Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 6 - Evidence
OTTAWA, Thursday, March 12, 1998
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-17, to amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act, met this day at 11:05 a.m. to give consideration to the bill.
Senator Lise Bacon (Chairman) in the Chair.
[Translation]
The Chairman: Considering the number of people who want to meet with us, I think we should begin our discussions on Bill C-17 immediately. This morning, we welcome senior officials from Industry Canada. You have 45 minutes allotted to you -- 20 minutes to make a presentation and 25 minutes for a question and answer session, if possible. Mr. Helm, would you kindly introduce the people who are with you, in case we have any questions for them.
[English]
Mr. Michael Helm, Director General, Telecommunications Policy Branch, Industry Canada: Thank you, senator. My name is Michael Helm, and I am the Director General of the Telecommunications Policy Branch at Industry Canada. Millie Nickason is counsel with the Department of Justice, assigned to Industry Canada and has worked on this bill all the way through. Mr. Larry Shaw is Acting Director General of the International Business Branch at Industry Canada. Mr. Shaw was a member of the Canadian negotiating team in Geneva when the WTO agreement on basic telecom was signed and has worked on this legislation since then. Allan MacGillivray is Director of Industry Framework Policy in the Telecommunications Policy Branch also at Industry Canada.
As you mentioned, we do have a short deck of slides we will go through for you. The first few pages are simply to set the context for the bill with regard to the state of telecommunications in Canada, the nature of the change it is undergoing, and then we have some slides which deal particularly with the substance of the bill.
The Canadian telecom service sector originally consisted of a number of regional monopolies, usually provincially based, except for Bell Canada in Ontario and Quebec, with a mixture of private and government ownership. The federal government was also involved in an ownership role in various telecommunications enterprises: Teleglobe, Telesat, and portions of the CN group as well. In the last two decades, starting in the 1980s, there has been significant change in the industry, generally liberalization, and the change has progressed to the point where the Canadian market is now probably one of the most open in the world.
For example, in 1984, when cellular telephony was licensed, it was licensed initially in a competitive mode so that there would be competition from the beginning. In the period of 1987 through 1992, the federal government divested itself of its interests in Teleglobe, the international carrier, Telesat, the domestic satellite carrier, and the CN-CP group. The federal government is no longer an owner or participant in the provision of telecommunications services.
In 1989, an important Supreme Court decision confirmed federal jurisdiction over all of the major telephone companies in Canada. Prior to that, some had been regulated by the federal government and some had been regulated at the provincial level. In 1992, a CRTC decision opened up long distance telephone service to competition in Canada, and, of course, we continue to see the results of that decision.
In 1993, Parliament passed the new Telecommunications Act, which is the existing legislation that creates our present regime. In section 7 of that bill, Parliament put in a telecom policy for Canada, and we have picked out just a few of the key policy objectives relevant to this discussion: To facilitate the orderly development of the Canadian telecommunications system; to render reliable, affordable service to all Canadians; to promote the use of Canadian transmission facilities; to maintain Canadian ownership of facilities-based carriers; to foster increased reliance on market forces for the provision of telecom services; and to ensure that regulation, where required, is efficient and effective.
It is important to note that the Telecommunications Act only applies to facilities-based carriers, ones who own transmission facilities. Those who resale, who simply provide service by buying facilities and selling the services, are not subject to the act, and therefore not subject to the foreign ownership provisions.
I would add one point. Further on in that act, Parliament gave some very sweeping powers to the CRTC, and then as well directed them to use those powers with the objective of implementing the telecommunications policy set out in section 7, so it is an important and fundamental piece of legislation which continues to drive activities in the area.
In 1994, as I mentioned earlier, a Supreme Court decision confirmed federal jurisdiction over the major telephone companies. There are as well a number of generally fairly small, independent telephone companies in Canada, about 40, most in Ontario and Quebec with one in British Columbia. In any event, in 1994, the Supreme Court confirmed that they are all subject to federal jurisdiction as well.
In 1995, competitive personal communication services were licensed. This is cellular-like telephony. Those services are all in operation now.
In 1996, we saw the introduction of competitive, local, multi-point communication systems. They have not yet entered into service but hopefully will soon. One might describe that as a kind of wireless cables system.
In 1996, the government issued a convergence policy which, among other things, said that the telephone companies could indeed enter the cable television business and, conversely, that cable television companies could enter the telephone business if they so desired.
In 1997, again, there were some CRTC decisions introducing local competition. Also, the commission decided to forebear, that is to step back from regulation in long distance services.
Then in 1998, Canada was a signatory to the GATS agreement on basic telecommunications services concluded at the World Trade Organization in Geneva. Two of the key points in that are that Canada agreed to end the monopoly which Teleglobe enjoys in overseas communications by October 1 of this year, and the Telesat monopoly on satellite services for Canada-to-Canada traffic or Canada-to-U.S. traffic by March 1, 2000.
The next few pages speak now directly to the bill before you, Bill C-17, to amend the Telecommunications Act and also the Teleglobe Canada Reorganization and Divestiture Act, which was the legislation passed when Teleglobe was privatized.
The bill addresses two main areas. First, it amends the two statutes in order for Canada to meet specific requirements that were in its offer at the GATS agreement on basic telecommunications, and second, there is a kind of clean-up, in that it includes some other amendments to the Telecommunications Act, simply to modernize the legislative and regulatory framework to meet the realities of the system as it has evolved.
There are 23 clauses. I will not go through them in great detail but I will mention them now. Basically they are broken up into five areas: First, clauses dealing with the licensing of international telecommunications service providers; second, clauses dealing with the foreign ownership of submarine cables and earth stations; third, clauses addressing telecommunications numbering and other activities; fourth, a group of clauses dealing with telecommunications apparatus, that is equipment, foreign equipment often, that will now be able to be connected to the Canadian telecommunications system; and the fifth main group, clauses 11 to 23 inclusive, regarding changes to the Teleglobe Reorganization and Divestiture Act.
The first group, clauses 1, 3 and 7, amend the Telecommunications Act concerning the licensing of international telecommunications service providers. This really arises from the ending of the Teleglobe monopoly on overseas businesses. New firms will come into that activity, and there is a requirement that we have a effective tool to ensure that the objectives of the act continue to be met in the new competitive environment, with new players, and in particular to ensure that the currently-unregulated subsidiaries of foreign carriers compete fairly with Canadian companies.
The proposed amendments will provide the CRTC with the authority to establish and enforce rules for the provision of international telecommunications services, and to ensure that the introduction of a licensing regime is in accordance with our WTO-GATS requirements and that it is consistent with other regimes already put in place by virtually all of our major trading partners.
The second group of amendments, in clauses 2, 4 and 5 of the bill, deals with the ownership of international submarine cables and satellite earth stations. There are amendments to the Telecommunications Act in order for Canada to meet it is commitments regarding the ownership of international submarine cables and satellite earth stations. Canada did, in the GATS agreement, commit to removing its foreign ownership restrictions for international submarine cables landing in Canada, and also for satellite earth stations.
The commitments are consistent with other measures taken in liberalizing the international telecommunications market, most significantly the removal of traffic routing rules for all international services and for all satellite services, again Canada-to-Canada and Canada-to-U.S., by March 1, 2000.
It is important to note that while the changes will mean that the providers of international submarine cables will be exempt from foreign ownership requirements, owners and operators of cable landings and earth stations will, of course, still be subject to all of the other provisions of the Telecommunications Act if indeed they intend to offer service in Canada.
The third group of amendments, found in clause 6, are amendments to the Telecommunications Act concerning telecommunications numbering and other activities of that sort. Historically in Canada, these kinds of administrative matters -- numbering is a good example -- were simply administered by the Stentor companies, which could work together effectively and efficiently to do that, and did for many years. As the environment becomes more competitive as many more carriers enter into the fray, and as there is competition at each level of service throughout the system, everyone agrees that it is really not an appropriate way to continue and that a better way for administering the common services should be found. Thus, clause 6 will allow for third parties, working in cooperation with the industry, to be designated to administer these various telecom services, and then establishes the CRTC's authority over these third parties so that the commission can retain an oversight function and intervene if and when that should become necessary.
The fourth group of amendments are found in clauses 8 to 10 of Bill C-17, and again amend the Telecommunications Act, concerning telecommunications equipment. The clauses will provide a firmer legislative basis on which the Minister of Industry will be able to prohibit, where necessary, the importation, distribution and sale of uncertified telecommunications equipment in Canada. This will augment the existing domestic telecommunications equipment certification procedures. Provisions will ensure that all equipment for sale in Canada has been certified as meeting Canadian standards. The integrity of the telecommunications network will be maintained and, it is hoped, consumers will have a little more confidence in the equipment that is being purchased.
The amendments, of course, will also allow Canadian equipment manufacturers to certify their equipment here, which will then be available for sale in foreign markets as all the parties to the agreement pursue similar changes.
I should note that, although this is a new activity with regard to telecommunications equipment, it is parallel with provisions that have been in place for many years for radio or spectrum-related equipment, in the Radio Act. That has been legislated and regulated for quite some time. That type of regime was not really necessary for telecom equipment until we had liberalized the system and opened it to foreign equipment, as we have now. This will put in a structure for telecommunications equipment parallel to what already exists for radio equipment.
Finally, I will deal with the last group. Clauses 11 to 23 of Bill C-17 consist of amendments to the Teleglobe Canada Reorganization and Divestiture Act, the bill I mentioned earlier, which privatized Teleglobe in 1987.
There were a number of items in that act which were perfectly appropriate, I think, when Teleglobe was operating as a monopoly but which probably would handicap it from going forward in a competitive environment. The special ownership restrictions which are presently in place prohibit investment altogether by foreign telecom carriers, for example, and they also limit investment by the Stentor companies. These special ownership restrictions will be removed and Teleglobe will then be subject to the same ownership requirements as any other carrier in Canada.
The remaining clauses repeal other provisions of that act which are really no longer required, given that the Teleglobe monopoly is ending.
Madam Chairman, that is our overview of the bill and we are happy to assist with any questions or clarifications you may need.
Senator Rompkey: Can you expand on clauses 8 to 10 and tell us a bit more about uncertified telecommunications equipment? How is equipment certified and what sort of equipment would be uncertified?
Mr. Allan MacGillivray, Director, Industry Framework, Telecommunications Policy Branch: As Mr. Helm said, we are effectively giving ourselves a firmer legislative basis for a system that is already in place. We are talking about equipment that the user would have in his home or in a business. Generally, the current practice is that a standard is developed by the industry and then we in Industry Canada will approve that standard. We will also certify testing labs as being acceptable for testing the equipment to meet the standard. With the testing lab certified, the manufacturer of the equipment will submit an example of the equipment to the lab. The lab will certify that it indeed meets the standard. Having done that, they have to affix a sticker to the piece of equipment, which indicates its compliance with the whole process.
Senator Rompkey: So really there is nothing essentially new from what you have now. It is simply codifying what already exists. Is that roughly what you are saying?
Mr. MacGillivray: Yes, that is so, except we do not now have a legislative basis for doing this. In particular, we have not had the authority to stop uncertified equipment at the border. We have no authority now in law to do that.
Senator Rompkey: This will provide a legal basis for what you are already doing?
Mr. MacGillivray: Yes. For example, we have not had the power to seize any equipment at the border, so we have not been able to do that. There have been some isolated incidents in the past of equipment coming over that is not certified. While there have not been large problems with what one would call defective equipment, we are very fortunate in Canada to have a fairly large manufacturing industry. They actually comply with the system as is and it actually costs money for the stickers. When they see their competitors importing equipment without the stickers, they say that is not right.
To this point we have not been able to take any action against the imports directly because the current basis for the system is actually in the tariffs that are imposed on the phone companies. That is to say, the current system relies on the phone companies for enforcement but that can only happen after the equipment has been attached to the public network.
Mr. Helm: The key point is the strengthening of the enforcement mechanisms, particularly at the border, as we expect more foreign equipment to be coming in.
Senator Rompkey: You expect more to be coming in?
Mr. Helm: Yes, as part of this and an earlier agreement at GATT, there will be a liberalization regarding equipment, which offers great opportunities for Canada's manufacturers in other countries but also means we can expect more foreign telecommunications equipment to be coming in. We have agreements to certify in other countries. We are working on those, but again we want more specific legal authority to stop things at the border if a problem arises.
Senator Rompkey: The border incidents have been isolated, as I understand it, up to now?
Mr. Helm: Yes.
Senator Rompkey: So the mainstream companies who manufacture equipment presumably are already in the country. This would simply confirm that in legislation?
Mr. Helm: Yes. This should be seen as a preventive measure for future problems rather than something we are encountering or needing at the moment, senator.
Senator Oliver: I have three questions, one on foreign ownership, one on numbering and one on licensing. First, I want to thank Allan MacGillivray for coming to my office and giving me a briefing. He responded to a number of the queries that I had, so I do not have as many questions today.
You said in your presentation regarding satellites that these commitments are consistent with other measures being taken to liberalize the international telecommunications market. In effect, the submarine cables and satellite stations would be lifted to 100 per cent, while ceilings on other parts of the Canadian telecommunications industry would remain much lower than 100 per cent.
Do these inconsistencies in percentages run the risk of causing irritants with our major trading partners and why has Canada's position on foreign ownership been relatively conservative compared with the other major industrialized countries? You say that you took these measures in liberalizing our international markets, and they seem to be inconsistent.
Mr. Helm: Yes, they are a liberalization from where we were before. Going to 100 per cent in those particular areas is a move to liberalize.
On your question about whether this would be an irritant with our foreign partners, I do not know if I would use the word "irritant" but it was certainly pointed out to us during the WTO negotiations. Mr. Shaw was there and he may want to add something.
A number of other areas -- I think of the U.S., Europe, Japan, Australia -- opened their system entirely to foreign ownership and they pointed out that we were not liberalizing to that extent.
Senator Oliver: So what are you going to do about it?
Mr. Helm: At the moment, as far as I know, there is no plan for change. There is another round of negotiations at the WTO scheduled in 1999 or 2000. When we get to that point, I would expect the government would take a look at those policies again to see if they continue to be important in the government's view.
Senator Oliver: Is that the time to be doing it? You are now putting satellites at the 100 per cent level. Why not do it all and get it done, to be like other countries with which you are trading?
Mr. Helm: That is essentially a policy decision. I think in the last round the government simply decided it was more in the public interest to stay with our existing rules for facilities-based carriers within Canada. Those rules are fairly generous. Foreign providers, through direct and indirect investment, can get up to about 46 per cent.
Senator Oliver: There is a big difference between 46 and 100 per cent.
Mr. Helm: That is true. Some countries have pointed that out to us.
Senator Oliver: My second question relates to numbering. You said in your presentation that the CRTC is being given authority to require contributions from telecommunications service providers for a fund that would subsidize local phone services in the competitive market. In the United States they have something called the Universal Service Fund which is also being established to subsidize phone service to remote and rural regions, as well as to poor people.
Is the Canadian fund expected to follow the American model? What are the similarities and the differences between the Canadian fund and the American?
Mr. Helm: That may be a question you could pursue with the CRTC, as well.
Senator Oliver: Yours is the department which drew the statute and you must have had some policy initiatives in mind. What are they?
Mr. Larry Shaw, Acting Director General, Industry Canada: Senator, this issue must be viewed in light of what the existing practice is. It is well-known to senators that there are, and have been for a considerable time, cross subsidies in the telecommunications system, generally flowing to local residential service from the other services such as long distance and local business services.
When there was a monopoly, this was all handled internally by the telephone companies. As Mr. Helm indicated, we are moving rapidly away from a monopoly situation, and we now have a situation where there is active competition in the long distance market. The commission has approved local competition and has put in what are termed portable subsidies in the local market. The purpose of those portable subsidies is to support local service in high-cost rural and remote areas.
In keeping with some of the other administrative powers that the commission is adopting, such as third-party administration of numbering, they would also like to adopt a process where there is third-party administration of this subsidy flow. The subsidy flow will continue to derive from a number of suppliers of long distance service and go to a number of suppliers of local service. All suppliers of local service that operate in high-cost areas will be eligible for the subsidies. This is creating the opportunity for the existing subsidies to be administered by a third party. It is not really any more complicated than that.
As Mr. Helm said, if the commission is making a presentation before your committee, they could confirm, as they did in the other place, their intention to maintain the existing process through a third-party administrator.
Senator Oliver: My third question is on licensing, and this is a major concern of mine. Most other major countries do not have a regime that is as repressive as this. It seems to me that the CRTC has the authority, through its present order and powers, to do what you want it to do through a brand-new regime of licensing. The CRTC seemed to use some of those powers in the recent Hong Kong case. Why is it necessary to have a licensing regime now? Given the trend towards liberalization in telecommunications markets, why should Canada be licensing rather than relying on the market or trade agreements to deal with telecommunications problems?
Mr. Helm: Several of us may wish to respond to that, senator. We know you are concerned about it.
Let us look at the situation that will obtain when we do have competitive international service providers in Canada. We will be dealing with many countries around the world which are also competitive. A market force should work in those circumstances. There are also many countries which will continue to have monopolies, and they will probably continue for some time. It is hard to predict.
When all Canadian carriers are forced to land their international traffic in a foreign country through one monopoly player, which can also operate in Canada with its own resale company, the dynamic become interesting. What is driving it is not market forces, because a monopoly is not subject to market forces so they can basically do whatever they want.
In the absence of market force playing, which would be the clear preference under the act, and with the opportunity for monopolies to distort market pressures, the traditional response is some level of regulation. The CRTC has dealt with examples of this in the past, and everyone felt it was a long, laborious and not terribly efficient process. The CRTC eventually solved the problem you referred to, but it was not an easy route.
Senator Oliver: They dealt with that by way of an order. They did not need a licensing regime to solve it.
Mr. Helm: I understand there were hearings and tariff adjustments. I believe it went on for some time.
The hope is that this proposed mechanism will be a more efficient and lighter-handed way to deal with problems that may come up.
Incidentally, knowing there has been some discussion about this, we did some research regarding the situation in other WTO member countries. You may be interested to know that of the 53 WTO members who guaranteed market access for international telecommunications services and facilities, virtually all of them have a mechanism such as a licensing regime, a permit, an authorization, or a concession. It is called different things, but it is that kind of mechanism. The list of countries is long and includes all the obvious players. We deal in those countries where most of our international traffic goes. Canada was very much the odd one out in that sense of not having any kind of mechanism that dealt directly with the people providing the international telecom service.
Our hope is that this mechanism the commission is considering will describe exactly how it will be administered. The intent is clearly that it will be a light-handed, simple mechanism, but one that will deal with problems which we almost certainly expect to arise.
Senator Oliver: What is the anti-competitive behaviour about which you are concerned?
Mr. Helm: For example, a monopoly operating in a particular country can charge basically whatever it wants to whatever countries or carriers it wants to terminate their calls in its country. If it has a reseller in Canada, its reseller can pick up traffic and carry it over to this country. It could then give its own reseller an extremely preferential rate. It might let its reseller terminate calls for half the price charged by companies like Teleglobe or the Stentor members.
Senator Oliver: Hong Kong Tel tried that and it was resolved. What is the problem?
Mr. Helm: We might differ on how long or how readily that problem was resolved, but you are right, it was eventually resolved. That is one example.
Mr. Shaw: Among the technical issues in the negotiations leading to the agreement on basic telecom, the most hotly contested and debated aspect was international services. The reason for the lengthy debate and discussion was that every country was concerned about the potential for dominant carriers or monopolies in other countries to benefit from their position and damage competition in the home country. For example, in our case, a monopoly in China, which is not a WTO member and is not in any fashion bound by this agreement, could be used to damage competition. The way they would do that, as Mr. Helm described, would be by giving a Canadian-based reseller that they own preferential access to China, access that is not available to any Canadian carrier. That preferential access would allow the Chinese reseller to undercut the prices of the Canadian carriers or, for that matter, other foreign carriers that are operating quite legitimately out of Canada into that market.
Senator Oliver mentioned one example. What was interesting in that case was that the damage was not restricted to the home market of the monopolist. They were able, in a very short time, to gain a large share of the market between Canada and Hong Kong. Their Canadian-based reseller was also able to gain a significant share of adjacent Asian markets. The damage was not restricted to just the one area. They basically levered that into something else.
I would like to address another point made by Senator Oliver. He points out quite accurately that the commission was able to deal with a situation that existed. However, that situation existed at a time when there was a monopoly on international service; that is, you were dealing with one facilities-based carrier from Canada to the foreign country at a time when there was a de facto monopoly on local services. In other words, the only way you could get that traffic to Hong Kong was to go through B.C. Tel or Bell Canada. Either you used Teleglobe or you did not use Teleglobe. It was an on-off situation. There were no other options.
Since that time, the local services market has been opened up to competition. We already have multiple suppliers of local access, and there will be a few more very shortly. The international market is being opened up as well, so we will have multiple suppliers of international services, some of which are facilities-based. We will not have -- I do not want to offend Teleglobe or anyone else -- the nice, tight little club that existed previously.
The licensing approach is intended to condition the behaviour of these carriers. I believe the commission will set it up as follows: The companies will have to commit to certain forms of behaviour, and the behaviour will be the same for all of them. In other words, you cannot benefit from affiliation with a monopoly or a dominant carrier.
Again, the commission is far better placed than we are to advise you what its specific thinking is, but as Mr. Helm said, virtually every other country in the world has seen fit to establish a licensing regime, in many cases for all of their carriers but in virtually every case for international carriers.
At this time, we do not have any comfort, other than via a licensing regime, that Canada can be protected from anti-competitive behaviour by monopolies or dominant carriers in other countries.
I would remind senators that there are a number of important countries which are not members of the WTO and are not bound by the general agreement. As well, a number of important countries are not bound by the agreement on basic telecoms, as they were not parties to that agreement. We will need some level of comfort that we can be protected against anti-competitive behaviour, not by our carriers but by foreign carriers. That is the purpose of the licensing regime.
Senator Bryden: A lot of Canadians like me do not understand a great deal about what happens in the area of telecommunications, but they are very proud and very satisfied with our telecommunications system. I come from New Brunswick, and I happen to think we have one of the best telecommunications systems in the world.
I was away on the other side of the world in January, and it was a wonderful comfort to pick up a pay phone and dial six digits to hear someone say, "Welcome to Canada. For service in English, press 1, and for service in French, press 2." I would hate to get into a situation where we would jeopardize that.
I am concerned, for example, with the comment about the licensing of telecommunications service providers. Why is this needed? Then I read, in the last bullet on page 7 of your brief, the following:
The introduction of a licensing regime... is consistent with similar regimes already put in place by our major trading partners, most notably the United States.
I take it that if the United States was not a signatory to this agreement -- and in the opinion of many people, their system is not nearly as good as ours -- we probably would not be either.
Mr. Helm: That is hypothetical, and I am not sure how to respond.
In our trading agreements, our major partner, of course, is the United States. I think something like 80 per cent of our international telephone traffic goes to the United States, and we have had a good working relationship with them for some time.
On reflection, I think we would certainly be part of an international pact like that anyway. A large number of global telecommunications systems, such as low Earth-orbiting satellites, are coming on stream. Increasingly, service is global and barriers are disappearing. We will have more and more ways and opportunities to make calls around the world, which demands that there be international agreements whereby countries come together and agree that they will play by a common set of rules.
I am having trouble with the question because I find it a little inconceivable that the U.S. would not be part of such an agreement, but I think an agreement like this has to happen and Canada must be part of it.
Senator Bryden: As you know, another treaty is presently being debated, the MAI agreement. For whatever reason, it has been put on hold for a year and a half, presumably because there are concerns about its potential impact on the sovereignty of various nations, including Canada. Is this agreement, and its implementation by this bill, really the telecommunications section of the MAI, and could overriding sovereignty issues arise here?
Mr. Helm: To the first part of your question, no, there is no connection, but I am by no means an expert on the MAI. We are moving into the context of the OECD here, I believe.
This agreement is part of the World Trade Organization. They are separate things; they are not related; there is no connection at all.
Are there sovereignty implications? I would say no.
You pointed out earlier -- quite correctly, and I think everyone at this table would certainly agree with you -- that we have one of the best telecommunications systems in the world. There is no question about it. Our telecommunications service provider companies, domestically and internationally, are recognized throughout the world as amongst the best anywhere. This agreement gives them the opportunity to expand. Yes, it liberalizes our markets and therefore other carriers will come here, but it also provides an opportunity for Canadian companies, which have an enormous degree of competence and qualifications, to go abroad easily and set up businesses in other countries around the world to provide services on a competitive basis. A number of them will do that -- in fact, are now doing that. There is no doubt in my mind that they will flourish and do well. I think this should be seen in the context of opening up opportunities for our excellent Canadian companies to export their expertise.
Senator Bryden: As everyone is aware, there is a huge number of mergers and acquisitions occurring at an international level all over the world. By way of example, one of the things that is contained in this bill concerns opening up the ownership of cables and satellites to foreign ownership.
Will it be open for foreign owners of our cables and our satellites -- under this bill they will have a perfectly legitimate right to own them -- to merge so that all our connecting services will be controlled by one multinational?
Mr. Helm: I think not. Canada decided in the WTO negotiations that we would maintain our domestic ownership control requirements for Canadian common carriers, for those telephone companies that provide service either to your home or to your business.
Senator Bryden: I think you misunderstood me. I am talking about the international connections. It is says here that 100 per cent foreign ownership of submarine cables is now possible. It is a similar situation for ground-based satellites. If there are, say, two big operators of those connections and they merge or acquire each other, will we end up with one service provider? If that happens, presumably some multinational could flip a switch and we would no longer have a connection.
Mr. Helm: I do not think so. There is no sign of that happening. Internationally, it is intensely competitive.
Senator Bryden: Is that possible, though?
Mr. Helm: I would be inclined to think not, because the competition authorities of each domestic country still maintain their power as to who operates within the country. A number of countries around the world are committed to that.
Senator Bryden: Under this bill, what would prevent that? We are not talking about what is in the country; we are talking about the cable. For example, we have three cables that connect Europe and North America. Each cable is owned by a different company. Let us say they merge and there is only one service provider. What is contained in this bill -- or in any act in Canada, for that matter -- to prevent this from happening or to prevent the person who controls that cable from cutting it off?
Mr. Shaw: First, there is nothing in this bill that in any fashion weakens our ability to deal with that exact issue, either domestic or internationally. One of the major objectives in liberalizing the ownership of the international cables is to attract more cables to land in Canada or satellite systems to operate either from Canada or to Canada.
The important point is exactly as Mr. Helm stated it. The Competition Act deals with questions such as whether or not there are monopolies or market conditions that are preventing the efficient operation of the market. In addition, we still must license, under various acts, the submarine cables or the satellite earth stations that work with the satellite systems. We will not authorize a transfer of licence if it will result in a harmful lessening of competition. Quite frankly, our colleagues at the competition bureau would not let us transfer a licence in that case.
There is nothing in this proposed act that in any fashion limits any of the existing powers to control that kind of anti-competitive behaviour. We continue to have a variety of tools to deal with anti-competitive behaviour. It was something that was never covered under the Telecommunications Act.
Senator Bryden: Before this, it was impossible to have 100 per cent foreign ownership of submarine cables and earth stations, is that correct? Now it will be possible. Some company or companies in Europe could have 100 per cent ownership of our submarine connections and earth stations connecting us with the rest of the world.
Mr. Shaw: It is worthwhile to remember that cable is connected on either end. The European competition authorities, or the American, or the Japanese, or anyone else, would have no more desire than we do to have those all under common ownership. No one has a practical concern with this. It is not happening. In fact, we are seeing an explosion of international consortia going into this business. At the same time, it is something that everyone talks about.
Are we satisfied that we have the means to guard against that if it should ever come to pass? Canada is satisfied that we have the means, and so are all the other countries. It is something that the competition authorities talk about amongst themselves.
Senator Bryden: There are those of us who believe that we are coming to a stage where governments will not run their countries but international conglomerates, with budgets larger than Canada's, will. If they were to own 100 per cent of our international connection, they perhaps would not have the right to do so, but they would have the power to shut it off.
The Chairman: Mr. Helm, Mr. MacGillivray, Mr. Shaw and Ms Nickason, thank you very much for your presentation and the answers to our questions.
We will now hear from the representatives of North American Gateway Incorporated.
Mr. Science, we will listen to your presentation and then senators will have questions for you. We will then take time for questions. Please proceed.
Mr. Adrian Science, President and Chief Executive Officer, North American Gateway Inc.:Thank you for giving me the opportunity to present North American Gateway's views on Bill C-17.
North American Gateway supports the bill in its present form. The part of the bill concerning licences is of special concern to us. While I have said that we support the bill, we do have concerns about the freedom left to the CRTC to make policy in this area, and those concerns temper our support.
Before I elaborate on our concerns, however, allow me to tell you something about North American Gateway which will help you to understand our point of view. North American Gateway is based in Toronto. We are Teleglobe's main competitor in Canada. We have been in business since 1994. When the company started, the only employees were my wife and myself. The company now employees 25 people and we are intent on growing substantially.
We provide our services by reselling Teleglobe lines. We own our own switch in Toronto and shortly will be installing a second switch in England, where we have been licensed to provide international services. We intend, within two or three years, to be established in several other European countries as well.
Although we are an important customer of Teleglobe, it has not welcomed our arrival on the scene. Last year, it tried to persuade the CRTC to ban one of the techniques we use to provide our services, called switched hubbing. Teleglobe almost succeeded. The CRTC initially ruled in Teleglobe's favour, but we persuaded the Federal Court to stay the CRTC's decision pending an appeal to the Federal Court of Appeal. That appeal was never heard, however, because, to its credit, the CRTC reversed its decision in the mean time. In September of last year, the CRTC endorsed switched hubbing and it ordered Teleglobe to remove the provisions in its tariffs prohibiting switched hubbing.
Teleglobe has since petitioned the cabinet to reverse the CRTC ruling and restore the original decision that we found so objectionable. We think it would be a great mistake for the cabinet to give in to Teleglobe. A ban on switched hubbing would cripple competition at just the time that competition is ready to really get going. A reversal of the CRTC decision would also hurt consumers. Teleglobe reduced its rates by 12 per cent as soon as the CRTC decision was made. Without the competition that switched hubbing provides, we would all be paying more than necessary for our overseas calls.
We find Teleglobe's petition ironic. Teleglobe's monopoly is supposed to end on October 1 at any rate. That is what this bill is about. Furthermore, Teleglobe's future has never looked brighter. Its shares are at a record high; it has recently signed an arrangement with Stentor which effectively guarantees it the lion's shares of overseas traffic for at least three more years.
Apart from this action of our own, we have joined with the rest of the industry to form a coalition asking cabinet to reject Teleglobe's petition. Yesterday, the coalition directed its collective response to the Teleglobe petition. I joined the other leaders of the coalition -- Stentor, AT&T Canada, Call-Net and Fonorola -- in a press conference to draw attention to our united petition and to alert the press and the public to the dangers of a pro-Teleglobe, anti-competitive decision by cabinet.
It is difficult for a small company such as our own to be a pioneer, and you will appreciate that we have been carrying a heavy load fighting for the liberalization of international telecommunications. We are gratified to see companies such as Stentor joining us to fight for more competition.
The bill before you is of great importance to our ongoing fight and to the future of competition in international telecommunications. While we support the provisions of Bill C-17 providing for the establishment of a licensing regime for international services, we also have some concerns. The bill will devolve very broad powers to the CRTC. If passed in its current form, Bill C-17 will authorize the CRTC to decide who to license and on what terms and conditions. It will also have the freedom to change any terms and conditions that it has previously set. We are uncomfortable with the breadth of that discretion conferred on the commission by this bill, especially in the absence of any indication from the government or the CRTC as to how these powers are to be used.
As Senator Kelly noted in his remarks at second reading, the government was supposed to have conducted a policy review of the regulation of overseas telecommunications, but the results of that review have never been released. Teleglobe has been, since its establishment in 1948, both a monopoly and a chosen instrument of the Government of Canada in overseas telecommunications. Even after privatization in 1987, Teleglobe's monopoly has been extended three times, for a total of 12 years. We at North American Gateway are very concerned that the broad regulatory powers proposed by Bill C-17 could be used to continue Teleglobe's privileged status to our disadvantage and to the disadvantage of competition and choice in overseas telecommunications.
As I speak, the CRTC is conducting a proceeding in which it intends to decide what licensing criteria it will adopt if Bill C-17 is passed. I believe that this puts the cart before the horse. I believe that it would have been valuable to the industry and to this committee to hear from the government and the CRTC on why it needed and how it intended to use such powers.
Nonetheless, we are participating in the CRTC's proceedings. We have advocated the adoption by the commission of certain general principles which should guide the licensing process. I wish to mention two.
First, we have made the point that the licensing regime should become a means of assisting the expansion of competition, not a means of limiting it. Therefore, we have told the CRTC that there should be no restriction on the number of licences to be issued. There should be open entry, as there is in the terminal equipment business and in the local and long distance service markets.
The second principle we have advocated in the CRTC proceedings is that the licensing regime should be light-handed. Licences should be general in scope. They should not be limited to certain routes or certain services, and nor should licensees face burdensome reporting requirements. Most carriers should be free to serve the routes they want at the prices they want. The only carriers that should have specific obligations to serve or that should face price controls are the carriers which are dominant on a particular route or who have some form of market power because they control local networks. Such carriers do not face the normal disciplines imposed by competition and must be regulated.
These dominant carriers inevitably include Teleglobe which has a long-standing monopoly over the provision of overseas circuits and will continue to be the main player for many years to come. It also includes foreign carriers which have similar monopolies in their home jurisdictions and who may want to compete in Canada. If they compete in Canada, they must not be able to use the monopoly power their foreign base gives them to compete unfairly with Canadian carriers.
The only justification for having any licensing regime is to assist the transition to competition. The focus must remain on the dominant carriers. It may be that the regulatory net must be big enough that all carriers come within its reach, but the mesh of the net should be large enough that North American Gateway and all other small carriers can swim free.
I have one final concern that I wish to share with you. One of the legacies of the Teleglobe monopoly is that it continues to own or control all the facilities for the carriage of Canadian overseas traffic. If competition is to thrive, we must have access to those facilities on reasonable commercial terms. For that to happen, the CRTC must order Teleglobe to file tariffs allowing other carriers to purchase interests in their cables, as has been done in other countries. This is also an issue which we will be taking up with the CRTC as part of its licensing hearings.
Thank you for the opportunity to contribute to your deliberations on Bill C-17. I welcome questions from the committee.
Senator Rompkey: My first question is, I am sure, born of my technological ignorance. I will ask it anyway because there may be others who do not understand.
On page 2 of your brief, you use the term "switched hubbing." Could you please explain that term.
Mr. Science: To use these glasses to illustrate, assume that this glass represents Canada and Canadian traffic; this glass represents an approved country which can act as a hubbing country; and this glass represents any other country around the world. If we want to deliver traffic from Canada to any other country around the worlds, switched hubbing entitles us to take that traffic to a regulatorily-approved country and have that country, through its carrier, switch the traffic to a third country. Therefore, switched hubbing is not a direct connect to that third country; it is switched through an intermediary country.
Senator Rompkey: It is the middleman?
Mr. Science: Yes.
Senator Rompkey: My second question relates to your remarks on page 13 about the possibility of ordering Teleglobe to file tariffs, allowing other carriers to purchase interest in their cables. I am reminded of the study the energy committee did on hydroelectricity. In the marketplace now, hydroelectricity flows either way, and that is a matter of market preference.
This is much the same principle. The carriers should be common, and there should be open access to those carriers. What occurred to me was the similarity between the two cases and the openness that is coming to the marketplace and the openness of access that is coming to the marketplace. I would like you to expand on that.
Mr. Science: There is a real timing issue. In order to accomplish this, at the moment we must lease facilities from Teleglobe. We lease those facilities on a purely rental basis at tariff prices which typically, to the U.K., would represent about $50,000 a month. One would assume that a facility-based licence allows one to acquire rather than rent these facilities. If one compares that cost with a similar cost in the U.S. for acquisition, the cost of acquisition in the U.S. for that $50,000-per-month circuit is something in the order of a one-time payment of $150,000. In three months, one would recover one's rental costs.
At the moment, in order to reduce that rental cost, one has the option of signing up with Teleglobe for a period of time. There is a discount for the length of the agreement. The problem is in not having published rates for acquisition and Teleglobe not having described whether we can roll over that lease into the acquisition when it becomes available. We need to dealt imminently with the problem of signing up for a long-term agreement and not knowing with certainty whether one can acquire and move from lease to acquisition. There is a gap and a void at the moment in terms of what the commercial terms should look like, and the sooner we know the better.
Senator Oliver: I had a question from page 13 as well. You talk about ordering Teleglobe to file tariffs allowing other carriers to purchase interests in their cables. You say this has been done in other countries. To what other countries do you refer?
Mr. Science: I refer to the U.K., Sweden, Australia, and I am sure there are others, including, certainly, most of the deregulated countries. In the States, there are enough providers of facilities that just normal commercial terms apply in the market conditions.
Senator Oliver: My other question related to the bill itself. The bill, as you heard from the department, is divided into five sections. It has five different parts. As I listened to your evidence, I began to wonder what section you oppose. The main purpose of this bill is to end the monopoly of Teleglobe, and I think you are in favour of that.
Mr. Science: Right.
Senator Oliver: You say you want to ensure that there is not a limit on the number of people who can get licences, but you have already appeared before the CRTC on their hearings dealing with the criteria for licences. You said you have some concerns about a petition they made to the cabinet.
We are not the cabinet. What is it you want this committee to hear from you? I am having some difficulty with that.
Mr. Science: I wanted to have the committee hear that there seems to be a lack of clarity, assuming licensing will take place, and that we think there are reasons for it to take place. It has not been described to us or during the process it has not been made clear what that licensing will look like.
Senator Oliver: Is that not exactly and precisely what the CRTC is doing concurrently, as we speak, in their hearings? Are they not working out the conditions and the criteria for licences?
Mr. Science: It would have been nice to have guidelines set in the bill to guide the CRTC on how the licensing should take place. At the moment, it seems rather open-ended. That is the concern.
Senator Oliver: You have made, as I gather, two principle points to the CRTC with respect to the criteria.
Mr. Science: Right.
Senator Oliver: Those points are that it should be open-ended and that there should be no limit on the number of licenses.
Mr. Science: Right.
Senator Oliver: Do you think they have heard those representations? You are not asking us to make an amendment to that effect.
Senator De Bané: He would like those criteria to be included in the bill.
Mr. Science: Yes. Ideally, that would be the case. Otherwise, we have no way of knowing how restrictive the licensing may be.
Senator De Bané: Explain for me the niche you occupy. Why is it better for me as a user to go through a middleman like your company that leases facilities from Teleglobe instead of going directly to Teleglobe? How are you able to compete with Teleglobe? I have difficulty understanding how that industry is organized.
I would assume that if I can go directly to General Motors and buy a car from them. instead of buying it through the dealer, I will have a saving. Why is it that a middleman like Gateway can lease facilities from Teleglobe and undercut them? How does that industry work?
Mr. Science: That question has a two-part answer. One part is that there are two cost components to the service we provide. One is the facility to get from Canada to the country that hubs the traffic, and that part we acquire from Teleglobe. You are right in thinking that it would not make a whole lot of sense to use us who go through Teleglobe. However, the other cost component is that when it gets there, the British telecom we deal with that distributes the traffic around the world may be willing to price it lower than Teleglobe. Another part of the answer is that traditionally Teleglobe's pricing in Canada has been rather high.
Senator De Bané: So you do not make your profit on the first leg but from the switching hub in another country?
Mr. Science: Right.
Senator Adams: How many other countries do you deal with? You mentioned the United Kingdom.
Mr. Science: The rules that apply to this switched hubbing say that there are only certain countries to which you can deliver the traffic, those which have equivalent regulatory environment to Canada; that is, they are largely deregulated domestically. If they fit that mould -- as does the U.K. or Denmark or Sweden or Australia or New Zealand, and there is a list of countries that fit that mould -- you can then deliver the traffic to that country and switch hubbing from that country. There are a limited number of countries with which you can do that.
Senator Adams: You are not talking about costs. If I am a switch man and you are going to compete with other companies, I will give you a switch-over at little less than cost. You do not operate that way?
Mr. Science: I do not think so. For clarity, we deliver through Teleglobe facilities, or Teleglobe goes half-way and the other country provides the other half-circuit. When it gets to that other country, they provide the switching and the delivery of the traffic. That is in fact how Teleglobe delivers their traffic.
The Chairman: You congratulate the CRTC for reversing its decision in allowing switched hubbing competition with Teleglobe. Why are you worried that licensing will allow the CRTC to protect Teleglobe's monopoly? Clearly, the CRTC has ruled against the Teleglobe monopoly.
Mr. Science: I suppose we were worried because we were being faced with closure when, on May 5, their original decision was very clear and very specific and resulted in a disconnect notice from Teleglobe to ourselves. On May 5, the CRTC decided definitively that switched hubbing should not be allowed. Had we not had the energy and the resources and the determination to go the Federal Court of Appeal and had we not been successful there, the CRTC would not have had a further public hearing to reconsider their position.
They are to be congratulated that they did decide differently the second time around, but I am concerned that perhaps their thinking is not necessarily established yet. Perhaps, also, change is capable with which we would not be comfortable. We still do not know how they will rule on Teleglobe's appeal to them. Teleglobe has appealed the decision and it is before the CRTC at the moment.
The Chairman: Thank you, Mr. Science.
We will proceed with the presentation from ACC Tel Enterprises.
Ms Maggs Barrett, Executive Vice President, Local Markets, ACC Tel Enterprises Ltd: Honourable senators, ACC Tel Enterprises is a Canadian subsidiary of ACC Corp., in Rochester, New York, which provides telecommunications services to business, residential and student customers in Canada, the United States, United Kingdom and, most recently, Germany.
ACC has been operating in Canada as a switch-based reseller of telecommunications since 1990.
When Bill C-17 was originally introduced and approved at second reading in the House of Commons, the licensing process proposed that the CRTC would have both domestic and international application. After the House of Commons Standing Committee on Industry heard representations from a number of parties, Bill C-17 was amended to narrow the scope of licensing only to cover international telecommunications. This amendment has serious, though we believe unintended, consequences to ACC.
Recent events have demonstrated that where the CRTC believes it cannot exercise sufficient supervision over unregulated resellers such as ACC, the CRTC will foreclose their entry into new markets. In order to survive, ACC must be able to compete in all telecommunications markets. ACC therefore argued for broad licensing powers because it saw licensing as a mechanism to satisfy the CRTC regulatory needs. Armed with these powers, the CRTC would then proceed to allow ACC and similar resellers to fully enter all markets.
Although the licensing issue is now behind us, another equally good approach to granting the CRTC appropriate supervisory powers over resellers is to directly grant these powers to the CRTC. This can be accomplished in the context of Bill C-17 by amending the definition of telecommunications service provider in clause 1 of the bill to make it clear that the CRTC's power under section 24 of the Telecommunications Act allows them to impose conditions of service that apply to such telecommunications service providers. ACC asks that the Senate committee recommend changes to Bill C-17 in order to implement that approach.
ACC has been operating in Canada since 1984 and as a switch-base reseller of telecommunications since 1990. It is the fifth-largest participant in the long distance market with revenues which we believe will exceed $200 million this year. The company also has extensive experience as a reseller of local Centrex services to business customers with over 30,000 lines in service.
ACC was the first competitive carrier in Canada to provide its customers with an integrated package of local, long-distance, paging, Internet and other related communications services.
ACC operates as an unregulated reseller. ACC owns its switching and billing systems but cannot own any cables, microwave links or other transmission facilities. We lease these circuits from such carriers as Stentor or cable companies such as Rogers, Vidéotron, Fundy Cable or Shaw Cable who do own the transmission facilities.
The foreign ownership and control provisions of the Telecommunications Act require that ACC only operate as a reseller in Canada. Although our ownership will likely change in the near future, our current expectation is that ACC will remain foreign-owned and controlled. Therefore, clause 3 of Bill C-17 establishes a CRTC-administered licensing regime for international telecommunications services.
When Bill C-17 was originally introduced and approved in the House of Commons, a licensing process proposed for the CRTC covered more than just international services. The CRTC was to have been granted wide powers in respect of whatever service providers the CRTC decided should be licensed, whether for international or domestic services.
A number of parties objected to the scope of the licensing power as originally proposed. They saw no need for the CRTC to have licensing powers in regard to domestic telecommunications. Unlike the international arena, they did not believe that any pressing requirement exists for licensing of domestic telecommunications services. Moreover, they were worried that granting the CRTC the power to license domestic telecommunications would potentially be intrusive, for example, in the Internet area. Accordingly, these companies argued that the CRTC's licensing power should be limited to international services.
ACC disagreed with this position. We argued that the licensing power should not be narrowed, but rather the CRTC should have the flexibility to apply licensing in the domestic arena in appropriate circumstances.
It may seem counter-intuitive that ACC should make such a recommendation. After all, as a reseller, we are not subject to any direct regulatory supervision by the CRTC. Therefore, why would we ask for more broad regulatory powers? The answer is very simple: If a reseller is faced with a choice of not being able to offer certain services or being able to offer them only on a regulated basis, the reseller will understandably choose the latter.
A licensing regime would help to ensure that resellers would not be forced into a position where their only option was to not offer certain services. Such a licensing regime would therefore promote increased telecommunications competition.
We are not concerned about this in a theoretical sense. A situation recently arose where the inability to regulate resellers meant that the CRTC declined to open a new area of activity to resellers, namely, the local telecommunications market.
The CRTC's May 1, 1997 Decision No. 97-8 was structured in such a manner that only regulated carriers could enter this important new telecommunications market. This was so even though the CRTC never said that resellers should be prohibited from participating. The end result was that we were nonetheless excluded.
ACC asked the CRTC last September, through a mechanism called a "review and vary," to reconsider their Decision 97-8. We proposed a mechanism that we believed would satisfy the CRTC's concerns. We are still hopeful that the CRTC will respond positively to our request, given that they support competition in telecommunications and its stated desire to encourage entry into local markets.
We do not, however, know what or when the CRTC will decide in this matter. Further, we are concerned that they consider that they have sufficient tools to adequately oversee resellers in this marketplace.
The lesson that ACC learned from this experience is that situations may arise where the CRTC believes that reseller activities should be subject to regulatory supervision and that some mechanism must be found to achieve this. Otherwise, resellers will be excluded from important parts of the market. A licensing approach such as originally proposed in Bill C-17 was just such a mechanism.
ACC considers it highly unfortunate that the House of Commons Standing Committee on Industry accepted the arguments of those seeking to narrow the scope of the CRTC's licensing powers. Not only does the narrowing of the licensing powers fail to resolve the important and immediate problem identified by ACC, but some have questioned if the matter had been given appropriate consideration. Senator Kelly made the following comment on this issue in his remarks at the second reading of Bill C-17:
However, proposed section 16.1(1) was amended in the other place, restricting its application to providers of international telecommunications services. Thus, providers of domestic telecommunications services, which includes local telecommunications services, are not covered. The reasons for this amendment in the other place had nothing to do with a local competition issue. It appears that the amendment was made with some haste and without consideration of its impact on local competition.
The ACC asks that the committee give careful consideration to the local competition issue referenced by Senator Kelly. We understand that it may be difficult at this stage to broaden the CRTC's licensing power given that the House of Commons has just narrowed it. Still, other steps can and should be taken to grant the CRTC appropriate supervisory authority over resellers. In this way, competition in all telecommunications markets can be fostered.
The approach we recommend is to amend the definition of "telecommunications service provider" in clause 1 of Bill C-17 by adding the following phrase to the end of the definition:
...and for the purposes of section 24, a "Canadian carrier" includes a telecommunications service provider.
The full definition would then read as follows:
"telecommunications service provider" means a person who provides basic telecommunications services, including by exempt transmission apparatus, and for the purposes of section 24, a "Canadian carrier" includes a telecommunications service provider.
Section 24 of the Telecommunications Act already empowers the CRTC to impose conditions on the offering and provision of telecommunications services by Canadian carriers. The effect, then, of this proposed amendment would be to grant the CRTC additional authority to impose conditions on service offerings from telecommunications service providers, which would include resellers such as ACC.
To conclude, ACC's objective is to ensure that resellers can enter all telecommunications markets, notably to provide local telecommunications services. Given the CRTC's concerns about its need to maintain some supervision over the presently unregulated participants in these markets, we recommend that Bill C-17 be amended to grant the CRTC appropriate supervisory powers over resellers.
The form of the proposed amendment is on the last page of our brief.
I will be happy to answer any questions you might have regarding my presentation.
Senator Oliver: You are one reseller, and there are other resellers in Canada. Fonorola is one and there are many others. Have you talked to them and discussed with them the fact that you want an amendment made to a bill that will force regulation on resellers, given the fact that there is no regulation on resellers at present? If so, what have they said? Can you inform this committee?
Ms Barrett: When we submitted our "review and vary" to the CRTC, we were supported in that "review and vary" specifically by London Telecom, which is a reseller. Fonorola is a Canadian carrier because it now owns facilities in and around Toronto, Montreal and so on.
We have contacted, directly or indirectly, a number of companies. ACC belongs to the Competitive Telecommunications Association, the CTA, and we have raised this issue with them.
I cannot say that anyone has either supported or not supported us. We have had a neutral response, which is: Do what you have to do to get your business going.
Senator Oliver: But the other resellers like you do know that you are coming before the committee today proposing that they be regulated?
Ms Barrett: Yes. Please recognize that regulation is very narrow in the context of the specific services that the CRTC would be looking at. We are expecting that that would be in a very narrow context. As you know, section 24 is not used very often.
Senator Oliver: This matter literally came up in the House of Commons. Were you there and did you participate in the debates about this particular amendment? If so, can you tell us what happened? Why was it not made?
Ms Barrett: We are proposing an amendment to section 24 that is different from the discussion that went on around section 24. Originally when we raised the issue of licensing, Stentor suggested there could be an amendment to section 24, and it was ruled out of order in the standing committee because it had not been raised in the debates.
The amendment we are suggesting is different from the one they suggested. This amendment is really working toward the definition of "telecommunications service provider" and broadening the context of "Canadian carrier." They were suggesting that resellers be added specifically to section 24.
Senator Oliver: One of the things that you said in your remarks that came up in the other place was a fear that giving the power over both domestic and international may be intrusive for such things as the Internet.
Ms Barrett: Yes.
Senator Oliver: What is there in your definition that could overcome that fear of it being too intrusive?
Ms Barrett: It is basically telecommunications service providers looking at basic telecommunications.
Senator Oliver: How do you know that that rules out the Internet?
Ms Barrett: I do not think that anyone to date has ever looked at the Internet as being basic telecommunications. I cannot say that that could not at some point be included.
Senator Oliver: Can you not make telephone calls over the Internet?
Ms Barrett: You absolutely can, but it has never been considered to be a basic telecommunications service.
Senator Oliver: Why were they afraid of it being intrusive then?
Ms Barrett: It refers to licensing but not the way I am talking about section 24. With respect to the whole licensing regime, which related to very broad powers, Internet providers were concerned that they would then have licensing conditions imposed on them specifically on the Internet. As you know, Internet providers generally believe that the Internet should be an unregulated means of communication and transfer of information.
Senator Oliver: Is it your opinion that the definition in your amendment would exclude the Internet specifically?
Ms Barrett: Yes.
Senator Bryden: I do not know that your proposal accomplishes what you want it to do. I would have to go through it in more detail.
Ms Barrett: I agree that it is a less direct way of doing it than we would like, but as Senator Oliver pointed out, the more direct method of including resellers in section 24 was ruled out of order in the other place. Consequently, we have worked through various legal means to come up with this definition.
Senator Bryden: I suggest to the committee that before we recommend doing something, we need to take a closer look. I think I understand what you are trying to do, but I am not sure that this amendment does it, particularly if you read section 23 and section 24, then read the definition, and then read your amendment. I am a lawyer and I could make a living off of this. We will need to take a very close look at this before considering it.
The Chairman: Thank you for appearing before the committee today.
Our next witnesses are representatives of Stentor.
Mr. Nick Mulder, President and Chief Executive Officer, Stentor: We have submitted a brief and, to save time, I will highlight certain elements.
Stentor is an alliance of Canada's full-service telecommunications companies from coast to coast to coast. The members of the alliance include wire line phone companies operating in each of the provinces, as well and their cellular and wireless affiliates. The shareholders of our companies also include Canada's domestic satellite service, Telesat Canada. Because we represent the major telephone companies across Canada, we are a major player in this whole area.
We congratulate the government for the steps it has taken to date in pursuing a new model for competition in both the domestic and the international telecommunications arena. Stentor believes that the Government of Canada took a bold, decisive and positive step towards greater market freedoms when it concluded its negotiations at the WTO in February, 1997, about 13 months ago. At the time of the WTO announcement we were encouraged by the government's news release, that it wished to create a level playing field for all competitors, and to support international services during the transition to a fully liberalized international services market. We believe it is critical that the government continue to use every measure at its disposal to ensure this happens and to ensure that Stentor companies will be treated the same as all other competitors.
As provided for in the agreement in October of this year, Teleglobe Canada will maintain its monopoly on overseas telecommunications. After October 1, new operators will be able to enter the market. The WTO agreement provides for rules that will require the routing of Canadian traffic on Canadian facilities for a further 15-month transition period, until the end of December 1999.
In a related decision last December, the CRTC ruled, and I want to stress this, that resale of Teleglobe's facilities and the indirect routing of traffic over these facilities, sometimes known as switch hubbing -- in this case water but we are talking about telecommunications here -- should be permitted during this transition period. This means that as we move towards full competition in international telecommunications services by the end of the decade, Canadians will enjoy the best of both worlds, a regulatory framework that will encourage investment in Canadian international facilities and competitive pricing for Canadian consumers by allowing carriers to use least cost routes.
This CRTC decision is in line with our view that there should be one overriding policy objective with regard to the international market, as has been the case for the domestic market, to pave the way for competition as quickly and as effectively as possible. Primarily, the objective is that it should benefit the consumers of telecommunications. The Stentor companies believe that, as amended in the House of Commons, the legislative changes proposed in Bill C-17 are appropriately focused on creating effective competition for international telecommunications services. Therefore, Madam Chairman, we welcome early passage of this bill. It is important this bill be passed as soon as possible, not only to honour the WTO agreement but also to allow the CRTC to go ahead with its implementations.
I wish to address the concept of licencing carriers. Although common access exists across the globe, to date licensing has not been the Canadian way. Indeed, the original draft of the Telecommunications Act, as tabled in the House of Commons in 1993, envisaged a licensing regime. Wisely, in our view, those provisions were removed before the act was passed in favour of direct authority over Canadian carriers. The direct power of the commission to make orders against telecommunications service providers is quick, cheap and efficient. It constitutes a delicate instrument for tailoring orders for the particular circumstances that pertain to a particular service provider.
Madam Chairman, the concept of licensing for international services, as a result of the successful WTO negotiations in Geneva, has been considered desirable though not essential in law to bring the former Canadian regulatory regime into harmony with the majority of our major trading partners. The U.S., for example, licences carriers for international services, though not for domestic services. As a result of amendments to Bill C-17 made in the other house, licensing has now been restricted to international considerations. We feel this is important because it will establish clear rules for all competitors, domestic and international, as to rights and obligations.
Madam Chairman, it is of significance that the Telecommunications Act specifies as one of the objectives of Canadian telecommunications policy:
7.(f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective.
As amended in the other house, we believe that Bill C-17 reflects the CRTC's own thinking on the future of regulation in the telecommunications industry. As a matter of fact, Chairperson Françoise Bertrand noted earlier this fall the need for new approaches, in discussing her vision for the commission with the Canadian Business Telecommunications Alliance, the CBTA on September 16, 1997. As she put it in her speech:
The old Commission would say "we shall regulate it." The new commission will say "regulate it if it is necessary."
She also noted that while the presence of the commission will still be required "in carrying out our regulatory responsibility, we will not hesitate to get out of the way whenever we can." This helps to reinforce our view that the CRTC should seek to diminish its current regulatory role, and should not be accorded any additional powers that are not demonstrably necessary.
We think the amendments introduced and accepted by the House of Commons when passing Bill C-17 go a long way towards that objective. Therefore, we hope the legislation can be approved as soon as possible.
Madam Chairman and members of the committee, we look forward to your questions.
Senator Bryden: Do I take it from what you have said that you do not agree with the last person who appeared and who suggested that an amendment is required? You were here and heard what was said I believe.
Mr. Mulder: Yes, I heard part of the presentation by the ACC. We do not believe it is necessary because there is enough scope within the existing rules and legislation to allow the CRTC to accommodate that possibility.
Senator Bryden: I believe their concern is that, given the service they are providing and the type of organization, they may not quite fit. They would not fit in the international regulation category and it is not a domestic operation. Therefore, someone might argue that, if the CRTC did attempt to either licence or regulate it, they would be acting ultra vires this act?
Mr. Mulder:That is a valid concern. This is aimed at the international rules and international legislation. The issue raised by ACC is more of a domestic nature. Furthermore, the existing legislation -- and, Mr. van Koughnett may wish to elaborate on this -- can deal with it, to the extent to which the CRTC wants to accommodate it.
Mr. Greg van Koughnett, Vice President, Legal and Corporate Affairs, Stentor: If the CRTC wished to have further regulatory powers over resellers in order to ensure that the competitive local exchange carriers are caught by obligations to serve that have been traditional for telephone companies around the world -- and, this is the issue that ACC is raising -- an amendment such as that proposed by ACC would do the trick.
The amendment in section 24, as was pointed out in the discussion with Senator Oliver, was ruled out of order by virtue of fact that section 24 was not at play in the legislation. That is a procedural rule that was difficult to overcome.
The model that ACC is proposing now is to make use of a section of the act which, technically, is in play. The definition section, section 2 of the Telecommuications Act, is already in play because one definitely needs this new creature of a "telecommunications service provider." One must open up subsection 2(1) of the act.
If it is found to be necessary for resellers to be regulated more fully than the commission can currently achieve, then the wording proposed by ACC would accomplish the trick completely. However, we would ask that the Senate consider, first, the general flavour of moving away from regular regulation, which has been a consistent theme throughout the day at these hearings; and, second, the importance that all parties accord to speedy passage of this bill.
Many important amendments have been made to the bill. Our personal view on this matter would be that the Senate find that speedy passage of the bill outweighs the desirability of an extra incremental advantage to those resellers that wish to bypass the Canadian ownership restrictions and act as full service players in the Canadian telecommunications industry.
Senator Bryden: We are known as the chamber of sober second thought. We do not deal a great deal in speed here. As a former public servant, I believe that Mr. Mulder understands that.
You have just indicated to me that the House of Commons did not deal with this issue under section 24 because it was not in play. It is almost like a lawyer or a judge dismissing a case on a technicality. We do not deal much in technicalities in this committee, either. We could quite easily put section 24 in play. I am not saying that we would, but it is the case that if some injustice or whatever is to occur to a group -- and, probably a minority group or a smaller and weaker group -- then, clearly, it is open to us to say, "Fix it or we will not pass it." It is a legitimate concern for us to say "Do we take the time to send it back to the House of Commons if that becomes necessary, or can we satisfy ourselves that there may be other ways for the CRTC to deal with this issue satisfactorily?"
Mr. Mulder: This legislation deals with the international side of telecommunications and ACC is asking for a domestic issue to be raised. The question is, first, is this the right forum? Second, since ACC is the only one arguing this case at present, should it get its wishes through the back door where everyone says, "Let us deal with this issue in a domestic piece of legislation or domestic forum since this bill is focused on the international side? Third, I have heard from lawyers that if the CRTC wants to deal with it, there is considerable scope within its current legislation to deal with it on its own merit.
Those are three reasons as to why we think the Senate might say, "Perhaps you have a case, but let us discuss that some other way at some other time or refer that matter to the CRTC."
Senator Oliver: As I understood ACC's evidence, they were protected before amendments were hastily made in the House of Commons, and it is as a result of negligent amendments in the House of Commons that they now feel aggrieved. I do not think they have been coming in the back door and saying to a committee of Parliament, "As a result of an amendment, which was hastily drawn, we are in jeopardy, a small group of resellers against huge companies such as the Stentor group, and we call upon the Senate to at least look at this and give us a fair hearing." I see nothing wrong with that.
Mr. Mulder: We made our comments. I do not think it is appropriate for us to have a debate with you on whether or not they have a case. You heard their case and we are making ours.
Mr. van Koughnett: I am keen to have a debate. First, to emphasize the point, ACC was very up front about this. The commission operates a formal process. There is an application to review and vary pending before the commission.
The commission is not likely to say that it does not have the legal authority to grant ACC's request. If the commission turns down ACC's request it will be for policy reasons, not for want of legislative authority. That should be made clear.
Let me go one step further as to what the policy reason would be. We have foreign ownership restrictions in Canada and we have them for a reason, as was addressed by Industry Canada at the outset today. Those matters may be raised either in 1999 or in 2000. We have those rules now and it is not appropriate for the CRTC to reverse those rules in order to accord to one reseller the opportunity to enter a particular market niche. If the CRTC turns down the application to review and vary that is currently before it, then it will be because the CRTC perceives that the essence of Canadian's competitive local exchange carrier regime is dealt with best by Canadian carriers -- that is, those carriers that are at least 53.3 per cent Canadian. That is a policy issue.
In terms of the amendments themselves, it would be slightly overstating it to say that they were hastily drawn. One could not draw an amendment to restrict the concept of licensing to international players without bumping into this problem that ACC has today. ACC was hoping for an entire licensing regime. The bill at first reading stage contained a licensing regime for all players. The word "international" was put in the bill as a result of virtual unanimity. Unfortunately, ACC was in the line of fire because they are interested in licensing for a domestic concern not an international concern.
Senator Oliver: Did you hear the evidence of North American Gateway earlier today? Basically, they agreed generally with the bill but said that they would like to have the criteria for licensing in the bill itself. Do you have a comment on that point?
Mr. van Koughnett: Yes, I do. It has not been the Canadian way to provide to the CRTC specific guidance as to the manner in which the CRTC makes any such decision.
First, I think North American Gateway's concern is unfounded, as was pointed out by Senator Oliver in his questioning. The CRTC is clearly on a one-way track which is liberalization. The only question is speed. For the commission to restrict licensing would be to back up on the degree to which the commission has already put a stake in the ground in terms of wide open, liberal international regime.
Second, I am concerned in that this is the approach that unfolded in the United States when the Telecommunications Act of 1996 was drafted. It was drafted with detailed provisions which should more properly have been left for the Federal Communications Commission. I think everyone around the world agree that that was a mistake.
In other words, when Parliament specifies individual policy decisions and does not leave room to manoeuvre, one ends up in a difficult situation with matters going off to the courts and a great deal of churn and delay.
Senator Oliver: I asked a number of questions of the Industry Canada officials today about licensing. I think you were in the room when they responded. They basically said that foreign monopolies could enter Canada, get into the local markets, and that they would not be able to do anything about it. If foreign monopolies did get into the Canadian local markets on a facilities basis, do you not agree that they would have to be compliant with the act, which stipulates foreign ownership at 46 per cent?
Mr. van Koughnett: Yes.
Senator Oliver: The foreign monopoly would have to be dominantly Canadian owned. Otherwise, the foreign monopoly is a reseller, and the CRTC through its existing legislation, as you have already said here today, has the regulatory devices to deal with it. Would you agree with that?
Mr. van Koughnett: Absolutely, senator.
Senator Oliver: When you go back and review the example that the bureaucrats gave me today about their fear of foreign monopolies, it seems to me they were boxing against shadows because these foreigners must comply with the existing legislation, which stipulates 46 per cent.
Mr. van Koughnett: Yes. The matter that was being raised -- and you are quite right, senator -- is exactly analogous to Hong Kong Tel. Everyone is keen to have this legislative provision in the act. It would be an arrangement whereby it is a facilities-based carrier in a foreign country, but a reseller in Canada.
The one matter that has not arisen before this committee is the fact that the Stentor companies and all the facilities-based carriers -- by which I mean Fonorola, Sprint Canada and AT&T Canada long-distance services -- were all in the same boat. We were caught in the Hong Kong Tel situation, and we will be caught in the next one as ham in the sandwich. Because of the very complex Rube Goldberg machine to get at resellers, we are the players who have to pull the plug on a nefarious reseller such as Hong Kong Tel, and that presents a major public relations problem for us. Here we are. There is a little player. The CRTC is saying, "Okay, go forth and pull the plug, literally, on these guys." It is very awkward for us.
Under the licensing regime -- and I think this is why all of our major trading partners have a licensing regime as well -- it is the authority within the country that pulls the licence and shuts down the reseller if the re-seller is acting in the manner that was so nicely set out by Mr. Helm when he was speaking to you on this matter. I appreciate that this is self-serving, but the truth is that it is an awful lot better for the carriers not to be the players who have to be the bad guy. It is an awful lot better if it is the regulatory authority. I think that goes beyond merely self-serving; that is just inefficiency in terms of government policy. That is the one factor that has not come out yet today.
Senator Oliver: I was happy that Senator Bryden mentioned the problem of speed. I read everything that came before the House of Commons committee, including your remarks, and frankly there was nothing in your remarks about speed. Both of you in your evidence today have stressed the urgency of getting passage of this bill. What has come up since your appearance in the House of Commons to suddenly make you say that speed is of the essence and that we should pass this thing quickly? What happened?
Mr. Mulder: I certainly accept Senator Bryden's comments that we have to ensure that this is a good product without worrying about a specific deadline. However, at the same time, we had hoped when the deal was struck last February that legislation would have been introduced and passed by both chambers in Parliament before the end of the 1997 calendar year.
Senator Oliver: They have an extension.
Mr. Mulder: It is not only because of the WTO agreements but also because, until the legislation is passed in some areas, the CRTC, which has to deal with it, cannot proceed as fast as we hoped it would. No one is talking about a week or so, but the sooner the legislation is enacted by the Parliament of Canada, the better off all parties will be. I agree with you that, in the final analysis, there is a requirement to ensure that you as well as others have to be satisfied that this is the appropriate legislation.
Senator Oliver: Another difference that I noted in your evidence in the other place and here is that I have not heard much about a sunset clause, except for one phrase that Mr. Mulder used, "for a number of years." In the House of Commons, several major carriers talked about a sunset clause of the year 2000. I am wondering what happened there. Today your language is "for a number of years."
Mr. Mulder: The Stentor family, if I may call it that, the alliance, does not have unanimity on all fronts, much the same as any vibrant organization does. The overall consensus among the Stentor companies is that we could very much live with an arrangement that stays on for a number of years, as long as the licensing is restricted to international. Certain members of the alliance, particularly Telus, thought, "Yes, that is okay, but let us propose a specific date as to when it should be done." That is why Telus specifically appeared before the committee in the House of Commons saying, "Put a deadline on it."
Senator Oliver: What do you say about the year 2000?
Mr. Mulder: We assume that no legislation stays on the books forever and that at some stage there will be a possibility to amend legislation to remove things that are no longer necessary. Not only that, when you request a series of amendments from any group of legislators, you cannot get everything you want.
Did we make progress on some of the amendments about which we felt strongly? We did, because we certainly pushed. We were not the only ones. We certainly got two sets of amendments that were important to us. One was that we are talking about restricting the international, and the other one was to ensure that the CRTC did not get authority to get into other operating areas unless it was specifically dealt with within the current CRTC requirements. Those amendments were accepted by the House of Commons as well.
In a nutshell, there is no doubt that some of our members thought there should be a sunset provision, but it was not unanimous. As well, in the House of Commons, some of the important amendments that we wanted were dealt with.
Senator Oliver: A member of your own national alliance feels that a sunset clause of the year 2000 would be appropriate under the circumstances.
Mr. Mulder: All things being said, it would be desirable, but it is not as important as some of the other items that have been discussed either in the other chamber or in the Senate here now.
Senator Oliver: My final question relates to licensing and the Competition Act. It is my view that the CRTC probably has the power to control most of the problems that the bureaucracy is concerned about by their existing legislation or, failing that, most of the problems could and should be dealt with by the Competition Act. Consider the issue of a foreign telecommunications monopoly setting up in a Canadian subsidiary to provide favourable call termination charges or accounting rates to its subsidiary over its competitors. This pricing practice would, at the very least, qualify as price discrimination, an offence under section 50(1)(a) of the Competition Act. Would you agree?
Mr. van Koughnett: I would like to be able to say "yes," but I actually do not know because I am worried that the offence itself is not in Canada but in the terminating country, such as Hong Kong. To be honest with you, I have not thought about that.
Senator Oliver: Would you agree that it could possibly qualify as an abuse of a dominant position, an offence under sections 78 and 79 of the Competition Act?
Mr. van Koughnett: Again, I do not want to be unhelpful. I am afraid that in the case of Hong Kong Tel, which is the one that we are addressing and trying to make generic, they had a very small market share in Canada. Again, I am afraid that because they have a monopoly in Hong Kong, that is where they would have a dominant position.
Senator Oliver: Under the government's proposal -- you were here and you heard it -- they were talking about a dominant foreign carrier in Canada, so the Canadian statute would apply. Would you not also agree that that would be predatory pricing, a criminal offence under section 50(1)(c) of the Competition Act, if they did so?
Mr. van Koughnett: Yes, I agree with that one, provided that you can go the extra distance of showing the intent to harm the existing carriers, which I think is an element of that offence.
Senator Oliver: I am presuming we could. Therefore, the Competition Act is certainly a vehicle available to Canada to deal with the potential problem.
Mr. Mulder, can you give us any other example, apart from the Hong Kong Tel issue that I mentioned?
Is there any other example you can give us of the potential problem that this licensing regime is designed to control or to protect internationally?
Mr. Mulder: Certainly the lawyers have told me that it is important, as we open up this market, that all the players, domestic and particularly new international competitors, know their rights and obligations when they operate in Canada. We think it will help clarify the situation to have, for a period of years, some requirement for regulatory body approval. It will ensure that as players enter this business in Canada, they know their rights and obligations, which in many ways are different from the jurisdictions where they are currently domiciled,.
After awhile, as competition rolls out, we may say that we do not need this anymore because everyone knows their rights and obligations. I stress both parts.
Are there any other cases that can describe why we really need this provision?
Mr. van Koughnett: No, I think that is right. There was a flavour of that from Mr. Helm this morning. It was to bring our regime into line with the format which is familiar to our major trading partners.
Senator Oliver: Why bring on regulation that tends to be anti-competitive when, in fact, the CRTC and other agencies are trying to open our market for competition?
Mr. Robert Tritt, National Director, International Affairs, Stentor: I would like to comment on the earlier question about why have a licensing regime to deal with this anti-competitive problem and not rely on the Competition Act. In the examples you cited, one problem will always be proving whether the behaviour is occurring in Canada or abroad. That will give rise to some questions and will take some time to investigate, no doubt.
Once these operators are licensed in the proposed licensing regime, it would be an advantage -- and many of us have proposed this in the current CRTC proceeding -- to put in place an expedited process, when there is an allegation of some kind of anti-competitive or abusive behaviour, to allow the CRTC to quickly take action against that carrier. I expect it would be very difficult to achieve a remedy as quickly under the Competition Act.
In this business, a matter of weeks can be very important, in terms of the kind of shift in customers and that sort of thing, to someone who is able to take an action in the market as a result of preferential arrangements they may have with a foreign monopoly. The ease of enforcement of the rules is an important aspect of the licensing proposal.
Senator Oliver: Has that issue been discussed with the Competition Bureau, do you know? Are they party to the proposal that you have just suggested?
Mr. Tritt: The Competition Bureau is participating quite actively in the CRTC proceeding. They are following the proceeding and have addressed a number of interrogatories to interested parties and presumably will be providing their own comments in that proceeding.
Senator Oliver: It strikes me that the entire problem that everyone so fears is really a competition problem.
Mr. Mulder: We certainly agree with the intent and the spirit of your comment, that, over time, industry-specific regulation can be dealt with under broad-based competition law. That is certainly part of the process that we accept. The question is over what period of time and under what rules. That is why we were having the discussion whether at some stage all these licensing requirements should be become null and void.
The marketplace is changing so rapidly. Many players are coming in, in an area where, either domestically or internationally, there has been a monopoly. On balance, the preferred way to go is to use the current regulatory body which understands the industry and can act faster to deal with it. Certainly, as I have indicated before, we sign on to that view. Over time, those kinds of issues should be dealt with both domestically and internationally under the competition law, much the same as has been done in the energy sector or the transportation sector or any other sector of the economy. We are arguing not about intent, just about the ways and means of achieving the goal.
[Translation]
Senator De Bané: Under the proposed regime, is the client free to choose the firm he wants for his international calls? Will Teleglobe be one such firm? Is that where we are heading?
Mr. van Koughnett: Yes. The issue before the committee is expediency. Teleglobe believes that the days when it held a monopoly are over. One must decide on the conditions and pace of change in a regulated industry, like the automobile industry, for example. A customer can choose to sign a contract with any company he likes.
Senator De Bané: A company like Bell Canada that is a member of Stentor and a Teleglobe shareholder will also offer to route international calls for its clients. This will impact its business with Teleglobe.
Mr. van Koughnett: That is correct.
Senator De Bané: What interest is there in this for Bell Canada?
Mr. van Koughnett: Fortunately, we do not have to answer that question today or in the coming months. In the years ahead, the company will have to confront this problem when it decides to purchase shares from a competitor. There is no solution that is in the public interest. The solution benefits BCE shareholders.
Senator De Bané: Could Telesat extend its operations to areas other than domestic communications?
Mr. van Koughnett: Yes. In the past 18 months, Telesat has expanded its operations into the United States in an effort to go worldwide. This initiative has proven successful. Telesat started after Teleglobe.
Senator De Bané: Bell Canada is a Telesat shareholder. Who are the other shareholders in this company?
Mr. van Koughnett: All of the other traditional Stentor telephone companies in the other provinces.
Senator De Bané: Stentor group companies are also Telesat shareholders?
Mr. van Koughnett: Yes.
Senator De Bané: Therefore, the customer can choose to do business with whichever company he wants. Is that correct? Will the same apply to foreign companies?
Mr. van Koughnett: Of course.
Senator De Bané: Are you saying that Stentor member companies will be able to do business in other countries around the world?
Mr. van Koughnett: That is the objective.
Senator De Bané: Good luck.
[English]
The Chairman: Mr. Mulder and colleagues, thank you for your presentation.
We will now hear from Teleglobe Inc. Please proceed.
Ms Meriel V.M. Bradford, Vice-President, Government and External Relations, Teleglobe Inc.: As honourable senators will be aware, Teleglobe Canada has been Canada's overseas telecommunications carrier since 1950. It is a subsidiary of the publicly owned Teleglobe Inc.
[Translation]
We are pleased to have this opportunity to comment on Bill C-17. At the outset, I would like to advise you that we support Bill C-17 as it stands, because it takes into account the interests of Canadian telecommunications companies.
During and after the World Trade Organization negotiations, the government worked closely with the Canadian telecommunications industry. Bill C-17 is a true reflection of Canada's commitments to the WTO and fulfills our obligations under the General Agreement on Trade in Services for the basic telecommunications sector. Since our appearance before the House committee, the GATS Agreement has come into force. It is therefore timely that Canada move quickly to implement this bill.
[English]
Among other things, Bill C-17 proposes certain amendments to the Telecommunications Act and substantially modifies the Teleglobe Act established at the time of the company's privatization in 1987.
We see it as an historic but appropriate milestone in our evolution from a Crown corporation to a fully privatized company. It is a positive step in that it puts our enterprise on the same footing as our competitors and assists us in attaining access to foreign markets. For both of these reasons, Bill C-17 is critical to our growth and future success.
Today Teleglobe is a corporation which employs a total of about 1,200 people, 900 of whom are based in Canada. We had revenues of $2 billion in 1997 and carried about 2.8 billion minutes of traffic for the year. We have one of the largest networks in the world, and Canada should be proud of this network. Teleglobe had assets of $2.6 billion at the end of 1997.
Our prices have declined significantly since we were privatized, particularly between 1995, when they were at an average price per minute of $0.80, and the present, with an average price per minute of about $0.66. Our prices have also been consistently further and further below our CRTC regulated price-cap commitment. We are getting ready for competition. We are looking forward to contributing to the Canadian telecommunications industry in new ways and to assuming a leadership role in an environment governed more by reliance on market forces and less by regulation.
On October 1, 1998, the liberalization of the Canadian telecommunications market will advance with the opening of Canadian facilities' overseas telecommunications. Teleglobe Canada has been actively promoting this liberalization for well over two years. Competition will clearly benefit the Canadian consumer and will also allow a company like Teleglobe to take on the world.
The WTO agreement involves some 90 per cent of the world's current telecommunications service market, a market valued at $880 billion. The Canadian government, in its negotiations with the WTO, acknowledged this reality and the benefits of global competition while at the same time preserving and pursuing uniquely Canadian objectives.
For Teleglobe, this is the opportunity to go from our market of 30 million people in Canada, to a market of 6 billion; to go from a market of roughly 2 billion minutes of international traffic, to a market of about 75 billion minutes this year, and it will grow at a rate of 15 per cent a year. In the year 2000, our market will consist of at least 100 billion minutes.
Since the arrival of a new management team in 1992, led by Charles Sirois, we have expanded our network presence into the largest telecommunications markets, such as the United States, the United Kingdom and Germany, and we have some 30 representative offices around the world. We have clients in 70 countries and operating agreements and relationships with nearly every major telecommunications carrier. In 1997 our traffic from markets outside our original base more than doubled over the previous year.
[Translation]
Teleglobe may not be as big as some of its competitors such as AT&T, Sprint, British Telecom and MCI, but we are completely focused on our market niche -- international telecommunications services.
It is easy for a company the size of Teleglobe with its 1,200 employees to move fast and to seize new opportunities. We have built the second-largest international telecommunications network in North America. We manage our global network from Montreal, with a very advanced international network management center, in which we recently invested some $25 million for its construction.
I want to stress that our international expansion will ensure Canadian consumers reap the benefits from very competitive and innovative services and from economies of scale and resulting lower costs.
Clearly, Teleglobe is not the same corporation it was when it was privatized in 1987. The telecommunications environment is also quite different today. In fact, the industry is in the midst of the most profound changes in its history, changes driven by the twin forces of competition and technology.
There is a growing global trend toward privatization, competition and deregulation. Technological developments have also blurred national and international boundaries. The traditional world of government agreements for exchange of traffic between state-owned monopolies is disappearing.
[English]
Teleglobe has also been working actively in reducing its distribution costs, negotiating lower accounting rates, increasing its network efficiency and finding alternative methods of carrying its traffic, all to the benefit of the Canadian consumer.
I already mentioned our decline in prices as reflected in our average rate per minute for Canadian calls abroad, which has been well below the price cap set by the commission. Our Canadian customers have benefited from these reductions. As the Canadian market is open to competition, and both Canadian and foreign service providers are able to compete freely on a deregulated basis for Canadian international traffic, continued rapid Canadian price reductions will occur. In such a context, Teleglobe will need forbearance from CRTC regulation in order to respond to this unregulated competition. As Canada enters the global telecommunications environment, it is only fitting that it adapt its domestic policy framework and structure to ensure the competitiveness of Canadian enterprises in this new world market. That is one of the most important features of this bill.
In commenting on Bill C-17, I will first address amendments to the Teleglobe Act and some amendments to the Telecommunications Act that relate to the provision of international services.
Since the fall of 1995, Teleglobe has proposed the end of its monopoly on infrastructure for overseas telecom services together with the establishment of a sustainable competitive environment. In our view, all telecommunications carriers should be put on the same footing and operate under the Telecommunications Act. In effect, we ask for the abolition of the Teleglobe Act. We also argued in favour of increased access to foreign markets, notably the United States' market. While Bill C-17 does not respond completely to all our initial requests, we are satisfied that the new legislative framework puts us essentially on the same footing with other Canadian carriers.
Before I address Bill C-17 and the amendments to the Telecommunications Act, in particular to the powers of the commission with respect to the international licensing regime set out in clause 3 of the bill, it would be helpful to place the international licensing issue in context.
When Industry Canada announced the details of Canada's expanded offer at the WTO negotiations in February 1997, the press release included an announcement that the CRTC would establish the conditions of operation applicable to all companies offering international services by way of a new licensing regime.
In May of 1997, Industry Canada advised the commission, through a letter, that the government intended to amend the Telecommunications Act to provide the CRTC with "the statutory authority to require all members of any class of service providers to obtain a licence and to impose terms and conditions in such licences." This intention has been carried out through the provisions contained in clause 3 of Bill C-17, which will require providers of "international telecommunications service to obtain a licence from the commission."
In our view, it is important to emphasize that the introduction of an international licensing regime is necessary and desirable for the orderly provision of international telecommunications services. The Canadian market will open as a result of Canada's commitments in the WTO agreement, and the licensing regime will ensure respect for our policies and regulations by all international telecom service providers, both Canadian and foreign.
Please make no mistake about the fact that foreign players may seek to take advantage of Canada's marketplace if operating conditions and enforcement mechanisms are not established for all market participants. We have all heard a great deal about the Hong Kong Tel case as a recent example, and other instances of non-compliance have created an uneven playing field for international services in Canada.
In its submission to the House of Commons Standing Committee on Industry, CallNet Enterprises stated that "virtually every other country that is opening its market to competition has introduced a licensing regime...and that is why we support" the bill. We agree. Although Canada already has a regulatory regime in place, relating to terms and conditions of providing services through tariffs, it is not sufficient for the purposes of dealing with a foreign player that seeks unfair advantage. A licensing scheme that spells out the general conditions for operating in the market and the basic information which is required of all players is necessary to ensure that all Canadians gain the benefits of true competition.
The international licensing regime proposed in this bill does not create a new level of regulation on telecom carriers; rather, it establishes a more effective and efficient international regulatory regime than exists now.
It is also worth repeating that similar licensing regimes for international service exist in major countries around the world, including our trading partners, such as the U.S., the U.K., France, Germany and Australia. Teleglobe is familiar with these regimes because it has applied for licences and believes that such requirements are reasonable and necessary to ensure fair play.
The Canadian licensing regime for international service is currently the subject of CRTC Public Notice Process 97-34. In its November submission to the commission on this matter, Teleglobe, and many other parties who you will be hearing from or have heard from, advocated a light-handed and streamlined international licensing regime. This is not designed to be burdensome on any of the applicants, with minimal conditions for licensing. It would ensure that all players know and play by common rules regarding routing practices, use of facilities and reporting requirements, thereby giving the commission the tools to be an efficient and effective referee.
As a general and concluding comment on this part of Bill C-17, it is important to note that Canada is widely regarded as a model jurisdiction with respect to its statutory provisions and regulatory processes. The changes proposed by Bill C-17 will, we believe, reinforce and embrace our well-deserved reputation.
Now a word on international switched hubbing, or ISH. In the course of your deliberations, you may be called upon to address the issue of international switched hubbing, whereby Canadian telephone traffic leaves Canada on an international leased line but is then switched in a foreign country using a foreign carrier's facility before it reaches its destination in a third country. Before December 1997, the CRTC did not permit this practice, recognizing that it created imbalances in payment to Teleglobe, circumvented the use of Canadian facilities, and had a negative impact on prices as traffic left the Canadian system, although certain players in the Canadian market did use switched hubbing in contravention of Canadian rules.
In its decision of December 19, 1997, the CRTC allowed international switched hubbing to all countries except the United States of America. Teleglobe has petitioned the Governor in Council to refer this decision back to the CRTC on three grounds: (a) the decision is not consistent with the new WTO agreement as it discriminates against one WTO member, the United States; (b) the decision does not respect the government's decision to establish a transition for the opening of the Canadian market, first for facilities-based competition on October 1, 1998, then to remove routing restrictions by December 31, 1999; and (c) the decision pre-empts a decision by the CRTC on a matter which it has out for consultation in Public Notice 97-34.
Honourable senators, the issue of international switched hubbing is not a matter of direct relevance to Bill C-17. It is a matter on which the Governor in Council must make a determination as quickly as possible. We trust you will appreciate Teleglobe's view that it would not be proper to comment further on the merits of this petition.
The issue before the committee today, honourable senators, is the amendment of the Teleglobe and Telecommunications acts to give effect to Canada's WTO commitments.
[Translation]
As we get closer to October 1, 1998, we see the future with optimism, both in the Canadian market and other markets. The WTO agreement gives us greater confidence to support our market expansion from Canada to global markets. We were involved for years in trying to gain access to the U.S. market. We have lived through the Country Music Television trade dispute between Canada and the U.S. during which Teleglobe's U.S. licenses were held up even though we are in a different industry. In early February of this year, we finally received our remaining section 214 authorities from the FCC to operate in the U.S. market.
On a world scale, Teleglobe is a small player. One has only to look at the recent acquisition of MCI by Worldcom for $37 billion to understand what we are up against!
Furthermore, most of our competitors, AT&T, Sprint and others, are already well entrenched in the Canadian long-distance market and are part of global alliances.
However, with rules that put us on an equal footing with our competitors and encourage fair competition, we are confident we can continue to succeed and grow, so as to serve Canadian and international markets.
For more than two years, we have been proposing the introduction of greater competition in the Canadian market, which will encourage entrepreneurship and innovation. A streamlined international licensing regime is essential to ensuring fair play and sustainable competition in the international market.
[English]
The WTO agreement came into force on February 5 of this year. Bill C-17 needs to be adopted, and we suggest quickly. Dare we suggest quickly. Changes to the Teleglobe Act will ensure that the corporation is on a fair footing with its competitors and can continue to further its international expansion while benefiting from its Canadian base of operation. It will also ensure that the rules for competition are clear and that benefits of increased competition flow to all Canadian consumers.
We would be happy to try to answer your questions in the time remaining.
Senator Oliver: I have a question of clarification because I do not understand the difference between two concepts you present in your brief. The pages are not numbered, but it is the page where you talk about forbearance. You said that as the Canadian market is open to competition, both Canadian and foreign service providers are able to compete freely on a deregulated basis for Canadian international traffic, and continued rapid price reductions will occur.
In such a context, Teleglobe will also need forbearance in order to respond to this unregulated competition. You need forbearance from the CRTC. In other words, you do not want that kind of regulation. There is one concept. Later in your statement you talked about a licensing scheme that spells out general conditions for operating in the market, and basic information which is required of all players is necessary to ensure Canadians gain the benefits of true competition.
In one case, Teleglobe wants forbearance and does not want any controls or regulations. You want to be left free so you can get out and compete in these new markets. In the other, you want these regulated regimes. I need your help in understanding the difference between the two.
Ms Bradford: I appreciate the question. Indeed, the issue would be one of having a general licensing regime whereby there would be general rules. We would all apply for these licences and would be licensed under a class of licences.
The issue of forbearance relates now to the additional burden that we carry as a regulated monopoly. We must apply for tariff approval. We must ensure that we deal with all customers on the same footing. We cannot do special pricing for special customers. Indeed, our act has a number of other restrictions that do not allow us to divest excess assets without approval from the commission. We would like to be like other players in the market. We would like to have the same kind of licensing regime applied to Teleglobe once competition is in force in the marketplace and to play by the same set of rules, which are of course the rules the commission is now debating.
Senator Oliver: I thought the Stentor group had regulations respecting tariffs and so on. Are you asking for forbearance from that?
Ms Bradford: We are asking that we be able to do pricing without the necessity of tariffs.
Senator Oliver: Is that the way it is in other jurisdictions in other countries?
Ms Bradford: Once there is competition, that is the way it is in other jurisdictions, in the United States, for example.
Senator Oliver: In the section dealing with ownership of submarine cables and earth stations, supporters of this part of the bill say that, with 100 per cent foreign ownership of submarine cables, Canada's domestic telecom infrastructure will be well positioned to compete with American networks as a route for traffic between Europe and Asia. Which domestic Canadian companies will best be in a position to compete for telecom traffic between Europe and Asia?
Ms Bradford: Of course, we will also have changes through our bill in the sense that others could be signatories to the ENMARSAT and INTELSAT conventions. Right now, our bill provides that we be the sole signatories. This will change. Other signatories will be possible. That means others will be able to have the same kinds of facilities or space segments and provide those kinds of services in Canada.
Senator Oliver: When do you think there might be competition there?
Ms Bradford: As soon as we have the rules in place, I imagine those who see a market and an opportunity will be able to take that up.
Senator Oliver: Earlier today, groups appeared before us recommending amendments, and you commented on one and not the other. North American Gateway wanted us to look at a possible amendment putting the criteria for licensing in the bill. We also heard from ACC Enterprises, and you have commented on that already. Could you comment on the former, please?
Ms Bradford: You wish to have us comment on the NAG proposal for amendment?
Senator Oliver: Yes.
Mr. Greg Kane, Counsel, Teleglobe Inc.: Senator, we do not believe it is necessary to constrain the CRTC's discretion in any manner by imposing criteria in terms of the licensing process. We are quite impressed with the public proceeding that the commission has initiated, and public notice 97-34 is the reference for it.
Senator Oliver: What does the criteria for licensing look like? What types of things are they looking at now?
Mr. Kane: It is encouraging in that they are quite broad in scope and not so specific that it will constrain the operations of the carriers. Virtually every one has come in with the expression that the licensing process should not be burdensome. I believe that that consensus will be reflected in the commission's decision. It is all driven as well by an important consideration in the bill, and that is that it be related to a class of service. Therefore, the commission will take a uniform approach in the manner in which it licences the carriers. The bottom line is that we do not believe that criteria are necessary.
Senator Oliver: The original document of May, 1997 from Industry Canada that you quoted with such approval talked about any class of service providers, and yet with the amendment in the House of Commons it is restricted to international. Will that not be a problem for your trading partners outside who look in and see this split?
Mr. Kane: Not at all. As has been mentioned earlier today by the representatives from Industry Canada, and as is our position, virtually every country that is a signatory to the WTO has a licensing regime. You will recall the testimony from Mr. Science of North American Gateway, that even he went through a licensing regime in England in order to establish the switched hubbing regime he has in place, which is really his entire business plan. He had no difficulty with the licensing regime in England. As I understand it, he is in fact supporting the licensing proposal for Canada.
Senator De Bané: When I am abroad, I find it very useful to use Canada Direct, and that is a Teleglobe business.
Ms Bradford: I am glad you use the service, and I am glad you find it good. I hope you travel a great deal abroad. This is a service that we have distributed under licence through the Stentor group of companies. We provide the international connectivity, and the operator service when you call and get an operator is provided by the Stentor companies. It is a jointly provided service. We will be continuing under our new agreement to work together with Stentor to provide that service for the next number of years.
Senator De Bané: Would you please explain to me why this service is available in some countries and not in others.
Ms Bradford: If we had our way, it would be available in all 240 countries and territories where we carry traffic, but of course it is always subject to negotiation with carriers in other countries, whether or not they will allow us to provide the service. As we diversify in our markets around the world and establish ourselves in key markets, if a carrier in another market chooses not to be provide that service, we will provide it by becoming established there as a carrier. For example, in the U.K., we are now established as Teleglobe U.K., and we will be able to assure service.
Senator De Bané: I have noticed that from some countries we can phone through Canada Direct to reach someone in a third country, but that service is not available for all countries.
Ms Bradford: Again, constraint is the partner in the other country, whether or not their regulator would allow the service. More likely, the carrier itself, particularly in a monopoly market, may not wish for us to be the carrier that would route the call through Canada on to the third country. Wherever possible, we try to negotiate the ability to do so. With the WTO agreement coming into force and the liberalization of markets, we will have more opportunities to provide this service to Canadians.
If I may say, the WTO round was a great beginning. We will need to go further with new negotiations, and we look forward to starting that again in 1999. After all, we have some 70 countries, and we carry to 240 countries and territories in the world. There is a lot more work to be done.
The Chairman: Would foreign ownership restrictions on Teleglobe go from zero to 46.7 per cent?
Ms Bradford: In fact, there is no foreign ownership restriction on Teleglobe. It is the common one of the Telecommunications Act. There is, however, a prohibition on any foreign carrier owning any part of Teleglobe, and that would fall away. We would become governed by the Telecommunications Act, and that would give you the 46.7 per cent that we have all been hearing about as a direct and indirect holding in the company.
The Chairman: I do not want to hear any secrets from Teleglobe, but how does Teleglobe intend to benefit from this liberalization? Are any specific partnerships envisaged?
Ms Bradford: Our strategy as a company has not been the same strategy that you have seen from what we call the mega carriers which have looked to the established carrier in the opposite market to tie up an alliance -- for example, Sprint, Deutch Telecom and France Telecom joining together in an alliance. Our approach has been one of working with the traditional carriers, as we have in the past, of remaining unallied to any mega carrier. Therefore, we are able to become the partner or the carrier of the new entrants into the marketplace. As you see liberalization happening around the world, we are expecting to find more and more new entrants into the markets that will not want to replicate an international network such as ours, and it is those new players to which we are able to sell our services.
In addition, in the United States, we have already entered niche markets of the ethnic calling community who want to call their home countries. We have also become a carrier to some of the big business users who need a lot of international capacity. We are diversifying by markets, and we are diversifying by segments of markets. Your answer is "maybe." Alliances are always possible, but that is not our intention at this time.
The Chairman: I thank you for your presentations.
The committee adjourned.