Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 10 - Evidence, June 12, 2012
OTTAWA, Tuesday, June 12, 2012
The Standing Senate Committee on Transport and Communications met this day at 9:32 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 the House of Commons on March 29, 2012, and other measures.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: I call the meeting to order. This morning we continue our pre-study of Bill C-38 as we look at the elements contained in Division 41 of Part 4 in the Telecommunications Act that modify the ownership and control restrictions for certain carriers.
Appearing before us today are Mr. Chris Peirce, Chief Corporate Officer; Teresa Griffin-Muir, Vice-President, Regulatory Affairs with MTS Allstream; and Ted Woodhead, Vice-President, Telecom Policy and Regulatory Affairs with TELUS.
[Translation]
Welcome. Thank you for taking the time to come and discuss this with us. The floor is yours.
[English]
Ted Woodhead, Vice-President, Telecom Policy and Regulatory Affairs, TELUS: Good morning Mr. Chair and members of the committee. Thank you for this opportunity to present TELUS's views on Bill C-38.
I welcome the opportunity to discuss this important issue and to appear with, Mr. Peirce and Ms. Griffin-Muir today, who I believe hold view similar to those of TELUS. TELUS's position has always been that it was not necessary to liberalize foreign ownership restrictions, but if the government decided to do so, which it has, then it should logically lift them for all carriers. Advantaging only newer wireless-only carriers, regional established carriers, or even large foreign carriers with no presence in Canada — such as AT&T, Verizon or Deutsche Telekom — over companies like TELUS makes no sense from a public policy perspective.
Companies in the same sector should be treated equally when it comes to accessing capital markets. With respect, the government should not deal with this issue piecemeal but should take an industry-wide approach or at least indicate in a clear fashion when it will liberalize the restrictions for all.
In TELUS's view, the current option on the table to liberalize FDI does not reflect modern day realities where voice, video and Internet services, including broadcasting, are carried over a single network and where many carriers are now integrated with telecom, wireless and broadcasting interests.
Old cultural concerns that once held back full liberalization are no longer relevant in a world where the Internet has emerged as a major video distribution vehicle with the ascent of foreign-controlled, over-the-top providers such as Netflix, Apple TV and Google TV, to name but a few.
As currently proposed, the only beneficiaries from partial liberalization are carriers such as MTS Allstream, new entrant wireless carriers like Wind that are already primarily foreign owned, and potentially large foreign companies that may choose to enter the Canadian market through the acquisition of other companies such as Allstream or new wireless-only carriers like Wind or Mobilicity.
Conversely, shareholders in companies in Canada that are investing the most money in networks and innovation would be unnecessarily handicapped relative to shareholders of larger foreign entities. All Canadian investors and shareholders should be part of this important debate.
If increased foreign ownership is a good thing in the sense of increasing competition, investment, innovation, and the availability of advanced services, then the best way to ensure that the customers of all carriers in Canada can enjoy the benefits of liberalization is to fully and fairly liberalize for all carriers at the same time.
At a minimum, as the government is taking this first step to liberalization, we would encourage it to set a timetable for moving from partial to full liberalization to put Canada's telecom industry on an equal footing with our global trading partners.
While I have your attention, I would be remiss if I did not take a moment to congratulate the Minister of Industry on his very balanced and thoughtful decision with regard to the upcoming 700 megahertz auction. Foreign ownership changes have been linked by many commentators and industry leaders with the spectrum decision, and we understand and applaud the minister's decision that balances the government's interests in ensuring continued investment, rural network development and increased competition. While we feel there are some issues with the proposed changes to the foreign ownership rules and we hope to see further clarification of the path to full liberalization, we understand the balance that the minister was trying to achieve.
We believe that Canada will continue to lead the world in developing world leading markets, robust competition and widely deployed rural and urban service.
I will leave my additional time to allow for a fuller discussion of these important issues.
Chris Peirce, Chief Corporate Officer, MTS Allstream: We are pleased to be here today and to have this opportunity to share our views with you.
With 6,000 employees across Canada, $1.9 billion in revenues, nearly 2 million total customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba, and a national broadband and fiberoptic network that spans almost 30,000 kilometres, MTS Allstream is one of Canada's leading telecommunications providers. We compete as Allstream with TELUS in the West, Bell in the East, and, as MTS, with Bell, TELUS, Rogers and Shaw, among others, in Manitoba, where we are the incumbent.
[Translation]
We offer a unique perspective on these discussions for two reasons. First, we operate and derive half of our revenue respectively, as an incumbent in Manitoba and a competitor across the rest of the country.
Second, as a competitor, we have experience in trying to establish and to maintain an international partnership with AT&T, and have directly experienced the negative effects of foreign investment restrictions.
[English]
We strongly support the government's decision to lift foreign investment restrictions for telecom companies that hold less than a 10 per cent national market share. We believe that this policy, combined with this government's pro- competition wireless spectrum policies initiated in 2008, will result in greater choice and lower costs for individual Canadians and small- and medium-sized businesses alike.
When it comes to the need to access foreign investment, the equation for large incumbents versus competitors is very different. Competitor investment, which is crucial to more competition, lower price and greater choice, especially in the business market, is entirely risk based. The stakes are higher, the risks are greater, and the necessary risk capital far less available from Canadian sources. As a result, competitors have often been reliant on foreign debt and, until recently, largely absent.
[Translation]
Conversely, the large incumbents whose networks were largely funded by the foreign capital not available to competitors can leverage their economies of scale and free cash flow to invest in their existing networks. This investment is inherently less risky, and, consequently, inherently more attractive to Canadian sources of investment.
[English]
The consequences of this asymmetry are very real. Our small- and medium-sized businesses are unduly hampered when it comes to innovation and the adoption of new technologies, something directly linked to their lack of competitive choice for next generation telecom services. Let me give you an example. For basic high-speed Internet service for a Canadian small business, it costs Bell Canada approximately $18 per month to provision the service. They charge $52, a margin of 290 per cent. It is no wonder, for example, that Canadian retailers lag behind their U.S. counterparts by about four years in online sales according to Statistics Canada. Competition in business telecom services is lacking and costs are too high.
As a result, Canadian consumers have paid the price over the years, literally, in terms of higher costs and less choice when it comes to access to the latest and best technology.
As you likely know, for some time Canada's productivity record has been poor. Low productivity means slow economic growth, which means fewer jobs and lower incomes for Canadians.
[Translation]
This government, much to its credit, has recognized this weakness and has acted decisively to address it. Minister Paradis has focused on strengthening innovation and Canada's digital economy. Minister Paradis has recognized that Canada can and must seize a leadership role in this burgeoning market. The digital economy means jobs, high-quality jobs and the key to driving innovation and Canadian leadership in the digital economy is a thriving, open and competitive environment to invest.
[English]
In summary, we reiterate our strong support for this initiative. Combined with the "set aside'' policy for new entrants in the 2008 wireless spectrum auction, we believe that the Government of Canada is making significant progress in creating a more competitive telecommunications environment in Canada and strengthening Canada's economy. More foreign investment will lead to more competition. In turn, more competition will give Canada's small- and medium-sized businesses the chance to innovate and create jobs and will provide Canadian consumers greater choice and better prices for their iPads, Playbooks and smartphones.
Senator Eggleton: Mr. Woodhead, you said at the beginning that you thought you and the folks from MTS would be singing pretty much the same tune. However, MTS supports this 10 per cent level. Your comments seem to be that lifting foreign ownership restriction should be open to all at this time, not just to MTS and others in that position. It should be open to the big three as well.
Mr. Woodhead: That is correct.
Senator Eggleton: Let me ask MTS: Why do you think it should be restricted to those other than the big three?
Mr. Peirce: We supported the notion of opening for all telecom carriers. The government has been clear throughout that they will not liberalize for those who also distribute broadcasting content. It means that for MTS in Manitoba or for TELUS in the west, who both offer television product as well — for those parts of the business — the restrictions that exist under the Broadcasting Act will continue to apply. We had favoured either the 10 per cent or an opening for all. The government is looking at the fact that there have been two arm's-length panels over the last decade, one reporting to the previous Liberal government, the Canadian Telecommunications Policy Review; and one reporting to this government, the Competition Policy Review, under Mr. "Red'' Wilson. Both of those reports recommended a first step of opening up for sub-10 per cent companies because of the asymmetry to which I referred. The restrictions bite smaller new entrants and do not significantly affect the access to capital of the larger incumbents.
We support for all, but we recognize why the government is taking this first step. We prefer not to have the perfect be the enemy of the good. This is an important step in opening up our investment regime.
Senator Eggleton: I suppose part of the reason for this is to create a fourth major player, which may be you. The CEO of Rogers has said that there is no question in his mind that Canada cannot support more than three national facility-based players. What is your comment on that?
Mr. Peirce: The issue around foreign investment, because of the decision being linked with the auction policy, has become a wireless conversation, as you say, senator, about how many wireless providers we can afford or who can compete usefully in each market. The perspective we bring is that it is important that policy-makers remember that fibre infrastructure — the wire line networks — are crucial to the wireless environment as well. Wireless calls find a network as soon as they can and then travel over the network. They do not go through the air. Allstream is a provider. Most of the new entrants are our customers because they need access to back haul to move their calls through. Allstream is a provider to all of them.
Access to foreign capital is very important for the wire line infrastructure. In terms of wireless and how many providers per market can be supported, in Manitoba we effectively have four providers. I would not rule out the notion of four providers being a possibility in each market. Whether that is a fourth national or a collection of regional wireless companies competing each in their region is another matter. The market will presumably decide that.
Senator Eggleton: Let me ask you about convergence because of all the different services provided by the big three and the concern that opening up the foreign ownership will create a domino effect that may impact broadcasting. The sensitivity is on the broadcasting end of things. Can all of you comment on that?
Mr. Woodhead: I can comment briefly. That is absolutely accurate. Historically, there has been a small "p'' political sense that there were moral hazards associated with the cultural space. Even though the market has taken on attributes of convergence, either through acquisition or in the way that broadcasting cultural products and services are delivered, from a legal point of view, and we are saying it is fine, this is what the government will do on a 10 per cent for telecom. However, they should provide us with some runway either through some sort of sunset clause or something like that so that in five years it will be reviewed for all of telecom.
It is not perfect, but it is the art of the possible. In a perfect world, you would assess the market in terms of whether cable companies compete with telephone companies in the old paradigm? Yes, they do, but if that creates so much consternation, then leave it to these companies, such as ours and MTS, to sort this out in terms of how they structure the companies so that they can take advantage of capital markets on the same basis, even if it is only just in the telecom space.
Teresa Griffin-Muir, Vice-President, Regulatory Affairs, MTS Allstream: We would largely agree with what Mr. Woodhead has said. The networks that deliver telecom and broadcast services are converged, but the acts that govern the behavior, in particular with respect to Canadian content, et cetera, are totally separate. It is up to the individual corporations to structure themselves in a way that they can avail themselves to the greatest extent possible of the capital that they feel they need to run their telecom business and, I guess, to run their broadcast business until such time as there are changes — perhaps a review of the Broadcast Act or the regulations that support that act, which has not yet taken place.
Mr. Peirce: We had suggested to the government around broadcasting that because of these arm's-length studies I have been talking about, for the last decade we have been discussing in a relatively thoughtful way telecommunications policy. We probably have not yet had that thinking take place on the broadcasting side, but it is certainly timely, given what has happened in terms of integration with Bell acquiring all the content they have and the fact that broadcasting content in Canada is controlled mainly by four large companies.
The notion of a broadcasting review is important, but we understand why politically these restrictions were removed solely for telecommunications to avoid all the things that such a debate raises in Canada.
Senator Eggleton: I will follow up on that. They are under different acts, which I understand, and there are requirements under the Broadcast Act that still have to be met. However, for many people out there, the sensitivity is the domino effect or the thin edge of the wedge, because once you head down this path it will be difficult to hold onto some support of the cultural industries within the country. Can you give some comfort to the people concerned about that at this time?
Mr. Woodhead: As I understand it, the historical perspective is that Canada has a unique place in living beside possibly the largest content generator on the planet. As a result, there has always been a concern about diversity of voices, that Canadian voices and stories be heard and that Canadians see themselves reflected in the media. You are all well aware of that.
In my view, in terms of how all domestic and terrestrial broadcasting would deal with this, other than what you receive over the Internet — which becomes a problem just by virtue of the scope of the Internet, whether it is from Rogers or Bell or Shaw or CTV or whether it was owned by an American or not — it would still be governed by the conditions of the operating licence. All those conditions are within the control of the federal government or its agencies to establish. Those conditions would look like the number of hours of Canadian drama or some other genre that the licensee, which could be American or could be German, would have to adhere to and would face legal sanctions for not doing so.
That would be the comfort I would hope to give to those who are concerned about the future of the Canadian cultural sector. There are still levers available to enforce those kinds of public policy and social policy goals that we currently seek to do through broadcast licences.
Mr. Peirce: I agree with Mr. Woodhead about the ability to continue to regulate content, even absent foreign investment restrictions. I would also offer that pretty much every other developed country that we compare with deals with carriage, deals with this liberalizing foreign investment for carriage, differently from the way they deal with content.
In the United States, you would not be able to acquire a broadcasting entity as a foreign player in the same way that you could acquire a telecom asset. That is the same across Europe and with any other country to which we would compare ourselves. We really stand out in terms of restricting the way we have competitors. Our policy has been that we want competitors to come and invest in new network infrastructure but we have said to them that they can only find their money from Canadian sources. We have really been tying our hands behind our back for this specific sector that the government is dealing with now.
Senator Eggleton: Other than the United States, what other countries would have a similar desire to protect their cultural products — tell their stories — but allow a convergent situation such as we have internationally and still allow an open gate on foreign ownership, or pretty close to it?
Mr. Woodhead: I believe virtually every country would have some form of protection, either explicitly or through some other instrument, for example, the Investment Canada Act or something like that. Even in the United States there are levels of foreign ownership permitted in broadcasting. There are examples of multinational corporations owning satellite systems in Britain, such as BSkyB. Canada stands rather uniquely to the level of restrictions that we impose here and all of the other regulation that piles on top of that to ensure linguistic duality, to ensure diversity of voices, to ensure how Canadian programming is showcased on your television set and so forth.
Senator Mercer: I think the people watching today are interested in a couple of things. Ownership, whether it be Canadian or foreign, is important, and if you asked Canadians what they would prefer I believe they would say Canadian ownership. However, they are not averse to participation of others in the marketplace, of course, because of where we are. We have to be realistic.
Another thing they are concerned about is the cost to the customer. Ultimately, my wife wants to know what she is going to pay for her services, but then she also wants to know whether her service will be as good as the other guy's. My wife and I happen to use two different services and we live 40 kilometres outside the city of Halifax. We are sitting next to each other in the same room and I have service but she does not. She still has to pay her bill every month as I do.
It seems to me that we need to hear some reassurance that anything we do here will lower the prices. I think we all would agree the prices are extremely high in this country in comparison to other countries and the service is spotty at best. I am being as generous as I can. Give us some reassurance that what we are doing here will have an effect on that.
Mr. Peirce: Speaking on the telecommunications side, the best route to giving individual Canadians and small- and medium-sized businesses the greatest choice in terms of what they would like to solve their issues is through competition. Competition is also the best driver of investment. Telecommunications is a capital intensive industry. If you are talking about the former monopoly incumbents, which we are in Manitoba and TELUS is in Western Canada, the bones of those networks were built with a guaranteed rate of return, and a regulator and the ratepayer paying a given price. Given we are not there anymore and we want new players to come in and invest, they have to be able to access that investment wherever they can. When they are able to invest, if the customer is faced with both an incumbent and a competitor, then that customer will have better choice because the incumbent will react wonderfully with innovation, new products and services and different pricing. If they are not facing a competitor, that would not be their behaviour. Their behaviour will be to maximize profit, not maliciously but for the return to their shareholders.
The best way to have you and your wife or small businesses in Canada have access to new technologies, new services faster and at the most competitive price, is to make sure that we make our environment as open to competitors as we possibly can.
Mr. Woodhead: In terms of cost to the customer, which I believe was your first point, I might take some issue with you as to whether the level of cost is too high. People generally complain about prices for everything. There is a lot of media profile given to studies that emanated from the OECD around the cost of Canadian wireless services, and placing us middling or in the lower quartile of the cost internationally for wireless services. Incidentally, there are many studies that take a totally different view from that of the OECD based on different methodology because the OECD has not thoroughly studied all of the rate plans that are available in Canada. The OECD has not thoroughly looked at all of the factors of rolling out networks in one of the largest countries on the face of the planet, with some of the most inhospitable geographical conditions.
Our network reaches 98 per cent of the Canadian population. To your point about living 40 kilometres outside of Halifax, there are spots in that network; yes, absolutely. The answer is to continue encouraging companies to invest.
For example, TELUS has the highest CapEx intensity of any telecom in North America. In the depths of the 2008 recession, we plowed billions of dollars into completely overlaying our wireless network with what was called HSPA technology. Here we are today, barely four years later, and we are in the process of again completely overlaying our network with long-term evolution technology to keep it state of the art. MTS is in the process of doing the same thing in Manitoba.
The world is a lot faster in terms of how you have to refresh the investment in the technology in your network to keep it world class.
I am sympathetic, to a degree, to the point that people are concerned about cost. However, voice RPU is down. Data RPU is up because it is replacing voice minutes. People are texting, using the Internet more and other types of things. There was a monopoly on international roaming in this country because Rogers was the only carrier using GSM-based technologies. Since all of us have come into the market with competing offerings, the roaming rates, in our case, have gone down 60 per cent for travel to other countries. The market is working. It is taking things into account. I take your point that consumers want lower prices, and the competition that we have in the market will deliver it.
Senator Mercer: I think that the reference to the OECD studies is a good one, except that one of the factors that never gets measured is the advantages that Canadian companies have had because of the Canadian regulatory system. We have protected them for years, and they fail to respond. If you go back 30 years, the best telephone company in the country was NBTel. They were the most aggressive and most modern. When they joined the network of the telecom companies of the four Maritime provinces, New Brunswick was the big loser because service came down. The rest of us in the Maritimes did not come up to their level. They came to a point in between what Nova Scotia and P.E.I. were receiving.
There seems to be some recognition, and maybe there needs to be a method for government to say, "Here are the advantages that we have given you. You have not delivered on the service. Maybe we should rethink whether you should be in this business, and maybe, by inviting others to invest, perhaps people who are not Canadian, you will get the message.''
That was more of a statement than a question, I realize.
Senator Zimmer: Thank you for your presence. I do not think this question has been asked, and it is somewhat of a supplementary to what Senator Mercer just asked you.
Rogers has been quoted as saying that there is no question that Canada cannot support more than three national, facility-based players. That is cute. Of course they will say that. Why would they say anything different?
My opinion is that if they are as good as they think they are, why would they worry and pull the competition away? It is Darwin's theory of survival of the fittest, and it is a jungle out there. Get out of the weeds and go after it.
When I drive a car back from Winnipeg, I go over Lake Superior. I lose contact for six hours. It does not bother me, but it worries my wife: Where is he? What has happened? In your professional opinion, what do you think about that statement that Canada can only handle three?
Mr. Woodhead: I am happy to respond. I recall Rogers actually saying that. Unless they are repeating it, I believe that they started saying that about three or four years ago. I actually think that it is kind of a silly statement. The reality is that whether or not you lift foreign ownership restrictions, even under the existing regime, customers in most urban markets in this country currently have at their disposal four, five or six wireless carriers. That is just an organic thing. Under the existing regime, you were able to sprout up that much competition. I am not worried about it. You cannot do anything about it; you have to compete rather than complain. That is the natural order; that is the Darwinian theory.
From our perspective, the reality is that we face these competitors in Vancouver, Calgary and Edmonton, and we have to compete with them because they are taking customers. That affects our pricing, how we approach the customers on a service basis and all the rest of it.
Why they would say that I do not know. You would have to ask them. To me, it is empty rhetoric because the reality is that they are there, and you have to compete with them.
Mr. Peirce: The only thing that I might differ a bit on is that I think the steps that the government took in 2008, under the last wireless spectrum auction, were crucial to creating the competitive environment that he refers to now. The reason that we have the new entrants that we have now, whether it is Globalive or Vidéotron in Quebec or Mobilicity or Public Mobile, is because of the auction policy that the government adopted in 2008 to ensure that new entrants would come in. What that competitive catalyst meant, as Mr. Woodhead pointed out, is that the incumbents invested new buckets of money to ensure that their technology was leading edge, and you had these new entrants come in and invest a lot of money in constructing new networks. That situation will not sustain itself without the removal of foreign investment restrictions for those new entrants. We saw that happen in the early part of the decade when we were AT&T Canada. When competition was first opened up in telecommunications, we had a dozen or more new entrants who came in to build new fibre infrastructure. All of them, including AT&T Canada, ended up being reliant on foreign debt, and all went bankrupt because it is not an equation that works. You need to access risk capital for those new players to come in, The removal of these restrictions will help the new entrants, along with players like Allstream that are investing in fibre technology, as we go into a new wireless auction policy. The Darwinian rule means that the greatest wins. In an industry that was a monopoly for the better part of a century, you need to take steps to ensure that the marketplace will be enduringly competitive and not somehow result in dominance by one player or another.
Senator Zimmer: Thank you for your candour.
Senator Unger: This is sort of a supplementary question: Do you think Canada has a large enough market to attract foreign investment? Are we a big enough player in this?
There is a general bias, I think, among younger people about this idea of allowing foreign companies to come into Canada. Yesterday I was out and about, and I saw a billboard showing an angry looking young man saying, "Stop this bill. Stop foreign ownership. It is not good.'' It is a complicated issue, but I wonder if this is a bias that might be problematic for the government to deal with?
Mr. Woodhead: Is the sign that you were looking at on Bank Street, on the side of a building?
Senator Unger: It was.
Mr. Woodhead: That is the Communications, Energy and Paperworkers Union building, so it is a large Bell trade union sign.
Is Canada a big enough player in this to attract foreign investment? In 2008, with the existing rules, Orascom Telecom established a subsidiary here or an arrangement here with a small Canadian company called Globalive. They were clear in 2007, as I watched this unfold, that they saw an opportunity in Canada because they believed that it was underpenetrated versus its peers for wireless services, because something like 73 per cent of Canadians at the time had a wireless device, whereas in Europe they throw around these numbers like, in Greece, 120 per cent of the population has a wireless device. There are reasons for that. It is swapping SIM cards because the countries are so close together and people are constantly travelling. That was the opportunity they saw.
Will foreign investors come to Canada? You have seen it. We have seen it in energy and resources. Where there is a positive business case, you can find foreign money. If this restriction is lifted, these people can go to foreign markets, as Mr. Peirce says, capital markets, and seek risk capital. Those people, because they are not stupid people down there, will provide you with risk capital if they like the look of your business case and they like how much return they can make. These are state-of-the-art, innovative companies that we are talking about here. Yes, they probably can access risk capital, but it will be caveated by the fact that you have a reasonable business plan, an ability to execute on that plan and you are willing to pay the dividend back for that.
Mr. Peirce: In 2000, when we first opened competition in telecommunications in Canada, and before, all the significant foreign players were here. British Telecom was an investor in us when we were AT&T Canada. AT&T obviously was an investor. Verizon was a significant investor in TELUS. In fact, BC Tel, one of the predecessor companies of TELUS, was majority owned by a predecessor company to Verizon. Bell Canada's network was largely built with foreign investment when it was effectively AT&T in Canada.
We have managed to chase all those players away. Over the past decade of these restrictions being in place, every significant international player has left the country. You underscore a real challenge for us as Canada because we are small. When you are small and closed, the world looks elsewhere. I would say telecommunications is a lot like other portfolios in Canada. We are always driving to achieve our share of international investment. I know departments across the government worry about foreign investment dropping and that we have to do all we can to attract it. It is passing strange that, in an industry as important to our future as telecommunication, we would actively put up barriers to that type of investment coming in.
Now that we have removed those barriers even for small players, it is still a test to go out there on the markets and attract investment to show the business case. That is what we have confidence as Canadians that we can do, but we should not hamstring ourselves in that effort.
Senator Unger: You both mentioned risk capital. That means one thing to me — uncertainty and risk. Would you comment on the risk capital?
Mr. Woodhead: All capital markets are, in fact, exchanges of risk. It was ever thus.
Typically, as I see it, the lower the risk, the lower the interest rate you pay for the capital that is deployed to you. The higher the risk, the higher the interest rate. That is how capital markets are structured.
Typically, in the wireless industry in the past, when it was MicroCell or Clearnet, those companies accessed capital markets. They were able to convince those capital markets that they had a legitimate plan. This was twenty years ago in the wireless market, when penetration was maybe 25 per cent, so there was a lot of growth there. You are always able to do it if you have a legitimate business plan and you are willing to stomach the interest rate.
Mr. Peirce: I can give an example of our company. As MTS in Manitoba, people would typically invest in MTS for the dividend. Our incumbents across the country are dividend plays. We have significant capital needs in Manitoba. We have to lay out new wireless networks. We are delivering fibre to the home in 30 rural communities, not in Winnipeg. Doing all those things costs hundreds of millions of dollars. Our investors say, "That is fine. It will assure my dividend.''
Our Allstream business does not start with that historic monopoly. Our Allstream business has invested over $4 billion collectively in our national network, but that was all built at risk because there was not a guaranteed customer base to support that. It was effectively a start-up. No one is investing that for a dividend; you are investing because it is a growth story. When we try to invest in that Allstream network infrastructure now, the legitimate question for our investors who are investing in MTS is, "What about my dividend?''
Risk capital is a different type of investment. It understands there is greater risk, but it is betting on the growth. Take Canadian banks, for example. They have done so well during this downturn. They do not take as much risk as other international institutions or other international sources of money, so investing on that side requires a different type of capital, which typically does not come from Canada.
That is why competitors have been so reliant on foreign debt. They cannot get foreign equity. Canadian banks will not loan to that type of venture in those kinds of sums. The indebtedness comes from outside the country at a higher premium, no doubt, so it is risk capital versus a more dividend-like approach.
[Translation]
Senator Boisvenu: Thank you for your presentations, particularly that of Mr. Peirce. I am always a little shocked when I hear about Bell's profit margin.
Mr. Chair, I throw a little temper tantrum every time because I am shocked. Mr. Woodhead, I feel that competition has always been at the root of improving the quality of services and, most importantly, the level of productivity in a company. I am surprised that TELUS wants to keep the status quo.
I was around when Vidéotron came to Quebec. This first competitor had a negative impact on Bell with its overly aggressive marketing approach. In response to that, Bell treated its clients with disrespect. I had been with Bell for 20 years when I realized that my neighbour's rate was 30 per cent lower than mine for the same service with Bell. Bell was giving its new clients rates that were 30 per cent lower, without bothering to adjust the rates for its loyal clients. Bell's marketing strategy was to wait for its long-term clients to threaten to leave for Vidéotron to obtain that new rate. When Vidéotron started to provide cable, phone and wireless services in Quebec, it was very beneficial for Quebeckers because Bell was really ripping us off. We were really getting ripped off.
Mr. Woodhead or Mr. Peirce, how can we remain closed off or frozen in a status quo that chains Canadians, so to speak, to large companies? I felt I was Bell's prisoner for years on end.
Last year, it took me four months to solve an issue with Bell's rates. With its monopoly, I feel that Bell could not care less about its clients and Canadians. So when new players enter the telephone and Internet market, their top priority is going to be the clients, not just profit.
How can we choose not to open up this market to Canadians so that they can have access to productivity and prices that are comparable to those the French have? The French used to be 10 years behind us in terms of Internet and wireless telephone services, and now, we are 10 years behind them. In France, you can rent a cell phone anywhere. You are not caught in some regulatory stranglehold like the one Canadian consumers are caught in.
I am a bit surprised to see that we are closed to the idea of opening this market that will benefit Canadians as consumers. Could you tell me what you think about this? In my view, this should be a calm debate and we should welcome this market with an open mind so that Canadians can benefit from it.
[English]
Mr. Woodhead: Thank you, senator. I think you misunderstand my position. It is not that foreign ownership restrictions should not be lifted, that the status quo should be maintained. My position is that if the government is going to lift foreign ownership restrictions, it should lift them for everyone in telecom. That is the difference.
Keeping on the theme of foreign investment, you were rescued from Bell by Vidéotron. I do not know what their position on foreign ownership is, but I doubt it favours it. You were rescued by a proud Canadian company that deployed an IP application across its network to provide you with telephony services and, from what I have seen, is doing pretty well, probably for reasons that you suggest. I do not know.
That is competition and that is how consumer welfare and benefits are driven by companies like Vidéotron who enter into the market, make investments, and compete with companies like Bell.
Shaw Cable did the same to us in the West, and I can tell you what it has done at TELUS in terms of transforming the culture of this company. Our mantra now is "customer first.'' We have implemented all manner of programs to improve our customer service and have been relatively successful in slowing the migration of customers to our competitors, because that competitive heat is one of the benefits of competition. It drives you to do things differently and to respond to your customers differently.
I am sure Mr. Peirce or Ms. Griffin-Muir have something to say on this.
On your last point about France, we will do all the things that you suggested. We will unlock your phone for you and you can get a SIM card from somebody else. We have lowered roaming rates by 60 per cent. We have gone through a whole menu of things on wireless alone to respond to consumer demand for more flexibility.
We sell SIM cards only, no devices. You can buy phones fully subsidized from us or not. You can pay $650 up front or whatever the latest version of the iPad or iPhone goes for, or less for android devices. We are currently offering the benefits that you saw in France, and it is only a matter of time before people fully realize it.
Mr. Peirce: I could not have explained the situation any better than you did, senator.
The one thing I would underscore about the plight, as you say, of the customer is to point out that that extends especially to our small- and medium-sized business community in Canada. Allstream only serves businesses across the country, but our biggest challenge is getting our network to the customer so that we can offer them alternative services. Frankly, we are probably one of the largest customers of Bell Canada in the country because we have to use their last mile to get to the customer, and they treat us just as badly as they treat you. To your point, that is why competition is so important.
Vidéotron Quebecor has been on the record as favouring the removal of the restrictions. Like Mr. Woodhead, they would want the restrictions removed across the board, but they recognize this as a first step.
You are describing exactly what happens when there is not a truly competitive environment, and competitive environments do not just happen. As Rockefeller said, he was no friend of competition; he wanted to eliminate competition. That is the best way to maximize profit for one player. We need a regulatory framework that does not let players act that way. When we create a competitive marketplace, big players and small players will react with innovation and choice for the customer.
Senator Martin: I am from the West, so I know the competition and the choice for consumers that is there. My husband was nabbed by a competitor of yours and changed our service, although I tried to resist. In any case, I do see the greater service and choice for customers.
My question is about the rural-urban divide. I live in the city, so I know that I will have greater competition and better service, but will that translate to rural Canada? As an example, I went to the Yukon and my carrier did not provide service there, and I did not realize that when I went.
When we are creating more choice and greater competition, would the providers enter into agreements or contracts so that someone going to another part of Canada could continue to have service? Rural Canadians should benefit as well as urban dwellers.
Ms. Griffin-Muir: Greater competition tends to start in the cities. We have to be frank about the fact that certain rural communities may never have the kind of competition that urban communities have.
There are a couple of ways of addressing that. In the recent framework for the 700 megahertz auction, the government is proposing to address some of this. Carriers will have to provide both in- and out-of-territory roaming, which means that if you have a network in some parts of a province but not all, the carrier with the rest of the network will have to negotiate with you.
As competition gets greater and the market is a little more evenly divided, particularly in wireless but probably in all sectors of telecommunication, it will benefit all carriers to ensure that there is more service, that their service continues or that there is an easy hand-off, and those things come more readily with greater competition, even if that competition emanates from urban areas.
The proper regulation must be in place. It does not just happen. Certainly in the wireless sector the government is looking at expanding some of those rules. In the wire line sector there will probably have to be additional modifications to encourage greater deployment.
Senator Martin: For clarification, there are currently no regulations about the in- and out-of-territory roaming, per se. Having more competition does not necessarily mean I would be assured.
Ms. Griffin-Muir: Currently there are some if I am out-of-territory. If our customers leave Manitoba, since we do not have a wireless network elsewhere it is mandatory for the carriers there to negotiate. However, if you had a network in Manitoba, like TELUS, it is not mandatory to negotiate roaming.
Senator Martin: I am in B.C., but my example was Yukon. I will not name the carrier.
Mr. Woodhead: There is clearly roaming on Rogers if you are in Yukon, and they do not have any network there. The all-carrier roaming requirement in the 700 megahertz framework that Ms. Griffin-Muir is talking would likely solve that problem. Unfortunately, if you were with TELUS, we would have been able to provide you with service in Yukon; but I digress.
I have another point I want to make. You raise an important point. There is a slight issue and I know the chair is rushed for time here but this rural question to me is very important. Industry Canada and the minister believe that they have solved it, and I think they have partly solved it with the conditions on 700 MHz that require MTS and TELUS to build out on a fairly rapid accelerated basis to 95 per cent and 97 per cent of our current coverage. However, there is a gigantic loophole for all of these new entrants, such as East Link and Shaw, who have spectrum but have never deployed it. They have a valuable public resource that they have not built. Their build requirement, if they were to obtain 700 MHz spectrum, would be essentially zero because of the way that Industry Canada has created this condition based on your existing footprint that you have deployed. Therefore, if you have deployed zero, a percentage of zero is zero.
Equally, if you were a speculator wireless company, such as Deutsche Telekom or AT&T or Verizon who wanted to participate in this spectrum auction, you could actually come in and get spectrum but essentially deploy none of it and hold it as an investment. I do not think that is in the public interest. I believe that the way they have gone with the established players to accelerate deployment to rural areas is in the best interests of Canadians. We can do better. Look at the wireless coverage maps, and I happen to know my own, in particular in Alberta, for example. Given the conditions in Alberta with its resource intensity, the coverage of areas where it is completely uneconomic to build and maintain is probably the most intense and widely deployed network in the world for a geographic location of those characteristics.
Senator Mercer: You reminded me of a statement made by an old colleague of mine who used to work for MTT in Nova Scotia. He said: "The telephone company is the most democratic organization in the country; we give bad service to everyone.'' He was right.
When talking about foreign investors, someone said that they are not stupid "down there.'' You have assumed that these investors will come from south of the forty-ninth parallel. If we proceed with this, will it encourage more investment from places other than the United States? We continue to talk, and it is just talk, about diversifying our marketplace and with whom we do business. I was in Washington recently where I met with a number of congressmen and senators on an agricultural issue. They wanted to talk only about the Keystone Pipeline. When I talked to them about Keystone, I said that we are interested in selling oil to customers other than the Americans. When I mentioned that the other customer was China, they became very agitated and concerned. That makes me feel pretty good because it means they will sharpen their pencils a little more, or at least one would hope.
Is there a capital investment market that will be attracted to this, other than American? We know that some Americans will be interested but will there be others? Senator Boisvenu talked about the service in France, but will there be French, British, German, Chinese, Japanese and Korean investors available to help us diversify? If we are going to have foreign ownership of some of our assets, I would prefer to diversify the ownership rather than concentrate it in one place.
Mr. Peirce: To some extent, that would remain to be seen. The Canada-U.S. border in terms of telecommunications traffic is heavily trafficked just like the Canada-U.S. border in so many other areas. It is the most heavily trafficked telecommunications border in the world, so they are natural adjacencies, if you will, that would likely have capital that comes from the U.S. that is more quickly cognizant of the opportunity here. We have had European investment in Canada before. As I said, BT was an investor in AT&T Canada for a number of years. The other possible places to invest around the world in telecommunications are huge markets like China and India. Persuading a source of capital that has not been in Canada before and perhaps is not as knowledgeable of the Canadian market will take a little more effort. In the oil and gas industry, we have accomplished that, to some extent, with capital from China, other Asian countries and Europe, along with American sources, coming to Canada. There are certainly global providers, such as Vodafone, who are not from North America and who investigate globally. There are many sources of capital based in the United States that look globally to invest. It will be our job as Canadians, both providers and government, to advertise to the world the notion that we are open not only to ownership but also to investment and that players investing at whatever level can and should come here. You are right to point out that the default is probably that there will be more sources in the U.S. interested more quickly in that type of opportunity.
The Chair: I thank the witnesses for their presentations.
This is our last meeting on Bill C-38. We have two more items. We will take a minute while the witnesses depart and then we will move in camera. I might ask Senator Greene, deputy chair of the committee, to chair part of the meeting. I have a conference on the international parliamentary union, so I might have to leave.
Mr. Peirce, Ms. Griffin-Muir and Mr. Woodhead, thank you.
(The committee continued in camera.)
(The committee resumed in public.)
Senator Stephen Greene (Deputy Chair) in the chair.
The Deputy Chair: Is it agreed that the special budget applications for the fiscal year ending March 31, 2013, be approved for submission to the Standing Committee on Internal Economy, Budgets and Administration?
Hon. Senators: Agreed.
The Deputy Chair: Thank you very much.
(The committee adjourned.)