Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 8 - Evidence
OTTAWA, Tuesday, March 24, 1998
The Standing Senate Committee on Transport and Communications met this day at 3:35 p.m. to consider Bill C-17, to amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act.
Senator Lise Bacon (Chairman) in the Chair.
[Translation]
The Chairman: Resuming consideration of Bill C-17, An Act to Amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act, today we welcome from the Competition Bureau, Mr. Konrad Von Finckenstein, Director of Investigations and Research, and Mr. Robert Lancop, Assistant Deputy Director, Civil Affairs.
[English]
Mr. Konrad von Finckenstein, Q.C., Director of Investigation and Research, Competition Bureau, Industry Canada: Thank you, Madam Chairman, for inviting me to give comments to you on the Telecommunications Act. As you know, the bureau has been a frequent intervenor before the CRTC, always pushing for competition in the Canadian telecommunications market. We have made a lot of progress in Canada in the telecommunication market, most notably in long distance and wireless markets. Now Bill C-17, which is before you, deals with liberalization in international traffic.
The bill recognizes that you cannot go from regulation to freer market in one full sweep. There must be a transition period. What we are dealing with today is the transition period.
The WTO agreement negotiated in Geneva has attached to it a set of regulatory principles that clearly recognize that all nations should have, or can have, licensing regimes; the licensing regimes should be non-discriminatory. The parties to the WTO agreement recognize that there is a need for licensing regimes for international telecommunications.
The reason is simple: it is to protect the domestic markets. When you have one market that is liberated and one market that is still regulated, you can run into problems of trade distortion, imbalance of account settlements, and other issues that would be detrimental.
We normally prefer market forces to operate as freely as possible and, therefore, it is with some reluctance that we agreed to this need for licensing for international telecommunications. We see that as a transitionary method only, until such time as markets are fully liberated. We feel that the licensing regime that the CRTC will implement should be as light-handed as possible.
As you are aware, the CRTC is presently holding hearings over the form that such licensing regimes should take. We will appear before the CRTC and make a submission, giving them our view on how light this regime should be. It should be targeted; and it should be focused, and regulate only as much as necessary in order to ensure the smooth transition.
We also feel that it should be targeted because, generally, when economic activity is regulated, the Competition Act does not apply. But licensing does not mean regulation. It will be only with respect to the terms and conditions of the licence that, in effect, the CRTC takes precedence and the Competition Act is ousted. The Competition Act will still apply to all the activities that are not covered by the conditions of the licence that the CRTC will prescribe. It is, therefore, necessary that the licence will be targeted and narrow.
I understand that the issue of a "sunset clause" has been raised before you. Should there be a sunset clause in this act? Now, one would think, from a purely hypothetical or academic perspective, that that is what you want, a sunset provision, because after all this is a transitional measure. However, nobody knows quite how long the transition will be. Will it be three years? Will it be five years or longer? We feel quite comfortable about the fact that the commission has the power to forebear and has in the past used its power to forebear.
You will recall that in the long-distance market the commission started out regulating the incumbent while letting new entrants enter the market without regulation. It has since forborne from regulation and we have no regulation in the long-distance market; so there is a history and a tradition in the CRTC of going from regulation to deregulation, and we expect them to follow the same process here. As they become convinced that the market of international long distance is competitive and free, they will forebear from regulation and let the market forces work out the necessary arrangements.
In addition, as you know, the government has the power under section 8 of the Telecommunications Act to give generic policy direction to the CRTC, and that is sort of as a final safeguard. Should the CRTC not follow its traditional policy of working towards competition, then directions can be given.
I understand you have also asked why these licence regimes are necessary and why the Competition Act alone could not deal with these issues. Frankly, there are three reasons. The first is "evidence." The evidence for any abuse on international long distance will be abroad. It will be extremely difficult, if not impossible, for us to obtain, especially if the abuser is a foreign state-owned monopoly. There will be no interest at all on the part of foreign authorities to give us evidence against one of their "Crown corporations."
Second, it is a question of remedy. What would be the proper remedy? Who do you apply it against? How do you enforce it, especially if the abuser is in another country?
Third, it is a question of time. It takes a lot of time to get that evidence and then a lot of time to work it through the courts or through the Competition Tribunal to secure the necessary remedy. In the meantime, Canadian participants could be hurt, and hurt quite badly.
For all of these reasons, I think as of now the Competition Act cannot deal with such problems as are likely to occur when you have a regulated market at one end, a free market at the other, and you have international connections.
As you know, we administer a framework legislation that deals with the economic activity and tries to deal with abuses. We have no mandate to deal with other issues that are dealt with under the Telecommunications Act, such as to ensure that there is a proper balance of accounting between the telephone companies or to make sure there is no trade distortion.
In short, we feel that the legislation before you is the necessary legislation for a short period, for the transition period, to deal with the problems that happen as you go from a regulated market to a free market. When you have the two markets interacting, you need this licensing to deal with that period until the other market is deregulated.
Once it is deregulated, we expect the CRTC to forebear and we, as the competition authority, will be dealing with such markets.
In the House of Commons, this act was narrowed and the licensing is now specifically meant to deal only with international communications services. We think that was a very useful narrowing. We hope, and believe, that the act as it is in its present form will perform the purpose that is necessary in order to ensure the smooth transition.
Those are my opening comments, Madam Chairman. I will gladly answer any questions you have.
The Chairman: Thank you very much, Mr. von Finckenstein. Senators, do you have any questions? Senator Oliver.
Senator Oliver: Thank you for your presentation, sir. I was interested in the response you gave. Tell me, are there any areas where the jurisdiction of the CRTC and your bureau overlap?
Mr. von Finckenstein: We do not overlap. We work in parallel. The CRTC is a regulator to the extent that it has the mandate to regulate, and it does regulate. That is an area from which we are precluded. To the extent that there are areas in which the CRTC has no competence to regulate, those areas fall under the Competition Act and we will deal with them.
Senator Oliver: As I understand it, the main reason that the licensing regime has been put under Bill C-17 is to counter possible anti-competitive behaviour, and "anti-competitive" sounds to me like "Competition Bureau." That is why I am having difficulty in understanding why this is not a Competition Bureau matter; your own department, Industry Canada, is saying: "Our main concern is some type of anti-competitive behaviour. We are not sure quite what it may be, but that is why we feel we need this licensing regime."
If it is anti-competitive, why do they not add to your legislation to enable you to deal with this anti-competitive behaviour? That is what I gather you deal with mostly. As you said today, you deal with economic activity and anti-competitive abuses. Why would you not be dealing with this?
Mr. von Finckenstein: I would gladly deal with it if I had the capacity to do so, but, as I mentioned to you, it is difficult to obtain the evidence. As you know, the whole international communications system is based on a system whereby you get paid for terminating a call, not for initiating a call.
Assume you have a Canadian company at one end and a regulated company at the other end which has a monopoly position; it terminates the calls there, if it is a call that goes from Canada to that country. Most of the time the problem will be with underdeveloped countries where you have a state monopoly running the telephone company. There will be more calls from Canada to that country than vice versa to begin with, so you have an imbalance with the number of calls and the number of payments that are made to the other country.
In addition, since they have a monopoly, they can discriminate in terms of the rate that they charge to people who terminate in their country, while the calls that come to Canada come to a freely competitive and non-discriminatory market and will be done at the best rate possible. You have an imbalance there and they can leverage that to get unfair advantages, but I cannot establish that evidence. I do not have any way of getting the evidence that they charge differential termination rates.
Even if I did get that evidence, what would I apply to the court for by way of remedy? What kind of restraining order would I seek? What kind of fine would I seek? Who would be paying the fine, since there is no presence in this country?
Although it is anti-competitive behaviour, we do not yet know what it will be. We know we have seen some examples, and there will be others in the future, undoubtedly.
Senator Oliver: Could you tell me what some of the examples are? I have asked many witnesses and, frankly, the answers have not been forthcoming in a meaningful way. Could you give me some examples of this anti-competitive behaviour that you think might be caught by this new licensing regime?
Mr. von Finckenstein: My colleague Bob Lancop will talk to you about the Hong Kong example.
Mr. Robert Lancop, Assistant Deputy Director of Investigation and Research, Civil Matters, Competition Bureau, Industry Canada: This is an example that we are well aware of that has taken place.
Senator Oliver: We know about the Hong Kong scene, and that is already in the evidence. Can you give me other examples?
Mr. Lancop: I think there could be examples where you could have differential termination rates between a monopoly provider in a foreign country and Canadian providers in this country. If the rates, for instance, in country "M," the monopoly provider, are a dollar -- I think there is a numerical example of this on the record -- in a situation where we have two monopoly providers, presumably, there would be an equilibrium between the settlement rates, between the termination rates, a dollar in Canada and a dollar in "Country M." In a competitive market, the termination rates would presumably be competitive and would be substantially lower than that dollar.
If we have calls terminating in Canada at a substantially lower price than they are terminating in that country, that creates a payments imbalance and a trade imbalance. The only way to correct that imbalance would be to have a regime that enables Canada to deal directly with that type of situation. The one that they have come up with is the licensing regime, which enables Canada to deal directly with that and ensure that the companies terminating calls in Canada must abide by licence conditions that ensure that there will not be that type of discrimination.
Senator Oliver: Have you talked with the CRTC since this bill came to the Senate, to discuss the position you have advanced today? Can you tell us whether you discussed this with counsel in the Department of Industry before you came and made your presentation today?
Mr. von Finckenstein: I have not talked to the CRTC. As I mentioned to you, I will be making representations to them. The CRTC is a quasi-judicial body. I have a statutory right to make representations before them under section 125 of the Competition Act, and I will exercise that.
Senator Oliver: You have not exercised it yet in terms of this bill.
Mr. von Finckenstein: No. I have given them notice, in the legal jargon. I have filed an appearance. I will be making a submission later in this week. I will table with them my views, which will mirror exactly what I have talked to you about here, that I see the licensing regime as necessary to get a smooth transition period but that the licensing regime that they should adopt should be as light-handed as possible, as targeted as possible, and that they should forebear at the earliest possible opportunity.
Senator Oliver: Did you talk to the counsel from Industry Canada before coming here today and giving your presentation? By "counsel" I mean "lawyer."
Mr. von Finckenstein: I am a lawyer myself, so I am aware of the proper term. I do not know who you have in mind. I have a special legal section that advises me as Director of Investigation and Research, which is a separate section within Industry Canada. These counsel, of course, advise me on matters on a daily basis, including matters with respect to any submission that we make to the CRTC.
Senator Oliver: Did you have discussions about the evidence other witnesses gave before this senate committee on Bill C-17 last week?
Mr. von Finckenstein: I have had briefings as to the concerns of the committee, which I have tried to address in my opening statement.
Senator Oliver: What is there in Bill C-17 that will permit the CRTC to overcome the three problems that you say the Competition Bureau would have: problems of evidence of abuse, remedy, and time?
Mr. von Finckenstein: In terms of remedy, they clearly have the power to suspend the licence or revoke the licence and, therefore, the provider could not do business in Canada. You have to be licensed.
As to the evidence they will be dealing with, I presume it will be with regard to a complaint being brought before them by the person suffering from the abuse. They will then hold a hearing. They will, obviously, hear these allegations, let us say against country "M," the monopoly provider from country "M." They will ask the monopoly provider from country "M" to take issue with them or rebut them. I do not have that ability. I cannot start a hearing on that basis. Monopoly provider "M" or its affiliate will appear, because, if they do not appear, they run the risk of losing their licence.
In terms of timeliness, the CRTC will structure the proceedings in the way that they see fit, obviously, trying to ensure due process but also realizing that time is money, that they have the ability to control their own schedule. I am driven by the schedule of the courts and the cases before them. I have to get the evidence, which will take a long time, and then I am subject to the vagaries of the court schedule.
To answer your three questions, that is why I think the CRTC will be in a much better position to quickly and efficiently deal with these issues, should they arise. The mere fact that the licensing is there may be sufficient to prevent anybody from even engaging in such behaviour.
Senator Poulin: Thank you, Mr. von Finckenstein and Mr. Lancop, for your excellent presentation. Did you have the opportunity to read Mr. Colville's presentation last week? Mr. Colville is a commissioner of the CRTC.
Mr. von Finckenstein: No, unfortunately, I did not. I understand that he mentioned to you that he would engage in a light-handed licensing regime. To that extent, then it is to be hoped that our submission will fall on very fertile ground.
Senator Poulin: That is what I was led to understand also by their presentation. I think that your presentation and your submission to the CRTC will be very welcome.
Senator Forrestall: They needed time to collaborate, and they did.
Senator Oliver: There is no question about that.
Senator Bryden: Is there any relationship between the CRTC and your bureau? If you are making an appeal, do you appeal under some special provision?
Mr. von Finckenstein: The Competition Act provides that the director may intervene in any court proceedings or any federal tribunal proceedings in order to advance competition policy issues. I can intervene before any proceedings before the CRTC and give my viewpoint on any competition issues that may be involved in such hearings.
Clearly, in this case, where they have a hearing regarding the licensing of international telecommunications, it has a considerable competition aspects, so I use that right. I have given them notice that I will intervene and I will file a submission with them suggesting how they should implement this licensing regime.
Senator Bryden: That is not binding on them.
Mr. von Finckenstein: It is just a submission. However, generally, in the past at least, the CRTC and other bodies have looked with great interest at our submissions. They find them helpful because we do not represent a single party. We have no objective other than to further the competitive system, and so our submissions are usually given a good deal of attention.
Senator Forrestall: If nothing else, it highlights the need for the Competition Bureau in most of these areas for you people to take over. It is time that the CRTC went somewhere else, found some other useful work for those intelligent people to do and let the tribunal get on with the ordering of the process that is now in front of us.
Other than joining with others in welcoming your comments, I have no questions.
Mr. von Finckenstein: Thank you.
The Chairman: Do you wish to add anything else, Mr. von Finckenstein?
Mr. von Finckenstein: No, thank you, Madam Chairman.
The Chairman: Thank you very much for your presentation.
[Translation]
The Chairman: Resuming consideration of Bill C-17, the committee would now like to welcome the minister.
[English]
We are quite pleased to have you with us
[Translation]
Mr. John Manley, Minister of Industry: Thank you, Madame Chairman. I would like to first thank you for providing me with the opportunity to appear before this committee in support of Bill C-17, An Act to Amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act. I know that the committee has a busy schedule this session so I wanted to thank you for having afforded this Bill the priority that you have.
I understand that the committee has heard from a number of witnesses and has had the opportunity to explore its provisions in considerable depth. For my part, I would like to focus on the context of this legislation and why it is both important and timely.
[English]
The government's agenda as outlined in the Speech from the Throne sets out the course that it intends to take to ensure that Canada succeeds in a global, knowledge-based economy in the 2lst century.
One of the first priorities has been to make Canada the most connected nation in the world, making sure that all Canadians can have access to the electronic highway and the information economy by the year 2000. To that end, one of our principles is to encourage competition, innovation and growth by liberalizing the market.
That liberalization began more than 10 years ago with the licensing of competitive cellular telephone service and moved forward with the privatization of Teleglobe and Telesat, the introduction of competition in long-distance telephone service and then the passage of the Telecommunications Act in 1993.
In the last two years, we have licensed suppliers of new services, including personal communications services and local multi-point communication services. We have also been pursuing the liberalization agenda at the international level.
The bill before you today paves the way to implementing the recent agreement to extend the GATS, the General Agreement on Trade and Services, to cover basic telecommunications services. Sixty-nine countries accounting for more than 90 per cent of the world's $880-billion telecommunications market are part of this agreement under the auspices of the World Trade Organization.
As a result of the agreement, our telecommunications companies will have more secure access to major foreign markets such as the United States, the European Union and Japan, as well as the developing markets of Asia and Latin America.
Under the agreement, we will be making a few changes that will bring, as well, benefits to Canadians. First of all, we will enable Canadians to take full advantage of all the new and proposed mobile satellite services, regardless of the ownership of the satellites. We will end Telesat's monopoly on fixed satellite services. We will also end Teleglobe Canada's monopoly on overseas cables and earth stations. We will authorize foreign carriers to have full ownership of international submarine cables landing in Canada. We will, however, maintain our general foreign investment regulations to ensure that our national networks remain in the hands of Canadian interests.
The bill you are considering today will also strengthen our ability to keep pace with a rapidly changing telecommunications environment. The CRTC will have the power to introduce a licensing regime to ensure that all providers of international services play by the same rules.
The CRTC is holding public hearings on the issue of international services, including licensing. The bill needs to be passed so that the CRTC can complete this process and introduce the new rules by October 1, 1998. The bill also amends the Teleglobe Canada Reorganization and Divestiture Act, to repeal the special ownership and other provisions related to ending Teleglobe's monopoly. As a result, Teleglobe will be governed by the same ownership rules as all other Canadian carriers.
The benefits flowing from the GATS agreement are significant. We anticipate that Canadian businesses and consumers will gain access to a wide variety of world-class telecommunication services at competitive prices. Canadian telecom service providers will be able to penetrate new markets, and Canadian telecom manufacturers will find a new demand for their state-of-the-art products as telecom operators around the world prepare for increased levels of competition.
Open competition in the telecommunications services sector represents an important component of the Canadian strategy to develop the information-based economy. We know that the best, as well as the fastest, way to build an information-based economy is to unshackle the competitive and innovative energies that exist in the private sector in Canada already.
I know that quite a number of witnesses have already appeared before you. I have had some indication of the comments that they had made to you. It has been indicated to me that the private sector, and I have met with many of them, are all in favour of proceeding with the legislation.
While some witnesses, I gather, suggested minor modifications, the majority are urging speedy passage of the bill in its current form.
[Translation]
Madam Chairman, I would like to adopt the majority view in this case by requesting the committee proceed expeditiously with the bill as proposed.
Again, I want to thank the Senate committee for its full and thoughtful consideration of all the possible impacts of the bill on Canadian consumers and on the telecommunications service providers that constitute the industry, and for giving me the opportunity to speak to you. If you have any questions, I would be pleased to respond.
[English]
Senator Rompkey: I want to welcome the minister. I was interested in his comments on this bill. He said in the course of those comments that we should be concerned about the context, or we should be aware of the context, and that it was his objective to make Canada the most connected country in the world and to encourage competition.
I want him to cast his mind ahead somewhat, to go beyond the present circumstances. We have gone part of the way in terms of liberalization and we have gone part of the way in terms of bringing certain countries into the WTO. I want to ask him specifically about China in the future. When does he think that China might be brought into this particular regime? I want him to cast his mind ahead of where we are now, to see where we are going in terms of liberalization and in terms of bringing even more countries into the context that he talked about.
Mr. Manley: That is a good question. In the People's Republic of China, for example, in a given year, currently, the installation of new telephone lines is equivalent to the entire installed base that exists in Canada. Every year, basically, they are building our entire phone system.
That presents an enormous opportunity to Canadian firms. Nortel is there in China and manufactures in China, as well as supplying from other sources. Newbridge is a presence there, and other Canadian telecom firms do likewise.
China, together with other developing countries, presents a great opportunity. Frankly, Senator Rompkey, if you think of the fact that half of the world's population has not yet made a telephone call, the potential expansion of the market for telecommunications products and services is enormous.
As far as the WTO is concerned, of course, the Chinese would like very much to become part of the World Trade Organization. Undoubtedly, over time they will do so. In the meantime, they have introduced a competitive environment in China. There is both a state-owned telephone system and an independent telephone system, which provides, at a somewhat rudimentary level, a competitive framework. I expect that you will see increasingly, as you are in the context of this agreement, that that will be the formula that most countries will adopt as the means of delivering as rapidly as possible, at the lowest price possible, telephone services to their people.
Senator Rompkey: Do we have a strategy for encouraging that, for encouraging the Chinese to come into this system?
Mr. Manley: Certainly, on a bilateral level there are many contacts between Canada and China that touch on the telecom sector. We provide assistance to both companies that are involved there, but also, government to government, we have provided advice and counsel on our system, our regulatory procedures, and how we have gone about structuring our market as it develops.
The challenges are quite different. The challenge in many less developed countries, China being an example, is delivering a basic service, which is quite different.
In Canada, every household that wants a telephone has one, which means we have a 99-per-cent penetration rate. It is quite a different situation in countries like China, where there may not be a telephone in the village, let alone in every household. Their current challenges are quite different from the ones that we face, but those are consistent with an industrial and trade strategy that we pursue that would see the encouragement of Canadian participation in the development of that market.
Senator Bryden: Mr. Minister, I wish to follow up on one of the things that you just said in answer to Senator Rompkey, namely, that half of the people in the world have not made a telephone call. Basically, that means there is a huge amount of opportunity out there. I think everybody recognizes that.
Mr. Manley: I think the other half have left a message for me, but I am not sure.
Senator Bryden: What that made me think of was something I read this week in our local newspaper in Bayfield, New Brunswick. It was a warning. Apparently people have been receiving phone calls in which the person identifies himself as representing one of the phone companies -- I think it is AT&T. That person says he is checking the service provision the company is providing and, in order to be able to check it out, he asks you to please press the numbers 9, * and #. I think I have that right. Most people being asked to do that, in fact, do it. However, if you do that, apparently it immediately transfers all of the caller's long-distance calls to your phone number.
A good number of the calls originate, strangely enough, in prisons or places of incarceration. It does not surprise me at all that that could be possible within Canada, within our system, but whether it is true or not, I do not know. I do know it is true that I read it in the paper.
My point is this: If somebody has figured out a way of transferring long-distance calls from a pay phone, for example, so that he does not have to use his credit card or otherwise pay for the calls, we should, in our domestic area, be able to deal with that. After all, we have been able, somehow, to handle the sex calls and pornographic calls, and so on, within North America. However, is there any way to control it internationally? What happens if the call, with that approach, originates outside Canada?
Members of this committee have heard me say this before how reassuring it is, when you are outside the country, to hit the correct six digits and hear the voice come on and say: "Welcome to Canada. For service in English, dial 1. For service in French, dial 2."
If the call comes from Zaire or Belgium, say, how would that be stopped? Is there an international agency that controls this? Is there some mechanism? These calls are now going through privately funded or privately owned marine cables. Is there any CRTC-like body internationally to whom a consumer would complain and say, "I am getting all these calls charged to my phone and they are all originating in Zaire," or wherever?
Mr. Manley: I have never heard that complaint before, Senator Bryden, which is not to say that it has not happened. Fundamentally, a telephone customer has a contract with the service provider, whether it is one of the Stentor companies or one of the competitors for long distance service, and, certainly, in the local market customers could be receiving service from a competitor as well. They are not responsible for calls that are not properly charged to their account. They are entirely within their rights to decline payment.
Where the CRTC has intervened has been in cases where there have been complaints about the behaviour of licensed operators. For example, in a competitive telephone market, as we have, sometimes there are complaints about the long-distance service providers switching people or pestering them, or various other things, and the CRTC does follow up on those complaints.
Fundamentally, I think it is the same as if somebody gets hold of your credit card number and charges things to your account. Your contract does not require you to pay for things that you have not bought, nor are you required to pay for somebody else's phone calls.
Senator Bryden: Maybe it is not so anymore, but it used to be the case that, if you did not pay your phone bill, they shut your phone off. They do not stop me from buying things because somebody has charged something on my credit card. My recourse in that instance is to do one of two things, presumably. I can go to the courts, get my phone reconnected or go, hopefully, to the CRTC and say: Look, I am being mistreated here by my service provider.
My question is, if that situation occurs under the international scenario that is developing, is there any body to whom one would appeal, other than his own domestic regulator?
Mr. Manley: We are operating in a hypothetical world here, but your relationship still is domestic. It is still your telephone service providers that you contract with in New Brunswick that you have the right to complain to, and they are still supervised by the CRTC. Despite the fact that through some technologically peculiar fashion an international charge has been assigned to your account, you can still resist payment on the basis that this was not properly charged to you.
You are right that there might be some dispute resolution issues that compound that, but, clearly, if this were a continuing problem, then whoever the cost ultimately falls on -- presumably, in this case your telephone company -- would want to determine how to stop this particular practice from happening in the future.
There is not an international CRTC-like body, but the situation you have described is one that seems to be technologically based and, presumably, there is a technical solution to it.
Senator Bryden: I have a question that relates to the one hundred per cent ownership of the submarine cables. Why is it that one hundred per cent foreign ownership of submarine cables would be allowed, but not of a whole array of other stuff? My concern, which once again is hypothetical, is that I assume there is no restriction on the number of submarine cables coming into Canada that one owner could own.
Mr. Manley: No.
Senator Bryden: One owner or one provider of submarine cables, in fact, either directly or because of mergers and acquisition, could end up owning and controlling all of the submarine cables coming into and going out of Canada. If that is the case, are we not at risk? Does that not make us vulnerable to that provider, if he wishes to shut us off? Maybe it does not, but can you tell me.
Mr. Manley: First of all, if you had a complete concentration of ownership, your first worry would not be about being shut off; it would be about cost. As we go to an increasingly competitive environment for international calls, you will have other routing mechanisms; in other words, international calls, transatlantic calls, do not need to go through undersea cables that land in Canada. If there were behaviours as you described, they could take some of the other routes that already exist. There are cables that land directly in the United States.
Senator Bryden: The concern that I have is that we are rushing madly into globalization in the belief that anything that makes us any more globally connected is great. I do have a concern that we may get this and then wonder what have we done. Is it open to international abuse to direct consumers? If so, what do you do about it? You are not expected to be an expert in this area, but you have done what you can to answer that.
We may truly believe that opening things up to the private sector will increase competition and lead to better prices, but that is what we thought would happen with the banks, too, and now we have two big banks that are going to be merging, and there is no reason to assume that it will stop there either; we may end up with five banks or we may end up with one huge bank.
My concern is that the other side of the issue must also be addressed.
Mr. Manley: I will not enter into the bank debate, but I think that our experience in the telecommunications market is that we have seen prices fall. I was a student in Europe in 1971. In the whole year I was there, I made only two phone calls home, because it was expensive and you thought about it before you made a transatlantic phone call. Now just consider the difference in price. Transatlantic calls now cost what it used to cost to make long distance calls domestically. In every area where a competitive market has been created, we have seen prices fall. That is partly because of competition, but it is also partly because of technology.
You see the same phenomenon in the entire telecommunications sector, where computing power is increasing exponentially and the cost is declining. That is directly a contributor to the declining cost in telecommunications. We are moving into quite a different situation here, where, as some of the commentators have described, we are really experiencing the death of distance. Distance between points is no longer going to be a cost factor in communications.
The difference becomes one of quality; in order to be successful in the business, you are going to need to find ways to add value to the service you are providing. That is where I am intent on seeing Canadian firms leading the way to establishing the best kinds of services at the best price and adding the value that is going to be necessary to be successful in this expanding market.
Senator Bryden: I agree with all of what you are saying with respect to how it is happening right now. I come from a very small place and I have gone through the experience of seeing our costs of things like groceries and those sorts of things go down dramatically as far more efficient and larger providers came into the community. Indeed, they went down so dramatically that they put the local grocers out of business. We also had the experience that, once the local grocers were out of business, prices no longer went down. As a matter of fact, they started to go up.
I am concerned that no one seems to be looking at the possibility that, if you put global communications and global connectivity together with the globalization of the conglomerates, then with the mergers that may take place, and so on, some large organization may get principal control of almost everything -- not necessarily just of this one area, but of any of these areas -- and will be able to hold a host of countries to ransom to pay whatever their rate is because the competition has been removed or absorbed.
Mr. Manley: In economic terms, you describe the emergence of a monopoly, and in virtually all of the developed countries, there are various sorts of agencies that have the jurisdiction to deal with concentration of economic power by a monopoly. At this point in time, what we are seeing is increased numbers of competitors rather than a decrease in the number of competitors. You are seeing new players emerging at a rapid rate, and on a large scale. There are companies like Worldcom that you and I had not heard of two years ago. Suddenly, they own one of the largest telecom companies in the world.
The same is true in information technologies: the field is developing so rapidly that you are getting new players created and new alliances forming to create new competitive tensions rather than, at this point at least, a tendency to concentration. There is every reason to believe that that will continue, because, in fact, as I was saying earlier, the challenge in the business is going to be to add value.
In the past, telephone companies made their money, really, out of rent, out of their basic infrastructure. Once you put the lines in and connected everybody, then the phone bills just kept getting paid every month. Rates were regulated and you were a regulated monopoly and you could not lose.
With the decline in cost of connectivity, with the cost of fibre just dropping, you are not going to be able to make a lot of money out of your infrastructure. You are going to have to make it out of providing value added, providing services. That is a much easier market to get entry to than when you actually had to figure out a way to lay cable to everybody's house. That is a constant. The cable is there, and it will continue to get upgraded and there are ways they will get compensated for doing it.
Anybody can come up with a new approach as to how you deliver services or how you add value to services. We are seeing it in Canada. We are seeing cable companies that are coming into the market with new concepts of how to deliver not only their traditional services but basic telephony. You have telephone companies having test markets for delivery of cable, essentially what was cable services, and you have computing power linked into it. This is what convergence is all about. There are new software companies coming up with new applications.
All of this suggests to me that the market is going to diversify rather than concentrate, because no one big organization is going to be smart enough to think of all the new applications. In fact, the bigger they get, in some ways, the slower they become and the more difficult it is for them to innovate.
Senator Bryden: Already we have Senate hearings in the United States with Bill Gates and Microsoft, because, in that very innovative area, Microsoft is being accused of monopolizing or of unfair competition within the United States. There probably is no more innovative area than the area that they are working within.
My only point is that while we are at the infancy stage of this tremendous mushrooming effect, if indeed there is a maturity which develops in this industry as obviously is now happening with Microsoft and Mr. Gates, where is the Senate committee that takes that conglomerate to task internationally? There is not one, as I understand it.
You have the World Trade Organization, or whatever it is here, but they do not have such a tribunal, do they?
Mr. Manley: The international enforcement of competition law is something that is really an early stage of development, and, in fact, it would be an interesting question for this or another senate committee to take on, whether they wanted to have a parallel set of hearings, and what you would do for enforcement, if you did conclude that there was a problem with Microsoft domination, for example.
I cannot offer you an opinion on that particular company except to say that, once again, we are talking about a company that did not exist 20 years ago. It was founded by a 19-year-old university drop-out. This is not exactly a big barrier to entry. Now, is he a global monopolist? Who is to say there is not a smart 19-year-old at the University of Waterloo who is going to come up with something that is going to knock him off his stage?
This is an area in which change happens exceedingly rapidly, and I think it is right to worry in the context of interfering with technology, where you have a concentration of a platform, in this case supplied by Microsoft, that has become so transcendent that it provides a means of cross-selling other products. At the same time, like the telephone wires and cables, if it becomes common property, then anybody can build off that platform.
I think that you raise an important point in terms of who the competition watchdog is for the planet. I certainly agree with you that that is an area where there needs to be more concern. I can tell you that we have a variety of agreements, particularly between our Competition Bureau and the U.S. authorities that do parallel work, by means of which we can have exchanges of information and common prosecutions. In other words, we are able to prosecute where part of the offence is committed in the other jurisdiction. That is the kind of building block upon which this kind of problem needs to be resolved.
Senator Forrestall: My observation on that is simply that it all goes to suggest that now is the time to do away with the CRTC and upgrade the Competition Bureau as the way to proceed. How long has this problem been around? Is it six years? This is 1998. Since the early 1990s this problem has been manifesting itself in a variety of ways, but we have not been able to solve it. How are you going to solve that problem?
Mr. Manley: Which problem are you referring to?
Senator Forrestall: What you are trying to do with these amendments.
Mr. Manley: Essentially, we are implementing some of the commitments that we made in the WTO round of negotiations that led to the telecommunications agreement.
Senator Forrestall: Was there not a quicker way to do this?
Mr. Manley: If you mean abolishing the CRTC as a quicker way to do it, I do not think so.
Senator Forrestall: I do not mean abolishing it in that sense at all. I mean getting rid of it. Eventually, that is where you go. It is too slow. It is plodding along a country lane. It moves like molasses in January.
Passing an act to amend the Telecommunications Act to deal with certain commitments that Canada knew it was going to make -- and knew about six years ago, if my memory serves me correctly -- is a little slow. That is my only point. Is there not a way to speed it up? Does industry deserve to wait four, five or six years for an answer? Does government, just in contemplation of something happening, have the right to start in to do things, probably putting another bill in front of us, without parliamentary or legislative authority? That is not the way to go either. Why do we not simply have a Competition Bureau that handles these things?
Mr. Manley: I think there are different roles for the regulator and for the Competition Bureau. Remember that the introduction of competition in the long-distance market, in fact, was a decision of the regulator. It was accepted by government in the sense that an appeal could have been contemplated by government, but the decision in 1992 that led to the introduction of competition in long distance was a CRTC decision.
I have held this portfolio since 1993. We have pursued the goal of increasing liberalization and introducing competition throughout that time, introducing competition into a market in which there has been a regulated monopoly, and that has been the experience in every jurisdiction it was done in. It requires a certain amount of care. If you simply say, "All right, we are going to open all the cages today and let out all the lions in the zoo," they will eat everything else.
If your objective is competition, then you have to set the rules, especially in a market in which there is as much inertia as there would be in the telecommunications market; you have to set the rules so that you can in fact allow competition to evolve. Eventually, you reduce the restrictions and you gradually let the normal market-place rules prevail.
I think we are part way through that process where we sit right now; we are not fully there. I think the telephone competitors would agree with that; they would not want the elimination of all the regulatory environment, because they feel that the telephone companies would be able to take advantage of such a situation.
We are working our way in the direction that we want to go.
Senator Oliver: Mr. Minister, I have a question. It is not my question; it was one that was prepared for the committee, but it is one that I would frankly like to have your comments on, if you do not mind. I will read the question as prepared.
The bill gives the CRTC the authority to require contributions by telecommunication service providers to a fund that would subsidize local phone service in a competitive market. In the United States a "universal service fund" is also being established in order 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 differences? Most important of all, what is your plan in that area?
That is what I would like to know.
Mr. Manley: We have provided in the bill for an agency to supervise some of the contribution arrangements and so, in that sense, yes, there is a parallel. There has been a concern from the beginning that, as you know, the overall operation of the system has a number of cross-subsidies built into it that have been hidden over time. As we move to a competitive environment, the cross-subsidization begins to be eliminated because in a competitive environment you need to achieve the best rates that you can; therefore, hidden subsidies are inefficient.
That raises a different concern. The concern is: How do we ensure that we have affordability of basic service?
Senator Oliver: This is for people in rural areas.
Mr. Manley: It is for people in rural, remote areas, or even those who have limited incomes in large metropolitan areas. That is what this is attempting to get at.
The CRTC is conducting extensive hearings into this issue as well. A concern that we have had, as the rate rebalancing process has continued, has been to ensure that measures were taken. How it will parallel the U.S. remains to be seen, and depends on the conclusions that the CRTC draws out of its process.
Senator Oliver: Earlier, you were giving a comparison between the penetration rates in China and Canada. Given the doctrine of universality, what views, if any, have you given in relation to this fund, and what would you like to see? Can you tell us where your department is going?
Mr. Manley: This is not just for basic telephony. One of the recommendations of the Information Highway Advisory Council was to continue to ensure universally accessible service. That begs a number of questions, of course: What service, what level of service, and at what price? I hope we will get some wisdom from the CRTC hearings in answering those questions.
One indicator may be to benchmark our costs or our pricing against those available in other countries, particularly the U.S. Again, you have to make special allowance for the fact that some of our communities are very remote and the costs of servicing them may be higher, at least at the initial stage, until you have the equipment and installations in place.
The objective is to continue to ensure that every Canadian has access to a reasonably affordable service.
Senator De Bane: Mr. Minister, you explained that the main thrust of this bill is competitiveness, that it works for the benefit of both the industry and the consumers. You have given some explanation about licensing, but do you not think that, at the end of the day, licensing leads to exactly the opposite effect of creating an atmosphere of competitiveness?
If it is true that competition means that, every day, thousands of companies die and thousands of companies are born, then if we say to an industry, "Well, your competitor will have to be licensed first before facing its competition," do you not think that to a certain extent we are maintaining a regulated oligopoly of different players? Are there other means to achieve what you want to achieve?
For instance, in the European Union, as you know, instead of establishing common criteria, they say, if a company is licensed in its own national market, automatically, it can do business in the other European member countries. There is also, of course, the matter of market forces, and having confidence in the judgment of the consumer. That is my first question.
The second one is this: In the first version of the bill, all telecommunications providers had to be licensed. Now only the international ones have to be. Is there not another way of maintaining some protectionist measures here? Would other countries not use that model also to protect their own market by having different systems for domestic and international?
Mr. Manley: I would say those are very related questions. Licensing could be a barrier to competition, but it need not be. We at various levels of government exercise licensing powers in a wide range of business activities. Particularly, in this case, we have limited that. As you say, it was in fact intended to be a means of addressing the international servicing, and it was pointed out in the House of Commons that this was actually adding a requirement where one did not exist before.
What we are trying to do is open our market to international service providers, with the condition of a licence. That could be used as a barrier. It is not our intention to use it as a barrier. In fact, the intention is to have common licensing provisions for all entrants.
Based on what our view is, as well as what the CRTC has said in parliamentary committee, my expectation is that it will be a light form. "Light-handed regulation," I guess, is the expression they used. In other words, we want to be able to enforce some conditions. We want to be able to enforce the market in the appropriate way, but, at the same time, to encourage the competitive environment.
I do not think it will be a barrier, and there is no expectation that different provisions would be applied to foreign as opposed to domestic service providers.
[Translation]
Senator Poulin: Mr. Minister, I would like to begin by thanking you, because we understand that this legislation, which amends two important acts, is highly technical and complex. In terms of professionalism and availability, your staff has truly been amazing. Some committee members requested special briefings and Senator Oliver and I attended one such session where members of your staff were able to enlighten us.
Having said this, you probably already know that the standing committee has a subcommittee on communications. For the past year, we have been examining the whole issue of communications and looking at what Canada must do to remain on the cutting-edge of communications, technology, human resources, culture and trade in the year 2000.
During the course of these discussions on Bill C-17 and in the subcommittee proceedings, we have been hearing that industry people greatly appreciate the fact that Canadian companies are recognized internationally and that consumers have access to a top-notch, affordable service. How will Bill C-17 ensure that a balance is maintained between facilitating international trade and protecting the quality/price ratio for consumers?
Mr. Manley: Thank you for your comments about the officials in my office who truly work with missionary zeal. The idea of making Canada the most connected nation in the world comes from a group of officials participating in a mission project. Our officials are elected to senior ITU positions. I have seen how they relate to people from around the world who come here not only to examine our policies, but also to look at our regulatory system and pick our brains. As I mentioned, one of the priorities that we have set for ourselves is to have Canadian schools plugged in in 1998. President Clinton has set the year 2000 as the target date for his nation. Prime Minister Blair announced a similar project with the year 2002 as his country's target date. I give a great deal of credit to officials who are truly dedicated to these projects.
[English]
I should like to comment on the question of the international access for Canadian industry that comes from the WTO agreement that we are committed to. This is a very important aspect of our overall strategy. The agreement has opened to us increased markets, but, more important, it has created an international agreement framework with dispute resolution built in that ensures that the openness of markets that it is committed to continues.
[Translation]
This is very important to Canada. Speaking of industrial strategy, 25 per cent of our industrial research and development is carried out by a single company, Nortel. This firm hires approximately 25 per cent of our Canadian engineers, who are often new graduates. Nortel is a very large company. Other Canadian-based companies such as Newbridge, which did not exist a decade ago, are also breaking on to the scene. Overall, these companies employ approximately 4,000 people. The international firm of Ericson which did not operate in Canada before 1984 now has 1,500 engineers based in Montreal. The company carries out research in a number of areas. Therefore, it is important for us to have legislation which gives us access to the global market. Nortel is a major company and a significant percentage of its production is sold worldwide. Basically, it is an export firm.
The best way for Canada to ensure that it has the best products at the best possible price is to face competition here at home. Nortel is a very good company, but it needs to be pushed by other companies. Telephone companies have served us very well for almost 100 years, but there is still room for improvement. Competition not only ensures that Canadians receive the best possible service, but it also ensures that our companies will have access to the global market, and this is truly important in terms of jobs in Canada.
The Chairman: Thank you, Mr. Minister, for coming here to meet with us.
[English]
The Chairman: Are there other questions, senators? Thank you.
Mr. Manley: Merci, madame.
The Chairman: Thank you very much.
Now that we have listened to groups and individuals on Bill C-17, would you agree, senators, that the committee move to clause-by-clause consideration of Bill C-17, or do you need time to think about it?
Hon. Senators: Agreed.
The Chairman: Shall clauses 1 to 5 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clauses 6 to 10 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clauses 11 to 24 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the preamble carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried. Is it agreed that I report this bill to the Senate?
Hon. Senators: Agreed.
The Chairman: Thank you very much.
The committee adjourned.