Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 8 - Evidence, November 17, 2009
OTTAWA, Wednesday, November 18, 2009
The Standing Senate Committee on Transport and Communications met this day at 6:37 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]
Good evening. This is the Standing Senate Committee on Transport and Communications' fourteenth meeting on our study of the wireless sector. This evening, we have with us from TerreStar Canada, André Tremblay, President and Chief Executive Officer. With Mr. Tremblay is and Jan Skora, Regulatory Advisor, Jan Skora Consulting Services Inc.
[Translation]
Mr. Tremblay is a founder and partner of TerreStar Canada, a private equity fund management company. He has over 20 years of experience in the telecommunications industry, having been actively involved in the conception, financing and management of several companies.
[English]
André Tremblay, President and Chief Executive Officer, TerreStar Canada: Thank you very much for inviting me. It is a pleasure to be here. I share with you the view that we need a vibrant telecom company if we are to extract the most benefit for Canadians.
I have spent a lot of my career in telecommunications, part of it acting on a panel for the government. I welcome the opportunity to talk to you.
I am not an expert on public policy or regulatory matters. However, I have been exposed to all of the above as they relate to telecommunications, first as an actor for more than 20 years in executive functions in different companies in the industry, and lately as an independent advisor in the context of the Telecommunications Policy Review Panel that presented its report to Industry Canada in March 2006.
I spent a year with colleagues assessing the telecommunications industry in Canada and making recommendations on how we should proceed. It was a very special experience for the three of us on the panel, which included Gerri Sinclair and Hank Intvent. It was a unique opportunity to express independent views about telecommunication policy and regulatory matters.
Of course, this environment involves huge financial stakes; and many, if not all public statements, tend to be dictated by a party line or are developed by top-ranked advisors to legitimately support the views of their financial interest stakeholders. It is a highly capital-intensive environment and most of the views are directed toward one side of the house.
In our case, I do not mean that we were unbiased. I think we all have and still have our own beliefs and sacred cows. However, we were independent and open to the views of the team of supportive staff members and experts that we consulted to come to our conclusions.
The view that you can expect from me is one of a non-expert — I would say a reasonably informed, actively involved and still relatively independent actor. I say "relatively independent" because I am now back in the telecom sector as main shareholder, president and CEO of TerreStar Canada, a next generation satellite service company that I will briefly introduce to you later. Accordingly, I cannot claim to be a perfectly free thinker anymore.
Let me begin with a few general comments on the panel's recommendations, particularly in relation to the wireless sector, which I think is the main interest of the committee. Then I would like to explain why I still believe and support the view that we need some government intervention in the spectrum management practices and policies to maximize the benefits of the wireless industry for the Canadian people. I believe that is necessary. Finally, I would like to say a few words about TerreStar Canada and take the opportunity to show you the benefits it can present to the Canadian population, especially and particularly in remote areas.
As a result of its review, the panel recommended quite substantial modifications to the policy and regulatory environment. We had over 160 recommendations; it was a substantial piece of work. In our view, this was required to reflect and adjust to the no less profound transformations affecting the telecommunications technology in today's market.
The list of recommendations dealt with all the important aspects of the telecom environment, including policy objectives and regulations and economic, technical and social regulations. It was a very wide mandate.
The panel made a considerable effort to take a global view of the telecom environment and to propose a comprehensive and balanced set of recommendations to achieve several important objectives. The first objective was to accelerate the pace of deregulation of competitive markets and to rely, when and where possible, on market forces to achieve Canada's economic goals. The second objective was to streamline and speed up the policy and regulatory process where and only where it remained necessary; and third, to help define a predictable telecom environment that is conducive to investment and competition to the benefit of the Canadian population.
As it relates to the wireless industry, our recommendations were based on the following logic. First, the panel was convinced that the strong broadband penetration on fixed line that we enjoy in Canada was not primarily due to regulatory intervention, but because we have two performing platforms with the fixed land line. These are the telephone companies and the cable companies that compete with each other to gain market share. Therefore, we felt the success of broadband was really based on market competition and not on regulation. Second, with the support of technology experts, and having reviewed some success stories in other leading markets, the panel took the view that wireless systems could become a third competitive access platform for a lot of voice and data products. We took the view that such competition could drive substantial benefits for the Canadian people.
Our view was that wireless was evolving at such a pace that future networks such as we have today — the 3G networks, and now the 4G networks that are close to being accessible — would be powerful enough to compete for broadband access with fixed platforms, that is with cable and telecom companies. As much as we could make policy that would make wireless a vibrant industry, we felt that with these three platforms would really drive benefits for the Canadian population.
Finally, the panel noted that the Canadian wireless industry was generally lagging behind most other developed markets on many aspects — penetration, usage, innovation, next generation platform, et cetera. As a result, we recommended the adoption of spectrum management practices and policies that would support a strong and vibrant wireless industry, enhance the efficient use of spectrum and facilitate the adoption of wireless.
We made a series of recommendations, generally based on the experiences of some of the leading countries, to support several objectives. They were as follows: Streamline and speed up the process of spectrum allocation and re-farming; rely on a market-based approach to spectrum management as much as possible; establish market based rules for the ownership and trading of spectrum; and establish measures to encourage competition in the Canadian marketplace.
We also made some related recommendations to ease the access to different structures, resolve right-of-way disputes, mandate tower sharing and preclude exclusive rooftop arrangements. In summary, we were trying to remove many constraints and ease the way for new investors willing to take the risks involved in building competitive wireless networks.
Another very important suggestion I believe we made — and we made it following the report since it was not part of our mandate — was to carefully widen the access to foreign capital into the telecom industry. We noted many legitimate concerns with the removal of foreign ownership restrictions, so we designed our suggested approach in a way to best respond to these concerns. The unrestricted access to capital is a key element of success, particularly in high capital, intensive industries such as telecommunications.
In the recommended context of net positive benefits, as much as we can assess that there are net positive benefits for the Canadian people, we see no good reason to be deprived of the benefit that an international operator could bring to Canadian consumers. In fact, one or more of these international operators are present in almost all developed countries, with the exception of Canada.
As a follow-up to our report, in June 2007, Industry Canada issued a revised Spectrum Policy Framework for Canada. Industry Canada took the opportunity to simplify the policy objective and came out with the following single and very simple objective: "To maximize the economic and social benefits that Canadians derive from the use of radio frequency spectrum resource."
I personally agree with that stated objective and believe that it is clearly not met at the present time.
In summary, I believe that Canada is severely lacking in competitive behaviour in its wireless sector, and I can give you many indicators in support of that conclusion. The last time I did that analysis, I based my views on a 2008 Merrill Lynch analysis. The analysis — How does Canada stack up in wireless? — was published in April 2008. Even though I did not refresh these data points, I am sure that the conclusions are the same today.
On the first page of the analysis, it says that Canada had the lowest penetration rate among the 23 developed countries. This may be linked to the fact that Canada had the second highest average revenue per user, at $61 per month. That number has been rising for the last 20 consecutive quarters — five years of constant increase in prices.
In addition, the proportion of the GDP represented by the wireless industry was comparatively lower in Canada. The proportion of the monthly revenues represented by the new data product was equivalently substantially lower, and the profitability of the industry — the profit of the companies in the industry as measured by their earnings — was by far the highest of all developed markets.
On the next page of the analysis, you will find multiple statistics allowing you to make your own judgment and to reach your own conclusions. However, compared to the benchmark of 23 developed countries, Canada's wireless penetration lagged by 38 per cent; it was 27 per cent when compared to the United States, our main trading partner. The proportion that wireless represented in the total economy was 25 per cent smaller in Canada than in the comparative developed economies, 18 per cent smaller in comparison with the U.S.
Of course, it means only .2 per cent or .3 per cent smaller; but .2 per cent or .3 per cent of a GDP of $1.36 trillion represents $3 billion to $4 billion of output and related quality jobs that are not present in our economy.
For the proportion of revenue represented by the data products, largely resulting from the launch of third generation networks, Canada lagged behind the average of developed countries by 45 per cent, 40 per cent when compared with the U.S. Of course, the Canadian profitability was ahead of the benchmark of developed countries by 39 per cent on average, 44 per cent when compared to the United States.
This leads me to a simple conclusion; we certainly have great Canadian telecommunications companies and their executives are doing a great job of protecting their interests. However, the industry is lagging in competitive behaviour and this is not to the benefit of the Canadian population. We need more competitive behaviour if we want to extract value from the wireless industry to support the legions of entrepreneurs that could benefit from it in the Canadian market.
TerreStar Canada owns a next generation satellite, which is a telecommunications satellite made for voice and data communication. Voice does not need to be explained. Data is really a 4G type of data, which is totally IP — Internet protocol like data. It is at speeds not reaching broadband, but at speeds reaching 500K, half a megabyte, which is more than many people receive from their operators.
My partner and I are the main shareholders of the company in Canada. The satellite was deployed in early July of this year. It is in its Canadian location and is ready to be launched. We are now processing and integrating this system with all the systems that need to be developed to provide service to the population.
The idea of these new generation satellites is quite simple. Satellites services used to be limited to a very low number of people and they used to go through a very big handset — a very big modem, if you like. I think some of you or all of you have experienced that kind of handset, going to some remote areas or in any location where you wanted to reach some people or keep coverage. These handsets were very useful, but were far from being everyday handsets; that is the big difference with what we launched recently.
The satellite technology has been evolving to the point where, with very high power and with very big antennas, the satellite signal can now be reached on a small form handset. That is the first handset we will launch next year some time. The idea is that it is not a satellite phone as such anymore; it is a mobile phone. It will include terrestrial coverage from any carrier — Bell, Rogers, TELUS or the new guys. Anyone could insert its territorial coverage into that product.
The difference is when you walk outside of the territorial coverage for any reason — for security reasons, for leisure reasons, for any kind of reason that can push you out of territorial coverage — the satellite will take the relay and you will retain connectivity. In Canada, it is easy to lose coverage from time to time; less than 10 per cent of the geography is covered. This product provides 100 per cent geographical coverage across Canada and the United States. It is mainly on terrestrial systems where you do not need satellite, but you will always have satellite coverage for the time where you are out of the reach of terrestrial wireless systems.
Another element that made the project interesting for us is that we can also build terrestrial systems when needed. When we go into a community, it is possible for us to sell the satellite product. If there is enough demand in the community to afford the cost of building an infrastructure, or if some Canadian government program can help with the investment, it makes sense to provide a city or region with terrestrial coverage to provide high speed and solid products to the community. If this community is outside of terrestrial coverage, it still has coverage throughout Canada by satellite.
One of the committee's concerns is coverage in remote communities. This is a topic we spent a lot of time assessing and addressing. It is not a full-fledged solution. The satellite itself is not high speed. It is part of a meaningful solution that could be provided to these communities, especially if they are very remote. Even if you can provide terrestrial coverage in these communities, it will be a few cells only most of the time. It will not be extensive coverage. This system is providing the opportunity for people to keep coverage while they are outside of the few cells that will be built.
I think this is certainly a great achievement in terms of technology. It is something we are looking forward to deploying in different communities of Canada. We are looking forward to bringing the benefits of this technology to the Canadian people.
Senator Johnson: I have a couple of questions with regard to Trio Capital Incorporated, which is your private equity fund management company. There is not much information publicly available. Could you tell our committee the company's role in Canada and the world's telecommunication market? Second, what is Trio Capital's role in the launching of the Telecom Media Fund?
Mr. Tremblay: Trio Capital is a private holding that has three shareholders, who are my long-time partners. We have been in the wireless business now for 15 years. Our main project was the building and operation of micro cells. You may remember the brand Fido; that was our product. We went through a range of activity with Fido, bringing competition and innovation to the community.
After Fido, we created Trio Capital, a private holding company. We invested our own capital and source capital to invest in our projects. We are promoting telecommunication projects. The project I just described to you, Trio Capital owns TerreStar Canada. To be clear, we do not have a lot of public information on Trio Capital because we create our own projects. We invest in our own projects and find others to invest with us when we require additional money. TerreStar is our main activity for the coming years. It will require a lot of energy and attention to build that company in Canada.
Senator Johnson: We would like to know your role in the launching of the Telecom Media Fund. Were you involved in that?
Mr. Tremblay: Yes. We launched the Telecom Media Fund three or four years ago with Caisse de dépôt et placement du Québec. We made a few investments in that fund and still manage one or two of these investments. Caisse de dépôt et placement du Québec joined us in investing capital in that venture.
Senator Johnson: My next question concerns your comments about our poor performance with regard to broadband and wireless. International studies and other witnesses who have appeared here have borne this out. You say it is poor by international standards. What policies would you recommend to improve this performance?
Mr. Tremblay: In the wake of what we did with the panel report, we must encourage competition and ensure that the rules of the market are there. Canada is severely lacking in this respect. We have well-established companies competing with each other and we have new companies that want to expand but they do not have full access to international markets to obtain financing.
In my view, one of the largest impediments to allowing the market to be competitive is access to foreign market capital. It is not that we do not have sophisticated markets in Canada; we do not have the depth required to finance such projects fully.
I financed $4 billion in Microcell and probably 95 per cent of the financing came from the United States or the U.K. — mostly the United States. Why is that? The United States has a big concentration of capital assets, not millions, but billions and trillions.
For a fund of $900 million or $1 billion dollars, taking 1 per cent or 2 per cent of the total equity of the fund to invest in pre-launch businesses that are a more risky environment such as high-tech businesses makes a lot of sense. When you manage a huge portfolio, you always create portfolios with more risk, less risk and so on. Two per cent of $1 trillion dollars is a lot of money. If you have many of these funds, you have access to huge capital markets.
First, you need access to all markets; otherwise, your capital cost is not competitive. Canada has a very prosperous industry for people to become involved. There is no problem in allowing competition. We have great companies that could bring a lot of capacity to produce cheaper products, methodologies, processes, et cetera.
Second, I do not know if it is a matter of policy, but it is certainly not a matter of the number of people. In the big picture in Canada, we have three companies. They may be enough to compete. I do not believe it is a matter of numbers. We were exposed to logic like that in the panel. I think it is a matter of behaviour and what kind of assets you have. We must realize that in Canada we have a very special situation. We have three very large, good companies. They are integrated companies with both fixed and mobile assets.
The next big wave that has already started in many countries is wireless Internet. Who in Canada benefits from wireless Internet? All the players are well paid for their existing Internet services, so who will want that to change? They are brilliant people with well-managed companies. They will not make the change. It is not the number of people who could make the change but rather their lack of financial interest in doing so. That is the current environment.
Wireless is important in Canada because it can create a third platform. It would be good to have a vibrant wireless industry with at least one wireless centric company that does not have other assets to protect when it launches wireless services. It would allow it to compete with wireless assets. That factor is important if we want an environment conducive to the population's needs.
Senator Zimmer: Several international studies point to Canada's poor relative performance in terms of penetration, speed and price, and broadband and wireless. You have touched somewhat on this issue. Do you agree that Canada's poor performance or Canada's performance of broadband and wireless is poor by international standards; and, if so, what policies could we invoke to improve this performance?
Mr. Tremblay: I must admit my limitations. I am able to describe the environment reasonably well. What I described to you is what we have. However, in terms of existing policy, we need to eliminate the bottlenecks as much as possible. Even though we have policies, we might not have the access to the necessary infrastructure. You might want to build 15 access points to deploy your wireless system in Canada. Why do you need to build anew when you have towers and rooftops across the country? When we launched Microcell, we could not access rooftops because there were exclusive arrangements. Why is the competition on the top and not on the street selling to people? One of the policy recommendations in the report is to eliminate these bottlenecks. At least, I think we now have rules that do away with the exclusive arrangements for rooftops. We did not succeed in achieving such a rule for towers. Although we have tower sharing rules in Canada, no sharing occurred for any good practical reason.
The single most important policy is access to capital — an umbrella policy, if you would. The foreign ownership rules could be changed or eliminated. We suggested in the report that many people have valid concerns about foreign ownership so you might not want to throw away all the rules, even though Canada is one of the few countries in the world with such rules. It is a severe policy problem in my view. You tell business to compete in the free market but they do not have access to capital.
We recommend that people with less than 10 per cent of the market share should not be subject to foreign ownership rules. The same thing applies to banks in that any bank with less than 10 per cent of the market share is not affected by foreign ownership rules.
In Canada, those who advocate closing the market to foreign capital have met with tremendous success. They have had a very good environment in which to work because they have been protected against competition. I know it would not be easy but one thing would solve it for good — competition so that the market could rule and evolve. The lack of access to foreign capital deprives the country of the best resources, the most knowledge, the most buying power, et cetera. That would be the one policy change that could be made.
Senator Zimmer: My second question is supplementary to Senator Johnson's second question. Part of your answer applied. In an appearance before this committee on October 28, 2009, an official of DragonWave Inc. said it was difficult for new high-tech companies to raise money because venture capitalists do not understand the technology. Warren Buffet, an extremely successful U.S. investor, once quipped that he did not invest in technology stocks because he did not understand them. What if anything can a high-tech firm do to educate potential investors about what it does? If private investors will not invest in high-tech companies because they do not understand the technology, is there a role for government subsidies or tax measures for Canadian high-tech firms? Can the government play a role in either subsidies or tax measures to help those companies?
Mr. Tremblay: The financial markets have many deep layers of financing. Microcell was a high-tech project financed at a rate of $300 million to $500 million at a time. For that kind of market, you go to people like Fidelity, which is a large pension fund, in Canada or the U.S. In that range, are there more levels of sophistication in the United States than in Canada? I do not know. However, there might be four or five good Canadian funders looking at such an investment. There are many of them in Toronto, some out west and some in Quebec. I would not say there is a lack of understanding of that kind of investing.
At the next level, venture capital, we see investments of $10 million to $30 million. I cannot say that we do not understand technology as much as others but there are many venture fund firms in the United States. This past year TerreStar Corporation financed in that range. We had discussions with 60 to 70 fund companies and 65 of them were American, based in Boston, New York or California.
I do not believe we found that the Americans had a better understanding of the technology but more of them were prepared to fund. First, there were 10 times more people that we could speak to. Second, they had global funds in the range of $400 or $500 million, so they could look at different funds. Most of our Canadian firms had much lower funds.
If you look at the companies that are funded in the high-tech sector, what I was speaking about is a real issue. Companies funded by Canadian venture capital funds end up with one fifth, one sixth or one seventh of the capital of the companies funded by the American funds. In other words, you are a nice venture plea. You need $10 million to perform. However, all you find is $2 million or $3 million because you do not have the size of the market that would really fund you. The other company doing the same job in the United States is getting $10 million or $12 million or $14 million to compete with you. That is the big thing. It is not a matter of understanding; it is really a matter of critical mass of accessible funds.
Is there a place for policy? In terms of policy, I like what I see right now in the Quebec market. I do not want to use Quebec as an example but I like what I see. I see the government, the Caisse de dépôt et placement du Québec and some institutions have been creating a pool of funds. They have been giving the management of this pool of funds to senior people, well trained in investing in technology, with a mandate of creating other funds, bringing the start-up venture capital required to start a fund. Therefore, they find other entrepreneurs that will get involved and make something.
We need more critical mass of capital. We have extremely good technology people especially here in Ottawa. Many people came from Nortel and other companies. There are some great centres out West and some in Quebec. Quebec City is a great environment for optical.
We have many good technology people around, but it is hard to tell your story to someone from California. It is much harder to organize yourself, to get in contact with these people and to establish governance for these people to come and visit. If we had more capital — a critical mass of capital — we would have a better situation.
Senator Zimmer: France, the United Kingdom and several other countries have recently produced a comprehensive digital plan. Very briefly, does Canada need a comprehensive digital plan?
Mr. Tremblay: I think I will rely on what we said on the panel. We concluded that we should let market forces play and that the proper resource allocation would be done by market, if they operate appropriately.
The problem is that markets are suffering and are not operating appropriately. I think most of the rules we recommended to open the gate and to ensure people have proper access to compete against each other were more or less adopted. However, the rules we are allowing for new competition to come and for market to play are important. I mentioned to you that Canada is a fantastic place to invest in wireless because the wireless companies have the highest revenues per capita and the highest profit per shop on the planet right now. That means that others would like to invest in Canada. However, we have a rule that they cannot do that; we need to protect our environment.
I do not believe we need or can create a plan. This plan is evolving as we speak, and can you not create one, I believe. You would be ruling a lot. You would have 10 times bigger CRTC, because you would have someone to exercise.
In France, they made a big choice. I do not believe that it is the way for Canada. I think markets can solve what we have to solve, but we should let them go and open them.
Senator Zimmer: We absolutely do not want a bigger CRTC. Thank you for your answers.
Senator Cochrane: I think we are all following on the same wave-length. You were saying that, in 2005, you were appointed by Canada's Industry Minister as member of the Telecommunications Policy Review Panel. In your recommendations, did you recommend access to foreign capital?
Mr. Tremblay: Absolutely. It was not in the body of the report because it was not in our mandate. However, there is an afterward to the report where we did study, to a certain extent, the situation of foreign ownership and control rules. We made recommendations to reduce them severely.
Senator Cochrane: However, you did not put it in the body of your recommendations, did you?
Mr. Tremblay: No. We did not have a uniform view on the report; we did not know if it was our mandate. We were mandated to review telecom policy. We were not mandated to review foreign ownership and control rules. We thought it was a little bit outside the mandate but we felt it so important that it be mentioned that we took the liberty to add it to the report.
Senator Cochrane: Was that in 2005?
Mr. Tremblay: Yes, it was issued in April 2006. We spent nine months trying to assess the situation.
Senator Cochrane: Recently, of course, we have all heard about CRTC deciding that Globalive, a new company, does not meet Canadian ownership rules. An investor was prepared to go for it.
Are changes to the foreign ownership restrictions in Canadian telecommunications required? If so, what kind of changes do we need.
Mr. Tremblay: Do you mean vis-à-vis this CRTC decision?
Senator Cochrane: Yes.
Mr. Tremblay: I do not have the skills to judge or second-guess the decision. However, as a Canadian and looking at the Canadian institutions as a whole, I believe it does not make sense to create a process where someone invests in Canada with a certain given set of rules. They are not all clear because we are talking about de facto rules and judgments. When these people bid in the auction process, they based their judgment on rulings that had been publicly issued in Canada. They could not be certain of the result but at least they had a good base to assess the situation. To me, it is improper that they were allowed to keep investing in the hopes of launching and bringing benefits to the population.
I do not want to qualify, but the Canadian institution is not homogeneous and is not coherent in its approach to the situation. I believe this whole story is not to the benefit of the population; it is to the detriment of the population. I am not able to and will not speculate on any rulings. I think people have been following the public process in an open manner and have come to a documented decision. It is very hard for me to say it is good or bad; it is not my role. However, if you look at it from a standpoint of foreign investment attracted to Canada, I am astounded. As a Canadian, I am not proud.
Senator Jaffer: Do you think the situation would improve if we had a minister dedicated to digital matters?
Mr. Tremblay: We made that comment in the report. The mandate of Industry Canada is now very wide. I think it is fair to say — and it is not to send flowers to anyone — that the Canadian policy for spectrum management and the place Canada holds around the world through Industry Canada and the specialists that have been there working at it in the CRC has been high quality work. I have been to many places in many situations with the officials of Industry Canada dealing with this issue. It is hard for me to say that someone at Industry did not do his or her job or that there was a lack of focus.
The biggest lack we have is a lack of clarity in our policy, and especially a lack of clarity in this situation of foreign capital. It is a massive hole in our policy-making.
The other thing, and it is another recommendation, is we should not have two bodies ruling on the same matters. It is inconsistent. In many countries, you have the ministry making the policies and you have the regulator applying them. Here you have a situation where for many of these matters, you have two heads; and we have an appeal to cabinet. You can return to cabinet.
It is probably required in the context of what we have. However, I think we should clean house, rather than having three masters to look at the other two institutions, I would rather have a set of clear policies. If we do not want competition, maybe we can say it.
It has never been said in Canada that we do not want foreign access to capital in telecommunications. There have been many rules that were either clear or unclear. Do we want access to foreign capital in this country for telecom or not? It is very simple.
Right now, we do one day; we do not another day. It is not clear what is happening.
Senator Fox: Actually, you have four masters because we also have the Competition Bureau that can come in to override a CRTC decision.
Mr. Tremblay: You are right.
Senator Fox: I would like to make Mr. Skora work a little bit. I know you have been both in the private and public sector. I should say that my focus here is on high-speed Internet access to rural and distant or remote areas.
I would like to know what you think of the recent government program — whether it is adequate, whether that is the way to go, whether that constitutes a strategy? Is that fair to ask you that or did you help develop it?
Jan Skora, Regulatory Advisor, Jan Skora Consulting Services Inc., TerreStar Canada: I was hoping someone would ask a question so I would not be just a not-so-pretty face sitting beside Mr. Tremblay.
I should preface my remarks by saying I spent 34 years working for the federal government. One of my bosses — in fact, one of my ministers — was Senator Fox, so I have some biases on the work of the department.
Clearly, I believe that getting high-speed Internet access to all Canadians is immensely important for the future of this country. Many of us in the cities believe that it is great to have high-speed access because we can download and do our emails et cetera. High-speed Internet has transformed our lives.
If you think back even 10 years ago, how different our lives are today. Just put the BlackBerrys aside for a second. Look at how different our lives are; and it is because we have a digital tsunami that has hit us.
Yet, if you go not far out of the cities, you have nothing, or it is more expensive or more difficult to access. You have satellite services. Some of the work that André Tremblay is doing with a mobile, medium-speed service via satellite I think will help, but it is not the complete answer.
The difficulty government departments have in doing this is you would like to get the private sector contributing to the provision of service outside major metropolitan areas, but it is tough. It is tough to make a buck doing that.
I have come to the conclusion that if Canada believes that this is really important, then Canada needs to invest in it. I, as a citizen, believe it is important; as I think do more and more people living outside the cities, seeing the transformations happening in the cities.
The investment that was made several years ago in the broadband program whetted the appetite of Canadians. I think this last budget allocation of funds is great, although I fear that it is not enough. Money is tight right now. Governments are all looking at increasing deficits, which makes it very difficult to invest more money.
We have seen tremendous change and I believe all Canadians need to be part of the picture; otherwise, the digital divide in developing countries, will be a digital divide in a developed country.
Senator Fox: My concern with the $250 million pot of money is that various municipalities across the country will apply for it and it will be judged — I am not quite sure according to which criteria. It does not seem to be a strategy. If you were advising this committee, what kind of strategy would you want to try to get to the objective that you restated very clearly?
Mr. Skora: It is hard for me to know if there is a strategy behind this. I know there are capable people working at this, trying to make the $250 million go as far as they can. I think the government has figured out where people do not have high-speed Internet.
I would look at all the technologies to be able to get high-speed Internet to communities. I have a feeling there are clusters of communities across this country that could get high-speed Internet more cheaply if you clustered them and you worked at it in a strategic way, rather than municipality by municipality.
There are certainly communities that are much more difficult to reach. In the Far North, satellite communications are more challenging and the communities are much smaller. One needs to try to work with the communities, look at how best to cluster communities and try to get entrepreneurs from those communities, if there are some, or government to look at funding that.
However, I think you need to look at a strategy that takes in account all Canadians being able to have access to high-speed Internet. I am short on details, I have to admit, but the end point is there, and one needs to work at finding a way to allow communities to use satellite and terrestrial services to gain access to high-speed Internet.
Senator Fox: Would a Cancom approach be an example to follow?
Mr. Skora: The Cancom approach was good because it used satellite technology and it allowed a number of communities to have access. The difficulty with satellite communications is that it is expensive and the broadband is limited. You need to have access to a significant capacity of satellite transponders in order to be able to serve Canadians across the country.
You also have to realize that people outside the major metropolitan areas have poor high-speed Internet right now, and anything would be better. However, once they get access to higher speeds, guess what they will want. They will want even higher speeds and I think that is good for Canada. However, it means you need to look at a mixture of solutions. To the extent you can build them, use terrestrial systems in rural areas, clustered, possibly, with some of the new technology, tied in with a satellite backbone. Again, it is hard for me to give you a silver bullet.
Senator Fox: Thank you. I appreciate that.
[Translation]
Senator Fox: I have a question for Mr. Tremblay. In recommendation 2-2a), you note the following policy objective: "to promote affordable access to advanced telecommunications services . . ." — I assume that includes high-speed Internet — ". . . in all regions of Canada, including urban, rural and remote areas".
If we look at Canada's urban centres, I can appreciate that the competitive model is probably the best one to adopt. As for remote regions, if I build on Mr. Skora's argument that land networks must be expanded as much as possible, should the standard not be the opposite? For example, to ensure the availability of local telephone networks across Canada, in a province like Saskatchewan, we have relied on a monopoly rather than on a competitive process. Would it not be preferable in the case of remote areas in Canada to opt for a phased-in approach and to award an exclusive contract to one company and to take things as far as they can go?
I am thinking about some examples. As you know, it is not profitable for a company to go around the Gaspé region building towers. I believe one company, Québec Téléphone, did just that. Would it not be a good idea to consider a different model for these remote areas? I cannot imagine two companies competing for business in remote communities.
Mr. Tremblay: Are you referring to a recommendation in the report?
Senator Fox: I am referring to recommendation 2-2a), where the stated policy objective is to promote affordable access in remote areas. You go on to state the following in 2-a): "market forces shall be relied upon to the maximum extent feasible . . .".
Mr. Tremblay: You are referring to the report of the Telecommunications Policy Review Panel. Correct?
Senator Fox: Yes.
Mr. Tremblay: Let me explain to you the approach we took which, based on my experience, was a sound one. I believe it is difficult to understand the problems that remote areas face if we do not break them down. They face two major, but completely different problems: firstly, the problem of bringing the Internet to the region and secondly, the problem of local access.
[English]
Therefore, one issue is bringing the Internet to the region, and the other is local access, which are two very different problems.
We recommended these two problems be treated differently. I still believe it is way to go. You should have clusters, like the Gaspé where I am from, where there are small villages. You could have one cluster. How do we get Internet link to the Gaspé Peninsula; how can we deal with that problem? Then, if we have local champions that want to build a Wi-Fi access network in the community, they could link to the Internet.
You can go with negative auctions: The company that has more assets to bring to the table would probably win the auction. If you do not have anyone that can do it, this is probably where government, in my view, should get involved. It is really for the backbone to the region.
Between us, it is not the role of big or large companies to do such things. It is not what they do. They go for massive networks in big cities and so on. We have been visiting situations like that. We have been successful with Microcell in Nunavut. We had 50 communities built there. They were built with the first government program, and the base of the community service was built on a local entrepreneur.
It is more than connecting a computer; it is telling the person how to connect it, how to link to the Internet, what kind of software he can download, what kind of update he can receive and training the population. You can bring a network to the population; however, you need to bring that kind of mentoring, also. We all had to learn at one point. If no one takes care of that role, nothing gets done.
If you believe one big company will go into every region and teach our people, you can go with a monopoly. I would not go that way. I would go with an auction to bring the service, the big link — it could be satellite — and auction within communities to support these people to solve their problems in a way that is conducive to that area. As much as possible, we should leave this community to define the way it wants to see the Internet go in. In many communities, they will say they want 30 megabytes but they will soon discover they cannot afford it.
We have a pre-WiMAX system working in 50 Northern communities with a satellite link. It is a geostationary satellite at 35,000 kilometres from the earth. They have a delay; when they speak, there is a delay or a time lag. I asked these people if it was creating a problem and they said, "No, we had nothing before." Different people have different needs.
That is my strategy. Bringing the signal is one thing. Building the community, selling the computers, teaching people and helping people to connect is another thing.
Senator Johnson: What do you think of the CRTC's decision about Globalive that is causing all this reaction with regard to the foreign ownership?
Mr. Tremblay: I do not know. I think the problem is the law and the rules. We ask people to apply and when they do, the two departments that have the same rules react differently to the application. It was probably with good intentions and good professionalism and all that, but I cannot judge the CRTC's decision. I think they are top people. I can tell you the result does not make any sense to me.
Senator Johnson: Do you think changes are required to ownership restrictions?
Mr. Tremblay: I think big changes are required. If there is one area that needs to be reshuffled as soon as possible, it is in that area. It probably deserves a full analysis.
We did an analysis with the panel. I was totally against that when I entered into the discussion, but then I started to listen to peoples' concerns. I asked myself, why do we not deal with these concerns?
We tried to propose a policy that would deal with these concerns and assessed in the best interests of the country. This rule applies in the United States, where if they judge something is not in the interest of the country, they simply throw it out.
It is a judgment call. If it is in the interests of the country and is applicable to someone that does not have already 10 per cent of market share, it should not destroy too much. It would be a way to introduce openness to possible foreign ownership. That is the recommendation we made. I am sure people could have come to different conclusions, but the result is that we should get rid of the negative elements of that policy. If we feel there are positive elements, we should retain them.
I am not sure there are many negative elements. We have solid companies that have proved that they can compete very wisely. We would probably have a much better environment for wireless if we had that kind of competition.
The Chair: You modestly said who are you to question the CRTC. The reality is that the Minister of Industry has written to important competitors to ask them if they had an opinion. I am surprised that you were not consulted since you have studied this issue. Even if he did not ask you, feel free to send him a letter and tell him what you think because it has been expressed here.
As we head towards our report in the new year, we will start to make decisions about best practices. Canada is spending $150 million or $200 million. Australia is spending $40 billion over the next few years to set up a totally wireless country. They think that they will not be able to compete in the competitive environment of Southeast Asia if they do not have it. That is one model or best practice, if you want.
You have Estonia with the cabinet at the table working on computers and 97 per cent of the people doing their income tax on computers. Why? It is because their Prime Minister believed that if they wanted to be competitive in the world, they needed to have the best wireless system in the world. Potentially, we will see along the way that they certainly have one of the best.
We have one model spending billions and another having the political will to say it wants the best system possible. I know you have invested Canadian money overseas. I agree that if we are encouraging Canadian companies to spend overseas, we should be a little shy to tell others not to spend here. We are encouraging people to buy BlackBerrys around the world. We should not tell people they are not allowed it sell their equipment in Canada because they are not Canadian enough.
Are there any countries that you would recommend as having best practices? Have you any recommendations or models we should look into as we go forward.
You mentioned loosening of the rules on Canadian ownership. There is one minister in Great Britain responsible for digital. That is his job. He has the political mandate to bring Great Britain into the next period as a competitor.
Mr. Tremblay: I am trying to keep in mind that somehow we must compare apples with apples. If you go to Korea, you will find extremely high-speed wireless networks. It is the same in Japan, but those are very different societies, communities and rules. I think the models should probably be Australia and the U.K.
The U.K. has been extremely forward looking in terms of spectrum policy and competition. If you look at the U.K. market, you probably will see one of the most competitive markets on earth for wireless products. The U.K. is not very different from Canada; we have the same Queen on our money. I admit it is different, but the political system is comparable.
I also find Australia attractive. If you look at companies rolling out data products, you need to look at what is happening in Australia. They now have a high capacity system delivering a very substantial amount of data. They have aggressive data plans, a huge market and a very vibrant environment.
One should not forget about the United States. It is huge, but when it comes to established competition and allowing people to compete, it is a great market. The United States has two wireless centric companies. They are our neighbours. Chicago is not very different from Toronto or Montreal from Boston. However, in Chicago and Boston, the average usage of wireless products is twice that of Canadians and the price is lower. The policies were about opening to competition. It is Boston; it is not the end of the world.
You have three examples within the range of human behaviour. We can certainly find all kinds of differences, but we can probably find more similarities. The main items are open markets and open rules — come in and compete. It is against concentration. Canada has huge concentration.
The Chair: Would those rules on foreign ownership apply to the existing players?
Mr. Tremblay: I guess they would apply. We suggested applying it to companies with less than 10 per cent of the market.
When you start looking into Canadian content, some of these companies are on both sides. For example, all of the cable and telephone companies have Canadian content in their TV system. When you look at it in a comprehensive way, this was our conclusion.
If we try to go in that direction in a large and open way, we probably need a lot of additional work and it will be politically very difficult. We said we should not sacrifice the basic benefits because we cannot solve all the problems at once. Let us open the market for people with less than 10 per cent of the market. Then, let us review it. It is not to deprive anyone from the benefits. It is simply to ensure you have enough time and momentum to get somewhere. We used that logic.
I believe all the issues around Canadian content will solve themselves. The Internet will play a big role in this fragmentation of consumption. Do not try to impose rules on bottlenecks that no longer exist. Things may be complicated for a few years, but at least let us open the market and grow to the point where people feel comfortable that the market should be open.
Senator Fox: For clarification, I do not quite understand your 10 per cent rule. By definition, anyone coming into the market has less than 10 per cent of the market. Are you saying you would open up to any new entrants in the Canadian market?
Mr. Tremblay: Yes, absolutely.
Senator Fox: Eventually, as they grow beyond the 10 per cent, you would have to allow Canadian companies to access foreign capital as well. Is that right?
Mr. Tremblay: Yes, but it takes time to gain 10 per cent of the market share. The rules would evolve possibly. Another way to disturb the market economy is to have different rules for the different players. Shareholders would not have a level playing field for their investment considerations. That is not good policy but it is better than doing nothing. The suggestion was to open our market to foreign investors so that the population could benefit from the competition.
Senator Fox: Under that scenario, you would be willing to let a company such as Verizon into Canada because initially they would have less than 10 per cent of market share. They could then deploy as much capital as they choose to do.
Mr. Tremblay: I would welcome Verizon to Canada. Why not? Are Canadians defining policy to protect three or four or five or six companies or are we defining policy to benefit the people of Canada? If the latter is the case, then we should have the best players here to compete and provide those benefits to the people. A company such as Vodafone is present in all countries around the world. They show red everywhere on their big map of the world except in Canada. One would expect Vodafone to come to Canada. Why has it not come here? Why would it be bad to have Vodafone in Canada when it competes in all other major markets?
No negativity intended, but Vodafone was created the same year that Rogers was created in Canada. Rogers is a great company. However, Canadian ownership rules have confined Canadian companies to Canada. It is comfortable deploying capital here than having to go outside to deploy capital. It has tended to narrow the playing field. Rogers is a great company that was launched the same year as Vodafone, which is the largest wireless operator in the world and has the greatest capitalization in telecommunications. They have been in the most competitive market, the United States, and have learned from that competitive behaviour to go outside and develop. I do not see a flaw in the competitive model for the wireless industry. I see only that we have not risen to that opportunity.
The Chair: Thank you, Mr. Tremblay and Mr. Skora, for appearing before the committee. It is fun to hear people be so passionate, even about wireless.
Senators, we had planned to begin a study next week on Bill C-27 in respect of spam, but it is delayed in the House of Commons. Likely, the Senate will not receive the bill for two weeks. Next Wednesday, witnesses from TELUS will appear before the committee. The steering committee will meet next week and advise members of future meetings.
(The committee adjourned.)