Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 7 - Evidence
OTTAWA, Tuesday, March 17, 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 5:25 p.m. to give consideration to the bill.
Senator Lise Bacon (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we are continuing our study of Bill C-17. Our first witnesses are representatives from CallNet.
Please proceed.
Mr. Bob Boron, Senior Vice-President, Chief Legal Counsel and Secretary, CallNet: For those of you not familiar with CallNet, CallNet owns 100 per cent of Sprint Canada, Canada's largest alternative long-distance company. We provide telecommunications services in every province in Canada, and we employ about 2,000 Canadians across the country.
CallNet itself is a publicly traded company that is Canadian owned and controlled. CallNet has a licensing agreement with Sprint Corp. in the U.S. that allows us to use the "Sprint" brand in Canada. It is also worth noting that CallNet is the founding shareholder with Microcell Telecommunications, one of Canada's new PCS-mobile telephone providers, and we currently own about 11 per cent of Microcell.
Because we actively provide international telecommunications services to consumers and businesses across Canada, the issues addressed in Bill C-17 are of significant importance to CallNet. It is for this reason that I would like to thank you again for permitting us to make representations before the committee this afternoon.
At the outset, I would note that CallNet supports Bill C-17. The bill is primarily designed to implement Canada's obligations in the WTO Basic Telecom Agreement, an agreement which CallNet wholly endorses. Through its participation in the agreement, Canada will ensure that foreign countries open their markets to international competition and, in return, that Canada opens its own international telecommunications market to competition, including the elimination of Teleglobe's monopoly on overseas services. Both are good for Canada.
A very important part of the proposed amendments to the Telecommunications Act is the creation of a licensing regime for telecommunications providers. CallNet endorses the adoption of a licensing regime, but only for international service providers.
Before the House of Commons Standing Committee on Industry, CallNet was unequivocal in its opposition to a licensing regime that extended beyond international services into the domestic market. It was CallNet's belief then, as it is now, that licensing should be introduced to augment the CRTC's powers only in areas where the existing act is inadequate. As such, the proposed licensing powers must be restricted to international services only. However, it is our view that the licensing powers must be put into place for international service providers.
Given the amendments made in the House to this effect, CallNet is pleased to be able to support the bill as drafted. CallNet appreciates that the Senate committee was instrumental in designing the original Telecommunications Act and is to be congratulated for that. It was this committee back in 1992 that ensured that the government did not create excessive or superfluous regulatory powers such as a domestic licensing regime.
It is our view that an international licensing regime is a very different issue. We would be happy to address any questions you might have on this topic later in the presentation.
For those of you who may have reviewed our submission to the House of Commons standing committee, you may have noticed that CallNet proposed a number of amendments to the licensing regime that we believed would strengthen the bill. CallNet believes that the concerns we raised before the House of Commons committee can be addressed by the CRTC when it finalizes its licensing regime. As such, CallNet no longer proposes specific amendments to the bill in this respect.
Before the House committee, CallNet also raised concerns with the delegation powers. CallNet submits that the amendments made by the House committee fully satisfy CallNet's concerns in this area.
However, there is one area with which CallNet wishes to raise a concern and wishes to urge the committee to investigate with government officials.
Under the Teleglobe Canada Reorganization and Divestiture Act, CallNet notes that clause 19 of the bill repeals the section of that act which exempts Teleglobe from having to obtain CRTC approval for its interconnection agreements with foreign carriers. Of course, we support this change. However, section 33 of that act -- clause 22 of the bill -- grandfathers Teleglobe's existing contracts on the date that the amendment comes into effect by deeming CRTC approval for those contracts. CallNet is concerned that this statutory provision would be used by Teleglobe to try to prevent the CRTC from revisiting or amending pre-existing contracts, even if such contracts were found not to be in the public interest.
It is important that Teleglobe not be permitted, for example, to grandfather pre-existing, long-term exclusive or otherwise anti-competitive contracts which could have the impact of foreclosing the opening of international markets to other competing Canadian carriers. CallNet believes that grandfathering monopoly-era contracts in an era of increasing global competition is not good for competition or for Canada as a whole.
Before the House committee, CallNet recommended that the CRTC's power be made explicit. Thus, we would add to section 33 a statement that reads as follows:
Nothing in this section prevents the Commission from exercising its powers under sections 32 and 62 --
-- your copy reads 64, but it should read 62 --
-- of the Telecommunications Act regarding any agreement or arrangement that is deemed to be approved.
CallNet still believes that an explicit amendment would be the preferred route. However, a number of parties, including the CRTC, have stated their view that this amendment may not be necessary because the CRTC would have this power under the existing draft of the bill.
Before the House committee, David Colville, Vice-Chairman (Telecommunications) of the CRTC stated that section 33 "would not, however, preclude the commission from reviewing any such agreement should the need arise."
CallNet placed this question squarely to the one party that was in a position to potentially abuse its incumbency status. CallNet asked Teleglobe in a CRTC interrogatory process whether Teleglobe agreed that the commission would retain the power to strike down a Teleglobe contract that was given deemed approval pursuant to Bill C-17. Teleglobe responded:
The Commission's powers are clearly established in the Telecommunications Act, and all parties are at liberty to argue the application of appropriate powers to the relevant facts and circumstances of a particular case.
With respect, CallNet strongly disagrees that Teleglobe should have any ability to argue that deemed approval of an agreement made before its monopoly era ends means that the CRTC cannot, in turn, review that contract after competition has been introduced.
To combat this problem, CallNet maintains that the bill should be amended to solve this problem explicitly, or that this committee should satisfy itself with a clear statement of intent by government officials that our proposed amendment is unnecessary and that Teleglobe will not be able to use this bill to stifle competition down the road.
Madam Chairman, with this bill, we believe that Canada will be able to move forward and achieve the objectives of the WTO Basic Telecom Agreement.
We would be happy to answer any questions you might have at this time.
Senator Oliver: Why do you maintain on page 3 of your brief that the licensing regime for international services is required? As I understand it, the main reason why people feel it is required is that it is to counter any possible anti-competitive behaviour by foreign service providers. What kind of behaviour are you afraid of that you feel you need this licensing regime?
Mr. Boron: We took the liberty of preparing some written notes, which we would like to circulate to senators, which might assist us in answering that question.
Senator Oliver: Knowing the powers of the Competition Act and knowing what it is designed to do in terms of predatory pricing, and so on, what is it that you feel this new licensing regime must do that cannot be done by the Competition Act?
Mr. Boron: Our fear is that the competition regulation in Canada will not have any application or extra-jurisdictional effect. If you have a situation where a foreign monopoly is competing either itself or through an affiliate in Canada, then the anti-competitive abuse or a situation that is not favourable to the Canadian situation might not be able to be addressed. The reason for that abuse is actually occurring in a distant jurisdiction rather than in Canada.
Senator Oliver: What about the Hong Kong Tel case?
Mr. Boron: As a specific example?
Senator Oliver: Yes.
Mr. Boron: The first page of the material that has been handed around outlines a monopoly-monopoly situation where you have a monopoly in Canada and a monopoly in a distant jurisdiction. You basically have services going back and forth. Traffic is being handed off under accounting rates which, for the sake of argument, could be $2 per minute. There is a settlement rate, which is just 50 per cent, or $1 per minute. Traffic is handed off on that basis because of the arrangements that have been struck internationally between and among monopolists.
It is worth noting that Canada is a net payer of settlement rates because Canada's economy is better than the economies of most distant jurisdictions. Typically, but not in all cases, Canada is a net provider and payer of settlement rates as opposed to a net recipient thereof. However, it is done on the same per-unit basis because of the settlement rates that have been adopted.
Mr. Jonathan Daniels, Regulatory Counsel, CallNet: The reason for that is that we are sending more minutes. In the example before you, you can see that we are sending 1,000 minutes to that country, and that country is only sending us 500 minutes. The net payment, by the difference in minutes, is at the exact same settlement rate.
Senator Oliver: Would the same not be true for the United States, the U.K. and other large countries? Would they be the net payer as well?
Mr. Daniels: The United States is a net payer. It is over $5 billion a year.
Senator Oliver: And the U.K.?
Mr. Daniels: I believe the U.K. is as well.
Senator Oliver: So there is nothing unusual in that.
Mr. Boron: You raise a good point. The U.K., the U.S. and other models have adopted a licensing regime for international overseas providers, much the same as we are advocating before you today.
On the second page, in a situation where you have competition in Canada but a monopoly supply in a closed WTO country, you have an accounting regime out of Canada to the foreign, distant jurisdiction. However, traffic provided from that foreign, distant jurisdiction to Canada -- because Canada does not have a closed regime, but an open regime -- could be provided at competitive rates.
If you look at the difference between what we are calling the accounting regime and the private line regime, the situation where Canada is a net payer -- notwithstanding the fact that more minutes typically go out of Canada than come into Canada from distant jurisdictions -- is grossly exacerbated to the detriment of Canada. The situation where Canada is a net payer is worsened to a much greater extent than even in a monopoly environment.
Mr. Daniels: What we are trying to illustrate here is an example of where, because we open up to competition, the foreign monopoly which does not open up to competition is able to abuse its position as a monopoly player to take advantage of Canadians. In this case, what happens is that they are saying, "We continue to demand that everyone pay us $1 dollar a minute for all the traffic." Therefore, the thousand minutes that we were sending as a country to that foreign country with that one foreign carrier will be at $1 per minute for each of those thousand minutes. That will be $1,000 we must pay under the old regime.
On the first page you saw that they were sending 500 minutes back to us and we were therefore charging them $1 a minute for that 500. Because we are competitive, they can actually use means such as leasing a private line or getting a Canadian carrier to ask us who will charge us less to deliver the traffic in Canada.
We show in this example that that rate goes down do $0.08 per minute, which is the true cost of providing the service. The net effect is the difference in payments, whereas before we were paying out $1,000, they were paying us back $500. Really, we were only paying $500. In this case, we are paying them $1,000 because they are sticking to the old regime. They only pay $40, which is the $0.08 per minute times the 500. The difference is $960.
Canada as a whole is paying $960 as opposed to $500 to deliver the same amount of traffic and that is because we are competitive and they are a monopoly. They are abusing their monopoly position to that effect.
Mr. Boron: Just to close the loop on that, what we are concerned about is we want a mechanism to be put in place that prevents that foreign monopolist from treating itself, any affiliate or any other party that it strikes a special deal with on any special or discriminatory terms; it must treat everyone on the same basis.
Again, in the United Kingdom and the United States it was felt that the only way to do that is to put into place or allow the putting into place of a licensing regime to prevent that foreign monopolist from treating itself or anyone else on a preferred basis.
Senator Oliver: This is a mathematical theory. I should like you to apply it to some concrete facts. It seems to me that you keep talking about a foreign monopoly. Any foreign monopoly that will be doing business in Canada will be caught by our 46 per cent rule.
If they are going to offset some of their minutes to someone in Canada who might be a reseller, then the reseller will be regulated and controlled by the CRTC. If that is the case, where is the problem?
Mr. Boron: Senator, the problem is that it is questionable whether the CRTC under the current Telecommunications Act would have the authority over a reseller in the example that you just described.
Senator Oliver: They just did. In the Hong Kong Tel case, that is exactly what they did. They passed a stop order.
Mr. Daniels: The difference between the Hong Kong Tel case and the example I have put in front of you -- which is known as "one-way bypass" in the jargon -- is that in the Hong Kong Tel case you are talking about a subsidiary of Hong Kong Tel that is set up and enacted in Canada and was alleged to have been breaking the rules and was found by the CRTC to be in a precarious situation.
The scenario we are talking about here could be a foreign country that does not even need to set up an affiliate in Canada because what it is doing is using its position in the foreign country and saying to Canadian carriers: One of you can lease the private line. They can do this in India, Hong Kong or wherever that closed market is. They can get a reseller that is not affiliated in Canada to do this for them. The reseller itself is not acting anti-competitively, because the reseller has no market power. It is not the reseller that is breaking the rules. It is the carrier in India who is doing it, for example. I choose India because that is a WTO market country that is a closed market that has committed only to review looking at opening its market in the year 2004.
India does not need to set up a subsidiary in Canada in the way the Hong Kong Tel case did in the case to which you refer. We chose to give you this example because it is a situation where they could do it all by sitting in India and coming to a reseller or Canadian carrier and saying to them, "Give me your best rate for sending minutes for all my Canadian minutes." We say, "$0.08 per minute." That is our best rate and that is true competition. As a Canadian carrier, I am not doing anything wrong, I am just giving them my best rate.
When Canadians go to them and say, "We want to have you review our rates," they say, "Well, I am the monopoly, I am charging you $1 and that is all I am going to do."
It is all taking place in that foreign country. That is why the Competition Act does not extend to that jurisdiction. It is their monopoly in the foreign country that enables them to do this. They do not need an affiliate in Canada.
I agree with you that if they have an affiliate in Canada it is arguable that the CRTC powers might be able to capture it. However, in the example -- and this is one of many examples that we could provide you with -- you can see that you do not need a presence in Canada that would be subject to CRTC jurisdiction. Therefore, you need a licensing regime. That is why Mr. Boron referred to the United States, the European Union and other countries as instituting licensing regimes so that they do not open themselves to abuse as they open their markets to competition.
Senator Bryden: When I look at your example -- and you have two monopoly situations -- you end up with Canadians making a net payment on 1,000 minutes of $500. I take it that is all right, is that what you are saying?
Mr. Boron: That is reflective of reality with respect to Canada on the one hand, and many jurisdictions on the other hand, that more minutes go from Canada to that jurisdiction than back.
Senator Bryden: In instances of a different monopolist country, would the number be $700 net payment instead of $500?
Mr. Boron: Yes, this is just representative.
Senator Bryden: Is that happening now?
Mr. Boron: Yes. Is the problem that if you go to the situation that you are trying to protect, once you get up to $960 net payment, it is wrong?
Mr. Boron: That is right. As Mr. Daniels was explaining, we continue to have to pay that distant jurisdiction $1 per minute. However, because Canada is an open regime without a licensing power, they could go to a reseller or to a carrier and terminate their traffic for basically cost-plus.
Senator Bryden: What concerns me is that we have situations where a $700 net payment is all right but we get to $960, and that is not acceptable. Is $800 acceptable?
Mr. Boron: The reason that $500 is acceptable in the example is that it is representative of the fact that there is a net imbalance of traffic flow. We try to keep the number of minutes of disparity of traffic flow constant in the two examples. It shows the magnitude of the delta or the difference between scenario one and two.
Senator Bryden: In the situations where you are dealing with monopoly situations where this might occur, are those, for want of a better word, likely to be in developing countries or where their telecommunications are just developing and not as advanced as Canada and the United States?
Mr. Boron: Probably so, because the European Community is opening up to competition, obviously the United States is opening up to competition.
Senator Bryden: Was there a time when being a monopoly was advantageous to the Canadian industry?
Mr. Boron: I do not believe so, but I am a fervent believer in telecommunications competition.
Senator Bryden: It is not unusual in our utilities with developing countries, which Canada was once, you needed the utility or else you could not survive. It had to be a monopoly in the utility, whether it was electrical power, telephone or gas distribution in order not to make the distribution of resources so scarce you could not succeed.
My concern is whether there is an element of unfairness here. Are we saying to the developing countries around the world who have a monopoly that we are now strong and we are now, under the WTO, able to compete on a global basis with the United States and Europe, so unless you play by our rules, we will regulate it so that you cannot play in our country?
Mr. Boron: We are typically talking about countries that have signed on to the WTO agreement. They have committed, over time, to open up their regimes. We are certainly not saying that Canada or anyone else should dictate to foreign jurisdictions that they should tear down their monopolies. We are advocating that we give the Canadian regulator the tools to prevent distant-jurisdiction monopolies from abusing their powers in those distant jurisdictions to the disadvantage of Canadians.
Potentially, we can end up with an unintended subsidization to companies in distant jurisdictions, as opposed to, for example, subsidization to developing countries.
Senator Bryden: When you say "to the disadvantage of Canadians," is that to Canadians or Canadian companies?
Mr. Boron: I think it is to Canadians because, ultimately, it affects the cost structure of Canadian service providers which will ultimately be reflected in the rates that service providers charge to Canadians. It ultimately trickles down to a disadvantage to Canadians.
Senator Bryden: We used to hear the argument that our huge long-distance rates in New Brunswick were necessary to subsidize the phones in remote places. I am always concerned that, when we get to a position of power by global interests, that then it is a free market and a laissez-faire jungle as long as you play by the rules of the big guys. The little guys who are trying to develop their industry can get in but are still being regulated out.
Mr. Boron: We are trying to get tools into the hands of the Canadian regulator to prevent an unintended cross-subsidization from happening. It is worth noting that some of the carriers in these distant jurisdictions are not necessarily government-owned PTTs but might be multinational conglomerate companies. You may not be subsidizing the poor people of those countries but you might be cross-subsidizing, again, very profitable multinational conglomerate corporations.
Mr. Daniels: There is another factor in the traditional accounting rate regime between monopolies, often referred to as the "Old Boy's Club." I think you are correct, senator, in pointing out that it does have a subsidization component to it. These rates are way above costs. They are purposely designed in that manner. Canada and other net payers, such as the United States, are very concerned about the fact that it has been subsidizing the development of foreign countries.
In the scenario given here, we are not talking about decreasing that subsidy based on what I characterize as the $500 net payment. That has been negotiated as what the monopoly carrier is willing to accept. They know how much traffic is involved. They worked out the dollar exchange rate based on minutes. What they are in fact negotiating between monopoly and monopoly is a $500 payment for the changing of traffic and the difference based on the subsidy that they need.
In this situation, that monopoly carrier, having made that deal with Teleglobe, can then sit back and say that Canada is open to competition, and it can decide to double its profits here at the expense of Canadian consumers by jacking up the rates, by playing these anti-competitive games, by abusing its monopoly position.
I would caution the concern that we are trying to remove all subsidization that is inherent in the system. We are saying that competition should not make us worse off. We are fervent believers in competition. Canada will reap the benefits of this. That will result in Canadian residential customers being able to call their family members more often, and in businesses being able to compete and to do business more cheaply. However, we do not want rates to go up because we have opened our markets to competition. The only reason that would happen is if foreign closed carriers were getting greedy, looking for more money by abusing their monopoly position.
I would say that there is a difference between that and the cross-subsidization which you can argue has been negotiated and agreed. I would characterize that in our simple example as the $500 net payment. They might decide to get $460 more out of this by playing games and using their monopoly position.
Senator Bryden: Somebody in Canada presumably would have to agree to provide this service for eight cents?
Mr. Daniels: That person would be simply responding to a request for the cheapest rate to terminate the calls. Yes, it does require that provider, but what they are doing in that case is simply providing a service. They are not doing anything that the CRTC would have any authority to stop unless it was related to this foreign carrier's position. As a Canadian carrier, if a foreign customer asks how much I will charge to terminate calls in Canada from an originating country, I will quote my best rate. If I do not give my best rate, the customer should go somewhere else. We do not want to stop that. We are just talking about them being able to leverage their monopoly position in their foreign country. That is what we want to stop.
Senator Oliver: Why is this not classified as price discrimination and caught by section 50(1)(a) of the Competition Act? If it is not price discrimination, why can it not be seen by the Competition Bureau as abuse of a dominant position under sections 78 and 79? You keep talking about this dominant abuse of monopoly power.
Mr. Daniels: I agree with you. It is an abuse of monopoly power. That is, we propose that the commission, when they make these license conditions, would use competition-type language. It is a question of who is abusing their monopoly power. If it is a carrier located in India, for example, the Competition Act does not apply to them when they are charging for Canadian-termination calls that originate in India. If they set up an affiliate in Canada, you might be able to capture them. Otherwise, the rules will not extend to India.
I use India as an example of a closed market and not necessarily as an example of a country that would engage in this. I do not mean to cast aspersions on the carrier there.
Senator Bryden: More and more free competition is involved in the domestic market. The industry is becoming sort of self-regulating because of the amounts that are charged and so on. In this area then, there is less requirement for an organization like the CRTC to regulate and look after the domestic market. A lot of bureaucrats are employed by the CRTC. Are we creating good work for these people who will now be under-employed in the domestic market? Will they now be in a position to regulate and license foreign markets?
Mr. Ian Scott, Vice President, Government Affairs, CallNet: Before I respond, I have a brief comment in addition to Mr. Daniel's answer to Senator Oliver.
In its most simple term, you are right; this is an anti-competitive act. However, the abuse of dominant position in that example is taking place in the other country and not in Canada. What they are doing in Canada would not offend the Competition Act. If there were a parallel competition authority that had extraterritorial jurisdiction, it might be able address that problem, but there are not necessarily comparable competition authorities with that type of jurisdiction. It is a much more dicey situation than addressing it through a domestic regulatory framework. That would be my view.
On your question, I think there is a shift of sorts, a changing paradigm of regulation that relates to both the regulation of domestic carriers and the regulation of international carriers. It is a much more proscriptive or framework-type of regulation rather than the detailed, remedial regulation of the past. That is very much consistent with what we are proposing in terms of the construction of a licensing regime.
You want to provide the regulator with the necessary tools to modify behaviour after the fact if it appears to be the case or is the case that anti-competitive activity is taking place. In that sense, it is very much like competition law. It is after the fact and corrective rather than invasive, for lack of a better term.
Senator Rompkey: I wondered why you watered down your request on page 8. You give the committee two options: That the bill should be amended to solve the problem of Teleglobe's grandfathering; or that the committee should satisfy itself with a clear statement of intent by government officials.
I am just wondering how much a clear statement of intent by government officials is worth. Senator Oliver is a lawyer and I am not. However, there is no such thing as corporate memory on the hill. People climb ladders all the time. They build an empire and go on to the private sector and make money or they become the CEO of the new empire on the hill. There is so much movement around here that in any one department you will find there is little corporate memory.
You are vulnerable if you give us that other option. You would be safer having the bill amended.
Mr. Boron: I cannot disagree with you. In trying to reach a compromise and getting this piece of legislation through, we thought it might be expeditious to offer an alternative. I agree with you.
The Chairman: Thank you very much for your presentation today. We apologize for keeping you waiting.
Our next witness is Mr. Peter Barnes from AT&T Canada.
Mr. Peter Barnes, Vice President, Public Affairs, AT&T Canada: Thank you for allowing me to meet with you today and to explain our position on Bill C-17. With me today is Mr. Lorne Abugov, a partner with the law firm Osler, Hoskin & Harcott in Ottawa who acts as our legal counsel.
[Translation]
As you know, AT&T Canada Enterprises is the firm that manages AT&T's investments and partnerships in Canada. AT&T has been in Canada for more than ten years and currently has a minority ownership interest in AT&T Canada Long Distance Services and a strategic alliance and technology agreement with Rogers Cantel, known in the market place as Cantel AT&T. Through our various business interests more than 5,000 Canadians offer AT&T services across the country.
I am here today on behalf of both AT&T Canada Enterprises and AT&T Canada Long Distance Services because there are a number of items concerning Bill C-17 which we wish to raise. But first, I wanted to take this opportunity to commend the government for introducing this legislation, and committing to its passage. Il will surprise no one that AT&T Canada believes that real and sustained competition in all aspects of the telecommunications industry is important to ensuring the provision of high quality telecom services to all citizens at the lowest possible costs. This is the direction this government has been moving in since it took office and we support that vision. This legislation is another piece of that commitment.
[English]
In our view, the contents of this legislation will generate a number of important benefits for Canada within the telecommunications industry. For example, the proposed delegation power will provide the opportunity to expedite many of the regulatory processes which currently must be followed -- an important consideration for businesses as they become even more competitive and time conscious. It will also allow for more industry involvement on important issues, promote greater self-regulation, mediated settlements and other forms of dispute resolution, and will help to free up scarce CRTC resources to deal with pressing regulatory matters. Not to be forgotten, it also allows Canada to move into line with important industry changes worldwide.
We commend these moves to promote global competition and allow new opportunities for Canada's telecommunications sector. There are, however, a number of aspects within the bill which concern us and which I wish to spend a few minutes discussing, if I may.
Under Bill C-17, the CRTC -- and we have just had a discussion of this -- would be given significant new licensing powers and a framework for a new licensing regime. These powers would include the ability to prohibit the currently unspecified class of telecom provider from providing international services except in conformity with an international telecommunications service licence; specifying classes of international telecom services, which cannot be provided except in accordance with an international telecommunications service licence; and authority to attach licence conditions respecting both classes of service and service providers, maximum licence terms of 10 years and a ban against the transfer of licences except with CRTC consent.
Under Bill C-17, authority is conferred upon the CRTC to establish and enforce terms and conditions governing the provision of basic telecommunications service through a new licensing regime. Under the legislation, if enacted, telecommunications service providers of a class specified by the CRTC are prohibited from providing international telecommunications services except in conformity with an international telecommunications service licence. In addition, the CRTC may specify classes of international communications services which cannot be provided by telecommunications service providers except in accordance with such a licence.
More important. in our view, the CRTC's new licensing regime applies to "telecommunications services providers" a new definition in the bill which includes any "person who provides basic telecommunications services, including by exempt transmission apparatus." Through the interplay of existing definitions in the Telecommunications Act, including "exempt transmission apparatus," it appears to us that switched-based telecommunications resellers currently unregulated by the CRTC could now be subject to CRTC licensing.
[Translation]
In its news release of October 30, 1997, Industry Canada indicates that the legislative changes are needed to fulfill Canada's obligations under the GATS Agreement on Basic Telecommunications that "eliminates many restrictions in the international telecommunications industry." The Department's backgrounder of the same date notes that the new licensing regime empowers the CRTC "with authority to establish and enforce rules for the provision of international services". Il adds that aside from certain amendments in Bill C-17 such as those related to submarine cable and earth station ownership which are directly required to meet Canada's trade commitments under the GATS, the other amendments including the new licensing regime, "are required in order to adapt to the new realities of the liberalized market."
[English]
In our submission to the CRTC on a public notice dealing with the new regime for Teleglobe, we argued that there is no need to license providers of international service. In our submission we advised the commission that, while there may be circumstances where licensing is warranted; that is, where the service provider is dominant in its domestic market or on certain overseas routes, in general AT&T Enterprises does not regard such licensing as necessary for non-dominant service providers, regardless of whether those providers are facilities-based carriers or resellers, or whether they provide their international services on a wholesale or on a retail basis. We said that, if the commission found that such a regime was necessary, AT&T Canada Enterprises believed that the commission should make a distinction for licensing purposes between those service providers who are dominant in a given market or on a particular overseas route or routes and those service providers who do not exercise any power on the route or routes over which they provide service.
It seems to us that the adoption of an new licensing scheme runs counter to the stated objectives of the legislation; that is, adapting Canada to the new realities of the liberalized market. While we were and are pleased that certain amendments pertaining to the licensing regime proposed by AT&T Canada and others were adopted at the House of Commons, we believe that this bill would be further improved by restricting any licensing regime, if one is deemed necessary, to dominant carriers, leaving maximum flexibility to other competitors in all segments of the telecommunications market.
In Canada, we have made great strides in the development of this industry without licensing in local or long distance service. In light of other powerful safeguards that are already in place, such as the existing powers of the CRTC and the Competition Act, we see no need to include a licensing requirement for this segment of the industry.
[Translation]
Currently, by virtue of section 16 of the Telecommunications Act, facilities-based telecommunications common carriers eligible to operate in the Canadian domestic telecommunications market today must comply with foreign ownership and control restrictions contained in the legislation and in associated regulations. For example, AT&T Canada Long Distance Services has been determined by the CRTC to be owned and controlled in fact by Canadians, hence its eligibility to operate as a domestic long distance service provider in Canada.
[English]
As part of Canada's commitments under the GATS agreement on basic telecommunications, the government agreed to eliminate foreign ownership and control limits under the Telecommunications Act in respect of the ownership and operation of international submarine cable and satellite earth stations that provide telecommunication services.
Proposed subsection 16(5), if enacted, would give legislative effect to this aspect of Canada's trade commitment. As a result, it would be possible for a non-Canadian owned or controlled company to fully own and operate an international submarine cable and to receive a licence from Industry Canada for the ownership and operation of that cable.
Similarly, it is conceivable that the non-Canadian owner or operator of the overseas cable could be offering basic international telecommunications services on the cable and, therefore, could be susceptible to licensing by the CRTC as a telecommunications service provider.
The prospect of dual licensing of the owner or operator of international submarine cables -- an Industry Canada licence for the facilities and a CRTC license for the provision of services carried over the facilities -- is not unprecedented in Canada. For instance, broadcasters have traditionally been required to obtain Industry Canada authorization for their broadcasting facilities and a CRTC licence for the use of those facilities to provide their commercial broadcast services.
However, what distinguishes the approach proposed in Bill C-17 from the approach which has long been in place for Canadian broadcasters is that foreign ownership and control rules do not apply in the case of international submarine cables. Under broadcasting law, both Industry Canada and the CRTC administer and apply essentially identical foreign ownership restrictions, granting licences to broadcasters under the Radio Communications Act and the Broadcasting Act respectively. Under Bill C-17, for international submarine cables, no foreign ownership and control restrictions apply under the Telecommunications Act insofar as Industry Canada's licensing of applicants seeking to own or operate these facilities is concerned. That much is clear.
As for the CRTC, it appears that the commission must similarly disregard existing foreign ownership and control restrictions for facilities-based telecommunications service providers, but only in respect of the international telecommunications services which they provide by means of international submarine cables. It is quite conceivable, however, that non-Canadian owned or controlled facilities-based carriers will find themselves effectively barred by foreign ownership rules from providing attractive services to the Canadian market-place.
Let us take the following example: Assume a non-Canadian owned or controlled entity owns or operates an international submarine cable landing in Canada and wishes to utilize the cable to provide services to Canadian end-user customers and to other Canadian carriers on a wholesale basis. Even if the entity is 100 per cent foreign owned, Bill C-17 would permit it to be licensed by Industry Canada from a facilities standpoint. However, it is unclear to us to what extent the entity could provide services to Canadians using the international submarine cable given the overlapping licensing regime of the CRTC. One wonders what added market competition and additional investment will be generated given that uncertainty and the possible contradictions between the two licensing regimes.
AT&T Canada believes that these inconsistencies require clarification prior to the passage of this bill. We suggest that any entity which is eligible to obtain an international submarine cable licence from Industry Canada should be entitled to hold an international telecommunications services licence from the commission.
As well, the CRTC's licensing regime should, in our opinion, be such that it reflects the fact that holders of international submarine cable licences can own and operate not merely their submarine cable facilities but also domestic facilities to provide telecommunications services to Canadians.
The last point I would like to cover is a jurisdictional and trade issue. In its accompanying documentation to Bill C-17, the government has stated that this bill is an enactment of Canada's commitments under the GATS on telecommunications services. We believe, however, that one aspect of Canada's commitments under the GATS is not addressed by this bill. The GATS reference paper is a companion document to the broader GATS agreement. The reference paper sets out a number of regulatory principles and commitments that signatory countries, of which Canada is one, agree to follow. One of the important clauses in the reference paper is a commitment to "a regulatory body that is separate from and not accountable to any supplier of basic telecommunication services."
The CRTC model clearly meets this standard. However, SaskTel, the government-owned telephone company in the province of Saskatchewan, is not under the jurisdiction of the CRTC by virtue of a five-year exemption granted in the Telecommunications Act of 1993, and neither is it regulated by a provincial regulator. We are told that SaskTel is seeking a renewal of this extraordinary arrangement. We believe that Canada's international trade obligations, such as I have described to you today, should effectively rule out the possibility of extending this exemption from independent regulation.
[Translation]
This issue is not only one of international trade obligations. Customer choice and the degree of competition in Saskatchewan is also at issue. Long distance competition has come later to Saskatchewan than to the rest of the country and, still today, prices are higher. The same is true of local competition where Saskatchewan trails the rest of Canada.
The Information Highway Advisory Council offered the government the same advice three years ago when it said in its final report:
Current gaps in the geographic coverage of federal regulation result in a non-uniform national regulatory regime, which could inhibit or delay the implementation of new nationwide services.
It recommended that:
The federal government should take all necessary measures to ensure that the geographic gaps in federal regulatory jurisdiction are eliminated as soon as possible.
[English]
Resolution of this issue resides with the Governor in Council and need not be brought forward in legislation, but insofar as the bill under consideration purports to satisfy Canada's commitments under the GATS, we felt it important to point out to senators today that it does so in an incomplete fashion, in our opinion.
Again, I thank you for your time and patience and would welcome any questions you might have.
Senator Spivak: On page 4, you say:
It is quite conceivable, however, that non-Canadian-owned or controlled facilities-based carriers will find themselves effectively barred by foreign ownership rules from providing attractive services to the Canadian market-place.
What services are you talking about, and why are they so attractive?
Mr. Barnes: To us, the apparent reasoning behind Canada's commitment to open up the ability of non-Canadian companies to use international submarine cables was to add competition to the international market. Concurrent with the abandonment or the ending of Teleglobe's monopoly, that meant that more players would be in the market-place.
My reference is really a generic reference to what would be expected to come out of added competition in that market-place. You would have additional Canadian players, presumably, and additional non-Canadian players. The kind of services that could be provided could be high-speed data routes, direct connections with global points, for example, maybe direct connections, high speed, with the banking industry in London in the U.K.
If there is a provider out there that can provide services but for some reason looks at the Canadian market and feels that there is uncertainty as to the extent to which they can penetrate and act in a market properly, there is, in our view, a real risk that some services which would otherwise be available to Canadians will not be.
Senator Spivak: Are you arguing that the current foreign ownership rules should be eliminated?
Mr. Barnes: Our argument is that the bill, as drafted, is somewhat unclear as to the concurrent application of the liberalized foreign ownership rules or the abandonment of foreign ownership rules for international submarine cables and those rules applied by the CRTC. In our appearance before the House committee, we suggested some wording so that there would be a removal of this uncertainty. It is really a question of two regimes, one based on foreign ownership and one not. When they come together, there is a bit of overlap.
Senator Spivak: What is wrong with that? You have stated that one thing that is wrong is that we might be barred as consumers from getting attractive services from these companies. Otherwise, what is wrong with it? Why should Canada not have a set of rules as to foreign ownership through the operation of the CRTC? I want to get at your basic reason for saying this.
Mr. Barnes: I have no argument with the continued existence of the foreign ownership rules as they exist. I am not asking for a change in the foreign ownership rules. I am concerned, in reading the possible licensing regimes that may come out of this process of this bill, that there will be uncertainties as to the application of those rules.
Today, for example, a reseller can enter the Canadian market, lease facilities, own its own switch, and not be Canadian-owned. That is permissible. What I am saying is that that should continue to be allowed in conjunction with an international submarine cable in the scenario post Bill C-17. To us, it is a bit unclear that that would be a matter of certainty.
Senator Spivak: Thank you. I understand.
Senator Rompkey: Could you clarify the point on the top of page 3 with regard to the providers of international service? In general, you do not regard such licensing as necessary for non-dominant service providers. You want the bill improved by restricting a licensing regime to dominant carriers. Are these dominant carriers the same people we heard about from CallNet who were operating in a market where there was no competition and they had a monopoly?
Mr. Barnes: They certainly could include those carriers.
Senator Rompkey: But not necessarily?
Mr. Barnes: I guess our cut is a bit different. To the extent that someone has a position in a particular market or on a particular overseas route that allows them to exercise market power, we consider that to be something that is quite an appropriate role for government and/or the regulator to be involved with, and we have used the term "dominant power" or "dominant carriers" to equate with a situation where someone has market power.
We are suggesting that, to the extent that any licensing regime is required, and we are not convinced that one is required, but to the extent that any is required, it is really only required for those firms that are dominant or have market power. The people who have 6 per cent market share or 12 per cent market share will not be in a position where they can exercise any power or price control in the market. Those that have 80-per-cent market share probably are, and those kinds of suppliers or people on those types of routes are the ones that we think, if a licensing regime is adopted, should be addressed by that licensing regime.
Senator Rompkey: Thank you.
Senator Oliver: Mr. Abugov, I think you were present during the CallNet evidence. My question really does not deal with their main brief but rather their supplementary brief that dealt with the competition issue. I am asking you the question because you are a lawyer.
As I heard them, they said that the Competition Act does not apply to the situations that they outlined in this document, to a foreign country such as India where they are a monopoly telecom and where they would be abusing the power, and that is so. However, it seems to me that, in Canada, if it affects Canadian market and consumers or Canadian telecoms, the Competition Act would apply. The sections I referred to are section 51(a) discrimination, and abuse of dominant position in sections 78 and 79. The Competition Bureau, upon discovering the abuse that CallNet described, would begin the process of the investigation. Is that not the way it would occur in Canada?
Mr. Lorne H. Abugov, Legal Counsel, AT&T Canada: Senator Oliver, my sense of the discussion that occurred between yourself and the other senators and CallNet and my understanding of CallNet's position is essentially the same as your understanding as you have just described it. We saw examples of the abuse that CallNet was discussing. These are real situations which are occurring now and which will occur in the market-place, where you have imbalances of traffic that are exacerbated by situations where one market is open and one is closed.
You would, in fact, see great difficulty and I suspect court challenges that would thwart the use of the Competition Act to make it apply extra-territorially in India.
I think the real issue is that the party that is committing the abuse of dominance, the party that is engaging in the anti-competitive activity in the examples that CallNet has provided, are not located in Canada. They need have no presence in Canada whatsoever. They would simply be engaging in a contractual arrangement to terminate traffic from their own country. They would be, in effect, leveraging their monopoly position in their own domestic market.
Senator Oliver: How would a licence capture that problem?
Mr. Abugov: We are supportive at the end of the day for a licensing regime internationally that is applicable only to dominant providers because of a twofold benefit.
First, we are envisioning and we do foresee the likely need for licensing in respect of dominant providers in the Canadian overseas market, as well as to at least deal with dominant providers in the foreign market. CRTC's licensing regime can only latch on to Canadian international service providers.
Senator Oliver: That is my whole point.
Mr. Abugov: The licensing conditions that would be applied to the licences could certainly bind, govern, restrict and limit the domestic provider of international service.
Senator Oliver: As can the Competition Act.
Mr. Abugov: Arguably, the Competition Act could as well, but there is an added benefit to the licensing regime. I am not addressing the merits of the Competition Act versus a licensing regime that the commission might have, but there are arguments to be made.
Senator Oliver: Is there something extraterritorial in the licensing regime as proposed that would give the CRTC in Ottawa, Canada, jurisdiction to go to India and solve this problem? Point that out to me in the section.
Mr. Abugov: That is a good question. The commission can only bind and latch on to the domestic provider of overseas service. We will use Teleglobe as an example. Again, I am not making any arguments here that they are a dominant service provider. We have made arguments elsewhere.
Taking Teleglobe as an example, the commission would have the power to set terms and conditions in Teleglobe's licence that would bind Teleglobe but could take into account both Teleglobe's dominance in the domestic Canadian overseas market and arrangements, agreements and relationships that Teleglobe may have on specific routes with dominant service providers in overseas countries. The commission, by attaching on to Teleglobe, can alter the situation and alter arrangements that Teleglobe may have with foreign service providers that are dominant in their domestic overseas market. It can do this through conditions of licence that apply to Teleglobe.
I will give you several examples, and perhaps there are better ones, but it could insist, for instance, that any agreements Teleglobe enters into with foreign dominant service providers on a particular route are non-exclusive. It could argue that the rates that are actually being provided by Teleglobe, or that are being charged to the foreign service provider, or that the foreign service provider charges to Teleglobe, are provided equally and on a non-discriminatory basis to other Canadian carriers that might seek to terminate their traffic in the overseas country.
This is something that the FCC has been looking at as well, that is, the notion of trying to get at abuses in foreign markets that are rate-related, charge-related and settlement-related, but using the Canadian licencee as the vehicle through which you get at the foreign abuse because the domestic regulator, the CRTC, can only attach conditions on the licence of the domestic provider.
Senator Oliver: I follow that and I acknowledge what you have said. Let us go back to a real live case, namely, the Hong Kong Tel case, where the CRTC, with its existing powers, without the necessity of this brand new, heavily regulatory licensing power, was able to deal with Hong Kong Tel.
Mr. Abugov: There are two differences there. There is the one that CallNet pointed out to you, namely, in that case Hong Kong Tel had a Canadian-based subsidiary that was conducting business in Canada. It was the port of entry for calls from Hong Kong and the port of exit to Hong Kong.
Senator Oliver: The CRTC, therefore, had jurisdiction.
Mr. Abugov: The CRTC was able to exercise its jurisdiction over companies like BC Tel to get at the Canadian subsidiary of Hong Kong Tel. It was able to say, "BC Tel, you are not required to provide facilities to Hong Kong Tel Canada to allow Hong Kong Tel to route traffic in a way that is contrary to the bypass restrictions." In that way, the CRTC was able to get at the Canadian subsidiary of Hong Kong Tel.
The example that CallNet has given you and the example that we have just been talking about is a situation where there is no Canadian presence whatsoever. It is simply an act by a foreign carrier, perhaps a foreign government-owned monopoly telephone company, so there is no legal nexus in Canada as such; there is nothing to latch on to there.
Senator Oliver: Except the effect on customers. That is the Canadian content.
Mr. Abugov: Yes.
Senator Oliver: That gives jurisdiction to the competition bureau.
Mr. Abugov: Obviously, there is this effect on Canadian companies. There is an effect on Canadian customers indirectly, as CallNet said. Whether that gives the Canadian competition authorities sufficient authority to reach out to India and deal with the Indian company is very doubtful.
Senator Oliver: They will be here next week, and that will be one of the questions I will put to them. I think you will be surprised.
The Chairman: Thank you, gentlemen.
Our next witness is Mr. David Colville from the CRTC.
Mr. David Colville, Vice-Chairman, Telecommunications, Canadian Radio-television and Telecommunications Commission: With me today is legal counsel Carolyn Pinsky; and Leo Mevel and Cynthia Stockley, from our telecom staff.
On behalf of the commission, I should like to express our appreciation for the opportunity to appear before you today. When I appeared before the House of Commons committee on Bill C-17 in December of last year, I expressed, on behalf of the commission, its full support for the bill and, in particular, those provisions relating to the commission's powers and duties.
Over the past few years, the commission has taken major steps to open up the Canadian telecommunications market to competition -- not simply for the sake of competition but because of the benefits that competition will bring to Canadian consumers and the Canadian economy in general. As I stated before the House committee, the entry into force of the GATS with respect to basic telecommunications will mark the advent of a new and increasingly competitive environment for the international telecommunications industry in Canada with many new employers entering the game.
In this new environment, the commission will require new tools to ensure that the objectives of the Telecommunications Act continue to be met. Among those tools is the proposed licensing power which would assist the commission in dealing with the problems that can arise. For example, when a foreign carrier who is dominant in its home market establishes a resale affiliate here in Canada for the provision of international telecommunications services, the Canadian carrier is subject to the Telecommunications Act. Unless the commission has made a decision to forebear completely from regulating the carrier's services, the carrier is prohibited from giving an undue preference or advantage to any person, including a company that may be affiliated with it. Foreign monopolists are not subject to that same constraint. At present, the commission has no direct way to ensure that a foreign-based monopolist does not use its market power at home to unduly or unjustly favour an affiliate here in Canada. Since the monopolist in this case is off-shore, the commission needs authority over the affiliate itself here in Canada in order to prevent competitive distortions. By giving the commission that authority, the licensing power would enable the commission to ensure that a level playing field exists for all players in the market for the provision of international telecommunications services, and would allow the commission to accomplish that task with a minimal amount of interference in the market-place.
While the commission has in the past dealt with competitive distortions in the provision of international telecommunications, specifically in the case of Hong Kong Tel, we note that the process was a long and difficult one. Moreover, that case took place in an environment where there was a monopoly in the provision of local services and a monopoly in the provision of international facilities. Since that time, the commission has opened the market to local competition, and come October 1, 1998, Teleglobe's monopoly on overseas facilities will end. In such an environment, with multiple local and international facilities-based service providers, the enforcement of the rules necessary for a level playing field will become more complicated. In addition, the specific rules that form the basis for the commission's ruling in Hong Kong Tel are being examined in the international proceeding currently being held by the commission.
I would like to note that the commission has stated in the public notice which initiated its current international proceeding that it considers that licence conditions should not constitute a barrier to entry but rather are there to ensure that the regulatory regime put in place with regard to international services is respected by service providers. Further, the exercise of the licensing power will be subject to the telecommunications policy objectives set out in the Telecommunications Act. In furtherance of those objectives, the commission's decisions in recent years demonstrate its commitment to increasingly rely on market forces where appropriate.
The bill also contains provisions to address the demands of the increasingly competitive domestic environment. As you know, last year the commission issued a historic decision, establishing a framework for competition in the provision of local telephone service in Canada. This has called for a restructuring of the way in which some telecommunications services have been provided to date. Up until now, the monopoly telephone companies have performed a number of underlying functions fundamental to the operation of the telecommunications network and the provision of services in Canada. These functions involve the administration of numbering, the collection of contribution, and the operation of various data bases. With the advent of competition, it is no longer appropriate for the telephone companies to perform all of these functions. Rather, these functions are best performed by a third party in a competitively neutral fashion consistent with Canada's GATS commitments.
The industry itself is developing mechanisms to accomplish this very end. However, because the third parties who would administer central office codes and number portability, which are essential for local competition, are not Canadian carriers, the commission does not have direct powers over these parties. Yet the functions they are performing are essential to the maintenance of efficient and effective telecommunications in Canada.
Therefore, it is important to clarify, as this bill would, that the commission has the authority to ensure that these fundamental services are administered in the public interest to the benefit of all Canadians. With respect in particular to the administration of a central contribution fund, I would note that the proposed section 46.5 would enable the commission to ensure that rates for basic local telephone service remain affordable in an environment characterized by local competition. In this environment, it is appropriate that the subsidies which flow from some telecommunications services or service providers to the providers of basic local telephone service be administered by a neutral third party rather than by the incumbent telephone companies.
Just as it proved necessary to establish a competitively neutral mechanism for numbering resources and a fund to support continued access to basic telephone service, so it will likely prove necessary in this rapidly evolving environment to establish similar mechanisms for other matters. The intention here is to provide for less micro-regulation by the commission. Rather, where necessary, certain activities could be performed by a third party in a competitively neutral fashion, subject only to the general oversight of the commission.
Those are the initial comments I wanted to make today and I would be pleased to answer any questions you may have.
Senator Rompkey: What is your reaction to the presentation by CallNet. CallNet said in their submission that it is important that Teleglobe not be permitted, for example, to grandfather pre-existing, long-term, exclusive or otherwise anti-competitive contracts which could have the impact of foreclosing the opening of international markets to other Canadian carriers? I think that they want to add to clause 33 the statement which I am sure you heard when you were here. Would you comment on grandfathering, whether the submission of CallNet is valid, and whether we should do something about it?
Mr. Colville: When Mr. Boron made his presentation he quoted a remark we made in our presentation before the House committee, that, in fact, it is our view that the commission is not precluded from reviewing those agreements in any event. That is our view. I gather he wants a little more certainty in the bill, and if that degree of certainty were put in there, we certainly would not have a problem with it. However, it is our view that we have the power to deal with that in any event now.
Senator Rompkey: It certainly would not weaken the bill or water down the bill, would it? Would it improve the bill if these words were added to clause 33?
Mr. Colville: I do not believe it would weaken the bill, no.
Senator Rompkey: Would it improve the bill?
Mr. Colville: For Mr. Boron, it would provide some degree of certainty. As I say, it is our view we have the power to do that now.
Senator Spivak: You mentioned -- and of course it is in the proposed legislation -- that there will be a fund to ensure that local telephone service remains affordable. There is a fund in the United States being established to subsidize phone services to remote and rural regions as well as to poor people. I come from the province of Manitoba which has many rural and remote regions.
Could you explain how this will work? What are the likely similarities and differences between the fund here and the one in the United States?
Mr. Colville: I can answer that in two ways. First, historically, the telephone companies, as you know, have subsidized the provision of local service through excess profits, if you want to call them that -- they do not want to call them that and never have -- on long distance service. That has funded the provision of local service. When we established long distance competition in 1992, we provided for a continuation of that subsidy by charging what we call a "contribution" to the new entrants and, indeed, to the long distance arm of the telephone companies. This contribution, which was a set number of cents per minute for each long distance call, would go to subsidize the provision of local telephone service.
As long as local service was provided by a monopoly, that money was simply handed over to the phone companies to use. In an environment where we have competition for the provision of local telephone service, we decided this subsidy should be portable; that is, any local telephone service provider who is going to provide service in a remote part of Manitoba should be entitled to receive that subsidy to provide service in that area. The fund is this same contribution. The same subsidy that has historically been flowing to provide local telephone service from the long distance providers would go into this fund, now administered by a third party, and provided either to the phone company or other service providers who would provide service in those remote areas. That is one element of this.
There is another element similar to the U.S. situation. As we get competition in the provision of local service and as the market works, prices will tend to be driven to cost. It costs considerably more to provide telephone service in some of the more remote areas of Canada.
We recently began a proceeding, which we are in the middle of, and we will be holding public hearings throughout the country in late May or early June to deal with this question about the provision of service to the higher cost areas. This is a unique problem. We are looking at what kind of funding mechanism may well serve to solve that problem.
Senator Spivak: Will there be a cap on local telephone rates? Surely you will not subsidize rates to whatever level they rise. Local telephone rates will rise.
Mr. Colville: We are in the middle of the proceedings, so a lot of these issues have yet to be defined. In northern parts of Manitoba and in the Northwest Territories, the cost of providing service would be extremely high. One would have to make a determination about what is an appropriate rate for people to be able to continue to afford service. Perhaps we subsidize the difference.
Senator Spivak: Will this apply to any kind of telecommunications service?
Mr. Colville: The fundamental principle has always been to provide a subsidy for basic local telephone service.
Senator Spivak: What does that mean?
Mr. Colville: That has been a moving target, but it is essentially voice switch telephony for your telephone at home or in your business.
Senator Spivak: What you are basically saying is that not all of this has been decided.
Mr. Colville: In terms of the high cost area, it is yet to be decided. The principle we are trying to establish in the act is to allow the CRTC to have the authority over the administrator of this funding mechanism, of the fund itself.
Senator Spivak: But the principles will be established by the CRTC.
Mr. Colville: In the current funding scheme, the principles have already been established. However, so far the phone companies themselves have been managing the distribution of this. When you have local competition and more players who want to receive the fund, it is necessary that you have a third party to manage it.
The Chairman: What is your view on AT&T's proposal that international licensing be restricted to non-dominant telecom companies?
Mr. Colville: It would be restricted to dominant companies.
The Chairman: Dominant, yes.
Mr. Colville: There seems to be a notion that somehow this licensing regime would be some sort of rigorous, heavy-handed structure. While we have not finished the proceeding, which is looking at the way one would do this, I certainly do not believe that we have in mind any kind of heavy-handed regulation.
The problem one enters into when one starts using the test of dominance or non-dominance is that it starts to complicate the process. You then throw into the mix a test to see who is dominant or not. It makes the issue overly complicated.
If the licensing scheme itself is fairly simple, which I think it should be, I do not foresee this as being a problem.
I can provide the example of what we have done in the case of local telephony. We said that we would require an authorization from the commission for new entrants in the local telephone business. Essentially, what you do is write a letter and say you commit to provide the conditions that we have stipulated for local entry. You provide 911 service for personal information; you commit to provide message relay service, and a few other conditions. That is it -- you are in business.
As I say, we have yet to define all of the parameters around this licensing regime, but I think fundamentally that is the kind of thing we have in mind.
As we noted in the Hong Kong Tel case, the problem was that you had to get at this entity that was effectively breaking the rules. In that case, we had to get at it through B.C. Tel.
Essentially what this provides through the licensing scheme is an opportunity for us to address directly the party creating the problem. It is as simple as that. I do not think the licensing regime we are talking about putting in place has to be particularly onerous in order for us to do that.
Senator Oliver: I have some general questions about the relationship between the CRTC and the Bureau of Competition. Maybe you can tell us the expertise the CRTC has in competition theory and practice.
What would be the point of having the CRTC enforcing rules against price discrimination, predatory pricing and abuse of dominance when these very violations are already enforceable under the Competition Act? Is not a licensing regime of international service providers, as envisaged in Bill C-17, redundant and wasteful given the entrenched expertise of the Bureau of Competition? What is the source of the government's lack of faith in the Bureau of Competition or the Competition Tribunal in resolving these particular problems?
In theory, at least, competition policy is usually regarded as a reactive but not an intrusive instrument of government policy when dealing with such types of market abuses, whereas regulatory policy -- what you do -- is regarded as a pre-emptive and considerably more prescriptive instrument. If you agree with that characterization, why do you see this change now?
Mr. Colville: I am not sure I would agree with the characterization. I have never considered myself to be particularly intrusive or overly burdensome.
Again, if you take a look at where we have been moving in terms of more light-handed regulation in a competitive environment, the whole approach we have been taking is in fact to get away from being intrusive. We have established an authorization scheme for new entrants to get into local telephone business. We are not regulating those companies; we are not regulating their rates. There is the power to step in and deal with issues if they becomes a problem, but there is no intrusive, prescriptive, burdensome regulation.
I think there is an undercurrent of concern over this licensing regime. If you look at what the commission has been doing, I think our record speaks about where we have been heading, the kind of regulation we have been getting away from, and the light-handed approach we have been taking.
Interestingly enough, we have established these industry committees to set the terms with respect to local competition. The industry players themselves -- the people sitting in this room -- are working together to resolve of all the technical and administrative issues. We happen to be sitting at the table, but more just to clarify things when issues arise.
It is not for me to comment on the skill sets at the Bureau of Competition. In fact, I do not personally know that. I am not an expert on competition law. As you know, I am not a lawyer. However, these issues raise a test of skill sets that we have at the commission in terms of telecommunications expertise. These companies will be undertaking telecommunications activities. To the extent that they may be bending or breaking the rules, it is fair to say that we have the expertise to deal with those kinds of issues as they relate to telecommunications.
Senator Oliver: Assuming that there is an international licensing regime, how do you envisage that the CTCT will actually monitor these international service providers for potential violations? Who would actually bear the costs of monitoring these service providers? What do you have in your budget for it? How costly would it be for the government to monitor these types of violations, such as the Hong Kong Tel violation?
Mr. Colville: I expect most of these things will not be done so much in terms of a day-to-day rigorous monitoring. We raised a number of these issues in the public notice and again in this proceeding. However, even under the current environment where these kinds of activities may or may not take place, it is largely done through a complaint process. Someone may raise an issue with the commission. Even in the Hong Kong Tel case that was raised on a number of occasions it came to us by way of complaint. We are then forced to deal with it.
The problem in the Hong Kong Tel case was that we were forced to deal with it through, if you will, a third party, through B.C. Tel, not through the party that was causing the violation.
This will give us the opportunity to deal with the person who is causing the violation, not someone else who ends up being an innocent bystander.
Senator Oliver: If an international monopoly such as Sprint has formed a monopoly with India and they are carrying on activities in Canada that are price discriminatory and they do not have a licence, what is your power then?
Mr. Colville: Some of this has been assumed. Some of this undertaking would be done through an affiliate that may well not be directly related to that company but would be an affiliate that would be undertaking some sort of resale activity in Canada.
Senator Oliver: Over which you already have jurisdiction and control; is that correct?
Mr. Colville: No, not the reseller.
Senator Oliver: The resellers who came before us in the committee last week said that they would like to be regulated.
Mr. Colville: Some of them. I am well aware of that. The fact is, right now we do not.
This provision gives us the power to deal with that international reseller. It has been debated whether or not that should happen with respect to domestic.
Senator Oliver: Would your international licence not cover a domestic reseller in Canada?
Mr. Colville: This provision is not intended to cover the domestic reseller, that is right.
Senator Oliver: If you have the international monopoly from India doing something through a reseller in Canada, what do you do about it?
Mr. Colville: Through a reseller engaging in international activity, this would require a licence.
Senator Oliver: Any reseller that is doing anything that is involved outside of Canada, a kind of bypass, is then caught by Bill C-17?
Ms Carolyn Pinsky, Canadian Radio-Television and Telecommunications Commission, Legal Counsel: In terms of licensing power, this provision has a new definition for telecommunications provider. For any person who is providing basic telecommunications services in Canada and is providing international services, that licensing power would relate to them.
In response to your question, if a reseller is operating in Canada, under the new provision, the commission would have the authority to issue a licence to the reseller who is providing international services.
That would give the commission direct power over that reseller providing international services. If your question relates to a service provider who is not operating in Canada, going back to the CallNet example, then in that situation you would have a foreign monopolist who -- presumably if they are not reselling, they are obtaining services from someone in Canada -- therefore would be a customer of either a reseller or a facilities-based provider in Canada and that would be another fashion to get to the foreign monopolist.
Senator Oliver: Mr. Colville, can you characterize for me, with a word or adjective, the kind of behaviour that you envisage where you will need this licence to combat once everything opens up for more competition, that is Teleglobe ceases its monopoly and so on? What kind of evil do you see arising?
Mr. Colville: I am not sure of what sort of adjective to use. Preferential treatment or unjust discrimination is typically what has happened. You have used the Hong Kong Tel example on several occasions.
The issue in terms of this licensing regime was the question of being able to get directly at the party that is causing the problem, not being forced to deal with it through a company like B.C. Tel and having to do it like that.
Senator Spivak: The issue of the competition bureau and the CRTC comes up regularly during our discussions here.
Can you tell me about the expertise that the CRTC has developed in telecommunications services and operations? What do you see as the essential difference in the mandate between the competition bureau and the CRTC? You do not have to give me a dissertation.
Mr. Colville: I have not really thought about it in terms of essential difference in the mandate. My view is that our job has historically been to regulate in a monopoly environment on the telecom side. We built up a certain amount of expertise in that area.
The Competition Act has been set up to deal with the competitive market-place. We are trying to move away from this monopoly environment to the competitive market-place and we are in this transition period of getting there. We have been taking very active steps to move away from this regulated monopoly to the competitive world.
One could argue that, ultimately, when this market becomes competitive and the former dominant players have ceased to have their dominance and we have a working competitive environment in the market-place, the Competition Act would prevail and take over.
Senator Spivak: That is not the answer for which I was hoping. That is your function, but I would assume that telecommunications and the related kinds of industries are not the same from the point of view of Canadian sovereignty as to kinds of things with which the competition bureau deals. Perhaps I am mistaken. Would you not agree with that?
Mr. Colville: They have not been the same, because we have operated in this monopoly environment. I am not sure that they may not be the same somewhere down the road as the market becomes totally competitive. We may well reach that stage where it is the same as other competitive industries.
The one area where I would guess that we probably would not get there is on the broadcasting side.
Senator Spivak: Are we going to be able to tell the difference eventually?
Mr. Colville: In terms of content broadcasting, I believe so.
Senator Spivak: In terms of broadcasting and telecommunications, will they not all be rolled into one?
Mr. Colville: No. The content question will continue to be different.
The Chairman: Thank you for your contribution. We appreciate your presentation.
The committee adjourned.