wind was there. Freedom to a slightly lesser extent is there now. So it still matters. The way those play together, as I believe Mr. Winseck suggested, would be to have that completely open MVNO and then also to insist that the customers and brand of Freedom be divested into an MVNO, or into multiple MVNOs, to give them some momentum and see if things get going.

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

Thanks very much.

When it comes to 5G getting built, it seems like I should get 3G pennies on the dollar. That would address the income digital divide that we have.

At any rate, I've run out time. Thanks very much, Mr. Stein.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll go to our next round of questions.

Mr. Lemire, you may go ahead for two and a half minutes.

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

Thank you, Madam Chair.

Mr. Klass, only 91% of Canadians subscribe to wireless services, but 99% have access to an LTE network.

What do you think accounts for the gap between real and potential usage?

[Ben Klass]

When you look at adoption levels in Canada, you see that not only are we significantly behind comparable countries' levels, but you find that the disparity is primarily concentrated amongst the lower-income [Technical difficulty—Editor]

While you have almost universal adoption amongst those who are well off, those families earning less than $50,000 or $70,000 a year are really struggling to pay their bills, right? We've heard that maybe 3G, depending on the dollars, is good enough, but I say that in Canada we shouldn't accept poor Internet for poor people. There isn't some different thing about people earning less money such that they don't need cellphone service. What we need is to bring down prices to meet this crucial need, especially in a time when the economic situation of everyone is being pressed upon and the demand for communication services is greater than ever.

I think this merger is certainly not going to address that problem. If anything, it will exacerbate that concern. To the extent that we've seen improvements in this situation, it has been due to the advances in communications competition from companies offering lower prices and more data.

[Prof. Dwayne Winseck]

I'd just like to add one thing to what Ben said, if I may. It's not just about the kind of downward pressure on adoption rates. It's even that once you do have adoption, it's the pressure and the constraints placed on usage that have kept Canadian rates at half the OECD level or a third of the U.S. levels. Five years ago, the U.S. was at where Canada is now. These are significant constraints on what people can and cannot do with their mobile phones and their mobile Internet.

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

Mr. White, I think you wanted to comment. You said that low population density should not factor into the discussion.

Do you think it affects the prices we are paying right now?

[Geoff White]

I understand the question to be, does the low population density affect the price we pay? No. The lack of competition affects the price that we pay in Canada. The rates that members of this association we represent charge for home Internet are 5% to 35% lower, and if you open that up on the wireless base by recommending that in your report, it will be a huge bold win for Canadians.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

For our last round, we'll go to MP Masse.

You have two and a half minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair. I think we've apparently solved everything in the telco sector here this afternoon, but I'm going to go back to the original premise of what we have here.

Professor Geist, maybe I'll go to you. If we say no to this merger right now, there are going to be a lot of suggestions about the big fallout of not doing this. What do you think is going to take place next? I know that you might need a big crystal ball for that, but we've already seen Rogers make a play on Cogeco in a hostile takeover. We've now seen a shift in our market to consolidating versus building. Should our public policy be really pushing back and saying, no, we need to be building, not consolidating?

[Dr. Michael Geist]

That's a great question. I think Ben earlier referenced the prospect that SaskTel would be next on the shopping list for some of the players if this goes ahead.

I think that in some ways the Manitoba deal set this up. It sent the message that it was possible to get these deals through as long as you provided a grab bag of goodies and just said, “Hey, look at all the nice things you're going to get if you pass this.”

But then we do see that there is a cost to be paid. We've seen it in terms of the kind of innovation in pricing that takes place in that market. If the signal coming out of this is that this goes ahead, then I think it becomes open season for some of those remaining players. If we stop it here, I think it reaffirms that strong signal that consumers and competition are the policy priority in the country, and as long as we twin it with things like MVNOs, as we've been hearing about, there is at least the prospect of better competition and better pricing in the country.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

With that, Madam Chair, on a positive note, we will conclude and go back to you—unless you have questions. I'm sorry. That's not my role to say.