Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 5 - Evidence, September 29, 2009
OTTAWA, Tuesday, September 29, 2009
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study emerging issues related to its communications mandate and to report on the wireless sector, including issues such as access to high-speed Internet, the supply of bandwidth, the nation-building role of wireless, the pace of the adoption of innovations, the financial aspects associated with possible changes to the sector, and Canada's development of the sector in comparison to the performance in other countries.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: Honourable senators, this is the sixth meeting of our committee on the study on the wireless sector. Today, we have with us, Bernard Lord, President and CEO, Canadian Wireless Telecommunications Association.
[Translation]
The association represents cellular, personal communications service, mobile radio, messaging, fixed, wireless and mobile satellite carriers, as well as companies that develop and produce essential products for the wireless industry.
Mr. Lord, welcome to our committee. Without further delay, I give you the floor for your presentation, after which, we will move on to questions.
Bernard Lord, President and CEO, Canadian Wireless Telecommunications Association: It is a pleasure to be here this morning. Mr. Chair, before I begin my presentation, I would like to congratulate you on your recent election as chair of this committee; I hope that your mandate is productive as well as constructive.
We are here to help change and shape public policies that can contribute to the well-being of all Canadians.
This morning, I am accompanied by Jim Patrick, Vice President of Government Affairs at the Canadian Wireless Telecommunications Association.
[English]
Today, I will focus my remarks on specific steps that the government could take to stimulate investment in the next generation broadband networks in Canada. First, I want to say something about the CWTA. The CWTA is the authority on wireless issues and trends in Canada. We represent over 150 wireless service providers, equipment manufacturers and other suppliers.
Honourable senators can follow my presentation with the slides I have with me today.
We champion the interests of more than 22 million Canadians who use wireless services for convenience, productivity and safety every single day. We also act as a single point of contact for government and consumers on a variety of industry-wide initiatives such as our Code of Conduct launched September 1 and wireless telephone number portability that allows consumers to keep their number while they change cell phone providers. Our national cell phone recycling program was launched this year. It is completely free to governments and consumers. Our new Mobile Giving Foundation was launched this month. It is bringing innovate mobile philanthropy channels to Canadian charitable organizations and their supporters.
In Canada's digital economy, wireless communication is playing an increasingly essential role in our country's infrastructure — what I like to call 21st century infrastructure.
[Translation]
Roads and bridges will always be important to our economy. In Canada, in the 21st century, we need 21st-century infrastructure in order to continue promoting productivity, economic gains and community-based development across the country.
[English]
Twenty-first century broadband infrastructure will be the backbone of any successful digital economy. It will be a key to productivity gains and economic growth. The Government of Canada can play a critical role in providing the right mix of incentives and policies as demand for wireless services and related network investments continue to accelerate.
Already 99 per cent of the Canadian population has access to wireless services in Canada. That is an amazing feat when you consider the geography of our beautiful and great country. Ninety-one per cent have access to the fastest 3G mobile Internet service and Canadians are using it. A new report from the Nielsen Company released over the summer reveals that mobile Internet adoption in Canada is reaching a critical mass. It is growing at a rapid pace with more than 21 per cent of mobile consumers using their service to browse the web and access their email account. This statistic is from the second quarter of this year. That was up from only 16 per cent in the last quarter of last year. There is phenomenal growth in this sector — Canadians want it and are using it.
The same report found almost 4 million unique mobile Internet users in Canada today. A new survey from sympatico.ca released a few weeks ago found that fewer than 10 per cent of Canadians stated that they could live without their mobile device. The same survey revealed that nearly one half of Canadians said they could not leave home without their mobile device.
[Translation]
We see that Canadians like their wireless phones, they want to use them and, more and more, they consider them an essential part of their lives.
[English]
The CWTA's recent figures reveal that Canadians sent an astounding 16 billion text messages in the first six months of 2009. That represents approximately 99 million text messages per day. We expect to reach 100 million text messages per day by the end of this year. Canadians are well on their way to doubling the over 20 billion text messages sent in 2008.
What does this constant uptake of wireless by Canadians tells us? It tells us that the wireless industry's investments in innovation and infrastructure are already making mobile broadband a reality for many Canadians. It also tells us that Canadians are hungry for more. They love this technology and they want more of it. Since the introduction of wire service in Canada in 1985, wireless carriers have invested over $25 billion in network infrastructure. There was over $6 billion in 2008 alone according to the CRTC.
While other industries are coming to the government with cap in hand, this industry continues to make significant investment building the networks that Canadians want and need to improve their productivity and to improve their quality of life.
[Translation]
This is a rapidly growing sector of the economy. This industry invests heavily in improving its infrastructure to provide Canadians with the best quality service in the world.
[English]
Service providers are constantly reinvesting in their networks to update their technology and bring the fastest speeds to consumer's — speed of upload, download and content-rich applications like video, music and mobile browsing. All these are realities today. With ongoing network build-outs by the incumbent carriers and new carriers, we will have four or five — what is now called in the industry — 3.5G high-speed packet access or HSPA providers with their own networks in Canada. This will likely be more than anywhere else in the world.
Sometimes you may read in the media and you will probably hear witnesses coming here that are down on Canada. I am very proud of what is happening in Canada. I am very proud of the investments being made by Canadian companies in Canada. By this time next year, we will probably be the country with the most 3.5G networks in the world. That is something we should be proud of and shows that there are significant investments being made currently in our country.
These networks will also be long-term evolution, or LTE-ready. This will allow providers to offer LTE services immediately once the technology is ready for prime time.
Competition in the wireless industry has always been a driving force behind innovation. We feel that continued innovation requires continued investment. Investment decisions for tomorrow's networks have already been taken today. The pressure on carriers to accelerate their pace of network investments has never been greater. It is critical that the pace of network investment continues to outpace the growth in network usage. This is where we think governments can play a role in providing a modest mix of incentives to reflect the growing demand for dollars to support the next generation of networks in Canada.
[Translation]
That is where we think governments can play a role in terms of public policy to continue facilitating development and accelerating network development in Canada.
[English]
What can governments do? We recognize and appreciate that this year's Budget 2009 included $225 million to help carriers to extend and improve their broadband networks. By all accounts, that program is up and running and applications are now being received for projects that will be completed before the end of 2011. We think this is a step in the right direction. At the same time, we note that the government pledged $500 million for broadband in the last election. We have some specific recommendations that do not involve the cutting of government cheques or the creation of new government programs to accelerate deployment.
Specifically, there are spectrum policy measures, fiscal policy tools and ways to regulate carriers more efficiently that, when combined, will free up additional millions annually for direct investments in next generation networks.
[Translation]
We are recommending three types of measures.
[English]
On spectrum policy, Industry Canada is reviewing its policy frameworks that apply to how spectrum licences are awarded and renewed. The CWTA filed extensive comments and recommendations over last summer as part of that process. One of those recommendations was for the department to state clearly that anyone who wins a spectrum licence at an auction should have a high expectation of having that licence renewed. We argued in favour of longer licence terms. Currently Canadian licences to operate a wireless network are good for 10 years with no guarantee of renewal. In some countries, such as the U.K., those licences are awarded for 20 years for 3G networks. You might ask why this is important. What is the big deal between 10 years or 20 years? Why are we asking for high expectation of renewal? As I mentioned before, to build these networks requires billion-dollar investments. Over $6 billion was invested last year. When we ask the private sector to make these investments, they need a high expectation that their licences will be renewed, provided they meet and respect the conditions of the licences, and that they will have a licence for a longer period of time. In that way, you will entice them to make the investments to continue to upgrade the networks.
This is not done and what is happening is phenomenal. Some might think that it will slow down because we have reached a peak, but we are not there yet. Networks continue to accelerate, and Canadians want more speed. That is why making these changes to the spectrum policy would allow the private sector to continue to make private sector investments, not taxpayer investments, for the benefit of all Canadians.
Longer licence terms obviously provide a more stable investment climate — one that recognizes the initial investment required to get a new network up and running, the ongoing maintenance and improvement costs and the need to generate a profit at some time before the end of the term.
We also feel that it is time for Industry Canada to establish a true cost recovery formula for assessing spectrum licence fees. We recognize that spectrum is a public resource and that the government has a responsibility to see that it delivers a fair return for Canadians. That is why we recommend that spectrum licence fees be based on the cost of government for administrating spectrum and nothing more. Anything else is a tax on innovation, a barrier on innovation, an obstacle to investment and, therefore, an obstacle to the information economy, which will slow down the rollout of the next generation networks.
I find it interesting that the wireless industry and carriers, have approximately 1 per cent to 2 per cent of the spectrum in Canada and yet we pay close to 50 per cent of the spectrum fees. That fact needs to be taken into account and considered on a go-forward basis.
There are also clear fiscal policy measures that would draw forward several years of investment in a shorter time frame, giving a clear boost to the development and expansion of advanced networks in all parts of the country.
[Translation]
As in other sectors of the economy, good clear fiscal policy accelerates investment, but the opposite is also true. A lack of good fiscal policy can reduce and slow investment and development.
[English]
Budget 2009 included an accelerated capital cost allowance to allow small businesses to write off the cost of desktop equipment. We support the government's incentives to stimulate demand for the front end of broadband networks. We encourage the government to bring in similar measures to stimulate the supply on the back end of the broadband network.
Budget 2010 could, and I believe should, complete the loop and provide a temporary accelerated capital cost allowance for network equipment assets to draw forward several years' worth of investments to a strategic window of accelerated network growth. This would provide incentives to carriers to bring forward some of the investments that they plan to make in future years and make them now. During a period when we are getting out of a significant recession, we need these kinds of investments. These are not tax-funded investments; they are private-sector investments that can generate significant growth. Investing in wireless and broadband is a catalyst for growth. When this industry invests, it not only benefits the industry but also all other industries that make use of this technology. In today's economy, that is virtually everyone.
Outdated regulations are great at creating paperwork but they do not help carrier networks or consumers in any way. We have identified one particular regulation that would free up millions every year that could be reinvested where it is needed most. Currently, spectrum licence holders are required, as a condition of licence, to spend 2 per cent of their previous year's revenues on a specific range of research and development activities and to file the relevant comprehensive reports to demonstrate that they are in compliance. This rule might have made sense in the 1980s and early 1990s when governments were trying to ensure that the wireless industry in Canada developed and grew. It has, it did, and it will. Eliminating this regulation will not reduce the amount of research and development done in Canada. Canadian wireless carriers have invested over $1 billion in research and development since this rule came into effect — far in excess of the regulated amount. Eliminating this outdated regulation will allow those dollars — $250 million to $300 million per year based on the 2008 revenue figures reported by the CRTC — to flow where they will have the greatest impact an innovation and the digital economy in network design and development. Today's carriers do not need a regulatory incentive to invest in research and development because they do it and will continue to do it. There are more than enough market reasons to stay on the cutting edge of technology. Nowhere is the impetus to invest in research more acute than the need to ensure that next generation networks deliver the level of performance that Canadians demand.
I note that the Telecommunications Policy Review Panel supported elimination of this condition of licence, and it confuses industry policies with telecom regulations. No other jurisdiction in the world still has a requirement like this for spectrum licence holders. We feel this is a barrier, an obstacle, an obligation that simply slows down the investments and just adds paperwork and duplication.
The wireless industry and the government share a common goal to ensure that Canadians have access to the best technology while stimulating innovation and investment. For certain, both the industry and governments — federal, provincial and municipal — must increasingly focus investments in wireless infrastructure to meet the demand of Canadians.
[Translation]
Broadband growth means economic growth. Developing and advancing next generation networks is essential to expanding the economy of today and tomorrow. Forward-looking public policies that develop practices and favour investment will take us in the right direction.
[English]
We believe that through forward-looking spectrum licensing practices, focused fiscal policy measures and smart regulation, the government can direct measures to incent the necessary level of investment to ensure that our next generation of broadband networks deliver and, hopefully, exceed Canadians' expectations.
In addition to massive investments in 21st century infrastructure, the Canadian wireless industry recently introduced a major initiative designed specifically for what I consider the most important component of the 21st century wireless world, and that is the consumer. As a continuing promise of superior service and support for their consumer and small business customers, the wireless service provider members of the CWTA introduced a new industry-wide code of conduct to underscore their commitment to providing the highest standards of service and support for their customers. This new code ensures that customers have the information they need to make informed purchasing decisions. It also safeguards their rights as consumers and ensures that their concerns are addressed.
Not only will the new code safeguard the rights of consumers, it will also serve as an important resource in the complaint resolution process by Canada's Commissioner for Complaints for Telecommunications Services. This is where our code of conduct has teeth where others in the world may not. The fact is that there is a third party, independent commissioner's office, which we consulted with through the process and development of the code of conduct, and that office will be responsible for hearing complaints, if there are any, and adjudicating those complaints and making decisions based on the code. This shows the high standards of service and transparency that the members of the CWTA are committed to now and for the future.
I will be happy to entertain any of your questions, comments, advice and recommendations that you have for us as well.
Senator Johnson: That was an excellent and comprehensive overview; thank you.
You are primarily involved with activities of federal agencies such as the CRTC, Industry Canada and Health Canada. How is your relationship with these agencies now, particularly the CRTC, and how do you view the CRTC and the latest decision for fee for carriage?
Mr. Lord: Generally speaking, we have a productive and constructive relationship with the different levels of government and the different agencies. I have had the pleasure to appear before a panel of the CRTC. We try to help the CRTC in its mandate and to meet its objectives. We represent the views of our members, based on our association's values and objectives. The same is true when we meet with other government agencies or different government departments. We try to bring policy ideas and innovative public policy projects and thoughts that will help generate more growth, better service to Canadians, and allow the free market to provide those innovations.
Generally speaking, our concern is that different government agencies, and I will not pinpoint one, may try to add barriers and obstacles. They may be well-intended, but often the result will simply reduce innovation, block investment, and limit the access of services and the networks that Canadians would enjoy.
Senator Johnson: What do you think of the CRTC, or is that not something that you would comment on at this time, in terms of its work as a regulatory agency? It is very old now; it has been there since 1968. Is it serving us well?
Mr. Lord: From my conversations with the members of the CRTC and observing their work, I think they do everything they can to meet the objectives of the act under which they are governed. It is not an easy job in the sense that the world is changing. It might be time to look at their mandate. It has been there for a long time. It has evolved over the years, but that evolution cannot stop.
I believe the members of the CRTC are working hard to deliver on their mandate. We may not always agree with their decisions. We certainly are there to help them in their process. If there was a desire by anyone to engage in discussions about the future of the CRTC, we would certainly be happy to participate.
Senator Johnson: How is your organization doing at the provincial and municipal levels? Of course, it is so important, given the $225 million, and the emphasis on rural broadband. To me, broadband is like our early railway. I think we should just run it right across the country. Having a home in a rural area, I am well aware of the quality of service.
You were an exceptional provincial premier. How is your work proceeding with the provinces?
Mr. Lord: We generally have good working relations with provincial governments. We work with them on different files. We work on the issue of broadband specifically, but we launched as well a recycling program for wireless phones, mobile devices and equipment associated with mobile devices. Five out of 10 provinces have approved us and we will be launching with a sixth and seventh province next month. This is a way for us to work with provinces. The idea there — and I will get back to the broadband in a second — is to set up a recycling program that is free to customers. The program is also free for the governments, because there are some governments that want to create agencies and ask consumers to pay fees and ask carriers and manufacturers to pay fees. We came up with a solution where we are recycling devices used in our industry and nobody pays. In fact, we have members making money doing this. It is amazing sometimes what the private sector can do. We do have good working relationships with different provincial governments.
I agree with you, senator, that the broadband issue is very important. This is essential in many ways for Canadians and their way of life. When I was the premier of New Brunswick, we launched an initiative to provide broadband services to ensure that at least 90 per cent of the New Brunswick population would have access to broadband. The initiative included broadband service to 95 per cent of businesses and 100 per cent of government institutions, which was, at the time, the highest penetration of broadband anywhere in North America. I am pleased that the government in the province of New Brunswick followed through on our commitment to take it to100 per cent.
It is difficult for businesses to function if they do not have access to high-speed Internet. When your competitors can be anywhere in the world and work at the click of a mouse that gives them the speed of light, you cannot be dealing with snail mail and waiting for slow speed access through the Internet. It is not just a question of having broadband services at home or at work or at your office. People want it all the time, wherever they are. The objective over time has to be to secure mobile broadband access to all Canadians. The industry, through investments, is building networks that will enable that to happen. These investments include the purchase of spectrum for which it paid over $4 billion.
When you look at our geography, I believe the only way we will be able to economically and reasonably provide broadband to all Canadians will be through wireless and satellite technology, combined with other technologies. When you look at the size and geography of Canada and what we have accomplished so far, it is a testament to Canadian know-how and the can-do attitude that exists in our country.
Senator Mercer: Thank you for being here, Mr. Lord. We appreciate your presence and your presentation. The Standing Senate Committee on Agriculture and Forestry recently produced a report on rural poverty. As we travelled across the country, each group that we heard from mentioned four major items that needed to be addressed. One of those items was access to high-speed Internet and broadband.
You have painted a rosy picture. People in rural and remote parts of the country would have a difficult time entirely accepting that rosy picture. I live 40 kilometres outside the largest metropolitan area in Atlantic Canada, and I have spotty wireless service. I have good service to the Internet through my telephone provider. Could you comment on that?
Mr. Lord: I appreciate your comments. As you know, I live in New Brunswick, and I spend not long enough but as much of my summer as I can on the shores of New Brunswick, where it is just gorgeous and beautiful. I invite you all to go there in the summertime; we have the warmest beaches in Canada. I know how important it is for people to have wireless service. New Brunswick is either the most or the second most rural province in Canada, so this is something I know very well.
It is important for all Canadians, whether they live in rural or urban settings, to be able to communicate on the Internet using wireless devices. Perhaps the government has a role to play to support and ensure that what might not otherwise be economically feasible becomes feasible so we can provide those services to Canadians. The government has played this role in the past concerning other essential services.
I stated that 99 per cent of the Canadian public has access to wireless service. That does not mean that we cover 99 per cent of the Canadian territory. As you know, we have vast lands in Northern Canada. In some places in Europe, they measure how many people live within a square kilometre, whereas, in some places in Canada it is how many square kilometres we have per person. It is completely different. I am not suggesting that we cover 99 per cent of the territory, but we do cover 99 per cent of the population, and 91 per cent of the population has access to the fast 3G networks. There has been significant growth and investment.
I agree that we are not at 100 per cent. We get to the 100 per cent by ensuring we have the right policies, regulations and incentives. Today I am recommending three things that we can do that would accelerate deployment and support and ensure that where it is not economically feasible. That is where the government should proceed. That is why we applauded the $225 million investment in broadband.
Senator Mercer: In your presentation, on page 6, you talked about the $225 million in the Budget 2009, but you also referred to the $500 million promised by the current government in the last election campaign. There is a shortfall that we will talk about at another time. Of the $225 million in the budget, how much of it has been spent, to your knowledge?
Mr. Lord: I have to say that from the work we have done with the department, I do not know exactly how much of it has been spent, but they are well underway. They were up and running quickly. We were impressed. When they launched this in the budget, we thought it would be a difficult commitment for the government to deliver so quickly. We have truly been impressed by how they have been able to get the program up and running. Very quickly, they consulted with various stakeholders and worked with provinces and community groups across the country to deploy this $225 million.
We see this as one component. We know the government made a commitment that it is well on the way to fulfilling. We feel there are other things the government could do that would not add cost to the government's expenditures. We suggest that the government accelerate the capital cost depreciation of some of the equipment and do it for a fixed period of time. A 100 per cent allowance on depreciations over three or four years would create the incentive for the private sector to invest more right away and deploy those networks faster. They would realize that if they did it now or over the next few years, instead of having 10-year plans or doing it in four years, benefiting from the capital cost allowance, it would generate even more than asking the government to spend another $200 million on broadband or any other incentive.
This year has been in many ways the year of the stimulus, not just in Canada but around the world. Many industries have approached the government, cap in hand for money, and some have received it, for good reason. This industry is not asking. In fact, this industry is providing significant money. The $4 billion in spectrum that was paid last year probably helped other industries get some money. We are suggesting that the government allow the private sector to deploy, make investments and see how fast it goes. It will be amazing. We suggest that the government not add barriers to this industry.
Senator Mercer: You suggested there be longer licence terms and a higher expectation for renewal for new spectrum licences. I appreciate that. How would you feel if those licence renewals or the longer licence terms were linked to the ability of the licensee to deliver services to rural and remote Canada? The licence extension or renewal could have a codicil that states that the renewal would have to include service to more of rural and remote Canada, in order to maintain the licence.
Mr. Lord: Currently, a spectrum awarded covers a certain area. It is part of the spectrum, and it is for part of the geography. In some cases, if you buy spectrum for a certain part of the country, you will provide service to part of the country that includes rural Canada. You may also be buying spectrum or getting a licence for spectrum that covers an urban area and will deliver service to that area.
We are willing to work with the Government of Canada, if that is their objective, to see how that can be set out in the future. Currently, the payments that have been made for spectrum in Canada are probably among the highest in the world. This is a large contribution made only to acquire a band of spectrum for a certain geographic area of the country.
Senator Mercer: Thank you, Mr. Lord. I hope that maybe at another meeting we might ask Mr. Lord to expand on his thoughts about the renewed mandate and evolution of the CRTC, but that is for another day.
Senator Cochrane: Mr. Lord, please explain the recycling program. You say five provinces have signed on. Please name the provinces. How and where do residents recycle their products?
Mr. Lord: Thank you for the question. We launched the recycle program. Some of our members had their own program but we thought that as an association and as a group of providers, we had to take responsibility. We took the different programs in place and created a pan-Canadian program called Recycle My Cell with a website at recyclemycell.ca or, in French, recylemoncell.ca.
The program is operational across the country with over 3,700 drop-off sites where people can drop off mobile devices such as cell phones, chargers or batteries, or any electronic equipment associated with mobile devices. All they have to do is go to the website, put in their postal code and it will give you the 10 closest drop off locations. If you purchased your phone from company A and want to recycle with company B, you can with this program. We brought all the different programs together.
The benefits of recycling also help different charities. For instance, we were in Nova Scotia when we first launched the program in February. Local food banks are receiving some of the proceeds of the recycling program.
We are doing this program with no fee. There is no additional cost to recycle and no additional fee when you buy the cell phone or equipment.
We have either letters of intent or memorandums of understanding with five provinces. In some cases, we are the designated stewards with obligations to meet provincial regulations. We are doing this because we are concerned that governments will decide to create their own bureaucracy and add fees and costs when we know we can do it at no cost. We set up the program in a way to generate revenues and support charities. The companies that recycle are International Organization for Standardization, ISO, approved for environmental recycling. They are audited and, therefore, meet the highest standards.
The first province to sign on was Nova Scotia, then New Brunswick, Prince Edward Island, Newfoundland and Manitoba. We are hoping to launch officially with the support of governments in British Columbia and Saskatchewan this fall. We will continue to work with the governments of Quebec, Ontario and Alberta and would love to be approved in all provinces.
We would love to help save taxpayers money by not having to create a bureaucracy to recycle what we can do on our own. Industries have to take some responsibility. Consumers have to take some responsibility. Governments take responsibility, but every part of the chain must take responsibility. We are taking that responsibility with the recycling program.
Senator Cochrane: I am glad to hear that. Thank you.
I have been getting complaints from various individuals, businesses and so on about the high roaming charges on mobile applications for Canadians who travel. The charges being applied are deplorable. For a couple of weeks, I know one individual had to spend $700-plus dollars only for roaming charges. Will something be done about that?
Mr. Lord: There are things being done now. For instance, when I was in Europe last week, I received a message as I landed in the U.K. from my provider on my own device informing me that I was now in a roaming territory and roaming charges applied. The provider clearly indicated and suggested in the message that I could buy roaming packages.
We have set out the Code of Conduct that I discussed. It was launched in September. I have been with the association less than a year. One of the first major initiatives I took on was to work with our carriers to create a code of conduct. Part of the code is to inform consumers clearly what they get when they buy a package and what they do not get. If you want a roaming package, you can add a roaming package. Different carriers have different agreements with carriers around the world. You can deal with that by talking to your carrier before you go to the U.S., South America or Europe. You can buy various packages.
We deal with some of those complaints. They call our office. With 23 million users in Canada, there are bound to be complaints. That is why we thought it was important to set out a code that would clearly identify what the carriers had to do and what consumers can expect. Then we set up to work with the Commissioner for Complaints for Telecommunications Services, which is an independent body created by the CRTC at the recommendation of the Government of Canada, to deal with complaints in order to try to avoid these types of situations.
We see the evolution of cell phone and mobile devices in Canada. When I was a young lawyer practicing law in Moncton, New Brunswick, my first cell phone was as big as my briefcase. One minute would cost 50 cents. Now, I can browse, text with my children and see websites they point me to. It is changing and the evolution is moving rapidly. That is why, as an industry, we have to move in that direction.
The simple answer is that consumers can get information from their providers. There are packages available from some providers to deal with that when they are travelling.
Senator Wallace: Mr. Lord, witnesses have appeared before us comparing the broadband situation in Canada with other locations in the world. They have expressed concern that we are not measuring up as we should in the speed of broadband service and cost. What are your thoughts on that? Canada always wants to be at the top, but we have the impression that we are not. Do you agree?
Also, when you look at what is happening in other countries, are there lessons to be learned as to where we could be going in the future?
Mr. Lord: Certainly, improvements can be made in Canada, and I am pleased that the members of our association are investing to make those improvements. The three recommendations that I submitted this morning would make it easier for the private sector to invest in those improvements, and accelerate some of the improvements. When you consider our geography and the density of our population and usage, we are doing quite well. We are not the best at everything but, certainly, we are far from being the worst. Some critics like to come here and make a name for themselves by being the naysayers and bashing what is happening in Canada. The fact is that many Canadians bring innovation to this country. Canadian companies with Canadian investors are making significant investments to improve the networks. In a country as large as ours with 33 million people, we already cover 91 per cent of the population with 3G networks, and this will improve next year. It shows that we are doing something right.
As an example, one of the hottest items out there for kids is the iPhone. When it was launched in the U.S., there were complications and problems. The manufacturer blamed the carrier and the carrier blamed the manufacturer. When that service was launched in Canada, it worked. At times, people want to look at a few components, such as price and speed, but they never compare the same component all the time; people cherry-pick. One thing they should look at is the quality of the networks, such as fewer dropped calls and better reliance on the networks. We need such resilience in the networks to satisfy the public, our geography and our dispersed population in rural areas.
Generally speaking, improvements can be made in Canada, absolutely, and we are making them. We are suggesting three different measures that will not increase government's costs but will free up the hands of the providers and the investors. We can accelerate the process. Some people think that the solution is to regulate more, create more obstacles and have government involved at every step, but I think that government has its hands full with so many other things that they should not try to do more. Governments have to focus on essential elements and allow the private sector to make the investments that will improve the networks.
Senator Housakos: Is there any consistency in the technology provided to urban centres vis-à-vis rural centres, which we touched upon earlier. When people look to buy spectrum, the market and the dollars will dictate. What does government need to do and what does your association think government needs to do to balance that out? Mathematically, it would seem to be more difficult to garner the same attention for providers in rural Canada than in urban centres. How could that problem be overcome?
Mr. Lord: I agree with you, senator, that there are differences. Some services are deployed faster in urban centres than they are in remote rural areas. It has been the case for a long time in our country and, in some cases where the economics are not right, that is where government has a role. Government played a role in bringing electricity to remote areas and government is playing a role in rolling out broadband.
Having the right rules for spectrum auction can make a difference. When you look at how much was paid for spectrum in Canada versus what was paid for spectrum in the U.S., for example, you will see that it was much more expensive in Canada. Some might say that perhaps that is because it is more valuable, but perhaps it is because of the way in which the rules were set up, which generated more money for the government. The government could use that money. The windfall of the spectrum could be used to reinvest in areas where the economics might not be the same. Certainly, that would be a fair policy. When you generate money from an industry, you can redeploy that money in the same industry to support the deployment where economically it might not be feasible as quickly. Rather, that money is put into general revenues, which governments can do, and deployed elsewhere. That is one way to deal with the issue. Under some of the recommends I have made this morning, government would be able to do that as well.
I can assure senators that our carriers want to provide services to more Canadians. We have approximately 23 million subscribers and the expectation is that the numbers will grow to 32 million in the next five years. That is phenomenal growth, which means Canadians realize the benefits and value of wireless mobile service. They want not only voice and text but also Internet and mobile content, which we want to provide not only to urban centres but also to rural areas. There is no doubt that the economics are different.
Senator Housakos: Your answers and ideas are quite concise in terms of dealing with the problem. I hope that someone is taking notes.
Senator Rompkey: Mr. Lord, I direct your attention to the Far North. The government program is aimed at providing services to those who have it least. I would submit that those living in the Far North fall within that category.
Is there a skewing in the government program that would allow companies that have plans for the Far North to access it? Do any of your providers have plans for doing just that?
Jim Patrick, Vice President, Government Affairs, Canadian Wireless Telecommunications Association: Industry Canada ran an extensive process to determine the geographic service areas that would benefit from this program. There are several in the North. The program goes one step further for native communities. For non-native communities, the program caps the government contribution at a maximum of 50 per cent. That cap does not exist for native communities, and that is a way of bringing those communities to the networks, and vice versa, faster. The application process for that program is ongoing, with applications for all areas due at the end of this month. We will know which areas will benefit from the program and to what extent early in the new year.
As Mr. Lord said earlier, the department has done a stellar job of getting the program up and running. As an example, I refer to the mapping exercise. They had to look at Canada and try to figure out which part of the country has what kind of Internet access. The U.S. had a broadband stimulus envelope of $300 million to do that mapping exercise whereas Canada had $225 million in total with no money or time set aside to do the mapping exercise. What Industry Canada accomplished was quite impressive. They have a 20-foot map of the country with coverage down to 20-kilometre cells across the country. They did that with very few resources, little time and a great deal of ingenuity. We are watching the program closely, and we like what we see. When we receive the results in January, we will have a better idea of which areas will benefit most.
Mr. Lord: I have had some conversations with the minister, who is very interested in ensuring that all Canadians have access. There is a growing consensus of how valuable broadband is. Numerous studies link more broadband service to economic growth and prosperity.
We suggest that not only do we want broadband at home and at the office, we think in most of the country where most of the people live and eventually where all people live, we can have it mobile, which is even greater and more powerful.
When we think of broadband service, we cannot just think of where it should have been five or 10 years ago; we have to think where it must be five years and 10 years from now. That is not only at home and at work, but everywhere in between.
The Chair: Mr. Lord, the British think it is important to have a minister responsible for digital technology. Do you think Canada should have such a minister?
Mr. Lord: My view on that may be different from others, Mr. Chair. I have been in government, as you know, and I have had the pleasure and honour of serving as premier. I do not always think that having a minister of something is the only way to go. Sometimes we end up with too many ministers and too many departments. Governments need to focus on key priorities and at times just unleash the power of the private sector and individuals to deliver. The government's role must be to step in when the private sector cannot. With Canada's geography, when we talk of these services, that is where the government can play a role in partnership. Do we need a minister? I think we end up with too many ministers of too many things. I do know many people who want to be ministers.
The Chair: Thank you, Mr. Lord. The witnesses from Industry Canada will now come to the table.
[Translation]
Helen McDonald, Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Industry Canada: Good morning, Mr. Chair. I am here with Shari Scott, Manager of Policy and Communications at Broadband Canada, and Louis LePage, Manager of Industry Framework on our telecommunications policy team.
You have already received a copy of my presentation. I will start with the second slide.
The government prefers to let market forces rule as much as possible for fear of telecommunications services provisions. The government is well aware that Internet access is pivotal to success in today's knowledge-based economy and that market forces alone will not be enough to extend broadband coverage to Canada's rural and remote communities.
As you know, under the economic action plan, $225 million in funding was granted to Industry Canada to develop and implement a strategy to extend broadband coverage to as many underserved and unserved Canadian households as possible.
[English]
According to the 2009 CRTC Communications Monitoring Report, some 6 per cent of Canadians still lack access to basic broadband service. Virtually all urban Canadians have such access but in rural areas that number drops to about 78 per cent. Broadband access expands opportunities in many sectors and has become an important tool for health care, education and access to government services. It also enables the creation of new business opportunities.
The Government of Canada has demonstrated an ongoing commitment to broadband infrastructure. You may recall from 2002 to 2007 the Broadband for Rural and Northern Development Pilot Program called BRAND invested $105 million to connect approximately 900 communities. Since 2003, the National Satellite Initiative has invested $155 million to provide high-speed broadband Internet access via satellite in the North. The current round supports connectivity to 124 communities in largely isolated or remote areas of Canada.
Since 2006, Infrastructure Canada has invested approximately $130 million in joint federal-provincial initiatives. Nova Scotia, New Brunswick and Eastern Ontario, for example, have made significant advancements in broadband deployment through joint initiatives using infrastructure funding.
The objective of the new Broadband Canada program is to increase access to broadband services to as many un- served and underserved households as possible. We define broadband connectivity as a minimum download speed of 1.5 megabits per second. To do this, we will provide a one-time incentive for the expansion of infrastructure in areas where there is currently no business case for the private sector to deploy on its own.
The program is technology-neutral and will accept a variety of wireline and wireless technology solutions, such as fibre, DSL, cable and wireless networks including satellite. Broadband Canada will fund up to 50 per cent of the eligible program costs as a one-time, non-repayable contribution. The projects will be selected through a competitive application process.
[Translation]
Slide 6 outlines the first step in the program, which was to map the current state of broadband coverage across the country. An extensive mapping exercise was undertaken using information that was publicly available; it was done in consultation with the provinces, the territories, the CRTC and other federal departments.
On July 6, we launched a website inviting Canadians and Internet service providers to validate the accuracy of the mapping data that we compiled. More than 2,000 Canadians shared their feedback, and 65 Internet service providers updated broadband coverage information.
On July 30, Prime Minister Harper unveiled the national broadband coverage map in Adstock, Quebec. Thanks to this information, we can avoid investing in projects that would re-produce infrastructure that is already in place.
Slide 7 shows the map using census division data from Statistics Canada and broadband coverage information obtained during the mapping exercise. The country was divided into 64 geographic service areas for the purpose of the program.
[English]
The eligible recipients must be Canadian legal entities that can build and operate broadband infrastructure. That could include private sector companies, municipalities, not-for-profit organizations and First Nation ISPs. Applicants must identify which geographical service area the project will serve at a minimum download speed of 1.5 megabits per second. The applicant is encouraged to cover as many households as possible within that zone, although we are not demanding that they cover 100 per cent. There must be a sustainable business case; 50 per cent of funding must be found from other sources. The project must be completed by December 31, 2011. Coverage, number of households and cost will be key factors in the selection process. Applicants must identify the number of un-served and underserved households that will have access to the program with a detailed breakdown of the costs, and the technological description of the proposed network must be included. Applicants need to demonstrate a long-term strategy for a minimum of five years to support sustainability and have a proven track record of project management in the deployment of broadband infrastructure.
Where provincial initiatives exist that have committed already to 100 per cent connectivity in the next 12 to 18 months, no eligible geographical service areas have been defined. These areas include Prince Edward Island, Nova Scotia, New Brunswick, most of Saskatchewan with the exception of some First Nations communities, the Yukon and Eastern Ontario. The CRTC deferral account communities are also excluded.
[Translation]
The call for proposals was launched on September 1 and comes to a close on October 23. We expect the projects to be selected by December 2009 and the contribution agreements to be signed in January 2010. All of the projects must be completed by December 31, 2011.
[English]
While the broadband program is working to increase access to the current generation of broadband infrastructure, Canada, like many other countries, is looking to consider the needs of a digital economy.
On June 22 of this year, the Honourable Tony Clement, Minister of Industry, convened 180 participants from the private sector, consumer groups and academia to discuss the development of a digital economy agenda. Four themes were discussed at the event: promoting business innovation by using ICTs, information communications technologies; building a digital infrastructure for the future; sharing a safer and stronger online marketplace; and moving Canada's digital industries further along, strengthening the ICT industry sector itself.
In terms of digital infrastructure, the Broadband Canada program focuses on the current generation of broadband, ensuring that all Canadians have access in rural and remote areas. At the same time, we must consider what next generation infrastructure could include and ensure that appropriate policy and regulatory frameworks encourage efficient innovation and timely use of the available radio frequency spectrum. We need to ensure that these policies and frameworks encourage this investment in networks while promoting competition and ensuring consumer choice.
The Chair: Thank you, Ms. McDonald. You mentioned CRTC deferral account communities; please explain.
Ms. McDonald: The CRTC had hearings around funding. It was essentially a pot of money set aside for some specific communities that could use the funds to extend broadband coverage. Since this was before the Supreme Court, we thought it would be safer to exclude them because they already had a source of funding to provide connectivity. We did not want to use our dollars to cover something that could be provided through another fashion.
The Chair: What is the history behind these communities?
Louis LePage, Manager, Industry Framework, Industry Framework Policy, Industry Canada: The deferral accounts were created under a price cap regime that amounted, at times, to over $600 million. There was a debate as to who was entrusted to this money. A set of public projects were approved by the CRTC, including some initiatives relating to service to people with disabilities. Some specific projects were also approved for extension of broadband services. Surplus funds were unused, and the CRTC decided that the money should be rebated to consumers. The Supreme Court was asked to provide judgment about whether the CRTC had jurisdiction to do that.
Senator Mercer: You have confused me more than you have clarified. However, I think we should ask the researchers to do some work on this with the CRTC's definition, because we may not be talking to the right people about that.
I would like to relate your presentation with the presentation of Mr. Lord from the Canadian Wireless Telecommunications Association, wherein he talked about the spectrum licensees having to spend 2 per cent of their revenues diverted into what he called paperwork. I interpreted that as 2 per cent of their revenues needed to be diverted into proving compliance. His recommendation was that that 2 per cent be removed since no other jurisdiction, according to him, in the world imposes this type of levy on the industry. Do we have an opinion on this matter? Where is this going? Is Mr. Lord barking up the wrong tree? Are we the only country in the world doing this and if so, why? If this is hindering industry's expansion and work, particularly in rural and remote Canada, we should talk about this, and it may indeed end up being a recommendation in our report.
Ms. McDonald: The research and development requirement was set out a number of years ago. The intent was to ensure that Canadian companies were investing sufficiently in research and development that would make them more innovative. At the time, there was a concern that businesses were under-investing relative to government investments in research and development, so when the spectrum was licensed at that period, this condition was added that if you get a spectrum license, we expect that you commit 2 per cent of revenues to research and development. At the time, you think of this as the carriers, and the carriers were not investing very much money. Most of the investment was done by the telecom equipment manufacturers.
I cannot give you an answer as to what the government will do about it because it is the subject of an ongoing consultation. We have asked for general views on whether this research and development condition should continue. We also need to look at the results, whether carriers are spending perhaps more than the 2 per cent, and are they objecting to the paperwork that might be associated with it? We need to look at the administrative burden, or is it really that they feel that this is forcing them to spend in an area that they would prefer not to spend. It is under consultation, and the government has not completely analyzed the results. The government has not come to any conclusions on this matter.
Senator Mercer: We may need to make a note of this. At reporting stage, we should highlight this as something that we may want to discuss.
The Chair: If there is a report that is made public, could it be sent to the clerk?
Ms. McDonald: We can send the website. Typically, our consultations are carried on in a public fashion, so I am sure the responses we received would be public, as well as the counter responses. We will ensure that the clerk has the website for that.
Senator Johnson: Regarding the announcement in terms of the underserved and unserviced rural areas, what is the likelihood that this investment will extend broadband to all those areas? You say $105 million connected approximately 900 communities from 2002 to 2007. What would need for the next two years?
Ms. McDonald: That is the $64 million question. If you ask me in December, I would be able to tell you, but it is difficult at this point. Through the mapping, we know where the un-served are and the population density of the underserved relative to the 1.5 megabits per second download speed. We know technologies have improved and become more cost effective since the BRAND program. Suppliers provide — and I believe you have had them at this table — broadband in rural areas where population densities are modest. We do not know how they see the business case. Is there a sustainable business case for providing broadband access at a rate that people will buy into? Can they then afford to maintain those customers? There is an effective population density and without it is a higher per customer cost to maintain. Therefore, we cannot tell you exactly.
Senator Johnson: However, you will send it to us when it is available.
Ms. McDonald: We are looking to ensure that we can tell what the program spending has achieved in increasing access. That would be made public, but I cannot tell you now how far it will go.
Senator Johnson: You are accepting applications from the potential private sector partners that will be also concluded by December. How many partners will be involved?
Ms. McDonald: We have defined 64 areas that contain un-served or underserved households. We are trying to cut the size of these in a way that allows competition to keep the subsidy amount for federal investment as low as possible. We do not want to overpay; we want cost effective solutions. We also want to ensure economies of scope and scale, so we thought 64 areas was the adequate balance.
We suspect there will be some areas with very little competition. There may be only one applicant, but we would expect other areas to have multiple applicants.
Senator Johnson: You will not know until December.
Ms. McDonald: Before we went to cabinet, we had a session with as many of the industry players as we could cram around a room about this size. We made sure that satellite, wireless, wireline, cable, industry associations, associations representing small and big players were all able to give us advice on what would make this most effective and most attractive. We think we have the program designed well, but I cannot tell you how many will apply.
Senator Johnson: Is there a lot of interest?
Ms. McDonald: We are getting questions for clarification on the call for applications that went out recently. That seems to suggest interest. We have had some industry players tell us they will be bidding for it. We think there will it be a healthy interest.
Senator Johnson: We are doing this wireless study with the emphasis on 3G wireless, which allows the use of smart phones to access the Internet. How will the BRAND program affect the wireless sector in Canada? Is the program looking to leave a footprint, for example, to pave the way for a fair and competitive market within the wireless sector in Canada?
Ms. McDonald: The program is aimed at where the private sector does not currently see a business case. We have not structured the program to provide competition because that would be using public subsidy to help a competitor compete. We are trying to get service extended beyond where it currently is. We are looking to fund the best applicant we can find within an area. If they establish a business case, technology continues to improve, price continues to go down and you have content that attracts more people, you could see competition being more attractive. However, the purpose of our program is not to create competition for those that already exist, but to extend it where there is nothing.
Senator Housakos: Have you come up with an estimated cost of establishing universal broadband access across Canada? What methods did you use to arrive at the $225 million figure for the Broadband Canada program?
Ms. McDonald: I suggest you direct that question to the Minister of Finance, who puts the budget together. We inherited the $225 million figure. At the end of 2006, the Telecommunications Policy Research Panel provided advice on various aspects. One of the ideas was a ubiquitous broadband network. They calculated that the number of communities left over after the BRAND program would probably take in the order of $600 million to $700 million. That might have been a starting point.
However, knowing that the goal is to reach as many households as possible, assume we were given the $225 million with the task to come up with the best way of using that funding. We looked at various models, including the BRAND model, which was a community-based approach. It started with funding community capacity. If we then waited for those communities to come forward with applications, we thought some areas would not have communities in a position to come forward. The government was looking for fast action, so we took a different approach of calling for applications from those already with capacity to try and extend it.
We started with the figure, knowing what we knew from the CRTC and other figures to try to structure a program to achieve the objectives.
Senator Housakos: If we hit a wall and realize that the private sector will not be able to reach out to certain regions as quickly as we would like them to, what is plan B?
Ms. McDonald: As a part of the digital economy, it behooves our government, along with other governments, to look at what remains, if something remains. The provinces and regional municipalities have been very active in this area as well — New Brunswick, Nova Scotia, P.E.I., et cetera. What is the nature of the problem and what is the solution that might make best sense? It may be that the satellite technologies we are starting to hear will be in the sky within a couple of years offering higher capacity and much lower prices might be the most cost effective solution for the very remote areas.
As I was saying to Senator Johnson, we cannot tell you how far our program will be able to reach at this point until we see the applications.
Senator Rompkey: My question follows the operation of the private sector in remote regions. First Nations have 100 per cent federal funding in a one-time allocation. Are there other considerations for First Nations built into the business plan that they would have to put forward? If a private sector organization was working with First Nations, would there be special considerations?
You mentioned satellites. Do you foresee that being the most effective means of providing service to the High Arctic?
Ms. McDonald: We do not have a different set of program criteria for First Nations or consortia involving First Nations. We have a different level that the federal government collectively can fund. Our program is always capped at 50 per cent, which is the maximum that we are able to put toward any project. Indian and Northern Affairs has funding available for certain types of infrastructure programming, of which broadband connectivity is one of their five priorities, and could be another source of funding.
Senator Rompkey: They are eligible for 100 per cent federal funding.
Ms. McDonald: Yes, but it would require them to put together different sources of funding. On your second question about whether satellites are the best solution in the High Arctic, I defer to Mr. LePage, who might have other advice. In my interaction with industry, I have heard many people say that it would be an easier general solution. Given the costs of extending wireline or even the repeaters necessary for wireless, satellite would be the most cost- effective solution, in particular where there is a very low-density population. The low density of the population is the factor that makes it more cost-effective rather than the location, such as the Far North.
I am also aware that with the government push to try to open up the North with a Northern Strategy, there are probably opportunities through a need for defence or sovereignty or scientific research. How does one best piggy back on these solutions to try to provide community access, which might be an alternative to satellite?
Senator Rompkey: It is the three that you just mentioned plus the fact that 25 per cent of all the oil reserves are in the North. As well, there are diamond mines and gold mines. There is a business case to be made apart from the other three that you recommended. You have clarified how people would go about putting this in place and where the funding would come from.
Senator Wallace: Ms. McDonald, the existing areas covered would not be covered under this program, although they have received the benefit of these programs. Does the eligibility criterion for the new program differ in any substantial way from that of the previous programs?
Were any lessons learned about how the private sector responded or did not respond to the previous program to prompt you to think that if you made changes or created further incentives, other than increasing the dollar amount of the program, you might attract additional participants?
Does this new program differ in any fundamental way to attract the private sector participants to take broadband access to the next level?
Ms. McDonald: In the three areas in which there were previous programs, some of them are ongoing, such as the Infrastructure Canada Program. It was used for an approximate one-third share of the Eastern Ontario Wardens' Caucus — a $155-million broadband project that has objectives much loftier than our project at $1.5 million. They are going for a different kind of end result.
Certainly, we are aware of those. We tried to learn as much as possible from the New Brunswick and Eastern Ontario programs, which had both put out bids, and how they structured their application calls. We also tried to learn as best we could from the BRAND program, which was not private-sector led but community-led. There was a concern that in some areas you would require more heft and scale with a private sector lead than would be possible with communities or that some communities were unable to develop an application, manage a vendor relationship, et cetera. In such cases, we found that we should take a different approach to try to extend coverage in those areas. We tried to build on that and recognize where we needed to move to a different approach.
Senator Wallace: Have you had any initial response from those who might be interested in participating because they have seen elements in the new program that are different and more appealing?
Ms. McDonald: We received a positive sense that the program was well structured. The New Brunswick and Ontario programs were not that different. A model set of criteria will not cause too much angst because these other programs worked. We received positive responses on the way in which we structured the program, which we did with as much consultation as we could build in within the time available to us at the front end.
Senator Cochrane: Are all of the wireless companies Canadian?
Ms. McDonald: We require Canadian-owned and Canadian-controlled lead organizations. We encourage consortia to build where you combine the knowledge of the local market by a local ISP or a regional municipality that works with a provincial entity to acquire funding. I expect that you will see Canadian providers because that is part of the requirement. They would operate as service providers and be subject to certain legislative requirements for Canadian- owned and Canadian-controlled organizations.
Senator Cochrane: Has there been any discussion with Industry Canada to use satellite to bring broadband to remote areas?
Ms. McDonald: When we chose $1.5 million as a minimum amount, it was so that we did not preclude satellite. Satellite service providers could provide at that speed. Had we picked a much higher number, we would have run out of money faster and we would have precluded satellite providers. We are open to whatever solutions make sense. We are aware that in the New Brunswick area, they are using a combination of wireless where it makes sense and satellite where it makes sense. They have put together a package that is cost effective, which we are looking for.
Senator Cochrane: Is that using satellite?
Ms. McDonald: We are not precluding the use of satellite. We are thinking that in certain low-density areas, whether in the Far North or elsewhere, including parts of New Brunswick, satellite is seen as the most cost-effective solution.
Senator Cochrane: Is that the government's thinking?
Ms. McDonald: Yes. We are open to whatever comes forward. If no satellite providers wish to bid on this or no one wishes to use satellite as part of their technology solution, we would be surprised.
The Chair: If there are no further questions, I thank the witnesses for appearing this morning.
(The committee adjourned.)