Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 10 - Evidence, June 5, 2012
OTTAWA, Tuesday, June 5, 2012
The Standing Senate Committee on Transport and Communications met this day at 9:31 a.m. to examine the subject- matter of those elements contained in Division 41 of Part 4 of Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call to order this meeting of the Standing Senate Committee on Transport and Communications.
[English]
This morning we continue our pre-study of Bill C-38 as we look at elements contained in Division 41 of Part 4, which amends the Telecommunications Act to modify the ownership and control restrictions for certain carriers. Appearing before us today is Michael Geist, Law Professor at University of Ottawa, where he holds the Canada Research Chair in Internet and E-Commerce Law. Mr. Geist also appeared before this committee in 2009 regarding our study on the wireless sector.
[Translation]
Welcome to our committee. Thank you for taking the time to come and meet with us. The floor is yours, Mr. Geist.
[English]
Michael Geist, Law Professor, University of Ottawa, as an individual: Thank you very much. I am Michael Geist, a professor at the University of Ottawa where I hold the Canada Research Chair in Internet and E-Commerce Law. I am also a weekly syndicated columnist on law and technology issues for the Toronto Star and the Ottawa Citizen. However, I appear before this committee today in a personal capacity and represent only my own views.
Bill C-38 addresses a wide range of issues, but I will speak exclusively to the foreign ownership changes to the Telecommunications Act, which as you know implement the February 2012 announcement on the issue. The current foreign ownership restrictions will be lifted for any carrier with less than 10 per cent market share, which is effectively anyone other than the so-called big three: Bell, Rogers and TELUS.
Restrictions remain in place for broadcasters and broadcast contribution companies. There are additional changes to the financing of the National Do Not Call List that I will be happy to address in the discussion afterward if you would like.
I am supportive of the changes in Bill C-38, though I think these kind of legislative changes belong in their own bill, not within omnibus legislation. I would have supported an even bolder vision. The government could have shaken up the Canadian market by removing telecom foreign ownership restrictions altogether and considered dropping the foreign ownership limits on broadcasters.
I base my support for relaxing foreign ownership restrictions on four key factors that I will discuss with these opening remarks.
First, the Canadian telecom market is uncompetitive relative to other countries with higher cost, less innovation and limited choice. Second, Canadian rules on telecom foreign ownership are the most restricted in the developed economy world. Third, there is broad support for change following years of study. Fourth, concerns about negative effects are greatly overstated both for telecom and broadcast. I will go through each of those four, starting with the issue of the lack of competition.
Canadian telecom markets were once the envy of the world, but no longer. While there is on some debate on the methodology and validity of the many studies that have compared wireless and broadband networks worldwide, there is no disputing that none ranks Canada as a leader in either area. Indeed, while Canadian broadband networks were once viewed as a global leader — Canada ranked as high as second only a decade on ago on some metrics — today it is at best a middle-of-the-pack player with mounting frustration among both consumers and businesses reliant on a world-class digital infrastructure.
For example, last year's OECD broadband rankings confirmed that Canadians pay more for broadband services than consumers in most other developed countries. The results were unmistakable. Canada lags when it comes to broadband services with a middling ranking in overall broadband subscriptions and one of the poorest rankings based on price at virtually all of the most common speeds.
The OECD data covers data from Canada's largest ISPs including Bell, Rogers and Shaw, meaning that it accounts for a sizeable chunk of the overall subscriber market. Similarly last year the ITU released its Measuring the Information Society 2011 report, which also found Canada lags behind. Canada ranked outside the top 10 in every indicator, an incredible 111 on mobile subscriptions and 57 on mobile broadband.
Yet another OECD study last year found that Canadians face the highest data roaming costs amongst all OECD countries, a direct reflection of the lack of competition in the market.
The new entrants into the Canadian marketplace that we have seen in the last couple of years have had a positive impact, but it is only a start, and I believe more is needed to bring Canada up to world standards for competitiveness, choice and costs.
Second, Canada is the most restrictive developed country in the world for telecom. I think it is important to place the restrictive Canadian telecom market into perspective. Earlier this year the OECD released a study on foreign direct investment surveying policies in 55 leading economies around the world, including all developed countries and dozens of emerging and developing countries.
I think the results should be a wake-up call for Canadians. Canada was ranked as the second most restrictive market for both communications and mobile telecom in the survey, with only China ranking as a more restrictive market. Viewed in that light, Canada is completely out of step with the rest of the world, placing us at a significant disadvantage relative to other countries. In a capital-intensive sector, such as telecom, that requires major upfront investments, Canadian rules have led to a substantially less competitive marketplace than most other developed countries. The impact is felt across the economy with less choice and higher cost for consumers, and they hamstring businesses reliant on communications technologies and services, which is today virtually every business. The changes found in Bill C-38 help address these issues but do not fully open the market as is the case in some other developed countries.
Third, Canadians strongly support the opening of the telecom market. This issue has been the subject of multiple studies. The 2006 Telecommunications Policy Review Panel and the 2008 Competition Policy Review Panel recommended changes to the current restrictive regime. Moreover, Industry Canada has consulted the public on the issue of relaxing foreign investment restrictions in the telecom market. The results demonstrated strong support for relaxing the restrictions. The majority of Canadian telecom companies, including TELUS, Rogers, MTS, SaskTel, along with the new entrants such as Globalive, Mobilicity and Public Mobile, all supported some changes to the current rules. Moreover, leading foreign telecom companies including AT&T and Verizon supported changes, suggesting there may be foreign interest in the Canadian market.
Supportive businesses pointed to the benefits from increased access to capital, greater investment and innovation in the Canadian market, and the potential for greater competition. It is important to note that consumer groups such as the Public Interest Advocacy Centre also expressed support for changes to the current rules.
Fourth, I believe the concerns are overstated. I want to address them both from the perspective of telecom as well because it is related to some of the criticisms to broadcast. On the issue of telecom, those expressing concern to relaxing the rules fall largely into two groups: telecom and broadcast.
The first is largely a group of one, Bell. Bell argued that the opening of the market was a solution in search of a problem, an unsurprising position for a company that has consistently taken issue with the steady stream of studies that I just cited that find Canada is a laggard on telecom competitiveness.
I had argued that the concerns regarding security risks with foreign ownership, or employment impact due to foreign investment, are overstated. The days of retaining Canadian control over physical telecommunications infrastructure connected to millions of homes are largely over. Wireless networks involve significant investments in cellphone towers, not direct connectedness into individual homes.
Further, I believe the notion that Canadian control guarantees Canadian jobs is also part of a bygone era. Canadian carriers regularly outsource some of their customer service jobs out of the country. Meanwhile, other parts of the organization — retail and business sales that we see in all of our malls, as well as network building — involve jobs that will remain in Canada, regardless of the company's country of origin. While some head office jobs may be at risk, new companies operating in the market could potentially create more jobs, not fewer.
Second, I believe the related concerns are overstated with respect to broadcast. The second group of opponents on this issue consisted primarily of cultural groups, such as ACTRA, SOCAN and the Canadian Conference of the Arts. These groups argue that telecom and broadcast were too closely connected and that foreign investment in telecom would raise broadcasting concerns. While the link between broadcasting and Canadian culture is obvious, the connection between Canadian broadcast ownership and Canadian culture is tenuous at best.
Canadian law currently features both foreign ownership restrictions and content requirements. The ownership restrictions generally limit licensees to 20 per cent foreign ownership. This covers all types of broadcasters, including television, radio and broadcast distributors. There are also content requirements that apply to television, radio and specialty television stations.
The Canadian Radio-television and Telecommunications Commission's active involvement in setting Canadian content requirements is a direct result of Canadian-owned broadcasters regularly seeking to limit the amount of Canadian content they are required to broadcast. Producing original Canadian content is simply more expensive than licensing foreign, largely U.S. content.
These fiscal realities and the regulations that have arisen as a response remain true regardless of the nationality of the broadcaster. Foreign-owned businesses face Canadian-specific regulations all the time, provincial regulations, tax laws, environmental rules and financial reporting.
I believe there is little evidence that Canadian businesses are more likely to comply with the law than foreign operators. Cultural businesses certainly raise some particular sensitivities, but broadcasters that are dependent upon licensing from a national regulator can ill afford to put that licence at risk by violating its terms or national law. In fact, a review of other developed countries reveal that many have eliminated foreign ownership restrictions in the broadcasting sector and retained local content requirements. Although I know that few at this stage are calling for Canadian broadcasting to be fully open to foreign ownership, the reality is that the concerns associated with greater foreign ownership in that sector and its impact on telecom are overstated.
In summary, while I am uncomfortable with the manner in which these changes are being enacted, I think relaxing foreign ownership restrictions in the telecom market is a change that is long overdue. In fact, I think the government could and likely should have been even more aggressive in trying to increase the competitiveness of the Canadian communications sector.
I welcome your questions.
The Chair: Thank you for a very clear position.
Senator Doyle: I think a lot of people would be very surprised at the OECD study. You say Canada was ranked as the second most restrictive market for both communications and mobile telecom.
Why is Canada asleep at the wheel here? What is happening? Why has Canada allowed itself to get into that kind of a position in the telecommunications industry?
Mr. Geist: That is a good question.
An Hon. Member: Agreed. That is a good question.
Senator Doyle: That should probably be asked of the government.
Mr. Geist: There are lots of factors. Part of it is that telecom and communication reform, generally, is a difficult issue to undertake. I spent a lot of time on copyright, which invariably involves a lot of stakeholders, and lobbying. Frankly, I think that the communications sector would probably be even larger in terms of the number of players that would come to the table.
As you know, there have been a lot of calls for major legislative reform in Canada. Right now we have the Telecommunications Act and the Broadcasting Act, and I believe there are many who believe that we need a single communications act that better reflects the current realities. I would like to see the government move forward with something like that, but I recognize that it is a challenging area, politically. However, at the same time, it is one that has become essential in many ways. We are so reliant on communications from an economic perspective, from a cultural perspective, for education — as we were talking about earlier — and the like, that ensuring we have world-class communications and digital networks, and ensuring that we have a regulatory framework and a regulator that helps foster and facilitate that, ought to be a top priority.
Senator Doyle: As you know, I think CRTC has recently, over the last couple of years, called a couple of times to have the Broadcasting Act and Telecommunications Act become one act. In your view, if that were to happen, would the CRTC have more difficulty in policing things like Canadian content, for instance?
Mr. Geist: There is no shortage of criticism of the CRTC, as I think everyone is aware. However, I think if we were to do away with the Canadian Radio-television and Telecommunications Commission, we would have to reinvent some sort of regulator.
I think the CRTC at this point in time faces real challenges based on the legislative regulatory framework that it faces. You need look no further than the fact that they have basically just punted some major issues to the courts to ask, "Are we in a position to do something? Are the activities that Internet service providers engage in considered broadcast within the context of the Broadcasting Act?'' That is an issue that has come up in a number of different ways, and the CRTC ultimately said, "Let us look to the courts.'' The courts said "no.'' I am not saying that the courts got that wrong — I think they got it right.
However, having some consistency in terms of the policy frameworks makes a lot of sense.
When you look at the current statutes, there are literally dozens of policy goals that the CRTC has been mandated with. At a minimum, they should be provided greater clarity on what the policy goals are. We can have a discussion and debate about what the policy goals should be. However, we need to provide the regulator with a clearly enunciated, reasonable set of policy goals that reflect where we are today and where we think the market is heading over the next decade or several decades. At the moment, there are just so many that the CRTC might be seen as a little bit lost at sea because it is facing so many potentially competing objectives.
[Translation]
Senator Boisvenu: Thank you very much for your brief, which I would call hard-hitting. You said something in your comments that really got me thinking.
In your view, the legislation to relax market restrictions does not go far enough. I also gathered that telecom shareholders are not all that keen on the idea of Canada becoming a leader in this sector and that, as a result, we are still going to lag behind despite this bill. I would also say that comparing Canada with China is not the best idea.
[English]
Mr. Geist: No, it is not; that is true. Yes, those were rather blunt remarks, but I am not known for pulling punches on different issues.
I think it is certainly a positive step forward. Doing nothing, frankly, would be a problem. The practical reality is that it does open the market to virtually every player with the exception of the big three. My view would be that there is no reason not to open the marketplace to the entire market, including the big three. Practically speaking, at this stage, given the restrictions on the broadcast side, we would really only be opening the market to one other player. Both Rogers and Bell at this stage are off the table, in any event, given where we stand with broadcast, so we would have to reconsider that.
It would potentially open the market to TELUS. In the past, there has been the prospect of a takeover within Canada of TELUS. There was talk of Bell at one point in time taking over TELUS, which would have reduced even further the competition we have amongst major players. I do not necessarily want to see TELUS sold to a major international player, but I do not see any practical reason why that should not be a possibility.
There is some concern that if you are a large Verizon, Deutsche Telekom or some of the large international players that have invested around the world, the prospect of having essentially to come through greenfield investing by scooping up a bunch of either smaller players or investing heavily in a forthcoming spectrum auction, it is possible they might look at the Canadian market as an attractive one.
They may also look at the established dominance that we have, in effect, from the big three and say that is more than they want to chew. If they want to jump in, what they would really want to jump in with is one of the large players and compete more directly. I would have liked to have seen that as a possibility.
At the moment, those who want to see more competition are hopeful that some of the large foreign players may want to enter into the Canadian marketplace. We have to recognize that it is not certain that they will look at Canada and say, given the number of players in here, given the advantages that the big three have right now, they may want to say Canada is a market they will take a pass on.
[Translation]
Senator Boisvenu: Would you call the telecommunications industry in Canada a monopoly, generally speaking?
[English]
Mr. Geist: It is certainly not a monopoly, given that we have at least three players. Also, depending on the particular market, in Manitoba there is MTS Allstream, in Saskatchewan there is SaskTel, in Quebec there is Québécor, so we have a number of different players.
I think what we have really seen in the last couple of years, when we have had these players come into the marketplace, it has been pretty instructive to see that kind of dominance. I would not say monopoly, but it is a dominance that the big three have had.
We have seen prices change. We have seen some amount of choice, as Globalive and Public Mobile and Mobilicity have entered the marketplace, so clearly it has had some impact. It has had an impact also on the larger players who have been forced to try to compete more aggressively in terms of some of the pricing that they have had. I also think that some of these studies have had an impact as well.
I referenced the roaming study, which I think for a lot of Canadians is a big source of frustration when they leave Canada to go on vacation in the United States or Mexico or Europe, or wherever they might go, and they find that the roaming charges, if they want to continue to use their cellphones, are exorbitant. To learn that — and I do not think they are particularly surprised — Canada had amongst the highest roaming fees in the entire OECD was discouraging.
I think some providers actually saw that has a potential business opportunity and so they began to try to reshape some of the pricing that they had and tried to market to Canadians that they were going to become better on some of their roaming pricing.
What you really need, from a market discipline perspective, is more than an OECD study, consumer pressure and a handful of small players who, at the moment, have very small subscriber bases. What you need is at least one, perhaps more, really large players who come into the marketplace, who, if they have global networks, are in a position to offer global roaming at far more competitive rates because they actually run networks in dozens of countries around the world, and they can bring in efficiencies that some of our existing players cannot.
Further, if you look at what we have seen with the consolidation in the marketplace, particularly looking at a company like Bell which has moved so aggressively into the broadcast side, increasingly its interest on the telecom side becomes less and less a part of that business. The prioritization in terms of being competitive there, in terms of being aggressive and innovative, may become less of a priority as they focus more and more on the content side of their business. I do not think that is healthy on the communications side, which is one reason why we need more entrants.
[Translation]
Senator Boisvenu: In your brief, you talk about convergence, which is a very sensitive issue: telecommunications, television broadcasting and even radio broadcasting. For the past decade or so, the arts community in Quebec has viewed convergence, which means the creation of giant monopolies, as virtually blasphemous. Your take on convergence, however, is different, even positive as far as communications go. Where do you stand on the issue? Do you think convergence is inevitable in the telecom world?
[English]
Mr. Geist: The convergence that I am speaking quite positively on is essentially convergence or merger potentially that might bring new entrants into the telecom space. In terms of the kind of convergence we have seen between broadcast and telecom, there I am far more concerned, and I have appeared before at least some House of Commons committees and written about some of my concerns in this regard.
I do think there are very real dangers. Again, let us take Bell as an example because it is obviously the most converged large player we see in the marketplace. As its priorities shift from the carriage side to the content side, I think there is real danger that they prioritize their content at the expense of other players, that something called net neutrality, the notion of treating all content that runs on your network on the communications side in an equal manner, is potentially put at risk. I think those are big issues. They are big issues from a consumer perspective in terms of the choice they have. They are big issues from a creator perspective that increasingly may want to go outside of the established broadcast players — we see it already — whether it is over-the-top video producers such as Netflix or others, or simply distribute the content themselves. The Internet gives them the opportunity to find a global audience without necessarily relying on some of those broadcasters. Where you have a broadcaster and the telecom, the ISP, all bundled into one and they are offering up their broadband services into the home, your wireless services, as increasingly we access this in a mobile world and the broadcast side, it is pretty clear they have some real incentives there to prioritize their own stuff.
The CRTC has had some activity in this regard, but I think there are some real dangers there. In fact, if we compare what we have seen in Canada on this issue with the United States, the U.S. regulators were far more aggressive about trying to establish some limits around what those converged players can do.
If we contrast what happened in Canada with Shaw and CanWest Global and then Bell and CTV, and I guess now Astral, and compare it to what took place in the United States where there was a similarly large merger with NBC, there were much more restrictive terms put into place really designed to help support online Internet-based distribution. I do not know that we have gone far enough, and it is a price that we may pay down the road as we have these very large, converged entities and the prospect that independent players, innovative businesses and creators find themselves essentially beholden to a very small number of very large players.
Senator Unger: Thank you, Professor Geist. You are very informative on this topic, which is complicated. To someone who is new to this it has been difficult to understand.
The minister spoke about his desire to create a fourth player with these proposed regulations. Do you see that happening?
Also, when you spoke before this committee in 2009, you mentioned that the incremental, go-slow approach was passing on a bolder vision and a lost opportunity. Is that what you have just been outlining, that you see the possibility, for example, that bigger players, foreign players may not want to come to Canada?
Mr. Geist: You have raised a couple of things. First, with respect to whether or not this opens the door to potentially a fourth player, I think the answer is yes. In fact, the combination of the spectrum auction rules, as well as the foreign ownership changes, really look like they are being driven to allow one large foreign player to gobble up some of the existing smaller players and perhaps invest heavily in spectrum and try to become a viable fourth player that can grow beyond that 10 per cent restriction. Of course, there is no restriction on them growing beyond in these rules.
That is the vision, and I think many would make the argument that a strong, single, fourth player is better than half a dozen small players that can nibble at the marketplace but cannot really take on the larger players head-on, especially given some of the capital investments that are needed.
In terms of your second question, with respect to bigger visions and stuff like that, to be honest I think when I appeared in 2009 we were talking about the need for Canada to have a digital economy strategy, of which this would be a part. We are still, shockingly, talking about that. I refer to this now as the "Penske File,'' which is a reference to a Seinfeld episode from years ago where someone was working on a file and just continued to work on a file that did not really exist. I must admit that feels a bit like the digital economy strategy, which is one where, in many ways, successive governments, but particularly of late, have had consultations on the issue. We have had promises to develop a full digital economy strategy, of which the telecom marketplace is part of a broader vision. It is not limited to that but that is clearly part of the story.
I think it is amazing; there is the OECD study on how many countries are ahead of us in terms of foreign investment restrictions. We could probably do a similar study on how many countries are ahead of us in having established a digital economy strategy. We would probably rank similarly towards the very bottom.
We are now one of the only developed countries that has failed to articulate a broader vision about where we are going, which includes the telecom side but also includes skills and intellectual property-related issues, although the government is moving forward on Bill C-11.
It includes a broad range of things, including ensuring that privacy rules are at the level they need to be. I appeared last week before the House of Commons Access to Information, Privacy and Ethics Committee talking about the need to update and address privacy rules that are also woefully out of date relative to the challenges we face from an Internet perspective. There is a lot to be done; for example, the need to frame a vision to set clear goals and benchmarks about where we want to go has been lacking for many years.
Senator Unger: I would also like to hear your comments about financing of the National Do Not Call List.
Mr. Geist: On the issue of do not call, that is an issue on which I spent a lot of time creating a separate complementary site called iOptOut. It tried to target the many companies and organizations that are excluded from the Do Not Call List and to find a way to target those as well.
When the Do Not Call List was established, I called it the do not hesitate to call list in part because once you excluded charities, political parties, any business with which you have had a prior communication over the prior months and newspapers, I was hard pressed to identify anyone who was left. If we look at the Do Not Call List — and this was multi- party — I think in many ways it was designed to fail, first, with the sheer number of exceptions that were established. The practical reality is and was that many of the various organizations that engage in telemarketing are excluded from the list. It did not provide the regulator with the kind of tools it needed to enforce and we never provided funding for any of this to effectively allow a robust do not call list that can be enforced and mete out serious penalties where there are violations.
I get calls — and it feels like every day — from air duct cleaners. I know that millions of Canadians get the same calls despite the fact we have millions of numbers on the Do Not Call List. My view is that it is the responsibility of government to establish a framework that allows Canadians to be let alone if they so choose in terms of telemarketing. That requires ensuring that we have an effective do not call list that limits the exceptions and, secondarily, provides effective funding for that. I am not sure that trying to off-load all the funding on to marketers in the way we have seen over time is the right way to do it. If we talk to Canadians about the kind of service they would be willing to pay for, I do not think there is much doubt, given the popularity of the Do Not Call List, that you would find many Canadians prepared to pay as part of their tax dollars to ensure that they have an effective Do Not Call List.
[Translation]
Senator Verner: Still on the topic of the national do-not-call list, Bell Canada, which is in charge of administering the list, was awarded the contract in 2007 for a 5-year period. It was fined $1.3 million for violating the provisions of the list. When it comes time to renew the contract or start the bidding process to find the next administrator, will this stain on Bell Canada's reputation be taken into account? I would like to hear your thoughts on that.
We already have the do-not-call list, but anti-spam legislation is also on the way. When you compare the two measures, you realize that the procedures to stop receiving any solicitation are quite different. The do-not-call list requires people to register themselves, whereas in the case of spam, companies will be required to obtain people's consent before sending them anything. Do you not think a single piece of legislation is necessary in order to govern all aspects of solicitation, because it could get very complicated, otherwise?
[English]
Mr. Geist: That is a good question. I will address the first one first.
In terms of Bell having been fined in running the list, there is a bit of a delicious irony there. I recognize that they are not the only ones who have been fined in that regard.
Obviously, you would want to see a company like Bell or TELUS, or some of the other large players targeted with this, abide by the law, and it is a good thing that the CRTC has targeted them. However, it highlights a shortcoming on the enforcement side. Companies like Bell are low-hanging fruit, if you can identify violations there — they run the list. It is an embarrassment for a large company like that. Even if they think they are not offside, they will look to settle and make the issue go away as quickly as possible.
At the same time, practically speaking there are other others out there that are violating the list with far more impunity going beyond what we saw Bell engaging in. The CRTC at this point has shown itself unable to enforce against some of those players.
My understanding was that back when Bell got the contract it was not like we had a lot of companies out there running for this tender and so they took what they could get. Again, practically speaking, we would have been far better had there been the appropriate investment up front to say this is a government enforcement issue. This reflects the kinds of values and policies that Canadians have and we will invest appropriately to ensure the system can function and enforce it and we will pay to ensure that that happens. We tried to do this on the cheap. The outsourcing to Bell, the limited enforcement and the payment by some of the telemarketers for the lists was all designed to be able to say we passed this, but never mind the fact that we exempted almost everyone and tried to off-load the costs on to other people. If we were to do it right, we would have invested more heavily from the beginning. That question would not have arisen because Bell would not have been involved in running the show.
In terms of your second question, that is an important point, namely, the notion that we have an opt-out system with respect to do not call. That is, I say that I opt out and that I do not want to receive any more of your telemarketing calls. By contrast the anti-spam legislation is an opt-in world, the expectation being that I do not have to opt out from not receiving any of your electronic marketing. Instead, you have to obtain my permission in advance. Essentially, I have to opt into it.
There are two points in response to that. First, I have to note that the law was passed and received Royal Assent back in 2010. We are still waiting for it to take effect because of regulations that are delayed in Industry Canada. From my perspective this is inexcusable. The CRTC has gone through its regulatory process and concluded that. Last summer Industry came up with its regulations. There was outcry from the companies that had negotiated what they thought was a reasonable compromise with respect to the anti-spam legislation. They said we now do not like the deal that we agreed to a number of months earlier and pushed back against those regulations. Now we have not seen any new regulations. There are reports that if it does not go before a Treasury Board meeting within the next week or so it will be delayed until the fall before new regulations are again provided to the public for consultation, which means we are looking at late 2013. You are correct that this creates a different framework, but what on earth is taking so long, given that we have had an act passed by Parliament which enjoyed full agreement from just about all the players.
With the second part and the idea about could we have a single list or a single approach, you have hit the nail on the head because the law includes that provision. The law includes a provision that would do away with the Do Not Call List and eliminate that from the law all together, essentially making it a do call list. Essentially all phone numbers would effectively be on the Do Not Call List because you have to obtain my permission in advance. I think that is the right way to go. The government has put in not necessarily a poison pill but a provision that will allow them at some point in time down the road to move in that direction. I agree that the notion of one approach for telemarketing, if you are calling someone, and a second approach for the many other kinds of marketing, particularly electronic marketing, does not make a lot of sense. We set a higher standard with respect to spam. That ought to be the standard throughout.
Senator Martin: We face such a unique situation in Canada in terms of the sheer mass that has to be covered by any provider. Even with the providers we have there are internal challenges. I can appreciate everything that you are saying, but in the studies that have been undertaken by this committee and others there are always challenges that are so unique to Canada.
In regard to opening up the market, giving customers more choice, better service, et cetera — and I believe competition breeds excellence and is a good thing — will the benefits translate effectively to rural Canada as much as it would to urban Canada? That is another important reality: the urban-rural divide. We heard that during our previous study with the whole telecommunications industry and so forth. Would you speak about how the benefits would translate and in your opinion how opening the market would give better service to the rural Canadians as well?
Mr. Geist: That is a good point and it is fair to state the benefits of increased competition will accrue first to people in urban communities. It is a bigger market. If you are an investor and this is private capital, you will put it into the place where you think there is the largest return. It is reasonable to think that it will be in large major markets. You have a large user base, and in a smaller geographic area you can allow yourself to set the footprint you need to effectively compete.
The government has tried within the spectrum auction to set up incentives on the rural side.
It ought to be a full priority of the government. The baseline policy objective ought to be universal broadband services for all Canadians regardless of the communities they live in, small or large. You want to see the same wireless capabilities; it will often be more efficient to deliver these communications in rural communities.
Where the marketplace will not deliver those sorts of things, the government plays a role. We have seen that in the broadband area where, in a number of instances, some efforts have been made — I still think we have too many communities that do not have access — to say where the marketplace will not provide the essential services we will step in from a public perspective and ensure that will happen. That is a worthwhile investment to make as we move toward e- government services where we get better efficiencies and deliver to Canadians with electronic delivery of services.
The standard you must have to be able to deliver those services is to say that all Canadians have access. It is a problem if you have communities that do not have access or if you cut off the lifelines to access that some communities depend upon. Frankly, the government has just done that with the killing of the Community Access Program, or CAP. That does not help in communities where the reliance on obtaining access will be dependent on that kind of program. It does not help that our larger players have not stepped up together with the regulator and the government to try to find or propose public-private solutions to these issues.
For example, in the United States there is recognition that one of the major issues we face is not just access but affordability. There are still too many Canadians that have access to broadband services but cannot afford it; they do not have a computer or cannot afford the prices.
In the United States an initiative was launched last year, between the FCC and major broadband providers, Microsoft and Dell, that will provide low-income citizens — and they are using the metric as people who rely on food stamps — who will get $10 a month broadband and they will get a super cheap computer. The idea is to give people the access and very cheap broadband. Where are Canada's major players on that issue today? I am more than happy to engage in the convergence we have talked about, but where are they to say they will try to provide low-income Canadians in both rural and urban areas with the access they need? They already have connectivity; they just cannot afford access. We are seeing none of that take place.
In the case of the Bell-Astral merger, we will spend hundreds of millions in tangible benefits. Why not take that and ensure that all Canadians — many of whom cannot afford it — have that access? We have not seen the more aggressive, longer-term visionary stuff; that is not solely the role of government. We need to see the private sector play a role, too. They have also been asleep at the switch.
Senator Martin: I agree with that. How do we get the private sector to step up? There is legislation that is opening up the market. Some of them may or may not agree with that. They would like to have more of that monopoly. Again, I think competition is good for everyone. It is a great catalyst, but how do we get the private sector? Is that something that should be one of the next steps?
Mr. Geist: If it was my position — if someone would make me industry minister for the day — I would call them to a room, bring the regulator and other consumer groups and point out all the incredible advantages these companies have enjoyed from a regulatory framework for years, generating enormous profits for the companies and their shareholders. I am not saying that is a bad thing. That is capitalism. However, let us face it. These companies have enjoyed enormous success, whether we are taking about Bell, which was for many years a monopoly player, or large cable companies like Rogers and Shaw that have had regulatory advantages both from the copyright and the broadcast distribution perspectives that allowed them to become the large players they are today.
It is time to give back as part of rolling out new rules. If we are going to develop rules you think are necessary for your ongoing success, you have to help invest in this place as well. These plans are not charitable anyway. They already have the networks in place. The marginal cost of adding new people is low, but beyond that, you are hoping to give people the tools they needs to move out of the lower socio-economic area. Hopefully as they move up they become full- service people who pay regular rates. This is a business opportunity; the same thing we see played out in other areas. Why we do not have low-cost broadband for poor Canadians along with ensuring every single Canadian has access to a computer?
Back in the late 1990s we had a program ensuring every school in Canada had access to the Internet. We were the first country to do that. Why do not we have a program that says every single school child has access to their own computer? How do we expect any child today to be able to effectively engage in education, access culture, effectively compete and develop if they do not have access to a computer? There are still too many Canadians that do not.
Senator Martin: You are speaking to the choir here. I understand as an educator how essential that is. I hope the industry is listening because I know we have listened to them. Thank you for your comments and insights today.
Senator Eggleton: Picking up on that, the government needs to listen as well because there are a number of things it is not doing. I agree with what you said Mr. Geist. This should be in separate legislation on its own. It should not be part of this budget bill — this omnibus bill — because many of the issues that you raised would have a far better hearing and opportunity of moving forward if we had a separate bill focused on trying to solve these issues. As you point out, we have slipped a lot. We were the envy of the world at one time but we are no longer there.
Let me ask you, in terms of these provisions of foreign ownership, do these go very far? Is it piddly? Will it make much of a difference? Maybe you can comment on each of the three areas you point out in your remarks: competitiveness, choice and costs. How will this provision make a difference in those three areas?
Mr. Geist: I think this is certainly better than what we have now. From my perspective, it is a positive step forward. We have seen multiple studies. Most players in the marketplace, consumer groups and others all say they are comfortable with some amount of change; this is some amount of change. I have argued we can go further. How does it address cost, choice and competitiveness? Candidly, none of this happens overnight. Should Bill C-38 pass — and presumably it will — and change these rules, it is not as though someone can walk into their local wireless store the next day. These are longer-term changes that take place in the marketplace. They do not happen overnight.
I think we have seen the newer entrants come in and have an impact, especially at what is seen as the lower end of the market. Therefore, the established players had to become more aggressive with some of their pricing. As I have mentioned, we have seen some changes in, say, some of the data roaming-related issues in part because of that. We have seen some changes in recent years, I think due to some of the choices that were made in the last spectrum auction that helped facilitate some of the new entrants.
However, I do think that some of the larger players are still just playing for time, in a sense. They look at the relatively small growth and marketplace success that those companies have had and say, "They are not long for the world; there will be mergers or someone will come in, or we will be in a position at some point in time to scoop them up ourselves and do away with some of these competitive threats that exist.''
The way to counteract that is to bring in a bigger player, open the door to a large player. The view of the government could be that this may open the door to a fourth major player that may scoop up some of these smaller players, cobble that together, invest in spectrum and say, "Now we have someone who is in a position to challenge the big three.'' That looks like the way this is designed, and I think it is reasonable to hope that will be the outcome. If that is the case, then you will see the positive impacts in the longer term in terms of cost choice and competitiveness. Arguably, you see a little less choice because you see fewer of these smaller players, but I think the choice amongst all the players becomes better because there is a real need to compete more effectively.
Senator Eggleton: You talked about a fourth player joining the big three, which are Bell, Rogers and TELUS. I thought these provisions were for those just below the 10 per cent market share. If somebody suddenly gets more than 10 per cent market share, what rule would they operate under?
Mr. Geist: They are essentially exempted. If it starts below 10 per cent and grows beyond 10 per cent, they can continue to grow.
Senator Eggleton: Does that remove a level playing field with the big three because they would be under tighter constrictions? How do you think that would work?
Mr. Geist: Right now, the field is so uneven in terms of relative strength and sort of established dominance from the big three that the fact that a foreign player in a position to grow beyond 10 per cent will not represent a significant threat, certainly not in that short term. Longer term, could someone with very deep pockets represent a bigger threat and begin to take away some of that market share? I think it is a possibility.
As should be clear, I would like to see them remove the restrictions on all players so we would not have to address the issue of an uneven playing field. Were there to be a player that would move into the 15 or 20 per cent range, then I think you would increasingly see the calls from all the players to say it is time to open this up altogether to level the playing field.
As I have mentioned, I would be quite comfortable with that.
Senator Eggleton: I realize that you would, but I guess some of the push-back on this has to do with the convergence between telecommunications and broadcast, and the concern people have about the broadcast rules and the regulations with respect to cultural stuff and everything that is important to most Canadians.
You say in your remarks that you think it is overstated, that there would still be the Canadian content regulations to fall back on. However, then when you were answering a question from one of my colleagues, you said the convergence in those areas created some concern for you in terms of what their priority setting might be. You pointed out the United States and that you think they are a little bit ahead of us in that regard.
Do we not have to get that resolved first to try to counter the concern about broadcast? It sounds like you are being a little contradictory here. You are saying on the one hand that it is overstated but on the other hand the way they set their priorities could be a problem. How do you overcome that?
Mr. Geist: The concerns that are established from the convergence side relate to the telecom and Internet infrastructure and delivery of content. Concerns arise in terms of the prospect of delivery of content, whether it could be shaped or throttled, violations of Net neutrality, and all the sorts of issues that often come up for many players to say that someone on their carriage networks may well prioritize some of their content and we need rules to help address that. We have some rules that do help address that.
A new player that comes in may not necessarily be a convergent player. Verizon and Deutsche Telekom are not convergent players, certainly not in the Canadian marketplace at all. Therefore it is erroneous to think that they have the ability to prioritize their own content. Within the Canadian market, they do not even have that content to begin with.
We are talking about potential misuse, or using their carriage side — the telecom side — for purposes that raise some real concerns.
On the broadcast side, for now and for the foreseeable future, that still retains a licensing world. Despite the fact that there are plenty of opportunities to deliver your content and have your say, in an unlicensed Internet world there is still value associated with broadcast licenses. There are a limited number of them and the ability to reach people through television or some of those other media are still important and will remain so for the foreseeable future. We will not lose television altogether.
As long as we remain in a licensed broadcast world, any broadcaster, whether Canadian-owned or in theory foreign- owned, will be subject to whatever rules are attached to that broadcasting licence.
From my perspective, I really do not see why anyone would think that a foreign-owned broadcaster will be any less likely to live by the rules of their licence, including Canadian content requirements that may come as part of that licence. What we see over many years and what we have seen just now are the various Canadian broadcasters roll out their fall television schedules. They go to Hollywood and bid on U.S. content, and then they do the absolute bare minimum to meet the CRTC's Canadian content requirements to follow those rules.
These are Canadian-owned. Is there any reason to think an American company would do worse if they came? I do not see it.
Senator Eggleton: Let me finish by agreeing with another comment you made. I think it is unfortunate that the government has let this bill that passed in 2010 not get into a regulatory stage by now. It has been two years. We might check to find out where it is, Mr. Chair.
I think Senator Martin asked a good question about how we get this more evenly distributed in the rural areas. However, the government's cancelling the Community Access Program has not helped. It has gone in a very negative direction. I agree that we should have broadband available right across the country, rural and urban. That will take government action and not just the private sector. This bill certainly does not do that.
Thank you.
[Translation]
Senator Boisvenu: From your comments, I gather that you think we should go further, faster.
This week, TELUS announced that it was investing nearly $800 million in expanding its telecommunications business. Were you surprised by that announcement, in light of the current "monopoly'' culture?
[English]
Mr. Geist: No, I am not surprised that these companies are investing. They have to invest. We are seeing such a drive towards mobile access, not just with respect to the traditional voice services or even what we might have seen as traditional data services, but now increasingly in the same way we talk about people cord-cutting — people who are cutting their cable subscriptions and relying on the Internet. We are starting to see people cut their broadband and rely solely on wireless services as the basis for their services. Especially as we get faster mobile broadband, that becomes more of a realistic possibility.
The demands are unquestionably huge. For any of the players, I do not see how they have an alternative but to invest heavily in these markets. Otherwise, they will not be able to meet their customer demand. Presumably, they will price this at a point that generates an appropriate return for that investment.
However, if you are a network provider and you are not investing in your network, you will not be around for very long.
[Translation]
Senator Boisvenu: You seem to be optimistic that Canada can reposition itself as a telecom leader. Do you know of any countries that were in a similar situation to ours and that took the necessary actions to reposition themselves as industry leaders?
[English]
Mr. Geist: I do not know if I would describe myself as an optimist. I am optimistic about many different things. I am optimistic that these particular changes will be somewhat helpful. However, as I mentioned, I do think we need bigger visions and clear benchmarks and the like. It is hard to be optimistic, given the kind of delays we have seen, to be honest.
In terms of other countries, this gets asked a lot: Can we just point to a single country and do what they have done? I think there are many of countries that we can pick and choose and identify different kinds of leadership possibilities. South Korea, for example, is often raised as an example where the government early on was very aggressive, especially with respect to high-speed networks, in terms of playing a role, encouraging and fostering some of their high-speed networks, such that they now have the fastest networks in the world by far, and at prices that are far better than what we see.
A number of European countries have done far better as well. Parts of France, particularly in Paris, do well, but they had a natural advantage because they had an open sewer system that allowed anyone who wanted to lay fibre to be able to do so. They have far more competition within that city than we would be able to easily do, let us say in Ottawa. If we were to be pulling up the roads any time someone wanted to lay fibre in downtown Ottawa there would be non-stop construction. It is an ongoing challenge and and issue.
We have seen Australia announce a multi-billion-dollar investment in next-generation broadband where they identified the issues you were talking about earlier, senator, in terms of rural communities not having the access they needed. Despite having a single dominant player, Telstra, they said they would move forward with a multi-billion-dollar investment. It has been controversial to be sure, but it highlights that one way of doing everything, to say we will just leave it to the private sector to run all the investments, is not what some of our major trading partners and some of the leading economies around the world are doing.
There are other examples that we can look to. I would say that at this stage we have to come up, at the end of the day, with a made-in-Canada solution, in part because we are well past where South Korea was 10, 15 years ago, when it was in a position at early-stage build to say this is where we want to see things go, so we are prepared to invest in that way.
Frankly, we are probably well beyond what Australia is doing right now because our established players would look at this and say you are now going to invest billions of dollars in networks when we have already built many of these sorts of networks?
From a Canadian perspective we have to look at where the holes are in the network, where the shortcomings are and where we are falling behind. What are the steps to address that? One way is to bring in more competition in the wireless side, which is why we have been talking about this issue. Another is the kind of thing I was talking about earlier in terms of ensuring that we have computer access and affordable access for all Canadians, wherever they happen to be.
Another might be to try to leverage some of our large, high-speed research networks in the country. I sit on the board of CANARIE, which runs the national research and education high-speed networks across the country. Many countries have these large, high-speed research and education networks, and government labs use the same network.
In this current budget the organization did not receive the same mandate it received from prior years. It had consistently received five-year renewals. It did not get a five-year renewal this time. In fact, it did not get the same amount of money it got last time. However, you could look to CANARIE for what is known as peering arrangements and for connecting some rural communities that otherwise are not connected to the network. There are a lot of things that network could be doing that it is not, and instead of investing in it we are actually proposing to provide less money.
To give an example, there are a number of networks and communities out there that have not had the large players come. Sometimes the community says we will step up and build our own community network, but then the Rogers or TELUS or Bell, whatever the player happens to be, says we will not provide the on-ramp needed to ensure that the network built in your community connects with the Internet. If you want the on-ramp, sell us the network you just built. We are happy to be the monopoly provider or player based on what you just created, but we are not prepared to provide you with a connection.
An organization like CANARIE, which is publicly and privately funded, could be ideal to say, "If you build it, we will come.'' If you build that network in a local community, we will provide the connection to ensure you get on the on- ramp and create a better level of competition.
These are a few of the kinds of things we could be doing. However, without even a digital economy strategy that identifies these sorts of things, it feels like we are a bit stuck at the starting gate.
Senator Unger: Professor, you mentioned Bell, Rogers and TELUS as the big three. I am just wondering where Shaw fits in. I am also wondering, the Alberta government — I am from Alberta — has been working on — and I do not know how the progress is right now — high-speed Internet service to all Albertans. I wonder if you would comment on that.
Mr. Geist: Shaw is obviously a very large player in terms of broadband delivery services and cable delivery services. It is not a player when it comes to wireless services. Canada actually is somewhat different say even than the United States where we are so converged that large players provide not just land-line telephone service, television service and cable broadband services, but they also provide wireless services.
We do not see that necessarily in the United States, where many of the wireless providers, the AT&Ts and Verizons and the like, are increasingly moving in that direction but are not as converged and integrated as we see in Canada. Shaw is obviously a large player when it comes to providing the broadband, high-speed Internet services to the home, as well as increasingly television services through their cable. They do not provide, at least not yet, on the wireless side.
Your remark about what the Province of Alberta has done highlights a very important issue, and that is the role of the provinces in all of this. I think there is a role. It comes up in a couple of ways.
One, some provinces have begun to try to step up in part because they feel there is broader neglect at the federal level. If we have not seen the kind of action we need to see federally, then provinces will say we are not prepared, from our own economic well-being, to sit back and leave it to this "Penske File'' that never seems to go anywhere; we will step up and try to do something.
You point to Alberta. There are other provinces that are engaged in Wi-Fi initiatives and some other sorts of broadband initiatives. Those are all good, though I do think there is still an important role at a federal level to ensure that all Canadians have the kind of access they need.
The other element that is important, in terms of the broader digital economy strategy, is some of the legislation that the federal government has moved on is, I think, under some amount of threat from a constitutional perspective. I actually raised this before the house committee that I appeared at last week.
On PIPEDA, the private sector privacy legislation, the Alberta Privacy Commissioner announced yesterday she is appealing a decision that came out from the Alberta Court of Appeal that actually declared large parts of the Alberta privacy statute unconstitutional. There are concerns there.
There are concerns that PIPEDA, the federal law, may be unconstitutional because it steps on provincial grounds, particularly in the aftermath of the securities regulator decision from the Supreme Court back in December. That decision declared the attempt for a national securities regulator unconstitutional. If you read some of the things the court had to say, it almost reads as if they are talking about PIPEDA in terms of what overstepping might be.
It is also worth noting, since it was raised earlier with respect to the anti-spam legislation, there are concerns that the anti-spam legislation may overstep as well.
All of this is to say it is important to engage the provinces now as well, because what we will see, I think, especially in the privacy area, is where companies feel a commissioner is being overly aggressive in trying to enforce the law, their response may be, "Sue me. I will not abide by your order, your ruling, and I will challenge it in Federal Court. I will argue there that the law is unconstitutional and therefore is not binding on me.''
We need to have the provinces ready to create national standards on issues around privacy so that if that switch ever gets flipped we are in a position to ensure we have an effective privacy framework that applies nationally.
Senator Martin: My question is more of a comment on something you were speaking of earlier. I am happy to hear that South Korea is an excellent example, but I really believe it needs to be a made-in-Canada solution. You have highlighted some of those ideas.
Korea has one time zone and there are no remote places. It really is a unique situation. There is a study called Digital Canada, I believe, that outlines the vision and pinpoints a lot of these issues that we face in Canada. I wanted to mention that. I would love to hear from you at another time about your thoughts, if you were the industry minister, compared to the recommendations in the study. Have you looked at the study by chance?
Mr. Geist: I have. I think it was an important contribution. We have seen a number of attempts to try to articulate what a vision might be. In fact, even the government's consultation document on a digital economy strategy at least tried to establish some broad parameters on it. At the end of the day, all of these various inputs can only take you so far. What you really need is a clear, ultimately government-led strategy that says here is what we will adopt. Here is what we intend to do. Here is where the funding comes to help fund where there may be a necessity to fund some of these things. That is what we have not seen.
A good example, again, of how to pay for some of this stuff, which will be a fair question, is the spectrum auction. The last spectrum auction generated north of $4 billion, most of which went to the auto sector because at that time it was in trouble. Large amounts of money went to the auto sector to help sustain it. This time I suspect we will again raise billions of dollars, and much of that money will just go to deficit reduction.
I understand the importance of deficit reduction in the current environment. At the same time, if we look at the importance that this sector has to our long-term economic well-being, to education, to culture and to all of these various issues, saying that we will take the money that these same companies are spending on spectrum and reinvest, whether in providing rural broadband, in ensuring cultural communities have the tools they need to embrace the opportunities that the Internet creates, or in improving skills and digital literacy across the country, so that people have the skills they need in the current environment to be able to use these tools seems to me to be sensible. It is obvious that that is where the money comes from. It is not coming from the taxpayers at all. The very companies running the network are transferring their money by way of spectrum auction proceeds into helping to build this entire framework and they ultimately benefit from that as well. To date we have not seen a clear indication where it is going, but everyone is betting it will go to deficit reduction. The last time it was transferred over to the auto sector.
We could be doing a lot more. This is one space where there will be, over time, some real money that could potentially be available to target specifically these initiatives.
The Deputy Chair: Professor Geist, we thank you very much for your appearance. You have certainly enlightened us. I hope that there is a large audience of Canadians out there who have been listening to you as well. You have been able to clear up a lot of the concerns on issues surrounding a field which is quite complicated at times. Thank you.
This is a reminder there will be no meeting tomorrow evening. Thank you very much.
(The committee adjourned.)