Industry Committee on April 6th, 2021

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

Thank you so much, Madam Chair.

As the member of Parliament for Markham—Stouffville, my primary concern is that my constituents have access to high-speed Internet at an affordable price. For the last three of these sessions, I have not seen any upside for my constituents in the acquisition of Shaw by Rogers. However, as members of this committee, we have a responsibility to make recommendations at the end of this study, and we have heard of a number of potential changes to the mandate of the CRTC and to some of the issues related to the Competition Bureau.

I would like to start with Ms. Shaban. You have, of course, told us about the efficiencies defence and your feeling that Rogers may very well use this defence and may in fact be successful in rendering the Competition Bureau unable to refuse this particular merger. Is there anything in that efficiencies defence that you would like to see retained? I'm assuming you would like to see it removed completely, but could you speak a little about what the purpose was originally and whether there are any elements that might need to be retained?

[Robin Shaban]

The original purpose of the efficiencies defence was to allow businesses the opportunity to achieve scale, so that they could better compete internationally. That's the more superficial rationale. The layer below that is that the efficiencies defence exists because decades earlier, in the 1960s, there was a fundamental shift in how scholars and legal experts understood the role of competition policy. This shift was away from the original understandings of antitrust in the United States, from a more consumer-focused, economic fairness and justice lens to one that focuses exclusively on efficiency.

It's important to have efficiency as part of the mandate of competition policy. In that sense, it would make sense to retain some of that goal in any revisions to the Competition Act.

The problem with the efficiencies defence is that it's very structured in the way it forces the Competition Bureau and the Competition Tribunal to assess efficiencies. It pits consumer interests against those of businesses and gives preference to businesses.

As our economy evolves and we move towards a more digital age, the philosophy underpinning the efficiencies defence isn't really that relevant. I'm not sure whether the efficiencies defence has actually achieved what it set out to do. Again, the number one user of the efficiencies defence has been Superior Propane, and I'd be interested to know whether Superior Propane has actually become a Canadian champion in the global sphere. There's a lot of research that we need to be doing on the effectiveness of our competition policies, and we actually don't have the tools to do that compared to other jurisdictions.

To answer your question directly, the efficiencies defence as it is, section 96, has to go. Maybe there is a way to imbue the act with a frame of efficiency, but the way that provision is structured is not conducive to creating equitable economic outcomes.

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

Thank you.

Professor Geist, you surprised me considerably when you said that under the current chair the emphasis at the CRTC seems to have changed. I'm wondering.... Surely the chair has a very clear-cut mandate, or is it in reaction to some sort of policy directives that the chair has received? I'm surprised there's a lack of clarity as to the direction of the CRTC.

Could you address how the CRTC's mandate is structured to allow for some flexibility?

[Dr. Michael Geist]

Very well.

Quickly, with the 30 seconds I have, I'd start by noting that governments have provided what are essentially mandate letters to CRTC chairs.... We had that with Jean-Pierre Blais, for example, so there is some effort at times from governments to try to provide some guidance for what they expect to see.

I guess, more fundamentally, every chair takes on the position with certain goals in mind. Sometimes they're well articulated and sometimes not. Sometimes we'll get a speech where we'll see what some of the priorities are. My view would be that under Blais we saw a really strong emphasis about consumers being at the centre of the communications system, both broadcast and telecom, and we've seen a shift away from that under the current chair.

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

Our next round goes to MP Baldinelli.

You have the floor for five minutes.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Hello, everyone, and thank you, Madam Chair.

Thank you, witnesses, for being with us today.

Earlier in the hearings when we listened to both Rogers and Shaw make their presentations, some of the quotes I had taken down, I believe from Mr. Shaw, are that “we see our economy and country at a turning point” and that we need “scale” to do the investments in connectivity that are required. Later on, I'm not sure if it was Mr. Shaw or Mr. Natale talked about 5G being “at the heart of everything” they will do and that scale matters.

In listening to Mr. Klass and Mr. Winseck, I saw your slide that talked about “bigger” not being “better, faster, or more innovative”. I was wondering if you could elaborate a little more on that notion. Shaw and Rogers have talked about a $2.5-billion investment in the 5G network and a $6-billion investment in western Canada. Is scale as important as the competition?

That's for you, Mr. Winseck or Mr. Klass.

[Prof. Dwayne Winseck]

Sure. I'll take an initial stab at it and then turn it over to Ben.

I think these are not things that we have to trade off against one another. I think what we've seen is that companies like Eastlink, Vidéotron and Shaw have significant scale to make the capital investments in the new fibre and new generations [Technical difficulty—Editor] technology that we need. They have done so, and they have carved out significant market share.

As I note in the background data for my presentation, when you look at it, you see that Shaw spends proportionally more of this revenue—something that the industry calls “capital expenditure intensity”—than Rogers does [Technical difficulty—Editor] burdened with debt, as Rogers is, and Rogers faces significant new costs coming over the horizon with the spectrum auction for the 3,500 megahertz that's essential to 5G and the Hockey Night in Canada stuff. If this deal comes through, it is going to be so over-leveraged that one has to wonder about its ability to make these investments.

The last point I would make on this is that they can promise the moon, but once this deal goes through, how are you going to verify anything? How are you going to hold their feet to the fire if they don't make the investments that they say they will?

Go ahead, Ben.

[Ben Klass]

I'll just add that a lot of it turns on a decision about what sort of economy and society we want to have. Do we want to have large powerful champions that we hand a tremendous amount of power to and then put a lot of trust in, or would we prefer to see a more decentralized competitive environment that is operating according to the sorts of pressures exerted by a marketplace?

This is something that's relevant, I think, in the context of this discussion about the efficiencies defence, because Rogers is presenting this as “we're going to spend x billion dollars”. Mr. Natale confirmed in front of this committee that it would be new investment, but they're presenting the counterfactual, the status quo of each company going on its own, as if it's the only alternative.

We heard from Dr. Winseck that when AT&T was not allowed to take over T-Mobile, T-Mobile shifted its strategy and became more innovative. In Canada, we have an example in the network-sharing agreement of Bell and Rogers, which demonstrates that a company doesn't need to merge to provide world-class telecommunications service.

Bell and Telus collectively share a network. They've had this agreement in place since 2001. It's explicitly designed so that neither company has to put out the capital outlay that would be required to cover the entire country with mobile networks, but so both of them are able to offer service. It's a way of achieving efficiencies and scale without the attendant problems of creating a corporate hyper giant that would be, from coast to coast, in control of everything, right?

You see that there are alternatives. If you say no to Rogers, even if they don't invest, Rogers and Shaw, for instance, could enter into such an agreement and come to the same outcome without the problems.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I just have a quick question.

If allowed to stand without any conditions or stipulations, would there not be a fear that there could be some further consolidation that takes place in this sector, as opposed to more entrants and more competition?

[Ben Klass]

Certainly there have been rumours for years regarding this merger, but I would point to SaskTel, which I'm sure Telus is looking at very anxiously. It's an example of a company that has done very well in rolling out rural networks, so I think this would open the door to further consolidation.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Jowhari.

You have the floor for five minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Madam Chair, and all of our witnesses for their testimony today.

Let me start with you, Ms. Shaban. There has been so much talk about the efficiencies defence. I understand that this defence can be used as it relates to gaining economies of scale as well as cost savings, with the purpose of their being able to remain competitive internationally. Is my understanding correct?

[Robin Shaban]

Yes. I'd say that's accurate.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Okay. Thank you for that.

In your opinion, when Rogers and Shaw merge, what international competition are they trying to fend off? Is this clause really relevant to this merger?

[Robin Shaban]

I was thinking about that as I was preparing for this committee. I personally would feel more comfortable with the efficiencies defence if it applied to firms that had a real intention to engage in international commerce and were trying to scale up in Canada so they could perform on the world stage.

It's not clear to me how or if Shaw and Rogers are planning to do that and, as I mentioned before, it's not clear how some of the other firms that have benefited from this defence have leveraged that opportunity to increase Canada's competitiveness internationally.

[Majid Jowhari, Liberal, Richmond Hill, ON]

If we have restrictions on foreign investment coming in, do we really have international competition that we are trying to fend off if that restriction is there?

[Robin Shaban]

I think it's less about fending off competition and more about giving businesses the opportunity they can [Technical difficulty—Editor] outside of Canada. I think that better reflects the intention.

What you're describing sounds like a negative consequence of the efficiencies defence where, when we let businesses in Canada get really big, it's then difficult for international competitors to enter Canadian markets and provide that competitive rivalry we need in order to keep prices low and promote innovation. Yes, I think what you're describing there is a negative consequence of the efficiencies defence.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you.

In a sense, if you opened up the competition and allowed foreign internationals—for example, some U.S. company—to come in and invest in Shaw, it might help Shaw enlarge its footprint across Canada, with it therefore not only remaining as a fourth player but also expanding its service range. Is that something we should consider?

[Robin Shaban]

Yes, and I think that the efficiencies defence works against that plan, because it allows businesses in Canada to get bigger than they otherwise would, and it gives them a dominant position in the market, which they can then use to protect their dominance.

The Verizon example is really illustrative. Verizon contemplated entering Canada. It hadn't entered yet, but the telcos responded to its announcement by lowering prices. It's not like they lowered prices because consumers had options. In my view, they were lowering prices because they were trying to signal to Verizon that if they entered, there'd be a fight, and it would be less profitable for them to do so.

Part of the problem of concentration in the telecommunications sector is that it allows—

[Majid Jowhari, Liberal, Richmond Hill, ON]

I'm sorry. I apologize for interrupting. I have about a minute left and I'd really like to go to Mr. White.

Mr. White, you suggested that between the Competition Bureau and the CRTC, they really have all they need. If I understood you correctly, you specifically said that this is really not about the Competition Bureau. It's about the CRTC, and the CRTC has what it needs. Can you expand on what you meant specifically by saying that the CRTC has what it needs? What is that need?

[Geoff White]

This is a great discussion. I think it's important that you hear from the small competitors who are here and are willing to serve Canadians.

With respect, certainly there's a competition issue here, and certainly this has to go through the bureau for approval. Certainly there's an issue with the efficiencies defence. You haven't heard one positive thing about it from anyone, from the consumer groups, from Ms. Shaban—

[The Chair, Liberal, Sherry Romanado]

Sorry about that. Perhaps you'll be able to pick it up in the next round.

Our next round of questions goes to Mr. Lemire.

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

Thank you, Madam Chair.

My question is for Mr. Stein and Mr. White.

When Pierre Karl Péladeau appeared before the committee on March 29, he listed some of the key conditions that made it possible for Videotron to become the fourth largest provider in Quebec. The first condition was having a roaming agreement in place so Videotron could count on the networks of the big three operators while it—the little guy—built its own network. The second condition was tower sharing among the operators.

Do Canadian regulators need to impose other conditions so that a fourth, fifth or even sixth competitor can establish a solid presence in Canada's telecommunications market?