Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 21 - Evidence
OTTAWA, Wednesday, September 20, 2000
The Standing Senate Committee on Transport and Communications, to which was referred Bill S-26, to repeal An Act to incorporate the Western Canada Telephone Company, met this day at 5:30 p.m. to give consideration to the bill.
Senator Lise Bacon (Chairman) in the Chair.
The Chairman: Honourable senators, on our agenda is Bill S-26, and our witnesses today are from Industry Canada.
Please proceed, Mr. Helm.
Mr. Michael Helm, Director General, Telecommunications Policy Branch, Department of Industry: Honourable senators, this is a fairly simple bill. Its purpose, of course, is to repeal the act to incorporate the Western Canada Telephone Company, more commonly known as BC Tel. We think this bill is essentially housekeeping in the sense that it raises no contentious policy issues, but it is nevertheless quite important for us.
The act was passed in 1916 in an era when telecommunications was rather different. There were regional monopolies. There was no competition among companies. Of course, all that has changed.
The company to which the bill applied also has changed and has gone through several evolutions. Thus, we have reached a stage where the BC Tel Act is now actually an impediment to attaining the telecom policy objectives that Parliament has put forward in the Telecommunications Act. It inhibits the operations of the company in several ways, requiring certain regulatory approvals that are not required by other companies. It requires the company to get provincial cabinet consent if it wants to build or maintain facilities in Alberta, Saskatchewan, Manitoba or, for municipal concerns, in Prince Rupert. All of these factors, of course, are inhibitors to the company expanding, growing and competing, which is, of course, government policy now that they should do.
We have spoken to each of the provinces, other companies and the CRTC as to whether they have any concerns with the repeal of this act. They have each assured us in writing that indeed they have no problem and that they are quite comfortable with it. We do not see any contentious issues here, but it is important that this rather old act be removed from the books. That is the point of this bill.
We would be happy to respond to any questions senators may have.
The Chairman: To what extent would Bill S-26 change the operations of telecommunications and affect competition, especially in Alberta, Saskatchewan and Manitoba?
Mr. Helm: Basically, the bill enables. It smooths the way for TELUS, which is what BC Tel has evolved into, to expand into these other provinces, to build facilities, maintain them and operate them. Removal of the existing BC Tel Act enables that to happen. That is the kind of operation foreseen in the present Telecommunications Act.
This bill should enhance competition. It should bring the benefits of competition -- lower prices, broader range of services, and so on -- throughout these provinces.
Senator Forrestall: Would it be possible, Madam Chair, to have tabled copies of the correspondence with the provinces indicating their consent?
I would ask a supplementary to the question posed by the chair. Does this bill have any implications for telephone services in Atlantic Canada?
Mr. Helm: As to your first comment, of course we would be happy to file the correspondence. As to an impact on Atlantic Canada, I do not think there will be any.
Senator Forrestall: I notice you did not bother to tell us about the value of your shares.
Mr. Helm: I see no impediments to the company's operations in Atlantic Canada now, so I do no think this bill will affect them one way or another.
Senator Forrestall: I am awfully tempted to get into questions that I should not.
I have followed in the media the events leading up to this bill. I share the view that it is a housekeeping bill and that you require these changes. Thus, I have no concern. I just wish you well in order that you grow and prosper along with Western Canada and the rest of the country. The fewer the impediments standing in the way of expansion, growth and enhanced competitive positions, the better it is for the country.
We reviewed this bill in our caucus and are quite pleased to lend support to the measure.
Senator Callbeck: It seems that this legislation is very outdated and a hindrance to TELUS in many ways. You say that the CRTC agrees and the provinces agree. Do you know of anyone who objects, and, if so, why?
Mr. Helm: I am not aware of any objection. We have consulted quite broadly and no one has brought any objections at all to our attention.
Senator Finestone: Bill S-26 looks to be strictly a housekeeping procedure, but I would like to ask a few questions. Section 18 of the original act to incorporate the Western Canada Telephone Company gave them the right to own and to operate anything in the province of British Columbia and anything adjacent thereto and in any state of the union of the United States.
Could you tell me if there is ownership by Americans and what percentage of ownership there was before TELUS was formed? What are the Canadian ownership provisions and Canadian management rules and the percentage-of-ownership rules by non-Canadians?
Mr. Helm: Originally, BC Tel was an American-owned company. I believe it was owned by GTE. When the Telecommunications Act was passed with the Canadian ownership control requirements, you may recall that there was a stipulation, in essence, to freeze BC Tel within the province. That is to say, GTE was not required to divest. They said, "Okay, you can continue in business."
Senator Finestone: It was grandfathered.
Mr. Helm: Exactly, but only within its territory. The merger with TELUS subsequently changed the ownership structure. Perhaps my colleagues or the folks from TELUS could provide more detail as to the exact percentages. However, essentially, the company was brought into line with the Canadian ownership control provisions. It then qualified as a Canadian company and was no longer constrained to B.C. because of the ownership concerns.
Senator Finestone: Mr. Helm, when was the company brought into line with Canadian ownership? What percentage of American ownership is still in place? What are the buyout provisions with respect to the American ownership; or are there no buyout provisions? What is the management control on the board?
Ms Millie Nickason, Counsel, Legal Services, Policy Branch, Industry Canada: I am not sure, senator, if I have all the details of your questions.
Senator Finestone: Ms Nickason, you did not even know that GTE was an original owner. You did not know that there was a grandfathered clause. I am not surprised that you do not know, because you did not know at the beginning.
Ms Nickason: GTE is a shareholder.
Senator Finestone: The corporate entity was American; is that right?
Ms Nickason: That is right. GTE is still a shareholder in TELUS, in the holding company.
Senator Finestone: To what percentage, please?
Ms Nickason: It is approximately 26 per cent. I would like to give you some detail, if I could, because it is a fairly complicated corporate structure. It has undergone a number of fairly significant changes over the years. I am sure that the witnesses from TELUS can give you more information about their corporate structure. Certainly, if I get some of the details incorrect, they will correct me.
The Chairman: We will be hearing from Mr. Stewart Douglas, Vice-President of Legal Services at TELUS.
Senator Finestone: That is fine, Madam Chair. I believe that this is an important undertaking, and I am glad to see it move forward with certain provisions. There are rules in Canada about Canadian ownership. There are rules about Canadian management. Those rules did not apply to Bell Canada because it was grandfathered as a result of the GTE holdings. To my knowledge they have not been changed to this day.
If we are moving into a new era of TELUS, I want to know if there is any change in the management structure that would allow for the management rule of foreigners within TELUS. Is it different from the Canadian provisions, and do they hamper or enhance other corporate structures in the telecommunications field in Canada? That is the area of my interest prior to saying, "Yea, this is a great thing."
Mr. Helm: Clearly, senator, that is a fundamental concern.
Senator Finestone: However, it is not in any briefing material that we have received. There is no note that there was transfer or review of the ownership and the management structure.
Mr. Helm: I am sure we could provide some material in that regard. I am sure TELUS would be happy to do so as well.
The Chairman: Mr. Helm, we have a paper prepared by our research people. Do you have the briefing notes? Foreign ownership and telecommunications are dealt with on page 3. I think the answer is there. This material was sent to all members of the committee.
Senator Finestone: When did we receive this paper?
Senator Poulin: Last week.
Senator Finestone: I apologize.
The Chairman: You now have it in front of you.
Mr. Leonard St-Aubin, Senior Director, Business and Regulatory Analysis, Telecommunications Policy Branch, Industry Canada: It is worth noting, as you have done, that before the merger BC Tel was a grandfathered telephone company with a particular regime that applied to it. As Mr. Hem said, it was limited to operating within its existing territory. As a result of the merger, the grandfathering no longer applies. The general rules of Canadian ownership that apply to all telephone carriers under the Telecommunications Act of 1993 apply to BC Tel-TELUS and it must, as a result of the merger, meet those requirements. The company has said that it meets those requirements. Ultimately, it is up to the CRTC to make a determination on that, if the matter were ever brought before them.
I think the repeal of this legislation does not change that status in any way. As a result of the merger, the generally applied rules apply to TELUS. It is no longer grandfathered; it must meet the rules.
Senator Finestone: Does that include the management board as well as ownership?
Mr. St-Aubin: The regulations under the Telecommunications Act with respect to Canadian ownership now apply to TELUS, and it must meet those requirements.
Senator Finestone: I notice that the briefing paper tells me that. What about management? How many members of the board of directors are Canadian and how many are American?
Mr. St-Aubin: I do not know the details regarding this particular company.
The Chairman: Senator, you can ask that question of the next witness.
Mr. St-Aubin: The rules, as constituted and published under the Telecommunications Act, apply to the company. It must meet those rules. If you would like to inquire of the company representatives as to the composition of the current board, they would have those details.
Senator Adams: We used to have Bell Canada in the territories. We are now called Nunavut. Does BC Tel own part of Northwest Tel?
Mr. Helm: No.
Mr. St-Aubin: Northwest Tel is owned by BCE, Bell Canada Enterprises.
Senator Adams: If that is the case, then I have no questions to ask.
Mr. St-Aubin: To my knowledge, Northwest Tel is not part of the new company.
Senator Poulin: The committee is usually asked to study a new legislation or changes to existing legislation. It is not often asked to study a bill repealing an act. Could you please explain why it is necessary to repeal the existing legislation to allow the new company to play the business and public service role it would like to play to the fullest?
Mr. St-Aubin: The existing legislation has put restraints on BC Tel which would apply to the new company. The specific rules applying to BC Tel were appropriate when the company had vested rights in its old territory. Since the rules would apply to the new company, it would be limited to competing in Alberta, in Saskatchewan and in Manitoba.
Senator Poulin: Can you give me an example?
Mr. St-Aubin: If the old BC Tel company wanted to do business in Saskatchewan, in Alberta or in Manitoba, it would need Cabinet approval from the three Prairie provinces. It would be a bit absurd for TELUS, which already operates in Alberta, to have to obtain Cabinet approval from the province of Alberta to build facilities in that same province. That is a pernicious effect the existing legislation has. The act is out of date anyway.
Senator Poulin: Thank you. I understand the situation better now.
The Chairman: Thank you very much for appearing before us today.
Honourable senators, our next panel is from TELUS Communications. Please introduce your colleague for the record.
Mr. Stewart Douglas, Vice-President, Legal Services, TELUS Communications: With me today is Ralph Davis from our legal department in Burnaby.
I am pleased to be here this evening to talk to you about Bill S-26, to repeal An Act to incorporate the Western Canada Telephone Company. I would like to take this opportunity to thank Mr. Helm for the presentation he just gave and to thank he and his colleagues at Industry Canada for their understanding and willingness to bring this legislation forward.
TELUS Corporation is the largest telecommunications company in Western Canada and the second largest in the country. TELUS offers a full range of telecommunications products and services, such as local, long distance, wireless, data, Internet, and e-business solutions.
TELUS is the result of a merger in 1999 of BC Telecom Inc. of British Columbia and TELUS Corporation of Alberta. Each of the companies that merged to form TELUS have long histories in their respective provinces. The Alberta company, known as AGT, was originally controlled by the provincial government upon acquiring the assets of Bell Telephone in 1906. Today, the former AGT, now known as TELUS Communications Inc., and the former BC Tel, now known as TELUS Communications or B.C. Inc., remain as two separate companies both wholly owned by TELUS Corporation, which is the company formed by the 1999 merger of BC Telecom and TELUS.
The reason TELUS is seeking the repeal of the special act is to remove the specific provisions of the special act that still apply to the former BC Tel so that the company can proceed with its business plans under the same corporate and regulatory rules that apply to other companies in the Canadian telecommunications industry.
Two types of specific rules apply to the former BC Tel that do not apply to other Canadian telecommunications companies. TELUS is seeking the repeal of the special act because if TELUS were to amalgamate the operations of the former BC Tel and the former AGT, any company formed by the amalgamation would also be subject to these rules. In other words, the operations of the former AGT would become subject to these rules for the first time.
As I have indicated, there are two types of rules. First, there are rules that require the CRTC to approve certain corporate actions. Sections 8 and 9 and subsection 9(a) of the special act require CRTC approval in relation to certain dispositions or acquisitions or undertakings of shares or amalgamations of former companies on the part of the former BC Tel. It is important to note that the Canada Business Corporations Act contains provisions that address management and amalgamation issues for all companies subject to that act. The former BC Tel is subject to the Canada Business Corporations Act by virtue of its continuation under that act in 1993.
Moreover, honourable senators, the Competition Act provides for merger notification or review, where appropriate. The CRTC has been called upon regularly over the years to authorize certain aspects of corporate reorganization dealing with the former BC Tel and has done so when requested. The amalgamation of the former BC Tel and the former AGT would require CRTC approval under the special act and the CRTC is aware that this is our intention. However, the requirements for regulatory approval simply add to the regulatory workload of the company and the commission. It is significant, in our view, that the CRTC advised Industry Canada that it does not object to the repeal of the special act. This indicates that the CRTC is satisfied that it does not need this regulatory power in order to carry out its duties. Once again, of course, this power is not one the CRTC has over any other Canadian telecommunications company.
The second type of role is one that restricts the geographic operations of the former BC Tel. Section 17 of the special act prevents the former BC Tel from constructing, operating or maintaining telephone lines, other than long-distance lines in the City of Prince Rupert, B.C., or in the provinces of Alberta, Saskatchewan and Manitoba, without the express consent of the municipality or the lieutenant-governors in council of the provinces in question.
To understand why these rules are present in the special act, it is important to note that at the time the special act was created the nation's telecommunications industry consisted primarily of monopoly service providers, including provincially owned companies being set up in the Prairie provinces. The purpose of this provision was to prevent BC Tel from entering the telecommunications market in the Prairie provinces without provincial approval so that those provinces could protect the government-owned companies from competition if they chose to do so. These provisions of the special act are today at odds with our open and competitive telecommunications industry.
The public policy justification for these territorial restrictions no longer exists and section 17 of the special act is contrary to the spirit and intent of Canadian telecommunications policy. Once again, it is important to recognize that the governments of the three Prairie provinces do not object to the repeal of the special act.
Based on what has been described, it is the view of TELUS that the legislation before you be approved and that the Western Canada Telephone Company Act be repealed because it places TELUS at a disadvantage relative to other Canadian telecom companies. There is no public policy or other reason for its continued existence. The two types of rules I have mentioned are no longer needed in today's competitive environment and stand as an impediment to the success of TELUS as a fully integrated, full-service national service provider. Necessary governance and regulatory provisions are addressed in other legislation, including the Canada Business Corporations Act, the Telecommunications Act and the Competition Act.
We are grateful for your consideration of this matter, honourable senators, and will be pleased to answer any questions you may have.
The Chairman: Do you think competition will work in the Canadian telecommunication world in an era of convergence?
Mr. Douglas: Yes, I believe it will, Madam Chair.
Convergence has been occurring over a period of years. There have been discussions of convergence of technologies and there have been discussions of convergence of businesses. I believe that the oversight of the regulator as required will ensure that there will be fair and open competition in Canada.
The Chairman: What are the real benefits your company will gain from Bill S-26?
Mr. Douglas: It will allow TELUS to organize itself internally to meet competition in Alberta and British Columbia and also to go forward and compete in other provinces in Canada, specifically Saskatchewan and Manitoba, without having the impediments that I have just described.
Senator Forrestall: I had asked for the tabling of communications with the various provinces. Have you had such consultation or communications and, if so, could you table any written responses or communications you have had?
What I am looking for is whether there was, between the lines or in the lines, any suggestion of concern from any of the other provinces.
Mr. Douglas: I believe those consultations were done through my colleagues at Industry Canada. I am not aware of any provincial concerns.
Senator Forrestall: A broader question that continues to arise is the degree of satisfaction that the communications industry has with proceeding within the rules of the CRTC as opposed to shifting to the Competition Bureau, which would have the facility of accelerating or speeding up, certainly, and of removing some of the long, drawn-out requirements that in today's world cost money.
Mr. Douglas: It takes a long time to achieve moving from a highly regulated industry, which the telecommunications industry was, to a fully competitive industry. Certain steps are required to be taken in order to get to that state. I believe that the CRTC has gone a long way in taking our industry from that highly regulated state to a much more competitive industry so that now we provide several services, such as long distance, that do not need regulation. The wireless business does not need regulation either, according to the CRTC. Those businesses are fully open and competitive, and we and other businesses are moving in that direction as well.
Senator Forrestall: Would it be of any advantage to you, your associates or other interested people to speed up this process to maybe two and one-half or three years?
Mr. Douglas: There are many different perspectives on that issue. Certain players in the industry may feel that it would be advisable to speed it up, but I think you will find other people in the industry who would not want to have that done. That would depend on their relative participation in the industry. I would say that the CRTC takes into consideration all of those perspectives when it goes forward with its deregulation of the telecommunications industry.
Senator Forrestall: You present an interesting point of view and you will be aware much more than I am that it runs contrary to current thinking where time is of the essence. How long have you been involved in this process? Would it have been to your advantage had you been able to do this in half the time?
I am wondering if the process as it exists impedes your capacity to grow and to venture out in the business sense. Ultimately, Canadians would have a better service, perhaps a more competitive service. Can you comment on that?
Mr. Douglas: What I would like to comment on, senator, is that the industry has gone a long way in a short period of time. I do believe that the industry is very competitive right now. I believe that TELUS and other telecommunications companies in Canada are allowed to grow and are, in fact, growing outside of their traditional operating territories. TELUS does have offices in Toronto and Ottawa to serve customers.
Senator Forrestall: Careful. You are becoming tainted.
Mr. Douglas: I would say that the industry has moved quite far in a short period of time.
Senator Forrestall: I congratulate you. You are doing superbly well, in my judgment.
Senator Callbeck: It seems that the reasons are obvious for repealing this legislation. You mentioned that the provinces had not expressed any concerns. I will ask you the same question I asked the other witnesses. Has anyone expressed any concern to you about this bill?
Mr. Douglas: Not that I am aware of. There has been no concern expressed to us.
Senator Finestone: You are doing so well, why should they be concerned?
Mr. Douglas: I do not believe Mr. Helm has heard concerns through consultations either.
Senator Finestone: What percentage of the management team is Canadian? How many sit on it and how many of those who sit are Canadian?
Mr. Douglas: There are 16 members on the board of directors. GTE has the ability to nominate four members to the board, and they have nominated three.
Senator Finestone: Three out of sixteen, therefore, are American. Are all the rest Canadian?
Mr. Douglas: I believe all the rest are Canadian.
Senator Finestone: Therefore, you have met the criteria and the responsibility that one undertakes as a Canadian operator in the Canadian field, the same as other telecommunications companies across Canada are required to do.
Mr. Douglas: The foreign ownership regulations under the Telecommunications Act apply to us as they do to all other telecommunications companies in Canada, and we have met those regulations.
Senator Finestone: That is good because there were both ownership and management issues. Did you have to buy out the GTE shares?
Mr. Douglas: Perhaps I could digress and give you some history.
Prior to the merger of B.C. Telecom and TELUS Corporation in 1999, GTE Corporation owned just over 50 per cent of B.C. Telecom. As a result of the merger of the two companies, GTE's ownership of the combined entity fell to approximately 26.6 per cent.
Senator Finestone: Therefore, no was no call for divestiture.
Mr. Douglas: That is correct.
Senator Finestone: Was there a purchase back of shares?
Mr. Douglas: There was no purchase back of the shares, and we are still subject to the same limit as all other telecommunications holding companies in Canada whereby foreign ownership is limited to 33.3 per cent.
Senator Finestone: You certainly made a big splash over the summer. I heard all about TELUS on a morning as well as an afternoon phone-in show. What was all the excitement about?
Mr. Douglas: That might have been when we announced that we were making a takeover bid for Clearnet Communications.
Senator Finestone: That was it. How is that going?
Mr. Douglas: The offering circulars are going out to the shareholders as we speak. We are hoping that they will submit their shares to our offer in order that we can accept the offer and go forward.
Senator Finestone: Good luck. It sounded very interesting. Is that subject to the CRTC review?
Mr. Douglas: It is subject to review by the Competition Tribunal, and to Industry Canada for certain spectrum licences.
The Chairman: Senators, is it agreed that the committee move to clause-by-clause consideration of Bill S-26?
Hon. Senators: Agreed.
The Chairman: Is it agreed that the title stand?
Hon. Senators: Agreed.
The Chairman: Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Shall clause 2 carry?
Hon. Senators: Agreed.
The Chairman: Shall clause 3 carry?
Hon. Senators: Agreed.
The Chairman: Shall clause 4 carry?
Hon. Senators: Agreed.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Shall the bill carry?
Senator Forrestall: I have one question. Has anyone checked whether the bill says the same thing in French as it does in English?
The Chairman: That was checked by our clerk.
Shall the bill carry?
Hon. Senators: Agreed.
The Chairman: Is it agreed that I report the bill, as adopted, to the Senate without amendment?
Hon. Senators: Agreed.
The committee adjourned.