Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 34 - Evidence
OTTAWA, Thursday, March 21, 2002
The Standing Senate Committee on Agriculture and Forestry met this day at 8:35 a.m. to examine international trade in agricultural and agri-food products, and short-term and long-term measures for the health of the agricultural and the agri-food industry in all regions of Canada.
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: Welcome to the committee. This morning we are to hear from representatives of Bell Canada and Saskatchewan Telephone. Our first witnesses, from Bell Canada, are Linda Gervais and Bernard Courtois. We welcome you here and we look forward to your presentation. Following that, we will hear from SaskTel and go to questions.
[Translation]
Mr. Bernard Courtois, Chief Strategy Officer, Bell Canada: Mr. Chairman, honorable senators, it is a great pleasure for us to be here this morning to participe in your committee's important work.
[English]
I will be taking you through a short presentation. Ms Gervais is our technologist here this morning. She will be handling the computer. I will start off by reminding you where Bell Canada is situated in the Bell Canada Enterprises, BCE, family of companies. I refer to this chart, which shows BCE, our parent company. As you can see, BCE has global connectivity with Teleglobe; it has e-commerce, which is North America's leading e-commerce company in BCE Emergis. It has content, Bell, and a variety of other enterprises and BCE Ventures.
Today we will be talking about what is under the Canadian connectivity — principally Bell Ontario and Bell Quebec. We have a number of other companies involved, including Aliant, which I believe has appeared before your committee, other telephone companies that operate in the more northern portions of our territory. I happen to be on the board of some of them, such as Telebec and Northern Telephone, so we can talk about that if you wish. However, we will focus mainly on Bell Ontario and Bell Quebec — commonly known as Bell Canada.
To start with a few quick facts: We have 45,000 employees in our Ontario and Quebec operating territory. We also have a growing employee base in Alberta and British Columbia as we enter those markets in competition with the incumbent Telus. We serve 942 telephone exchanges in Ontario and Quebec. We serve corporate and wireless customers in Alberta and B.C.
We have 11.8 million customer lines and 3.5 million mobile customers across the country. We are the largest mobile provider in the country. We are also the country's largest Internet service provider. We serve 1.1 million satellite television customers and have created significant competition for cable in the TV business.
Our revenues in 2001 were $17.3 billion, and you can see our taxes there. We are a significant contributor to the treasury. We also spent $4.6 billion in capital investment, which is a significant contribution to suppliers in the country.
Before we get into the challenges of serving rural Canada, I would like to touch base on the status of the telecom industry. As you know, the telecom industry has gone from being the darling of the stock market and investors to being a bit in the doghouse at the moment. What happened, frankly — and it is causing serious trouble around the world — is that companies that were large and strong now having the investment community question their ability to continue in their current state and to continue to invest. That comes from the fact that during the euphoric period there was much too much capacity. Too many people entered the market. Capital was free and we faced a serious overcapacity problem.
The financial markets expect the industry to have to work out that overcapacity problem before they are prepared to invest in it again. That overcapacity can only be resolved through underlying growth in traffic that will eventually soak up some of the capacity and consolidation. The financial community still expects a considerable added degree of consolidation in our industry worldwide.
The other problem is that many companies borrowed to acquire other companies at high prices or to acquire spectrum licences — particularly in Europe — at a high cost and other forms of investment. As a result, the industry also faces an unreasonable amount of debt compared with what it can sustain on an ongoing basis. Again, the operators of those companies are expected to address that situation.
Around the world, incumbent phone companies in, for example, Germany, Britain, France, Italy and even North America are facing serious challenges in working out these excessive amounts of debt in an environment where they are all facing this overcapacity. If you add to that the underlying shifts in our business that require a significant degree of investment in new technologies and a shift of revenues away from the traditional business, you can see why the investment community is a bit sceptical at this time.
The telecommunications business used to be mainly a voice business. The revenues used to come from long distance and local voice traffic. Those two businesses have entered a permanent state of decline. It is still a growth industry but the growth is shifting to mobile, to Internet and to data. Considerable investment is needed in all those areas to sustain and participate in that growth.
All of that is causing a rather interesting time in an industry that, however, is still expected to grow at more than double the growth in the economy. Therefore, it is an industry that should be healthy and should have positive prospects but which is currently undergoing a significant adjustment period and a challenge.
In these circumstances, investment in rural territory — particularly in such vast rural territory as Canada — is a particular challenge. When we opened up the markets to competition, we changed the basic economic premise of the industry, which was that there was a closed pool of funds that could be redistributed from business to residence, from urban to rural, from long distance to local, to help sustain the roll out of the infrastructure across this country.
When you introduce competition, you no longer control the entire pool of funds. The entrants do not participate in investment in the rural parts of the country and suddenly some of the investments have to stand on their own.
Bell Canada has a long-standing relationship with those customers, and we are very sensitive to the responsibilities that come with that. In response to these challenges, we have established investment programs, running two, three or four years, so that we could tackle the issue in a concerted fashion and put investment plans through the regulatory process for support as required that enabled us to continuously upgrade the service to our rural customs.
We are aware that telecommunications capability and telecommunications infrastructure can be more important in rural Canada than in urban Canada. It is obvious that if you are in downtown Toronto you have access to all kinds of things as well as economic activity without necessarily everything going through the telecommunications system. However, if you are in rural Canada, then up-to-date modern communications is essential if you are to plug into the broader economy and knowledge base.
I would like to provide some examples in our recent history to give you a sense of how we have dealt with this problem, where we are currently and what needs to be done.
We introduced a switching modernization program. One million customers benefited in expanding their local calling areas and gaining fully modernized digital switches. We spent $200 million on the switches and $26 million to enhance transport capacity for the additional traffic generated.
Between 1998 and 2001, we invested another $200 million to provide single-line service to all remaining party line customers. We had approximately 50,000 customers on party lines, which is a small percentage of our customer base. Nonetheless, it was a significant problem for those people and for us to address. By the end of 2001, we had provided single party service to all customers who wanted it.
The remaining problem was the issue of unserved and underserved territory. Throughout this period there developed areas of our territory that we did not reach and could not provide service. Some of those areas might be seen as reasonably distant from existing facilities. These areas were simply pockets where distant neighbours had telephone service, yet they did not have it. We had to go through the regulatory process for this because if to spend this kind of money in rural areas the money must come from somewhere. It must come from a pool where everyone contributes and a public body must decide how that money should be spent and whether the plans are equitable across the country.
We have proposed this $31 million service improvement program to the CRTC. The CRTC has asked all the phone companies to make similar proposals and to establish reasonably common standards across the country. The $31 million in our plan will cover a little more than 5,000 homes and businesses in 527 different localities.
The commission set out a few standards and asked us to indicate the maximum we will spend to cover the reach. We will reach customers where the spending will be up to about $25,000 for a single customer and for seasonal residents, up to $5,000. The average for the 5,000 homes and businesses covered would mean that we would spend $6,000 per customer with a maximum of $25,000 per customer.
I will give you an idea of what that represents. If we spend $25,000 to serve a customer, it will cost us $500 per month. We will charge that customer $25 or $30 a month. That is a big subsidy to bear. When there are many customers like that, the customer base of various players in the industry pays for the subsidy system. A reasonable amount must be spent on that.
We did customer surveys throughout our territory in 2000-01. We identified where customers wanted service and how many would take it if it were available. Surprisingly, we found in our survey that some people are used to not having a phone do not want one. However, the majority do want one.
On the next page are the commission's directions to everyone about how the service extension plans are to be carried out. The CRTC held hearings last fall and their decision is expected in April of this year.
Next, I will talk about the infrastructure — namely, the question of high speed Internet service. We started offering high speed Internet in Bell Canada territory, in late 1997 and we rolled it out in 1999. We saw that under the existing technology we would cover only slightly more than half of our customer base.
We decided on an investment program to be carried out in the 2000-04 period at a cost of $1.5 billion to extend the reach of DSL, which is high speed Internet. We introduced new technology to provide high speed access not only in the traditional big central office buildings but to roll on out in remote switching equipment and to extend it to quite a few added exchanges and localities.
As a result, we will reach 80 per cent of our customer base after this very expensive investment. High speed Internet in Canada is among the most advanced in the world. Twenty per cent of Canadian homes have high speed Internet through cable, telephone or other choices compared with 10 per cent of homes in the U.S have high speed Internet. It is lower than that in most other countries. In effect, high speed Internet in Canada is becoming a mass-market product earlier than in most other countries.
Perhaps because of that, it is priced much lower in Canada. It is priced at $40 or $45 Canadian whereas the comparable service in the U.S. is priced at about $80 Canadian. It is very difficult to make the service economic. That problem is incurred worldwide.
Through adopting new technology, we have made many changes on how we provide the service to reduce the cost. We think that we will be able to justify reaching 80 per cent of our customer base.
In the National Broadband Task Force that was commissioned and reported last year to the Minister of Industry, we surveyed the plans of telephone companies, cable companies and all providers across the country. It turned out that for this number of 80 per cent, the economics and challenges for all providers are similar. When you put everyone together that is the percentage reached. Everywhere across the country, the service providers would reach about 80 per cent of the population.
That excludes 20 per cent of the population but that 20 per cent of the population is in 80 per cent of the communities. Obviously, when you serve the big communities such as Toronto and Montreal, you pick up most of the population. We recognize that is a societal challenge of some importance because, as I mentioned, the value of advanced communications is even greater in rural Canada than it is in urban Canada.
That report has been tabled. There is a question as to whether and how the government should move in and help solve the problem. There is reluctance in the country for the government to become involved in funding something that they see the private sector competing strongly to roll out. People are uneasy about the government funding what some might perceive as a luxury. There is also some discomfort about how much the government should do and how much the private sector should pick up.
We have been consistent throughout this process in saying that we recognize the societal challenge and the importance to our society of reaching all Canadians with high-speed Internet for economic and personal development reasons. We recognize that the primary role should be the private sector and that we do not want public money spent where it is not needed. On the other hand, we do recognize that there are parts of the country where it seems that no one will go. We are prepared to see the government play a role and to partner, as need be. This is a problem that must be addressed; the right mix between the public and the private roles must be found; and the right approach must be found.
This problem has been addressed in the Province of Alberta where Bell Canada, coming out of Ontario and Quebec, actually participated in a public/private partnership in the Alberta SuperNet. The idea was to connect communities to the backbone. One of the biggest problems in the economics of providing high-speed Internet in a smaller community is that it costs a lot of money to transport the traffic back to the core networks, which take, for example, the Internet traffic down to the highly visited sites in California, Toronto, Montreal, or elsewhere in the world.
Therefore, in addition to the challenge of rolling out the infrastructure locally, customers on high-speed Internet generate a great deal of traffic. That traffic then costs a lot of money to transport. It can be over a long distance, although sometimes the distance can actually be quite short. A community on the fringes of a major metropolitan may not be connected. A national fibre network might be going right by that community, yet they are still not connected. It costs almost as much to break out and connect into that nearby national fibre network as it costs to construct another fibre. That is one of the biggest problems.
The Alberta Government solved that by committing to spending a certain amount of money each year on telecommunications, put that business out to bid and put some added business out to bid. They say that they will connect all the public institutions — schools, health facilities and government offices. They say that they will pay for that service. They ask, ``With that amount of money on the table, how much will you, the private enterprise, step up and build on your own to cover?'' For the rest, the government said that it would pay to reach an added number of communities. However, when that facility is built at our expense, it will be open to any service provider that wants to use it.
This slide shows that the SuperNet project is beginning to roll out. Obviously, it takes a while to construct these things. If you want to achieve a result two to four years down the road, you must realize that it will take three or four years before something can be put out to tender. It takes time to go through that bidding process, agree on the pace of construction and begin the work. The map on the overhead shows that there is extensive coverage of communities, large and small, in Alberta.
The wireless service is another area of interest in rural Canada. Our mobile phone service in Ontario and Quebec reaches up to 95 per cent of the population. We have spent a lot of money to roll out that network. Again, rolling out a wireless network is a major economic challenge, but the basic coverage is there.
We are now proceeding with digital capability over that basic network. We have already begun the third generation of wireless capability that is being explored worldwide in terms of providing the most advanced data services.
To help deal with the economic challenges of this industry, we discuss solutions with our competitors — and this is happening around the world. Companies have faced the costs of buying spectrum licences and rolling out the network, and they almost hit a financial wall. Around the world, some of the fiercest competitors have been forced to get together to share the expenses of infrastructure so that rolling out is economical feasible.
In Canada, we have agreed with our primary competitors that we would use parts of their network in their territory and that they would use parts of our network in our territory. Although this means that we are allowing our competitor to compete for our customers more easily, it was a financial necessity to realize that we both had to operate that way.
I have provided a map showing the coverage and locations of our mobile service operations. In this way, we can cover pretty well all the places where there is any significant amount of population.
Finally, I wish to indicate a few examples of the kinds of partnering projects that we, as a major corporation and a supplier of essential infrastructure, are doing in our communities. First is the provision of high-speed data access to 80 communities in Northern Ontario. There is also the data services improvement project where we have equipped 270 communities in Southern Ontario with a platform to provide data services. Obviously, voice is important but in this day and age, data is also important to conducting business. We also have a community development fund where we support, in a targeted way, economic development projects in our communities. We have such projects as ``Bridges to Better Business'' and the ``E-commerce Road Show'' to help people learn about the benefits and value of e-commerce. That is a significant avenue for economic development.
In summary, we have a long-standing presence and relationship with rural Canadians. Even under significantly changing economic and operating circumstances, we are making the investments in modernization of our infrastructure, improvements to service and the extension of the reach of our facilities. We are obviously intending to stay around and be a partner in development with rural Canadians for a long time.
The Chairman: Should we have questions now and then hear from the witnesses from SaskTel?
Senator Tkachuk: Why do we not have the presentation by SaskTel?
The Chairman: We will ask questions, then.
I live in a rural area. When I drive from Estevan to Regina, my cell phone has no service about five times in different areas. That raises the problem faced by people in rural Canada, and you have touched on that. Two years ago, my phone was ringing with AT&T and other companies wanting to supply services. It appeared that these companies were waiting for wireless to come in so they could jump in and take over the telephone business. When my wife switched phone services, I wanted to switch back to SaskTel right away because I was concerned that we would not have any phone service in our area if that continued. We are now the most urbanized country in the world. We face serious challenges in the North, especially in Saskatchewan and parts of Manitoba. Alberta may have deep enough pockets to fund the support there, as you indicated in your presentation.
Will Bell Canada stick with us, or will you get into conflict with SaskTel, the Atlantic telephone companies and Manitoba Telephone? Do you get along well with SaskTel?
Mr. Courtois: Yes we do. We are competing head to head with Telus, which operates from the highly prosperous provinces at the western end of the country. Realistically, we expect both of us will concentrate our efforts on the urbanized areas in our respective territories. That is what you find with our competitors. There are many competitors, and, as I mentioned, the financial community believes there are too many and they will be sick until there is consolidation.
However, in rural Canada we realize that some of the competitors can come in and use our facilities to offer long distance or other services. What also happens is companies use the Internet to offer a variety of services and the basic Internet connection will still come from local phone companies. In that regard, we cooperate with the phone companies in Atlantic Canada, as well as SaskTel, in dealing with any public policy and technology issues.
Senator Fairbairn: Thank you for your presentation. It certainly touches — and I think most people in this room would agree — a critical situation that is facing our country. I am not sure we are aware of how deeply societal change is taking place, or will take place, unless we have an act of God that brings moisture to our land.
I come from southern Alberta, which is probably the most threatened area in the country right now. I have been a senator for 18 years, and although it has been said this is a drought cycle, it is not a cycle. There have been very few good years in those 18 years in our farm communities. The last few, and especially last year, have been disastrous.
It is not just an agricultural problem. It is a problem of the towns in rural areas in Western Canada. If there is not a viable agricultural base in their future, the alternatives are to develop their business and job possibilities within the community or leave. Depopulation is definitely happening.
The connecting links your businesses provide are a major part of a solution that would slow depopulation of our rural areas. Your presentation highlighted the difficulties your industry had with its rapid expansion and associated problems. I am aware of what happened in my own Province of Alberta. Is the alternative you offer to the current situation in rural Canada being factored in to how you deal with these areas? The Internet is not only a great thing to have, your industry may become the life-line that supports the existence of many of those at-risk towns that are valued by the people in them, along with the people in this room.
Is this part of your perspective? When you talk about the difficulties, is this factored into them?
Mr. Courtois: Obviously, we are in no position to resolve the underlying shifts in the agriculture and mining industries that have supported those communities over the years.
Senator Fairbairn: That is correct.
Mr. Courtois: What is now possible with modern capabilities is we can give communities a choice, to the extent that one can maintain a certain degree of activity or actually change over to a different type of economic activity that will still be located there. The availability of advanced communications enables the community to try to exercise that choice by reaching out to the outside world to sell products to help maintain a high degree of service. Sometimes a community can attract activity.
For example, in smaller towns in our territory, or in the territories of Telebec and Northern Telephone, we get involved with local groups to attract call centres to those communities. Call centres may not have the highest paying jobs, but they offer good working conditions — sometimes a couple of hundred jobs in a small community is a huge impact. Because call centres are location independent, we work actively with business people and decision-makers in the community to attract call centres from various locales — even from companies in the U.S.
We do similar things in terms of economic development, where we work with the local community to help something happen through the use of the telecommunications infrastructure.
Ms Linda Gervais, Vice-President, Federal Government Relations, Bell Canada: I should like to add two points. First, for rural investment, we must compete in the overall available capital portfolio. There must be a return. One of the challenges is that communities tend to compete with each other to obtain infrastructure or jobs. We have economic development officers within Bell Canada, who work with small communities to get them to put aside their rivalries as we can justify investment if there is a broader user base. They work with surrounding towns, and help them think about acting as a community to get investment in.
That has been very successful. We started this a few years ago in Ontario. We have regional managers in Quebec doing the same thing. It is not a perfect solution, but there are challenges within the towns. Bell has been facing huge needs to consolidate and downsize as we go through this massive transformation from a monopoly to competitor, from voice to Internet.
We have been operating differently. To ensure that we have roots back into those communities where we do not have as many employees, we have senior managers who become the advocates for specific regions and are responsible for maintaining relationships with the mayors and economic development people. They work closely with our economic development officers.
These are some things that we are trying to bring to the table. We recognize that if we are not there, you will not have AT&T fighting to provide service in Upper Rubber Boot, Saskatchewan. That is just the way it is.
However, we still must have an economic basis for it. Even in Alberta, about 20 per cent of the population will not be touched by the SuperNet. Even in Alberta — which is probably one of the most innovative approaches brought to bear — there are still significant challenges. That is the reality of this country.
Senator Fairbairn: No one wants to be alarmist but at this point, we have in some parts of Canada no option other than that, when lives are guided and run by the weather. This is always hard for people who really do not want to have to move to an alternative. What you have been saying today indicates your sensitivity to it.
However, your role economically as a player in some of these areas will probably become much more critical than it has been to date.
The Chairman: I wish to point out that one of the positive things about this committee is that we feel that communications is a two-way street. Our resources — fisheries, lumber, gas and oil, agriculture, mining, forestry, potash — all come from rural Canada. They are the engines that drive this country. Yet, politically, we do not have — as Senator Fairbairn said — much defence anymore. We try to point out how important this is to Canada.
We would engage your participation in that area because communication is very important. Whether you are lumbering in northern B.C, if you are drilling for oil in southern Saskatchewan, or if you are working in the North, we have representations here. We need communication.
Certainly there will be times when you sit down at the table with the powers that be and the challenges that exist and you can have a voice in helping us communicate the importance of rural development in Canada.
Mr. Courtois: Certainly in areas where we have expertise, we can speak with authority. Obviously, there are areas in which we do not have expertise. It is a regular part of our discourse to tell decision-makers in the more urban parts of our country that the challenges and the contributions that advanced telecommunications capability can make are national issues that need to be addressed.
Senator Tkachuk: You talked a bit about the Internet and hooking up Alberta to the Internet. This is important — especially for hospitals and health care service providers — because you can move information to rural Saskatchewan or rural Alberta from specialists that usually reside in Regina, Saskatoon, Calgary and Edmonton.
I do not understand wireless that well. I use a cell phone. We talked about the cost of cable and telephones to move Internet and wireless service. Would it be helpful for people to get connected to cable or to the Internet without having this entire underground infrastructure and all the other infrastructure problems?
Mr. Courtois: Yes, there are wireless solutions. The Alberta SuperNet project will be fibre. Some of it will be fixed wireless capabilities. There is also satellite.
Each of the technologies has its advantages and disadvantages, depending on the distance and the density you have to reach. Fixed wireless is good for mid-size density. It can have longer reach than wires on an economic basis, but it must be reasonably spread out because it does not have the capacity to handle fairly substantial density.
Satellite is definitely a necessary — and unavoidable — part of the solution. A good percentage of the population will simply never be reached with a wire or ground-base solution. It is difficult for society to justify spending the money to put a wire, a fibre or to run DSL technology to a farm that is miles away from any other connection. Luckily enough, not only is satellite of necessity the way to go, but satellite technology is improving quite significantly. There is a new generation of satellites coming downstream — called KA band — with a much smaller target of their various transponders. They can actually handle traffic back and forth. You could have a higher speed interactive Internet, perhaps not as high as what you will have out of the wire based solutions, but close.
The problem with the satellite business is that all the problems of the telecommunications industry are worse in the satellite business. Some of the problems and worries of the financial community with the telecommunications industry started with the satellite business. We had plans of people with billions of dollars to put up 20, 30, 80 or 100 satellites up in the sky and run these high capacity things. Those projects turned out to be good when money was free, but not sustainable when someone had to truly pay for it.
Therefore, the satellite industry is currently undergoing difficult times. There is a lot of consolidation and many projects are being shut down. Nonetheless, I firmly believe that a few years from now, we will see those satellites having a good market for themselves and also serving that very useful purpose. They will be able to handle many of the needs of small businesses, residential users, and so on.
To some degree, you can use satellite also to handle community institutions such as a health or educational facility. Those facilities require a lot more capacity than you would have normally through a KA band satellite. You can bring a higher capacity signal to a central point in town and then connect with wireless or wires to those facilities that might require, for example, a video scan for medical purposes, which requires great capacity.
Yes, there will be a mixture of technologies. For a good portion of the Canadian population, there will be nothing else but satellite to reach them. At the moment, however, we have a bit of a lull.
There is a service on satellite. It gives you good capacity to take things down from the Internet, but to get back from it you have to use the phone line.
Senator Tkachuk: Is most of the research for that technology privately driven or a mixture of government and privately driven?
Mr. Courtois: It is mostly privately driven, although there is some mixture of public and private. There is work being done in Ottawa with the national research institutions. However, there is nowhere near the kind of public spending that you would have, for example, in the U.S. from military spending. Obviously, they spend much more money on research than we ever could in Canada. Sometimes, as a fall out of that, there are some commercializable products.
At the moment, certainly Telesat is quite involved with the government here and doing research in that area. It is definitely one of the leaders in the world.
Senator Tkachuk: Small towns — for example, Weyburn, Saskatchewan or smaller — receive cable service. Is it a difficult proposition for them to receive high speed Internet? Those small towns receive their signal from satellites. They plug everyone in and charge people money for the product. I always thought was a great business.
Mr. Courtois: Yes. You have two challenges there. One is to upgrade the cable systems so that it can handle two-way traffic and also to lose fewer data as they go back and forth. That is usually something that you can support out of the cable system and its own customers. As you say, it is a good business to have.
The second problem is taking all that traffic out of the community and out to the backbone. Whether you buy satellite capacity or you try to get it on fibre or other ways, it becomes expensive because your users go from dial-up Internet, where they can consume a certain quantity per month, to multiples of what they had before. You, as a service provider, then must pay to get that traffic in and out of the town.
In many cases, you will find both the cable system and the phone system able to offer high speed. That actually, in Canada, is probably the main reason why we have so much high speed Internet compared to the U.S. and other countries. Those industries have been let at each other to compete for longer and on a more open basis than in other countries.
There are a number of communities where neither the cable operator nor the telephone operator can justify the cost of taking the traffic out. That is the impetus for projects such as Alberta's SuperNet and some of the things that the national broadband project studied. Can someone pay just to get the signal in and out of town? The local service provider can then commercially go out and offer the services.
Senator Tkachuk: The thing that prevents a cable operator from supplying telephone service, for example, or you providing cable service, is because the CRTC says that you cannot do that. Would not the combination of the two in a community be more efficient? In other words, you can have competition but if you go to a little town, who cares if you have competition? They will not pay any more because of all the other products.
Mr. Courtois: At the moment, it is not so much the CRTC that is preventing it. You must be pragmatic about it. You must decide that people will get competition or there is an opportunity to get competition. Reasonable people will normally understand what those conditions are.
You then get to a circumstance where you will not get competition and you will not get the services. In the northern parts of Quebec, the CRTC has actually allowed one of our telephone companies, Telebec, to buy out cable systems. There was not enough money out of the cable operations to upgrade the cable system from having just a minimum number of channels. By combining the two operations, there are some savings.
We have been able to upgrade the cable service similar to anything you would get in the largest cities. For the local population, it is a huge advantage. We can then use that common infrastructure to use high speed. As they are combined, we can afford to pay to get the signal in and out of town.
However, combining services is not a universal solution. Where the system can support competition, it will be more advantageous for customers. However, for rural Canada, we must be realistic; the point is to get the service to the population and find innovative solutions to approach the situation.
The Chairman: I have one more question to Bell Canada, and then we will hear from SaskTel. Could the representatives from Bell Canada remain at the table?
Mr. Courtois: Yes. I have to leave at 10 o'clock, but I will stay until that point. Mrs. Gervais will be pleased to stay.
Senator LaPierre: I am not a member of this committee but for the great work that I have done for this nation, I am a member of the Eastern Ontario Caucus. I have discovered rural Canada. It has brought me back to my roots.
When I lived in British Columbia, I met Senator Carney. She single-handedly created distance access education in British Columbia. She had come from the North. She succeeded in convincing government to do that. I mention this as background to my question.
On Wednesday, we discovered that there are hundreds of small communities across Canada — particularly Aboriginal reserves — that may never be served and may never have the access that we in the cities have. We also found out that the rural nature of our country — which has been our foundation — is about to disappear unless we wake up soon. I have learned all of that from the Eastern Ontario Caucus.
Why is the Canadian public not using the fundamental instrument for improvement, which is the Canadian government? We have built two transcontinental railways, microwave, and the Canadian Broadcasting Corporation. We have pooled our resources, time and time again, to bring about equality of opportunity for the Canadian people.
Why is it that we are not doing this now? Should we be doing it? Why can we not convince the government to do it? Would it be a good thing? We cannot leave it to private enterprise, can we?
Mr. Courtois: That is right. We, private enterprise, are driving world leadership on this. We recognize that there is a role here, and we think if it is a targeted role, then there should not be a backlash in the country about using public money for it. Nevertheless, there is an education component to be done.
I talk to many people in business associations and to decision-makers in various parts of the country. In urban Canada, there is reluctance or a resistance to recognize this value. I take this message to them and repeat it often because there is a bit of passing in the night here between rural Canada and urban Canada.
I have also found that it is useful to remind people that rural Canada is not only the place 10,000 miles away that you do not see. Sometimes it is right near by your community, and they have similar needs.
Senator LaPierre: I thank you for that and for that encouragement.
The Chairman: Thank you for that support, senator. We welcome you more often to this committee.
We will now hear from Pat Tulloch from SaskTel. We welcome you. We hope that this will be a beneficial meeting to sustaining good communications in that province. Please proceed.
Ms Pat Tulloch, General Manager, Marketing, SaskTel: Thank you for the opportunity to share with you what SaskTel has been doing in the Province of Saskatchewan.
My intention this morning is to review what SaskTel is, our provincial challenges and our key priorities in SaskTel. I will then share with you a number of the initiatives that the company has taken within the province and apprise you of what we have been doing with regard to high speed Internet and our goals in that regard.
SaskTel is a full-service communication provider in the Province of Saskatchewan. We have a diversified portfolio of investments in Saskatchewan, across Canada, and around the world. Our gross annual revenues are approximately $850 million with assets of about $1.2 billion. We employ approximately 4,000 employees across Saskatchewan.
As mentioned, we also have a non-equity alliance with BCE and the Bell group of companies. We are a Crown corporation that reports to the Crown Investments Corporation of Saskatchewan.
Our province, as you know, is relatively large geographically but our population is less than one million. Saskatchewan has more than 400 communities with fewer than 200 people. That means that approximately 42 per cent of our customers live in high-cost serving areas as compared with Telus with 15 per cent and Bell with 12 per cent. From a population density point of view, Saskatchewan has only .7 persons per square kilometre compared with Telus, which has 7.1 persons, and Bell with 10.8 persons. The challenge as we move forward is that our customer base is declining. More and more customers are moving off the farms and into the urban areas. The cost of replacing and maintaining the infrastructure is increasing.
SaskTel has recognized the challenges and opportunities that have occurred in the industry — such things as the emergence of new and unlikely competitors, the growth of the Internet, rapid technical evolution, and aggressive price competition. As a result, SaskTel is focusing on three main business priorities. The first is an operational efficiency program, which is a three-year program designed to generate annual cost savings of $60 million by the year 2003. We are on track with that effort. Second, SaskTel has re-energized its focus on growth and revenue enhancements. Finally, we have put an e-business strategy in place that has two major components: To net enable SaskTel, which involved using the Internet to improve and transform our business priorities with our customers, employees and suppliers; and to build products and services that will enable our customs to become e-business engaged.
SaskTel has a good history and track record in its service to the people of Saskatchewan. We have met or exceeded CRTC's basic service objectives for all but about 200 customers in the far north of Saskatchewan, who are, basically, underserved. We were the first in Canada to eliminate party lines, to deploy fibre optic networks; and one of the first to have an all-digital switching network.
Our prices for basic telephone services are comparable, despite our high-cost serving areas, and we have implemented a number of long-distance plans that are of significant benefit to the rural customers.
We have also initiated an exchange area boundary, EAB, program. It was a three-year program that amalgamated more than 100 exchanges and improved service to nearly 100,000 customers in Saskatchewan. That enabled more customers to have local calling access to key essential services such as hospitals, schools, police and fire departments. As well, SaskTel embarked on a $24 million three-year program to increase its digital coverage from 64 per cent in 2000 to 90 per cent.
SaskTel offers toll-free dial-up access to the Internet for 100 per cent of its customers, and it was the first telephone company in North America to offer high-speed Internet service using DSL technology.
SaskTel has a continued social commitment that is demonstrated by our annual investment of $100 million in core network improvements; by employment in 55 Saskatchewan communities; by partnership with over 170 businesses in Saskatchewan; and by investment in a First Nations service improvement program in Saskatchewan that doubled the number of households with basic service. We have also jointly established an Aboriginal-owned call centre in Saskatchewan.
I will speak for a few moments about the CommunityNet program in Saskatchewan because it is the foundation for the balance of this presentation. CommunityNet is a shared, secure, private IP data network with a goal to connect all schools and post-secondary institutions, health care facilities and government offices in our province. CommunityNet will ultimately reach more than 366 communities; 795 elementary schools, high schools and school board offices; 86 First Nations schools; 39 regional colleges; 310 health facilities; and, 256 government offices. It is a very large project that is a collaborative effort among the federal government, the provincial government and SaskTel. According to the national broadband task force: ``It may be the most advanced initiative undertaken by any comparable national, state or provincial government anywhere in the world.''
I am pleased to say that SaskTel has a goal that by 2005 it will deliver economically viable broadband Internet service to 95 per cent of the Saskatchewan population. To date, we have invested more than $56 million toward that goal. We started in 1996, and between 1996 and 1998, we provided service to 10 communities with an average population of about 56,000 customers. In 2000, we added nine communities with an average population of 4,700. In 2001, we began to use the CommunityNet infrastructure investment that was now in place and further expanded it to 27 locations, with an average population of about 2,000 customers.
Last week, we announced a further expansion of 191 locations with an average size of about 500 customers. This will be done using the CommunityNet infrastructure. This means that by the end of 2003, SaskTel will have provided service to 237 communities in Saskatchewan, or approximately 71 per cent of our population, to communities with as few as 100 people.
The challenge for us is that final 24 per cent to meet our goal of 95 per cent. The 24 per cent constitutes the farms and the small communities. It will require a blend of technologies including fixed wireless. Currently, we have a technical trial and we will soon embark on a market trial of MCS technology. The technology and the economics are under continual review. The business case does not work out yet, and we expect a shortfall of approximately $40 million to hit that last 24 per cent of the market. This will require us to continually work with our suppliers and to pursue funding options.
In summary, SaskTel was able to reach 50 per cent of the population by the end of 2000. Through leveraging the CommunityNet infrastructure and redeploying technology from our larger communities, we were able to provide coverage to 61 per cent of the population by the end of 2001; and 71 per cent of the population will be covered by the end of 2003. That leaves us with that final challenge of 24 per cent comprising of farmers and small communities; and we are still working towards that. Our goal is to serve 95 per cent of the population.
The Chairman: Thank you for that information. One day ago I was talking to a counsellor from the City of Saskatoon who said that they are projecting the population of Saskatoon, which is currently about 250,000, will rise to 400,000. The population of Regina will increase, but the population of Saskatchewan will not increase.
Ms Tulloch: It is decreasing.
The Chairman: That is the challenge that you face. If this is happening in Saskatchewan, the greater picture is probably even bleaker than that. Can you continue to such good work? I emphasize that because you have done a good job in servicing rural Saskatchewan. Can you continue, however, with the pressures that exist? What is the greatest pressure that you face from outside competitors who may not have the vision to maintain rural support?
Ms Tulloch: I believe we can continue our work. We are working with our suppliers, and prices for technology have decreased in some cases. We are continually looking at new technologies. Competition has come into Saskatchewan, but because our population base is diffuse, our markets have not been attacked aggressively. We have a number of loyal customers staying with us in Saskatchewan. It is a continuing partnership with our government and suppliers to provide service to Saskatchewan. I am optimistic that we can continue doing good things in Saskatchewan.
The Chairman: What is the financial status of the Crown Corporation?
Ms Tulloch: It is good. We recorded $100 million net profit last year.
Senator Robertson: Thank you for your interesting presentations this morning. I want to ask a question to follow up Senator LaPierre's comments on distance education.
We know our health system is under tremendous strain and everyone is studying the health system to find ways to save it. There is interest in distance medicine in many areas. Some of us feel that if it is developed as it should be, many of the smaller hospitals that give high secondary and tertiary care would not have to; such care could be provided without having the expense or worry of attracting specialists who want to practice in larger centres. Do you feel there has been progress in distance medicine with regard to how the communication system is working?
Ms Gervais: There are a number of initiatives. However, I was thinking I might be presumptuous in suggesting the committee invite Telesat to attend, or you might wish to go to their facilities, as Telesat has a number of initiatives that are working.
There are a number of up-and-running distance medicine applications in the outlying areas of Newfoundland. There is a nurse or a health worker in the community and they have video cameras and consult with the doctor. It is truly an impressive thing. There are a number of communities that have no doctor, but diagnosis, care, decision-making and discussions with the doctor take place in real time over a distance. What is being done there is rather interesting.
One of the big issues for distance medicine is the fact that a dollar is a dollar, and whatever is spent in health care this year is part of the budget. Becoming significantly engaged in tele-medicine requires a huge investment on the part of hospitals and community health centres, so they must choose between investing in infrastructure or paying for medicine, nurses and beds. Thus, the current mechanism for funding is a huge challenge. What is required is a one-shot infusion to eliminate that decision.
The Province of Quebec has done something similar. They paid for the establishment of a high-speed network linking all the major hospitals, teaching universities and centres to begin establishing a health care network. Had it been funded by individual hospitals it would have been a problem. Other challenges are the establishment of a national file or registry and professional licensing issues. From a communications perspective, there are a number of trials underway, such The Hospital for Sick Children in Toronto and here in Ottawa where we gave a contribution to enable distance medicine application to the Children's Hospital of Eastern Ontario. There are different applications and different trials.
The biggest challenge for funding is that it requires a significant investment, and making that decision between beds or infrastructure.
Senator Robertson: If we do not invest some of the money in rural communities we will lose them.
Ms Gervais: There is where government has a partnership role to play. The telecommunications industry is not an expert on the issue of health care, but we can bring in our experience to improve efficiency and facilitate the delivery of distance medicine. The decisions have to be made elsewhere.
Senator Tunney: I welcome you here this morning. SaskTel fascinates me, as it seems like such a good news story. It demonstrates how people can help themselves through government.
I remember being on farms in rural Saskatchewan and Alberta where there was a little telephone office. Often times the local farmers' wives would take turns being telephone operator while the men took turns repairing the wires, especially when a big storm would topple many of them over.
I talked to the former premier about that at a meeting in Saskatchewan. He was talking about the plans for improving telephone service in Saskatchewan, and he did it exactly the way he had planned to.
I would like to know if you have any difficulty maintaining service with the employees that you have while maintaining your reasonable rates. I heard you say you turned about a $100 million profit, and I would not have asked this question unless I thought that was incredible. Do I understand correctly that you carry a debt? Are you paying that debt down or are you spending in new investment?
Ms Tulloch: We are continuing to pay down our debt. Originally, our debt was around 60 per cent, and we have taken it down to approximately 40 per cent. Our debt has been declining over the last 20 years and our employee base was around 4,400 and decreased to approximately 4,000 over the last 20 years.
Senator Tunney: Can you talk about your capital investment?
Ms Tulloch: We have a diverse portfolio. We have worldwide investments. We take a number of core competencies in our network and we have reinvested them. We also have projects in Tanzania. Those investments have brought in approximately $100 million to Saskatchewan over the last decade. There have been a number of investments outside of the province that have benefited the Province of Saskatchewan and SaskTel.
Senator Tunney: Can I buy some shares in SaskTel?
Ms Tulloch: Sorry, but no.
Senator LaPierre: It is fantastic that by 2005, 95 per cent of the people in the province of Saskatchewan will have this service. Tommy Douglas would be proud.
Ms Tulloch: It is a lofty goal, but it is a challenge that we want to undertake.
Senator LaPierre: In reference to Senator Tunney's question about the people repairing the lines, from where I come it is called la corvée. It arose out of the history of New France, in which, wherever you lived, the captain of the militia would call you out to repair the roads. It was really magnificent.
I have another story about Senator Carney. It was one of the great contributions to our country and I remember it vividly. I did a program in Vancouver one time in which there was a doctor in the hospital, and a nurse and a little baby boy somewhere way up North. The doctor was able to see her and she was able to see him as he operated and saved the life of that little child. It was one of the most moving experiences of my life. This nurse, who had never taken a scalpel in her hand, was able to do that. I want you to establish a partnership with the government and get it done.
Senator Setlakwe: Which year was that?
Senator LaPierre: It was in 1978 or 1979. It was a magnificent story when I was there.
Senator Fairbairn: I will have to pass this on to Senator Carney. Not only was she a first-class journalist, she facilitated a lot of things in the North.
In your headline of ``Continued Social Commitment,'' I was interested in the work you have been doing with First Nations people. To what degree, in your work in those communities — and, making their communications available in their own languages is terrific — have you facilitated the use of the Internet or other mechanisms similar in a business situation? What I am getting at is not just connecting communities but, through that, the ability or the interest in conducting business using this kind of technology?
Ms Gervais: In terms of what we have done with First Nations, I want to identify a couple of programs that we have not mentioned. They are not ours but we are partners in them. One is the Community Access Program that Industry Canada has established. Industry Canada has facilitated establishing community access, points of presence and high- speed Internet sites in communities across the country and certainly a huge number in First Nations territory. Part of the program was also to help people understand how to use it and how to use it from a business perspective.
We are also big partners is SchoolNet, which is connecting schools. The Canadian government declared victory in connecting all Canadians schools two years ago. Bell Canada and the other telephone companies have been big partners from the very beginning, providing a lot of the core infrastructure at no cost. We continue to be partners in that program. Those programs extend the reach of the Internet to communities that complement the work we are doing.
We do not play an active role in helping people set up businesses. Our job is to provide connectivity. Bell Canada and our employees are actively engaged in things like junior achievement or working in the community. We have a number of native Canadians as employees in the North, but I am not sure we do a lot of work to help them set up a business using the Internet. However, we have tools and we provide e-business sites. For example, if you want to set up a business selling soapstone carvings and you do not know how to set up a Web site, we provide that as part of services that we sell to small businesses. One of the biggest opportunities for business in Canada is to become web enabled. If you are a large business, you will have the tools to do that, but if you are a small business you do not necessarily have the ability to do that. We have the ability to help a business set up on the web without the owners necessarily knowing how to design their own little web portal, and so on. We can do that for them and we provide that as a service.
Ms Tulloch: With respect to SaskTel, I mentioned the CommunityNet Program. That program provided satellite service Internet to all the First Nations communities that I am aware of within the schools in the First Nations. We also have a dedicated sales team that works with the native communities to help the First Nations communities partner with other businesses in helping to design web pages, and so on.
Senator Fairbairn: That is terrific. That is a huge initiative in an area that desperately needs those connections.
A major contribution that both of you have indicated that you are making is through SchoolNet, where the next generation will emerge, hopefully, with the understanding and the skills that are sometimes difficult to absorb in the current situation. That is a huge skills builder.
Ms Gervais: We cannot underestimate how much those sites are being used up North. One person who had worked helping the people of Nunavut set up their government said that it is amazing because they are almost e-literate before they are literate. They are comfortable using the Internet long before they are comfortable with reading books. That speaks volumes about what can be done.
Senator Fairbairn: As one who spends a lot of time working on literacy, I am a firm believer that one should do whatever works.
The Chairman: We will likely continue only for about five minutes because we want to go in camera for a short time to deal with some other committee business.
Ms Tulloch, do you have regular involvement with the rural area telephone companies? Do you have an association of meetings with these other companies?
Ms Tulloch: A number of different committees were set up when we were Stentor companies. We used to get together on a regular basis or by the different types of sales teams. There were a number of vertical or horizontal markets going on at that time. Since the break-up of Stentor, there are fewer meetings.
We still have meetings among the Bell companies and ourselves. They are more a sharing of information forum. There are continuing meetings, but not to the same extent.
Ms Gervais: There is no longer an industry association of telephone companies, although there is great sharing of information.
The communications network has to be open and accessible. In terms of designing a network, we have to work collaboratively with all the other companies to make sure that you can call your neighbour and you can call around the world with the same ease and ability. That has required a very different approach to managing the communications network than I would say evolved in the software business or with computers.
It was all closed protocols with computers at the beginning. If you bought an IBM, you could only use their stuff. If you are a customer of ours or a customer of any telephone company, you must be able to pick up the phone and call anywhere just as easily around the world as next door.
Having been in other countries including the United States, I know that Canada is singular blessed with the fact that it is incredibly easy. If you are a customer of Sprint, it is no different; you have the same ease of dialling. We have something that simply does not exist everywhere else.
Senator Robertson: A few years ago, I was at a demonstration. They were trying to develop a technique that if I picked up the phone in New Brunswick and called Japan that my English would be converted into Japanese. I would receive the Japanese response in English. Have we made any progress with that? How is that doing? I thought that it was fascinating.
Ms Gervais: It is fascinating. It is like Star Trek with the communicators. We are not there yet.
We do have voice language identification in one language when you dial up operator services, 411. When you call 411, you get a recording, which can be very annoying. I understand that. Convincing people that that machine understands the person at the other end has been a huge leap of technology. It will be significant time before we go to instant translation. However, I look forward to the day.
Senator LaPierre: I would like to bring about some form of clarity in the use of the Internet for far away communities. Who runs Microsoft? Did Mr. Gates not set up a system of low satellites to assist African countries to communicate? I believe that he did.
How far have we progressed in Canada about this business of using low satellites to be able to do the 5 per cent that will be left in Saskatchewan in-service? Are we far away from that?
Ms Gervais: There are significant opportunities. I would urge you to invite Telesat to appear. Satellite business is complex and a little buccaneer, as well. You are at the vagaries of solar storms and rocket launches from Kazakhstan. It is a challenging business, but there are real opportunities in the country, even for SaskTel.
It is a huge challenge for a government-owned Crown Corporation to deliver to that remaining 20 per cent, and you will still miss that 5 per cent. Satellite has a real potential to help, in a fairly economic fashion, the country in terms of the 20 per cent where there is no business to reach. It does offer opportunities.
Some satellite launches — I believe in 2003 — will increase the satellite capacity. There is a question of orbital slots and business plans. It is a specialty all on its own. There are some interesting opportunities that satellite can provide this country to help bridge that gap and provide the services that are required.
The Chairman: Ms Gervais and Ms Tulloch, I want to thank you for an invigorating and good exchange. We will invite you back if things get difficult.
Ms Gervais: On behalf of Mr. Courtois and myself that it has been a pleasure to be here. Thank you. If you have any questions, by all means contact us. We would love to come back.
The Chairman: Look after Saskatchewan.
The Chairman: The Chairman: Before we go in camera, we need a motion to transfer some money from one account to another.
Senator Tunney: I move:
That the Standing Senate Committee on Agriculture and Forestry approve the transfer of $4,000 from the heading of Transport and Communication to the heading of Professional and Other Services.
The Chairman: Agreed? Carried.
The committee continued in camera.