Public Accounts Committee on Feb. 21st, 2019

[The Chair, Conservative, Kevin Sorenson]

Good morning, everyone.

This is meeting number 128 of the Standing Committee on Public Accounts for Thursday, February 21, 2019.

We are once again here in consideration of “Report 1—Connectivity in Rural and Remote Areas” of the 2018 fall reports of the Auditor General of Canada.

We're honoured to have with us this morning, from the Office of the Auditor General, Mr. Jerome Berthelette, the Assistant Auditor General, and Philippe Le Goff, Principal.

From the Department of Industry we have the Deputy Minister, Mr. John Knubley. We also have Lisa Setlakwe, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector. We also have Michelle Gravelle, Director General, Audit and Evaluation Branch.

From the Canadian Radio-television and Telecommunications Commission we have Mr. Ian Scott, Chairperson and Chief Executive Officer; Mr. Christopher Seidl, Executive Director of Telecommunications; and Mr. Ian Baggley, Director General, Telecommunications.

For those who may be interested, we are televised today. We had these folks with us before, but we were interrupted by votes in the House. Typically, all they did at that time was their opening statements. We didn't get into very much questioning.

They have complied with our request and are willing to again give us an opening statement. We thank them for that.

We will now turn our time over to Mr. Berthelette.

[Jerome Berthelette, Assistant Auditor General, Performance Audit, Office of the Auditor General]

Thank you, Mr. Chair, for this opportunity to discuss our fall 2018 report on connectivity in rural and remote areas. Joining me at the table is Philippe Le Goff, the principal responsible for the audit.

This audit focused on whether Innovation, Science, and Economic Development Canada and the Canadian Radio-television and Telecommunications Commission, according to their respective roles and responsibilities, monitored the state of connectivity and developed and implemented a plan to meet the connectivity needs of Canadians in remote and rural areas.

Over the past 12 years, detailed examinations of the state of broadband access in Canada have included recommendations that the federal government lead the creation of a national broadband strategy. However, at the time we finished our audit, the government had still not agreed to take that step.

Innovation, Science and Economic Development Canada indicated that it was reluctant to establish a strategy with an objective that could not be reached with the available funding. The department had continued to follow an approach that expanded broadband coverage to underserved parts of the country according to when funds were available.

This approach left people in rural and remote parts of the country with less access to important online services, such as education, banking, and health care, and without information about when they could expect to have better access.

On October 26, 2018, the Minister of Innovation, Science and Economic Development announced that the federal, provincial, and territorial ministers for innovation and economic development agreed to make broadband a priority and to develop a long-term strategy to improve access to high-speed Internet services for all Canadians.

Ministers committed to a goal of establishing universal access to Internet speeds of 50 megabits per second download and 10 megabits per second upload.

Mr. Chair, with respect to the current state of connectivity in Canada, we found that the department relied on complete and accurate data to inform policy-making aimed at addressing the connectivity gap in rural and remote areas.

In 2016, the government launched its connect to innovate funding program to bring high-speed Internet to 300 rural and remote communities in Canada. We examined whether the department designed and managed this program to maximize the value for taxpayers. We found that the department did not implement the program in a way that ensured the maximum broadband expansion for the public money spent. The program did not include a way to mitigate the risk that government funds might displace private sector funds.

We also found that the department did not provide key information to potential applicants for funding under the program. As a result, some applicants had to invest more effort in preparing their proposals, and all applicants lacked full knowledge of the basis for selecting funding proposals. For example, there were a number of considerations for selecting projects, but the application guide did not specify the relative weight of each criterion used in the project selection process. Also, projects were less likely to be funded if they did not align with provincial and territorial priorities. However, these priorities were not made public. In our view, the department should have made the weights and priorities public.

Many Canadians in rural and remote areas had to rely on fixed wireless broadband solutions. We found that small Internet service providers did not have sufficient access to high-quality spectrum to support broadband deployment in rural and remote areas. For example, the department auctioned spectrum licences for geographic areas that were too large for smaller service providers to bid on. The secondary market for unused spectrum did not function well, partly because licensees had little business incentive to make unused spectrum available for subordinate licensing. In addition, the information on unused spectrum was not readily available to interested Internet providers.

Innovation, Science and Economic Development Canada and the Canadian Radio-television and Telecommunications Commission have agreed with our six recommendations, and we understand that the department has prepared a detailed action plan.

Mr. Chair, this concludes my opening remarks.

We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Berthelette.

We'll now turn to our deputy minister, Mr. Knubley, for his comments.

[John Knubley, Deputy Minister, Department of Industry]

Thank you, Mr. Chair.

Overall, the Government of Canada sees connectivity and broadband as a critical enabler. It really is the way for all Canadians to participate in economic growth, innovation and social inclusion.

Overall, we also agree with the recommendations of the Auditor General. I thought I should, at the outset, acknowledge the contribution of the former Auditor General Ferguson. We had several heated conversations—good conversations—about this topic.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

[John Knubley]

I want to start by thanking the Auditor General and his office for their report. This is an extremely important set of issues. We accept the recommendations and are moving forward to improve rural and remote connectivity.

I have just a few words, then, on the three specific areas of comment in the Auditor General's chapter: first, on strategy; second, on programs; and third, on spectrum.

On strategy, we agree on the need for a connectivity strategy, particularly in light of the CRTC decision in December 2016 declaring broadband a basic service and setting that 50/10 target. I personally believe that this declaration has created a significant inflection point for the delivery of broadband, which has required us to move from an evolutionary, step-by-step approach, addressing gaps, to a more collaborative, integrative approach to broadband.

As a basic service, the department's broadband programs predate this announcement from CRTC. As I said, they were designed to be step by step and to focus on specific gaps in services, coverages and speed. We focused on closing the gaps in speed between urban and rural areas in a way that carefully balances the public interest and private investment. We do want to avoid crowding out private investment in whatever we do.

I would also want to stress to members and to the chair that connectivity is very much a moving target. Technology is constantly changing and improving, and in this context, strategy is important, particularly as we set specific goals. However, it's constantly evolving. Only a few years ago our target was five and one, as opposed to 50 and 10.

As indicated earlier, work was already under way on a strategy this past spring. We established a federal-provincial-territorial connectivity committee. Federal-provincial groups have existed before, but we formalized it.

In June, the department launched a national digital and data strategy consultation, in which connectivity was the foundational component.

On September 25, Minister Bains released the economic strategy tables report, which focused on six sectors. This included the importance of broadband and digital infrastructure for economic growth, innovation and social inclusion.

Finally, on October 26 of last year, the federal-provincial-territorial ministers met. They agreed as a group to make broadband a priority, and to work together to that end. They agreed to a set of connectivity principles and to develop a long-term strategy to improve access for Canadians to high-speed Internet and mobile services. In other words, they accepted the 50/10 goal and the objective of serving Canadians with broadband as a basic service.

They did announce three specific principles: access to ensure reliable, high-quality service; collaboration to leverage all partners, and end fragmentation; and effective instruments, especially targeting market failures, so that government supports this where it is most needed in a real world context and does not crowd out private investment.

I would like to end my comments on the strategy by reminding members that the department has been very active in the digital and connectivity space for many years. It goes back to Minister Manley. There was a national broadband task force in 2001, led by David Johnston. If you look at their principles—I suspect I'll point them out to you later—you will see that they are remarkably similar to ones that are at the heart of our new strategy. The department has been committed for many years to providing programming around education related to digital and broadband activity. I can talk to you about some of those programs.

The second area of focus for the Auditor General was our two programs: Connecting Canadians, a $240-million, five-year program launched in 2014 to install last-mile connection for households; and our more recent program, connect to innovate, a $500-million, five-year program launched in 2016 primarily to support new backbone infrastructure to connect institutions such as schools and hospitals, and to ensure that communities have access to broadband.

I do want to stress that the findings of the audit focus solely on the design phase of the connect to innovate program. That's where we were at the time of the work of the Auditor General. I am pleased to report, and I have been asked to do so by Minister Bains, that the program will connect 900 communities across Canada. That's three times the program's original target of 300 communities.

Of the 900 communities, 190 are indigenous communities, some of them in the direst need of better high-speed Internet. I want to stress that above all what was targeted in this program were the areas of highest need for rural broadband, typically where the private sector is not inclined to go and that, overall, our $500 million program leveraged another $500 million, so that $1 billion is dedicated towards improved connectivity.

Let me just turn to the issue of spectrum and the issues raised there by the Auditor General. We certainly agree that the impact on rural and remote areas is a very important consideration when developing spectrum activities or licensing frameworks. We continue to develop policies that encourage service into rural areas to ensure that all Canadians will benefit from high-quality services, coverage and affordable prices. For example, we've just published a consultation on the development of similar geographic service areas for spectrum licence, known as the tier 5 consultation, which was referenced in the Auditor General's report.

What we have been doing is trying to drill down to a smaller geographical service areas so that we have a better understanding and mapping of what can be available to Canadians.

Also the 600 megahertz spectrum auction is scheduled to take place shortly. This spectrum can provide expanded rural coverage, specifically because we set aside 40% of the spectrum for regional service providers.

Let me conclude by just reaffirming that we recognize how important affordable high-speed connectivity and broadband is for rural communities and Canadians and that we all work very hard to ensure that we service and meet the objectives related to that.

Thank you, Mr. Chair.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Knubley.

Now we'll move to the Canadian Radio-television and Telecommunications Commission and Mr. Scott.

Go ahead, please.

[Ian Scott, Chairperson and Chief Executive Officer, Canadian Radio-television and Telecommunications Commission]

Good morning, Mr. Chair.

Members, I'll forgo introducing myself and my colleagues, as the chairman has already done so.

We appreciate the opportunity to appear before this committee to discuss the findings of the Office of the Auditor General and to explain the CRTC's role in increasing connectivity for Canadians living in rural and remote areas of our country.

As the Auditor General's report noted, the commission has a limited but important role to play. Our job as an independent regulator is to ensure that Canadians have access to a world-class communication system that promotes innovation and enriches their lives. We believe that all Canadians, no matter where they live, should have access to broadband Internet services on both fixed and mobile networks. As the Auditor General's report underlines, connectivity is vital in today's world. Broadband is the critical tool we use to communicate with each other, educate and entertain ourselves, find information, apply for jobs and do routine activities from banking to accessing health care and other government services.

So Canadians need access to an unfettered Internet experience.

While we don't hold all the levers, there are areas where the CRTC can—and is—helping to advance this goal. A perfect example is the CRTC's December 2016 announcement that broadband Internet is now considered a basic telecommunications service.

At the same time, we established a new universal service objective, as just mentioned by the deputy minister. We call for all Canadians to have access to fixed broadband services at download speeds of at least 50 megabits per second and upload speeds of 10 megabits per second, as well as access to an unlimited data option. The latest wireless technology, currently known as LTE—long-term evolution—should be available not only in Canadian homes and businesses but also on major roads in Canada. By the end of 2021, we expect that 90% of Canadian households will have access to speeds matching the universal service objective. By our current estimates, it will take another decade or so after that for the remaining 10% to join them.

Mr. Chairman, 84% of Canadians have access to the Internet at the new speed targets today. However, many people, particularly those living in rural and remote areas, can only dream of this level of service. While 97% of households in urban areas have access to service that meets the universal service objective, only 37% in rural areas have similar access.

As a result, 16% of Canadian households or nearly two million Canadians still don't have access to the universal service objective speeds or unlimited data option. Fast, reliable, high-quality Internet is simply out of reach, whether physically or financially, in many parts of the country.

That message came through loud and clear during the CRTC's public hearing on basic telecommunications services. We heard from more than 50,000 people—individual Canadians, business owners and leaders of indigenous communities. Many of them told us they're being left behind in the digital age.

Coverage gaps, of course, vary by region. Smaller maritime and prairie communities often do not enjoy the high speeds of major urban centres. The worst off and most in need are almost always found in the Canadian north.

Efforts to close these gaps need to be coordinated, as they are a shared responsibility among numerous players. Beyond the CRTC, this of course includes Innovation, Science and Economic Development, as well as the provinces and territories, indigenous governments, the telecommunications industry itself and non-governmental organizations.

For its part, the CRTC has announced a new broadband fund. It will provide up to $750 million over the next five years to help pay for infrastructure to extend Internet and mobile wireless services to underserved areas. Our objective is to ensure that rural residents have comparable service to those in urban areas.

Of that $750 million to be made available, up to 10% of the annual total will be provided to improve services in satellite-dependent communities. These are communities that rely exclusively on satellite transport to receive one or more telecommunication services, such as telephone, fixed and mobile wireless, and Internet services.

Of course, when we launch our first call for applications this year, it will be important for potential applicants to know where the greatest needs are located. We agree with the Auditor General's report on this issue.

Last month—it has actually been a few months now—we published maps indicating the areas of the country that do not have access to broadband speeds of 50 megabits for download and 10 megabits for upload. The maps also identify communities without high-capacity transport infrastructure and where homes or major roads do not have access to LTE mobile wireless service. In short, the areas of the country that do not currently meet our universal service objective. We have asked Internet and wireless service providers to verify the accuracy of our maps.

This is consistent with our overall approach regarding broadband data. We make information available to the public in as much detail as possible, while respecting the confidentiality provisions of the Telecommunications Act.

In fact, we will soon publish an update to our annual communications monitoring report that will provide fresh data on broadband availability and other related information.

Moreover, a memorandum of understanding was established a number of years ago between the CRTC and Innovation, Science and Economic Development Canada. This agreement governs our collaboration and the data that is shared between our organizations. We're committed to sharing information on broadband infrastructure to support evidence-based decision-making. We're also committed to working with all levels of government as part of a collaborative effort to provide broadband Internet service to underserved Canadians.

Since announcing the details of our fund late last year, we've met with representatives from provincial and territorial governments, as well as all the relevant federal departments, to explain how the fund will work and to understand their broadband funding plans.

Mr. Chairman and members, extending broadband and mobile coverage to underserved households, businesses and along major roads will require billions of dollars in investment and infrastructure. There is no doubt that this objective is an ambitious one, in part because of our vast geography and shorter construction season in many parts of the country.

The CRTC's broadband fund is obviously just one part of the equation. It is meant to be complementary to but not a replacement for existing and future public funding and private investment.

Having detailed, accurate and up-to-date information at the disposal of the public and policy-makers will ensure that the funds are being directed to the most appropriate projects and communities. There's also no doubt that much work remains to be done. I'm confident, however, that this objective will be met in the same manner that railways and electrical grids were built in the past, by connecting one community at a time.

Thank you very much.

We will be happy to answer any questions you may have.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Scott and all, for your presentations.

We'll now move into the first round of questions. The first round is a seven-minute round, and I welcome Mr. de Burgh Graham.

[David Graham, Liberal, Laurentides—Labelle, QC]

First of all, Mr. Berthelette, at the outset, condolences for the loss of Michael Ferguson.

Many more communities got service than intended in the program. The program had a target of 300 and, as we just heard from Mr. Knubley, some 900 communities got service, including some 190 indigenous communities. How is this a failure?

[The Chair, Conservative, Kevin Sorenson]

Mr. Le Goff.

[Philippe Le Goff, Principal, Office of the Auditor General]

I don't see that as a failure.

[David Graham, Liberal, Laurentides—Labelle, QC]

I want to make sure of that.

In my own riding, some $13 million in federal money out of a $47 million project will put 16,000 households across 17 municipalities on fibre optic in a territory three times the size of P.E.I. In what way did we not get value for the money we spent?

[The Chair, Conservative, Kevin Sorenson]

Mr. Le Goff.

[Philippe Le Goff]

Mr. Chair, I think I cannot comment on a specific case like that. We looked at the design of the program at the time of the audit, simply, and we determined that the approach would not facilitate value for money.

[David Graham, Liberal, Laurentides—Labelle, QC]

Would not facilitate or did not achieve value for money? What we see in the projects that I've seen across the country is quite good value for the money considering that it typically costs $2,000 or $3,000 per household to connect rural to fibre. In a lot of cases, this program came in well below that.

I'm trying to understand the basis on which this didn't get value for money.

[Philippe Le Goff]

Mr. Chair, again, I would say that we looked only at the design of the program. It was among the criteria design determined by the department at the time that they would not focus really solely on value for money, but they had other criteria to make decisions.

[David Graham, Liberal, Laurentides—Labelle, QC]

Is that a bad thing?

[Philippe Le Goff]

I would submit, Mr. Chair, that the audit was designed to look at value for money, and it's what we looked at. We concluded on this thing.

[David Graham, Liberal, Laurentides—Labelle, QC]

In the opening comments, there was a reference by Mr. Berthelette about displacing private funds. I find it to be a big, red flag when I hear that, because it's based on an assumption that private funds are interested in coming to these communities. What we see is that private funds don't come to the communities; they go into the downtown core of a rural area, if there is a downtown core of a village, and they'll offer service there, but everybody out of range, just forget them; they're not worth funding and not worth investing in. Private companies only come to those areas when the public invests money, and then they say they're going to lose their market share, so now they're going to start investing.

I have a lot of trouble swallowing the concept that this program in any way displaced private funds. If anything, private funds tend to displace public funds when they arrive.

How do you see that assessment?

[Philippe Le Goff]

Mr. Chair, I would say that our main concern about this was that, in some cases, private funds could have been spent anyway despite the program. Because the program existed, the private funds took advantage of that.

[David Graham, Liberal, Laurentides—Labelle, QC]

On that basis, the 4,000 communities that have not yet received funding should, more or less, all have private investment coming in and we shouldn't need to continue to worry about this.

[The Chair, Conservative, Kevin Sorenson]

Mr. Berthelette.

[Jerome Berthelette]

Mr. Chair, I think the philosophy behind the programs of the department is that they're looking to private funds to expand broadband. So when we looked at the program, we were looking at how you maximize private funding. There will be cases where private funds are not going to be made available because of the isolation of the communities, perhaps, and the cost. However, there may be cases where a combination of private funds and public funds is going to be needed, and ideally we will look to the department to make sure that it maximizes private funds and maximizes the benefit that we get from the public funds.

I think what we heard today is that they've managed to get a one-for-one investment from the private funds, and I think that's probably a good thing.

[David Graham, Liberal, Laurentides—Labelle, QC]

In the audit, it sounds as if you're not happy with that, but here you're saying you are happy with that. Are we happy with how the program went?