Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 6 - Evidence, October 21, 2009
OTTAWA, Wednesday, October 21, 2009
The Standing Senate Committee on Transport and Communications met this day at 6:31 p.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: This is the Standing Senate Committee on Transport and Communications' ninth meeting for our study on the wireless sector. Tonight we meet with Mr. Kenneth Campbell, CEO of Globalive Wireless Management Corporation.
[Translation]
Globalive Communications Corporation purchased a significant amount of spectrum in a wireless spectrum auction in 2008. Globalive is now in a position where it can offer Canadians more choice in cellular services and technology.
Kenneth Campbell, Chief Executive Officer, Globalive Wireless Management Corp.: It is a pleasure for me to be here this evening. I am the CEO of WIND Mobile, the brand identity of Globalive Wireless.
Before joining WIND, I worked in the telecommunications sector in Europe, North Africa and the United States. My last position was CEO at Bite, a partner of Vodafone in Lithuania and Latvia.
Having lived abroad for the past 17 years, I decided to return to Canada and accept this offer to work for a new Canadian company. When the opportunity presented itself, I had mixed feelings. I was concerned that in the area of wireless telecommunications, Canada's penetration rate was incredibly low compared to other countries and that consumers had a limited choice of suppliers. However, I was motivated by the immense potential that existed to introduce new products, services and options to improve the choices available to Canadians.
[English]
I would like to take you through this presentation and to provide you with my perspective and the perspective of WIND, which is our trademark, our company's name, on the Canadian wireless business.
Just to give you some background on WIND, last August we paid $440 million for spectrum that provides us with coverage across Canada from coast to coast, unfortunately with the exception of Quebec where we were not able to obtain spectrum. The company is controlled by Globalive Communications out of Toronto. Globalive is an established player in the Canadian telecom market. It has done very well as a real challenger in this market with brands such as Yak; OneConnect, which deals with the small- and medium-business enterprises; and Canopco which deals with the hospitality industry.
Tony Lacavera started this company. He is a young Canadian entrepreneur, and he was successful in partnering with a large international player called Orascom Telecom. Orascom has operations throughout the world in Greece, Italy, North Africa and throughout Asia, 100 million subscribers globally, so an important global player.
For our part, after receiving the licence in March from Industry Canada, we accelerated the development of our network. We are building right now, as we speak, in Ottawa, Toronto, Calgary, Edmonton and Vancouver. We have established a call centre and are building out in Mississauga and Peterborough. We have made our first call and sent our first SMS. We have 500 very motivated people developing this network.
Our peak funding for this project, just to give you a sense of the scale, is over $1 billion. So it is quite a significant infrastructure project that will bring an all-IP, all-Internet protocol network. This is the newest of technology. It will provide data speeds initially starting at 7.2 and going up, with the technology the way it works, to some fairly significant wireless broadband speeds. You will be able to watch videos on this, to make it real.
So where are we in Canada and why this opportunity? Frankly, one of the reasons that I came back here is because I felt that Canada lags in wireless. Having worked in about five different markets, it is fairly clear that our penetration levels are lower, our prices are higher and our service levels can improve. You can look at the numbers I have shown you here. In comparison to the U.S. and other European countries, the penetration level, which is the number of people that use wireless, is 65 per cent. Other markets are rapidly approaching 100 per cent and, in fact, will go beyond 100 per cent as we all carry around one or more devices in our pockets.
Canada has also fallen behind, according to the ITU telecom index from ninth to nineteenth. We should not be moving in that direction. This is just a bit of context into where we are.
Part of the opportunity in Canada lies in the levels of service. I do not think you have to go very far or talk to too many people before you run into frustrated businesses, frustrated consumers with the levels of service. At WIND, we intend on tackling that issue. In doing our research, we discovered that if we take European comparables, compare them to Bell, Rogers and Telus and ask consumers on a scale of one to ten how they rate their operator — this is a typical way of assessing an operator, just random surveys — we found that Rogers, Bell and Telus are well below what we would consider acceptable in those other markets. Canadians are really not satisfied with the levels of service.
This is a function of many different things, but price is clearly one of them. Canadians pay more and get less. We pay on average twice what Americans are paying, and we have many other examples of other markets where the price — and I am just talking about a voice minute here, but of course lots of people are texting and doing other activities on the net — is much less.
There is a direct correlation between that and usage. Canadians, compared to our American counterparts and wireless, are talking about half as much, so 435 minutes versus 830 minutes. It is a function of price, not that Americans talk more. From my perspective, there are at least three main reasons why we have lagged. We have lagged for many reasons.
The industry in Canada is largely oligopolistic. There are three players in the market. Canada is a country of regions. It is effectively a duopoly situation, mainly two players in each region. Ontario is probably the exception. You may have three options, but two players dominate.
What has happened as a result? Typically it is fundamental microeconomics. Increased competition leads to lower prices. In Canada we see a bit of an anomaly. Average revenue per user is rising, whereas in other markets it is levelling off or in many cases declining. This is one condition that has led to the situation we have in wireless.
The second situation relates to the scale. It is expensive to deploy a wireless network. As I mentioned, we are spending over $1 billion U.S. by the end of the day — it is very close right now — to deploy this technology. When you buy this much equipment, when you are putting up towers and when you are bringing all these antennas together, you need scale. It is a scale business. If you look at Rogers, Bell or Telus and compare them to other global players who have expanded internationally, it is just not of the same scale. When you are talking to vendors, if you are a Vodafone or a Telefónica, the Spanish operator, or if you are even a China mobile that has scale just in your own country, you are able to buy equipment for lower prices.
The third reason is that we have seen — and this will start to come together — adoption of technology that has resulted in a separation of markets in Canada. We had two of the operators choose a technology called CDMA. We had one of the operators, Rogers, choose a technology called GSM, which is globally a bigger standard. If you have bigger standards, then it can lead to lower costs. We are all migrating towards one platform now that will help us in the future, but this really has slowed down our industry to some degree and has forced our operators to have a higher cost structure.
The next thing I would like to look at is where this industry is going. Until now, we have focused a lot on just a typical voice call, but the future is about wireless broadband. In markets such as Japan, you are seeing broadband subscriptions, how people use the phone for accessing the Internet, for accessing video or for other types of applications, typically as a dongle hooking on to a laptop or whatever the case might be. It is unbelievable how many consumers in markets like Japan are using it. In Austria, a country that I work closely with, 50 per cent of new subscriptions were data.
You do see in other markets mobile broadband really starting to take off, and we at WIND see an incredible opportunity for broadband.
Data usage, in our market, as you can see on the slide, is well below where it is in Germany, France, the U.K. and the U.S.A. This, of course, will change.
We are seeing handsets. We are seeing technology or devices that will help and enable the adoption of more broadband. This is really where the market is going. This is where we have to position ourselves for the future.
I think that many conditions are, in fact, coming together in Canada. Last year, when the government decided to set aside a piece of spectrum to allow new entrants such as ourselves into the market, it really set the framework for competition. It has attracted not only a lot of money, but a few significant and interesting players.
Competition in this business does not just happen. It has, to some degree, to be enabled, and I think the government recognized that in two of their policies. One policy was called mandated roaming. That means that our company has entered into a roaming agreement, so when I call on my wireless phone in Ottawa and roam up into the Gatineaus, I am going to roam outside of our immediate coverage area, and I will go on to one of the other Canadian operators' networks. We have managed to have an agreement and the government actually mandated that.
That is important, because otherwise it would take us years to catch up in coverage.
Senator Banks: The government forced other carriers to carry your signal when you were out of your coverage area.
Mr. Campbell: The government created a method whereby if we could not come to a negotiated agreement, which we did, it would be forced arbitration. They knew one way or another we would have that. If you think back 10 years ago, new entrants like Fido in Montreal and Clearnet suffered from the fact that they did not have the coverage from day one.
The second thing was tower sharing. If we drive up any one of the highways, we sometimes see one or two towers next to each other. In many parts of the world, this kind of infrastructure is shared. It is in fact a business that trades at higher multiples than the wireless business. In Canada, it is a strategic asset for many operators. The government recognized this, and they said, "We will force tower sharing, so Rogers, Bell, Telus, if you have room on your tower, these new players can come and stick their antennas on it." Unfortunately, doing that is easy when you put it down in legislation, but in practicality we have zero tower sharing today. We have been building our network for almost a year now.
Anyway, there is a difference there, and that is a long story that I will not get into.
The other things we have to look at to enable the market is, of course, interconnection, making connection between all operators easy so that I can call on a land line or other wireless networks. Another is a simplified regulatory process; it is not necessarily as simple as I would like it to be. Another is handset exclusivity so that one operator cannot take one particular handset and it is not available to other operators. You see that occurring and that is something that the U.S. government is starting to look at, and it is possibly an opportunity for us to consider.
Another is the consideration for new spectrum. We will run out of this wireless real estate some day. We have to consider that.
Competition is emerging in Canada. We will come into this market and we will shake things up. The other thing that is helping it is that the cost of delivering these services is coming down, the cost of devices, terminals, handsets. If we start in this business, some people had a brick. A few years ago, that was about $2,000 probably at the time. Last year in Europe I was able to buy terminals with my company, Vodafone at the time, for 30 euros, and it is going down now to around $30. That handset is now becoming very affordable for almost everyone, and we will continue to see declines in handset prices and increased functionality.
The third thing that is enabling this industry is speed, which I talked about before. You can just do more with it. Price has come down, you can do more with it, and competition, of course, is accelerating that. The stage is really set.
I know you are going off to Estonia and Europe as part of your review. It is interesting to look at how this industry is evolving and how operators and other people involved in the value chain are, in fact, seeing this grow. I am sure some of you have an iPhone, which is enabling a whole range of new applications to be delivered to consumers. Google has launched a Google handset called Android which also will allow more and more applications developers to deliver things on to the phone, whether it is a location, a map, a location-based service, shopping or a game that my 14-year-old may download. BlackBerry, as well, is developing it.
You see device or handset manufacturers trying to move up the value chain and trying to create an environment to encourage developers so that we can get more revenues, of course, from consumers while making this a bigger share of people's lives.
You will also see a whole fundamental change towards data, as mentioned before. Devices will be able to carry applications such as Skype and fring. These are applications which allow us to make voice calls using a data channel. The cost of doing that is, of course, much less.
In the cost of placing a call, distances will matter less. In fact, distances are pretty much redundant right now, and the whole way we use a mobile and the whole economics of this industry will, frankly, change.
I want to give a little bit of perspective from where I have been in other parts of the world. I have not had a landline phone in 10 years. In other parts of the world, even in the United States, we see that taking off. People do not call locations anymore; they call people. We still see landline penetration very high in Canada. We have a great fixed-line infrastructure, but wireless-only households are becoming more and more common. In the next 20 years you will see landlines — that fixed-line thing we have in our homes — going away. More and more households will not have those phones. That is one important thing to consider as we move forward.
In terms of the applications, let us look at the Baltic states. We had a business in Lithuania and Latvia. These are ex- Soviet states. They have come a long, long way in the last 20 years and have, in fact, leapfrogged Canada and some other parts of Europe in terms of how wireless is used and deployed.
In Lithuania I could park my car, send an SMS and pay for that parking. It was totally integrated with the city's parking systems and billing. I could do my banking. In Estonia they are piloting voting applications.
The whole way of people using this technology is changing fundamentally. It is changing in parts of the world that people cannot point out on a map.
Innovation is also happening in how we use this mobile for payments. It is becoming a way to enable banking. We had a great application going with Vodafone and Safaricom in Kenya called M-PESA. If one person was living in one part of the country, perhaps their parents live in a rural area, they were able to transfer money by paying a store front, topping up the credit in the phone and then sending a message to a storekeeper in another area. It is a fairly simple application. It is not even using data technology, but it is finding real and tangible things that consumers can use.
In other parts we do money transfers, simple credit transfers. If you are out of credit on your cell phone I can send you some money and things like that.
Anyway, the point is here that applications are becoming richer. We will be able to do things on our phones that no one's even thought of up until now. We really have an opportunity to create an environment that can help this take off. In Canada we are sitting in an important position. We are ready for change. Consumers are absolutely ready for a change.
We launched our brand WIND about a month and a half ago. We have created a website that enables people to chat and pass along comments about what they want to see in applications. We have had 1.1 million page hits, which is huge. We launched a viral video; we have had 20,000 people watch it. There is pent-up demand and frustration.
We have lagged the markets, but people are ready for a change. The auction that the government did last year has really opened the door for competition. You will see more affordable rates, terminals and handsets. We must continue to watch this environment and ensure that we enable it.
I want to leave you with a summary of thoughts that I think are important to consider as we try to create an environment that enables the growth of wireless.
First is pro-competition policies. Competition does not discourage investment. Competition drives innovation. You will see more and more Canadian companies, like DragonWave and Bridgewater — just up the road here and both of which we are doing business with — come up with innovative technologies that will enable and help us.
We want to discourage exclusivity. We want to discourage cutting new entrants out of the market. There are huge barriers to entry into this business. Exclusive handset deals have not helped us. I could go on about other stories; having access to a tower. There are lots of ways that government policy can promote competition.
Easier access to capital; we are building our network with just under $200 million of vendor financing. Equipment suppliers — these are the Nokia, Siemens, Alcatel-Lucents of the world — are supporting our investment by financing it. Unfortunately some of the Canadian manufacturers do not have as easy access to financing capabilities. They may if they export through EDC, but domestically they are not as enabled. There is an opportunity there to support our domestic industry.
For service providers, we have just gone through an incredible process with the CRTC; on foreign ownership in review. Why? Because a young entrepreneur from Toronto managed to hook into a partnership with a large international player and it is a threat to the incumbents.
Our ability to bring in either expertise or to leverage scale or to find national partners is an important consideration. You will not see our business develop unless we look at things globally and look at things beyond our borders.
We need to review the cost of doing business. In the U.K., if I make a call from Edinburgh to London, I do not pay long distance. There is no ILEC or CLEC. There are a few different networks that have to interconnect. We have a regulatory regime that will not be changed overnight, but it does result in increased costs and a complex infrastructure that is cumbersome. That increases both our operating costs and capital investment requirements.
Finally, an important thing to consider is the spectrum itself. We have purchased this 2,100 megahertz band. We will use all of it. We hope to find different, innovative ways to use it. We will not sit on it, which has happened in some other cases. People have the spectrum or this real estate, but it is to their advantage to just have it sit idly by. We need to create different environments that encourage investment, competition and new equipment suppliers to develop.
That is the end of my presentation. We are at a very interesting time in wireless. Either we will go forward at an accelerated pace or we will continue to fall behind. Conditions are right and the market is right for a lot of change.
The Chair: Thank you, Mr. Campbell.
First of all, I forgot to tell honourable senators at the beginning that I would like everyone to stay after this witness. We will continue in camera. Senator Mercer would like to raise a subject that he would like us to look into.
Secondly, if I had an idea of how many people have questions, I would be able to better balance the sharing of questions between now and the end.
Senator Johnson: Thank you for coming. I really enjoyed your presentation. We have heard before about customer dissatisfaction with the status quo, and somebody has described Canada as mediocre in this whole area. I do not know if you would agree with that.
At the same time, the communications monitoring report of this year published by the CRTC said that between 2007 and 2008 access to 3G wireless rose from 78 per cent of the population to 91, and that the 2G system is now available to over 98 per cent of the population.
How will the entry of Globalive into the wireless industry of Canada affect Canadian access to 3G wireless?
Mr. Campbell: Those statistics are about coverage. It is where our networks are available. Those numbers are not unlike many developing markets. 3G has been deployed over the years in many other places. Frankly, the big difference is competition. It is all well and good to have a network in place, but if prices are high and if consumers do not have choices that can make a difference for them, they will not use it and develop it. That is really what it comes down to.
Senator Johnson: You also said that all incumbents have very poor customer satisfaction scores. Were those the present industry people?
Mr. Campbell: Yes. The way we are positioning our company is to deliver a good price and good service. People think that that cannot happen, but the reality is that when you build a phone company today without the legacy, without the old systems, without trying to tape everything together, you can create a better and simpler experience for consumers.
One thing we have seen from talking to customers, is that they find the tariff plans complex and difficult to understand. They find that at the end of the day, there is huge bill shock where prices are high. There are a lot of elements on a bill that are confusing and surprising. Then, when they call into the call centre or go into the store, they are not getting the levels of service they would like.
That is frankly why you see these levels of frustration or poor service ratings from consumers. I think when you have competition, you see people trying to differentiate themselves by providing that better experience. With whatever service you are buying, you tend to go to the companies that have a good price and provide good service.
Senator Johnson: You mentioned the CRTC. In your conclusion about competition, you talked about easier access to capital and CRTC. Do you have any comments on any of the proceedings and how it is going?
Mr. Campbell: The CRTC decided, for the first time in its history, to hold a multi-party public proceeding to review our application to launch and to review our ownership and control. Next week, they will make a decision. We are very confident. Industry Canada has in fact done their assessment and issued the licence to us. The legislation they look at is pretty much the same. We are very confident in our submission, and we are looking forward to hearing from the CRTC.
With that said, the incumbents know the system. They know the system much better than I do, so having a public hearing where our potential competitors are arguing that we should not enter the market was kind of interesting for me. Actually, it adds to the complexity of doing business.
Senator Johnson: That is one thing we have been looking at seriously, that whole aspect of the CRTC with regard to the regulatory system.
Mr. Campbell: We respect the CRTC. They have their job to do. We went through the process.
Senator Johnson: Maybe they do not have a job any longer. I will go on to the Baltics. I am fascinated by how they created this environment that escalated their growth of the wireless industry to the extent it has. Can you comment briefly on that?
Mr. Campbell: It is amazing. It is not just the Baltic states; you can see it throughout Eastern Europe. In fact, I worked for a Canadian company called TIW. Charles Sirois started that business. We had a huge business in Romania and the Czech Republic. It was a great Canadian company, but we had no business in Canada. We eventually sold to Vodafone.
These markets encourage competition. In the Baltics, our chairman was Canadian and we had a bunch of Canadians over there working with us. We competed against the Swedes, the Danes and some local players in Lithuania and Latvia. You have markets that are 3 million, and in the case of Latvia a couple of million people, and three operators. It just leads to great competition, it is good for the consumer and more people adopt the phone. Of course, income levels are lower. That is really what happened.
If you cannot grow your revenues much any longer, you try to find other ways to do it, so you do things like parking, banking or selling silly ringtones and things like that. This is what tends to happen, and it will become even more rich with 3G.
Senator Mercer: When you talked about the follow-through on the pro-competition policies, why zero tower- sharing?
Mr. Campbell: Why is there no tower-sharing?
Senator Mercer: Yes.
Mr. Campbell: There are two reasons. People have done tower-sharing because they want to stretch their balance sheets. They want to maximize their use of resources. There has not been a real need, not that level of competition that says I will spin off my towers.
Most importantly, Canadian operators have felt that is a strategic asset for them. If I own the tower in your town, I do not have to let the other guy on it, and building a tower can cost over $200,000. Frankly, it is a barrier to entry.
Senator Mercer: You said it was mandated that there be tower-sharing. If you owned a tower in my village in Nova Scotia and your competitor comes in and wants to put an antenna on it, is that not tower-sharing? Why does that not work?
Mr. Campbell: There are lots of ways to play the system. They will offer you 10 metres up on the tower, but 10 metres will not give us enough coverage. It is on the low part of the tower; you need them at a certain distance. They will argue that future use is important and, therefore, I will need that space in the future. You will have to do a civil engineering study to determine whether the tower can support that.
We will find opportunities for tower-sharing; it is just the practicalities of entering into those deals, and the motivation for incumbents to share their toys is just not there.
Senator Mercer: Obviously, the mandating was not strong enough.
Mr. Campbell: Incidentally, going into this business, we did not think the tower-sharing would work, so we planned to do it without tower-sharing.
Senator Mercer: The customers would like it to work. I know they may be down the list here.
My standard question to everyone at this committee is with respect to services to rural Canada. What is your commitment to providing service to rural Canada? When you received your licence, was there any mention of providing services to rural Canada, or were there any restrictions put on you that you must provide service to rural Canada?
Mr. Campbell: There is nothing specifically that defines rural Canada and that would force that service, but we have to build out our network in all of the places where we have a licence. That does not necessarily mean we have to build the network in a rural place where the economics might not make sense for us.
With that said, the technology is changing. The new spectrum of 700 megahertz that will come up next year or thereafter, will make the economics of the deployment of wireless in rural areas much more attractive.
Right now, we are focusing on where the high population areas are because, of course, we have to recover our investment. There is definitely a market opportunity in rural Canada, either through ourselves or through partnership agreements, with other local companies. We are exploring that.
Senator Mercer: Finally, you talked about the low cost of devices. It is funny the pictures you show, the first two. I have owned one of each as I have moved through my cell phone wireless life, and I am now have a BlackBerry.
As we develop markets across the world and we know that wireless is the tool of choice in many developing countries because of the high cost of land phones, should we have a program where we take those large numbers of devices, your word, and force recycling perhaps in the Third World to help keep the cost down to the consumers there?
Mr. Campbell: I think handset recycling is important. We should all have handset recycling programs. Whether they are refurbished and sent back to the Third World or not, there could be an opportunity there. There is already grey market refurbished handsets that go back, but recycling is definitely something I would promote.
The interesting thing having worked in emerging markets in North Africa is, although income levels can be much less, people still like a brand new nice Nokia handset. It is still a style thing for many people.
Senator Zimmer: I have two questions. Are any of your services focused on customers based in remote, rural or northern areas and do you have any suggestions as to how we can combat this uneconomic, as one witness previously stated, market?
Mr. Campbell: We have licences in the North and we will look at ways. There are limitations to the technology, and of course, the economic returns are difficult to justify in some places, but as I mentioned, 700 megahertz could help to some degree. It will not allow us to cover everything; we have too big a country.
That said, satellite can complement it and there are ways, typically, that you can roam onto satellite, so I think those kinds of services are quite common. As I said, I worked in Egypt, where we had a roaming agreement with Inmarsat. If you had the right device and roamed outside of our coverage area, you could pick up the satellite which provided that kind of coverage. That economically starts to make sense, but it depends on the population density, of course.
Senator Zimmer: By entering the Canadian market, you will increase competition. How do you intend to compete with the big three — TELUS, Bell and Rogers — in terms of handheld devices? It was just announced recently that Telus and Bell will now be offering a currently-exclusive Rogers iPhone. Will you be able to compete with these three big companies? What factors control the device options that you will offer?
Mr. Campbell: That is an important question. I think if operators are allowed to enter into exclusive deals with handset manufacturers, it will obviously not benefit the consumer. We do have a situation now where a manufacturer is providing — I cannot get into the details of it — exclusive GSM terminals. All of their GSM terminals will be exclusive to one provider in Canada. This is clearly a barrier to entry.
To answer your question on how we will compete, we have taken apart the way a phone company operates from the time you activate to the time you bill to the time you serve a customer and tried to create a simpler model. We will have flat rate pricing, a simple process for activating your phone, a simple way to bill, and at the end of the day for our customer service agents in Peterborough or Mississauga, it will be easier to serve that customer.
We think we can improve on the Canadian service experience and, because of the way we built this company — and I should mention the scale that we get through accessing some of the price books of our foreign partner Orascom — we will be able to provide a competitive price offering and have a lower cost structure.
Senator Zimmer: Thank you, Mr. Campbell. I think I will do business with you.
Senator Merchant: You ended your presentation by saying that we live in interesting times. That statement, "may you live in interesting times," was a curse really. You did not say that to your friends; you said it to your enemies. I do not know how to interpret what you said.
Mr. Campbell: You have already interpreted it.
Senator Merchant: There was I think a Harvard study released this past week that placed Canada very poorly. What are the real reasons that we score so poorly? Is it our lack of competition? Is that one of the reasons? Is it the size of our country? Is it the demographic of our country, that we have an aging population? Maybe some of these countries that you are talking about have a younger component? Sometimes older generations find it more difficult to work with these devices. I know sometimes it is difficult to operate taping even television programs and the like. It is more difficult for us than our children. Does that make a difference too?
Mr. Campbell: I think Canadians typically embrace change and new technology, but the demographics of Canada are not radically different from Europe. Yes, in emerging markets it may seem a little different, but I do not think that is the reason. It is a combination of things. We do have a good fixed line infrastructure in Canada, and Canadians are reluctant to cut that phone. If I do not have a choice in Romania, Tunisia, Algeria or wherever, I will have only one option to communicate, and that will be wireless.
Another factor is the price. There is a price to just keeping your wireless device on all the time. In the emerging markets it can be pennies a day. We have people who are making $100 a month spending $5 a month on their phone just to keep that alive, just to receive calls. In Canada, I am not suggesting we have a cost structure that can take it down to $5 a month, but we have a market which forces a much higher cost to mobile phone service. That, I would argue, is as big a factor if not the biggest factor affecting our penetration levels.
Senator Merchant: As we continue in this study, what country can we look to that compares favourably with Canada for the things we are looking at? We are going to Estonia and Brussels. I forget how many countries you said you worked in, but do you have a suggestion where we can look to for some comparisons?
Mr. Campbell: I have worked in six different countries including Canada. You have something to learn from every place that you go. What is the most relevant comparable? Definitely look at Europe. The United States is interesting, but I would definitely look at Europe, and hopefully you will talk to the regulars in Brussels. They will tell you about the kinds of policy that engendered competition. They have had an extremely successful run at it with GSM. I would look to Europe, but if you travel to India, you will certainly learn something about wireless that you did not know before.
Senator Banks: Do not feel badly, Mr. Campbell, about having incumbents intervene against your application because everyone who appears before the CRTC to do anything at all faces that. It is part of what they do in order to protect the fabric of the Canadian industry, and I am sure there will not be undue competition. Everyone does that, which I am sure you know already.
This tower sharing issue is odd because in this country all utilities largely have been obliged at one time or another to share. Even railways, pipelines and telephone lines in certain circumstances have shared. I hope you will proceed with that.
With respect to your company being Canadian controlled, is it controlled by virtue of a majority of the shares being held in Canada or by virtue of a management agreement? I presume that some of this information will be public on the basis of CRTC hearings.
Mr. Campbell: The CRTC and Industry Canada deal with control. There are different elements to it. Probably, they and lawyers would be better positioned to tell you what the true test is.
In our situation, a Canadian, Tony Lacavara, has two thirds of the voting shares in the company and one third of the equity. This is not uncommon. It is common to have two tiers of voting shares in Canada. That is the situation in our case. We welcome competition. The CRTC hearing was interesting, but I look forward to taking them on.
Senator Banks: Will you use GSM?
Mr. Campbell: Yes. It is what we call HSPA; it is part of the GSM family. It leads to LTE, long-term evolution, which is the road map for what you see in most of the world.
Senator Banks: Is not GSM slower?
Mr. Campbell: GSM is 2G. We will be dealing with HSPA, which is 3G. GSM is effectively a standard that has led to 3G. It has now led to HSPA, which is part of 3G. They are all part of the same road map.
Our customers will be able to roam on to a GSM 2G network with their hand set.
Senator Banks: My final question may determine whether Senator Zimmer becomes your customer.
Many providers here, of the three you have mentioned, have things on the bills we get at the end of the month that look like a government-imposed fee or tax of some kind called a system access fee, for example. Will you have that?
Mr. Campbell: We will have no hidden fees and no system access fee.
Senator Cochrane: I also, like Senator Banks, would like more information on your ownership. Who are the owners? Are they Canadian or are they outside people?
Mr. Campbell: Our owners are Tony Lacavara, who is from Welland, Ontario, I believe. Tony started the business called Globalive about 10 years or 15 years ago out of the University of Toronto. He has built that business. They have YAK and Canopco, et cetera as brands. He owns the majority of the shares and is our chairman. A majority of Canadians are on the board. All that those tests that you look at to determine our "Canadianness" are covered.
The foreign investor is a company called Orascom Telecom. It is run by a family out of Cairo, the Sawiris family. The company is publicly traded. They own the third largest operator in Italy called Wind. We have also licensed that brand name. Wind also operates in Greece. They are the fastest growing operator there. They have also developed businesses in other parts of North Africa and South Asia. They are a fairly successful company. They are the ones that Tony was able to find as a partner in this particular venture. They own two thirds of the equity, but have one third of the votes.
Senator Cochrane: This will remain a Canadian company?
Mr. Campbell: Yes, according to our legislation, it has to.
Senator Cochrane: You mentioned that the applications are becoming richer, but is there a danger with security?
Mr. Campbell: Which types of security are you thinking about?
Senator Cochrane: You were saying you could tap your phone, send money to the bank and so on.
Mr. Campbell: Definitely, a big part of it is encryption. Several companies in Canada have developed technology that allows you to encrypt data and to do this in a safe way. Security, in terms of mobile banking is huge. You have to get that right to launch applications. Otherwise, you will see fraud.
You also think about security when you build an application. You think about controls for parents, for example. All things that relate to the Internet, you have to think about on a mobile device.
Senator Cochrane: I have another question about mandated roaming and tower sharing. In regards to roaming charges, it has been very difficult for people who travel outside of Canada, even to the U.S. Would you like to address that?
Mr. Campbell: It is expensive. Again, it relates to our overall pricing model. When you roam abroad, you are somewhat at the whim of the operator whose network you are roaming on because you have to pay. We have entered into roaming agreements with a company in the United States that will give us very competitive roaming arrangement for that country. We also have a deal internationally where we will have very competitive rates.
We have not published our price book yet, but I think you will be pleased if you go to Florida this winter.
Senator Cochrane: Will it be cheaper than what I have to pay now?
Mr. Campbell: Yes, I would say it will be cheaper than what you pay now.
Senator Hubley: You opened your presentation by saying that you paid $442 million for spectrum in the AWS auction. I would like to know a little more about that spectrum concept. I then want you to carry forward to your final point on improved management of spectrum to ensure purchase spectrum is deployed. I would like you to explain how an auction works? Who is bidding against you to receive spectrum that you describe as real estate?
Mr. Campbell: Industry Canada manages our spectrum. It is a national asset if you can think of it that way. Last year, they effectively auctioned off, in our case, 2,100 megahertz. I describe it as a piece of real estate because it is real estate in the air effectively.
In our case, we bid against many other different companies for each area. An area could be southern Ontario, Newfoundland or Quebec. In fact, Ottawa is a licence we have and it stretches across to Gatineau. Sometimes, there is a bit of overlap between provinces.
It was online. It was a well designed and well done bidding process. This is not unusual in other parts of the world where they do it as well. We were able to secure a certain amount of megahertz per area. We outbid everyone in those areas. Other operators were able to secure spectrum as well.
Senator Hubley: Would improving the management of spectrum be under government policy?
Mr. Campbell: Yes, it would be. Lots of discussion is happening over what will happen with the 700 megahertz, which is a new spectrum that will come on, and whether there will be an auction or what sort of method they will have for distributing that. There is another question about the spectrum that current operators have. How is it be used? It is valuable real estate. Some is more valuable than others because you can do more. For example, with 700 megahertz you can send signals over bigger distances. Your towers will be less intense and the capital you have to deploy would be less.
The economics of each spectrum varies based upon the band. It can be optimized and government should consider whether it is all being used in the right way.
Senator Hubley: Where is the technology? Are there centres doing that or is it done by individual companies?
Mr. Campbell: Nortel was a big developer of the technology as you know. There are probably five or six major vendors in the world right now, in terms of big wireless infrastructure vendors: Alcatel-Lucent —
Senator Hubley: Where are they located?
Mr. Campbell: They are French and American, but they operate in Kanata. There is Nokia-Siemens, who bought the Nortel assets recently. Nokia is a Finnish company and Siemens is a German company, so they are a joint venture. Huawei is a Chinese company and really making big progress. ZTE is another Chinese company. There is a few different other ones. Ericsson, of course, is a big one.
I would not characterize them as a Canadian, French or U.S. companies necessarily because a lot of them have development centres all over the world. Ericsson has a great one in Montreal. Almost all of them have different development centres everywhere. We have some great stuff happening in Kanata here.
Senator Zimmer: With respect to Senator Hubley's second question about hoarding spectrum, is it a habit that some of the companies awarded spectrum sit on it; do nothing with it and/or does the CRTC come along with a prodding iron and say, "Either use it or lose it"?
Mr. Campbell: I cannot comment on all the spectrum, but the general sense in the industry is that what you have said is true. Whether the CRTC or Industry Canada will regulate that is another question. However, there is spectrum out there that is not being used and is being used as more of a defensive tactic.
That said, we are very happy with the spectrum we have and we feel we can compete very effectively with it. That is more of a broad policy issue. Spectrum is not infinite. It needs to be used.
Senator Zimmer: Is the CRTC or Industry Canada acting on this and saying, "Look, you have had it for so long, you are not using it. Other companies probably could use it. Either you have a time period to use it or lose it"?
Mr. Campbell: There is a debate right now whether spectrum fees are rental costs or whether or not you would get an automatic renewal. You will have to ask Industry Canada about that. I am sure they are looking at spectrum, in general, and asking how they can maximize the utility for the Canadian consumer and for Canadians generally.
The Chair: Mr. Campbell, on behalf of the committee I thank you for your presentation. If, along the way as we go forward, you have any additional information, please contact the clerk and give it to us.
Mr. Campbell: Thank you.
The Chair: I will be asking to go into camera. Once we get the little green light we can go forward.
(The committee continued in camera.)