Industry Committee on Feb. 8th, 2022

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Scott. I appreciate it.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Williams.

I will now turn to Mr. Fillmore for five minutes.

[Andy Fillmore, Liberal, Halifax, NS]

Thanks, Chair.

First of all, thank you to the witnesses for your time and for joining us today.

I want to take us to the land of broadband. We have arrived at a system in Canada now where the large carriers are building the infrastructure, what's on the poles and so forth, and then there's an ecosystem of smaller, newer carriers that are piggybacking on that infrastructure and charging lower rates. This is fine; this is a part of the element of competition that we're trying to reach.

An element of this, though, is that the competition is either more or less fair whether you're in an urban or a rural setting. In dense urban settings, it's not so much of a bite off of the large carrier's investment in the hard infrastructure, but in the rural areas where the infrastructure user per kilometre is much lower, it gets to be a little bit more painful.

There's the famous example that's been relayed to me a few times in a Canadian rural community where the large company provided the hard-wired infrastructure, including into an apartment building, but the enterprising university student living in the apartment building, after having the right business class, created his own carrier and was selling the Internet service to his neighbours more cheaply than the larger carrier could provide.

I invite you to muse with me about whether there is anything in the CRTC's domain or plans that would help to mitigate some of those variances in the degree of competition that emerges and that would make it a little fairer regarding urban or rural.

[Ian Scott]

I think you accurately described the challenge. In urban areas there's a bigger market and it attracts more competition.

We have in Canada, if you will, sort of a head start. Many countries only had a wire-line telephone system, never wired cabled. We, like the U.S., have two wires in most homes, cable and telephone wires. Then we have wireless on top, and then we have, as you've described, resale—people obtaining access on a wholesale basis to that and reselling it.

The challenge in rural areas is that there's much less business interest in competing there. The challenge for the CRTC is to figure out what kind of wholesale arrangements are suitable in rural areas that will accomplish both objectives, continuing to see facilities extended to the underserved or unserved while also supporting competition, and that's a very challenging proposition.

We'll be looking at Northwestel, the company that provides service to most of northern Canada, in the coming months and year, and that will be one of the big challenges in that case.

I'm not sure if that fully answers your question, but you're absolutely right that rural areas are more challenging and often need a different approach from urban areas.

I hope that answers your question.

[Andy Fillmore, Liberal, Halifax, NS]

It gets there. Thank you.

There's probably another minute or two left.

You mentioned that you're going to be watching Northwestel to see what happens there. Regarding the fund that you administer, for example, is there anything there that would help to close the gap on some of the companies that are providing the stretched out part of the structure in rural areas to help them out a little bit?

[Ian Scott]

In the case of our fund, we're using what are called hexagons. Basically the rule is that if no one in a 25 square kilometre hexagon has 50/10 service, then the area is eligible to apply for support from our fund.

We don't care if it's a large or a small player. They have to partner with someone who has experience in deploying facilities, but it's open to indigenous bands, individual Canadians, municipalities, provincial governments—everybody except the federal government. If they put in a project that meets the criteria and if it compares favourably with others and delivers 50/10 service, then we'll consider it, and we choose the best ones.

[Andy Fillmore, Liberal, Halifax, NS]

I guess that in the northern and remote areas, with the adjacency of those hexagons, there are going to be a lot more of them clustered together, and it's going to be hard...so we're going to then turn to the LEOs, the low-earth orbit satellites. Similarly, is there anything in the fund you administer that supports the filling in of the gaps using the low-earth orbit satellites?

[Ian Scott]

Not specifically. We're technology agnostic, but it's actually sort of almost the reverse. Where there's a concentration.... If we take a city like Iqaluit in Nunavut, at least there's a concentration there and you can use various technologies to reach the population. The north and other rural parts of Canada are characterized by very spread-out populations. Satellite may be most useful in reaching dispersed populations.

I'm getting another red card, so I'm going to stop.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Scott. I appreciate your co-operation.

We have time now for an extra round, starting with Mr. Fast for five minutes.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

Mr. Scott, I want to go back to the wholesale rate reversal decision.

One of your predecessors as chair of the CRTC, Konrad Von Finckenstein, has said he was shocked that the commission could reverse itself so abruptly on lowering rates. He said, “I was stunned by this decision.”

Why would a former commissioner of the CRTC be so stunned by the reversal decision?

[Ian Scott]

Obviously, I can't speak for what prompted Mr. Von Finckenstein's comment, but what I can say is that I assume he didn't read the decision, nor was he familiar with the record of the proceeding that led to the change.

[Ed Fast, Conservative, Abbotsford, BC]

Having gotten to know Mr. Finckenstein a little bit, my guess is he did read the decision.

That said, back in 2019, the government directed the CRTC to look at how to create a more competitive environment. I believe you suggested that you were moving towards a new wholesale model.

I just wanted to ask, how is that going? How quickly do you believe that is going to lower rates for Canadian consumers?

[Ian Scott]

The policy direction—and there are two that are there—is carefully observed by the commission. In each decision you'll see that typically at the end of the decision it will indicate how the commission considered the policy directions that have been provided to it by the government.

In terms of the ongoing proceedings, as Mr. Kent mentioned earlier, there are several of them. Some of the records are complete, and some of them are still in progress, so I can't offer you a time frame for the completion of each of those proceedings, but work [Technical difficulty—Editor] intensify competition and reduce rates goes on constantly, and does so today.

[Ed Fast, Conservative, Abbotsford, BC]

Let me ask you another question.

Consumers—Canadians who are watching these proceedings—will probably be scratching their heads and saying, okay, in 2016, wholesale rates were established, and in 2019 the CRTC lowered those wholesale rates, presumably to increase competition, which would come from second tier telecoms and not the big guys necessarily, and within two years, that decision is reversed, and the wholesale rates are increased.

I think it's fair for Canadians to ask how in the world increasing wholesale rates will improve competition and lower the rates that consumers pay.

[Ian Scott]

In the first instance, we're talking about identifying the costs. There are many elements to the HSA, the wholesale access agreement, such as technical arrangements, how many points of interconnection, how it works and which facilities are included. It's a very complex matter and there are multiple elements. The costing of wholesale service is but one.

With respect to overall rates, between 2010 and 2015, rates were going up at a very rapid rate—between 30% and 40%, as I recall. The commission has taken numerous steps to intensify competition, including the establishment of the current HSA arrangement. That had the effect of stopping those increases, and rates flattened out. They increased slightly sometimes or decreased slightly, and you saw competitors' market share grow, and it has continued. Then we had to make determinations on wholesale costs.

You've said several times “increasing the cost”. No—determining the final rates based on costs, and that was what we did, as I've said several times now and corrected again.

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Scott, the costs you're referring to are the costs incurred by the big telecoms. Am I correct?

[Ian Scott]

They are the costs establishing the rates that need to be paid to them for the use of those facilities.

[Ed Fast, Conservative, Abbotsford, BC]

It's the big telecoms that benefit from this decision. Is that correct?

[Ian Scott]

I don't know how you determine a benefit. The costs relate to their cost structure and established rates. If what you mean is that the rates that could have been in place—remember that the earlier rates never were actually in place—would have represented a lower wholesale rate, that is correct.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Scott, and Mr. Fast.

I will now turn to Madame Lapointe for five minutes.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

I will be splitting my time with my Liberal colleague, Mr. Erskine-Smith.

Mr. Scott, in its policy direction to the CRTC in 2019, the government directed the commission to place high consideration on competition, affordability, consumer interest and innovation in all of its telecommunication decisions.

Can you highlight for us today how the CRTC is making progress in achieving these policy directives?

[Ian Scott]

As I mentioned earlier, the policy directions effectively instruct us to emphasize—that is, to take into careful consideration—certain elements of the telecommunications' objectives. There's a list of objectives. Sometimes you can read them altogether, and they are complementary in certain cases and they are contradictory in certain cases. What the policy direction says is this is what the government wants you to carefully consider and emphasize.

As I said earlier, we do that and it's reflected in all of our decisions. Towards the end of the decision, it will spell out how we have applied the existing policy directions to the particular proceeding. We do it in each instance.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

I've completed my time.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Nate.

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

I will pick up on my colleague's question.

Mr. Scott, I have expressed some frustration today in part because when we talk about the digital divide—and you have referenced closing that gap—do you think it's fair to say that a significant digital divide is not geographic, but based on income?