Thank you, Chair, Vice-Chairs and committee members for the opportunity to speak with you. I'm Andy Kaplan-Myrth, VP of regulatory and carrier affairs at TekSavvy, which is an independent Canadian Internet, phone and TV service provider. I'm joined by my colleague Jessica Rutledge, who is our regulatory counsel at TekSavvy.
We're pleased that the committee is reconvening to examine the Rogers-Shaw merger in light of how the deal has evolved. In particular, to sweeten Videotron's acquisition of the Freedom Mobile business, Rogers has offered Videotron preferential wholesale terms, such as discounted wholesale access rates and discounted transport capacity. This sweetheart wholesale deal is where TekSavvy can offer a unique perspective.
I'll give you a bit of background on our business model. TekSavvy has been serving customers for over 25 years. We have almost 300,000 customers across Canada. In Chatham-Kent and surrounding communities in southwestern Ontario, we have invested and continue to invest in building our own facilities, including our growing fibre-to-the-home network. In the rest of Canada, we connect customers through a combination of wholesale services that we buy from the large incumbent carriers in their serving areas, including Rogers, Shaw and Videotron, and our own facilities across the country. The CRTC requires incumbents to offer this wholesale access in order to create competition.
In this model, the wholesale rates are the largest cost component of our business. If the rates are too high, we can't offer competitive resale prices.
In 2019, the CRTC found that wholesale tariff rates charged by the incumbents were massively inflated, and they dramatically reduced those rates. While the incumbents' appeals of this decision to the Federal Court of Appeal, to the Supreme Court and to cabinet all failed, the CRTC reviewed its own decision and reverted to almost the same rates as before the process. Unfortunately, cabinet later rejected several petitions to overturn that decision.
Since then, the higher rates have destabilized this industry. Three of the largest wholesale competitors—other than TekSavvy—exited the market within the year, including VMedia, which was acquired by Videotron. TekSavvy is losing customers and has had to put investment plans on hold, including plans to purchase spectrum. The wholesale regime is failing, and consumers have been paying the price. Internet prices in Canada continue to rise, including 13% annual increases for some of the most popular speeds.
Why is this important? The regulated wholesale rates are the context for the Rogers and Videotron arrangements. Rogers could have provided Videotron with wholesale services using the regulated wholesale rates as for any other competitor, but it didn't. It knew that the current wholesale rates would not pass muster for the competition process, since they would not have allowed Videotron to sufficiently compete. Rogers needed Videotron to be seen as a credible competitor to get its merger through.
Instead, Rogers is offering Videotron lower favourable wholesale rates and terms. By doing this, Rogers is tacitly acknowledging that the current regulated wholesale rates are so inflated that they are not feasible to support competition. It's also showing that it can profitably offer rates below the tariff.
Because of the CRTC's failure to set appropriate wholesale rates, large incumbent carriers can leverage the inflated rates that they fought for to work out deals between each other, with preferential terms that would further harm independent competitors.
In short, the largest telecom merger in history is predicated on unlawful and anti-competitive agreements between incumbent carriers. The Telecommunications Act prohibits carriers from granting an “undue or unreasonable preference” to some companies and not to others.
TekSavvy has asked the CRTC to review the Rogers-Videotron wholesale deal, and we're calling on the minister to not approve the deal until the CRTC has made its decision. If our application is successful, the CRTC could void the Rogers and Videotron side deal, or it could require Rogers to offer those same terms and discounts to all competitors.
If we had a properly regulated, robust and effective wholesale regime, we would not need a patchwork of side deals or 10-year behavioural commitments for rates and terms.
If we had workable regulated rates like the lower 2019 rates, Rogers merging with Shaw wouldn't have the same impact, because consumers would have their choice of affordable and competitive options.
If the government addressed the unjust wholesale rates, wholesale competitors would be able to offer lower prices on what is now an essential utility for consumers. This would give consumers' pocketbooks some much-needed relief in today's cost of living crisis.
Thank you again. We look forward to your questions.