Industry Committee on April 6th, 2021

[Robin Shaban]

Yes, for sure.

I want to reiterate that it is incorrect to assume that the Competition Bureau has the tools it needs to act in the best interests of Canadian consumers.

When it comes to the efficiencies defence, Canada is, by my understanding, the only OECD economy that has an efficiencies defence like this. I reviewed a database of competition laws across the globe for the last two centuries, and there's only a handful of other countries that have a provision like this—Mauritius, Malta, Barbados. These are small economies that are trying to develop this provision so that their businesses can scale up and compete on the international scale. That's my assumption.

[Brian Masse, NDP, Windsor West, ON]

It can be played almost like an excuse to go ahead, although it's actually going against the principles of reviewing it and protecting competition. It just becomes like a card to be played, to go ahead regardless of the consequences.

[Robin Shaban]

Yes, exactly. It is a defence, in the sense that it allows businesses to engage in harmful mergers if there are sufficient economies of scale arising from them. The problem with this mechanism is that it puts the burden on consumers. We give these businesses a free pass to undermine competition in the hope that maybe they will be able to compete better internationally, but it's consumers who are paying the price for that.

It raises the question of politics and the political nature of competition policy, which gets swept under the rug when it comes to conversations in Canada.

[Brian Masse, NDP, Windsor West, ON]

I agree with that for sure.

I'll go over quickly to Mr. Winseck.

With regard to this whole issue of profitability, you had an interesting graph on the amount of money that's being made, ranking Canada eighth. We often hear the excuse that we can't reach places like Mr. Wood's, and we've taken in over $20 billion to $25 billion—depending on how you want to add up the spectrum auctions over the last number of decades—and then you're showing us that there's quite a profit margin in there.

It just seems kind of complacent to allow the companies.... You know, they're making a profit—even during COVID-19 they're doing quite well—but they can't afford, without massive public subsidies, to take a loss anywhere else in their business plan. It seems kind of an absurd proposition to accept, especially since we're sheltering them from foreign competition.

[Prof. Dwayne Winseck]

Yes, they've maintained extremely lucrative profit margins, in the 30% to 40% range, which is three to four times the average of Canadian industry as a whole.

This idea that we have the eighth-largest market—I was stunned when I gathered this data up over the week—speaks directly to Robin Shaban's point. The efficiency defence may be fine in a small market, but we have the eighth-largest market in the world and what we see is that when it comes to investing in the towers that are necessary to bring service across the country, our big carriers fare very poorly.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

Thank you very much. We'll now start our second round of questions.

Mr. Généreux, we now go to you for five minutes.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Madam Chair.

Thank you to all the witnesses for being here today.

Ms. Shaban, in terms of size, Barbados would probably fit in my riding. Isn't it flawed to compare Barbados and Canada?

[Robin Shaban]

Could you expand on what sort of explanation you're looking for?

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Barbados is tiny compared with Canada. Representatives from Rogers and other witnesses told the committee that, because of Canada's vast size and low population density, huge investments were needed. [Technical difficulty—Editor] in today's analysis.

In comparisons that take population density into account, Canada ranks quite low in relation to European countries such as France and Belgium. Canada also ranks low vis-à-vis South Korea, a country with which we are often compared. Size matters. Canada is huge, and so are the costs.

When the people at Rogers say they need this acquisition to be able to invest further, does that make sense to you, economically speaking?

[Robin Shaban]

I understand your question.

I think this comes back to the previous point I made about what the most appropriate way is to support businesses in achieving that scale. Is it acceptable for us to allow businesses to merge in order to achieve the scale they need to, say, cover Canada with telecommunications infrastructure or to compete internationally on the world stage, allowing them to essentially exploit consumers and reduce competition domestically?

The funny thing about the [Technical difficulty—Editor] it privileges businesses that have these expensive, expansive infrastructures. The number one user of the efficiencies defence, historically, has been Superior Propane, which is the company I talked about in my opening remarks. They operate a propane distribution network and have successfully used the efficiencies defence three times. Two of those times they were permitted to create full-blown monopolies in several communities across Canada.

There's a trade-off if we choose to create a mechanism like the efficiencies defence to achieve scale. I think scale is important. If Shaw and Rogers are committed to expanding their networks to serve rural Canadians, that is good and important, but I question whether this tool is the right approach, in part because it cripples the competition [Technical difficulty—Editor] ability to protect consumers. I think that's really the core of the public outrage that we're seeing with respect to this merger.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you.

Mr. Stein and Mr. White, do you agree with that assertion?

[Matt Stein]

Go ahead, Geoff.

[Geoff White]

All right.

I'm happy to talk about the population density argument, and all of these arguments, and explain why they're distractions from the main issue of the day, the main issue that should be before this committee and the main issue you should be focusing on when you speak to the CRTC and the Competition Bureau.

I don't think competition law is really where we need to be looking right now. Yes, there is this awful efficiencies defence. Yes, it's in our law right now. If you try to fix the law to try to shut down this merger, I anticipate years of challenges.

The CRTC currently has what it needs to address the rural broadband problem for Mayor Wood and his constituents. It has what it needs to address Canadians in urban settings who know [Technical difficulty—Editor] highest rates in the world and to have terrible customer service to the point of—

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Why is that? Can you explain that?

[Geoff White]

It's because there's a fundamental lack of competition. The big three wireless carriers compete upwards. They don't compete downwards on price. It's innovators like the members of CNOC and EBOX that compete.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

All right.

Thanks.

[The Chair, Liberal, Sherry Romanado]

Thank you, Mr. Généreux.

Our next round of questions goes to MP Erskine-Smith.

You have five minutes.

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

Thanks very much, Madam Chair.

I want to start with Professor Winseck.

We heard from Professor Geist that, in his view, this ought to not go through and you took the same view. Mr. Geist also then said, if it were to go through, there would need to be a divestment of all wireless assets.

Would you agree with that? Should there be other conditions over and above that?

[Prof. Dwayne Winseck]

I think I'd really insist on holding the line at “this deal should not go through”. The reasons for that are twofold.

First, trying to create an imaginary, new fourth competitor to replace one that's already existing is a fool's errand. We've already seen that with the Bell MTS deal. The fourth competitor just hasn't gotten off the ground, and it's been a complete failure. I'm referring to Xplornet here.

Second, when we looked at the United States, they were faced with a similar merger in 2011 when AT&T, the number two provider, went for T-Mobile at the time. The U.S. Department of Justice said no, and what happened immediately afterwards? T-Mobile doubled down on its maverick strategy by offering more affordable pricing plans and much more generous data allowances, and by doing something completely unheard of but that would be certainly welcome in Canada, offering “roam like home” deals to T-Mobile subscribers that allowed them to roam in over 100 countries around the world without any extra bolt-on of $10 or $15 a day.

If you go to the U.S. they're—

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

Can you pause there? In relation to the U.S., Mr. Geist also said that we should be open to foreign ownership. If Shaw is of the view that it doesn't want to continue to operate Freedom, and let's say this transaction is cancelled or a spinoff is required, should we be open to American companies coming into Canada to help operate in this space?

[Prof. Dwayne Winseck]

Yes, I believe we should. We have some of the most restrictive foreign ownership rules in the world. The last time I checked on this, South Korea was the only country in the OECD that had more restrictive rules than Canada.

The thing is, you know, we've been here before. We've seen this plot line before, and this plot line does not necessarily translate into reality. We saw this in the great wireless wars of 2013, when Verizon was seen as the potential white knight just over the 49th parallel. It kicked the tires and it didn't come, all right?

We should, I think, double down on Shaw pushing ahead. It doesn't have to get what it wants all the time.

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

Mr. Geist, [Technical difficulty--Editor] spoken also about the need for MVNOs. I agree. I wonder what you think about the Competition Bureau's view.

In a submission to the CRTC, they emphasized the need for greater competition and emphasized a role for MVNOs, but it was almost like a very targeted role to better facilitate or better create and allow for facilities-based competitors to get a foothold and to really grow facilities-based competition, pointing to Eastlink and Freedom in particular. Do you think MVNOs should be used in such a targeted way or should that be used more expansively?

[Dr. Michael Geist]

I think there's room to be more expansive. When I mentioned in my opening remarks the half-measures, I think the approach we've seen on MVNOs is reflective of that, where the starting position of course was “no”, because there's this tendency, seemingly, never to allow for these new forms of competition.

Once we started to see continually the experience of the high pricing in Canada, there was at least an acknowledgement that perhaps this might offer up some possibility, but again, doing so in a slow way.... We see that coming out of the regulator and we saw that [Technical difficulty—Editor] as well.

This is a debate that's been ongoing now for so many years. It seems pretty clear that what we've done to date hasn't worked and that we need to be far more aggressive from a policy perspective.

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

Could I ask about the debate that has been going on for years? You've certainly followed this debate more than I have. When we look at MVNOs delivering lower prices, that certainly matters a great deal to me. The biggest digital divide in this country is the income one.

When it comes to the other digital divide, though, the one that Mr. Wood is most concerned about, and rightfully concerned, we want companies to build. Actually, there is—and Competition Bureau CRTC have noted this—a challenge here with competing interests. The more we allow MVNOs, potentially, the big three tell us, “Well, we're not going to build as much.”

Has there been any conversation in this space about where companies build, in that for a certain period of time they have a monopoly over that build but then it is opened up after...? In other legal spaces, we have this framework. Has this been part of the debate?