Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 6 - Evidence, May 7, 2014


OTTAWA, Wednesday, May 7, 2014

The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m. to continue its study on the subject matter of those elements contained in Divisions 15, 16 and 28 of Part 6 of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.

TOPIC: Part 6 — Division 16 — Telecommunications Act.

Senator Dennis Dawson (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I call this meeting of the Standing Committee on Transport and Communications to order.

This evening, we are continuing our study of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.

Our committee has been asked to conduct a pre-study of Divisions 15, 16 and 28. We are now studying Division 16, which amends the Telecommunications Act to set a maximum amount that a Canadian carrier can charge to another Canadian carrier for certain roaming services, or roaming fees.

[English]

The witnesses for our first panel are from the Canadian Radio-television and Telecommunications Commission: Chris Seidl, Executive Director, Telecommunications; and Alastair Stewart, Senior Legal Counsel.

I invite the witnesses to make their presentation.

[Translation]

Chris Seidl, Executive Director, Telecommunications, Canadian Radio-television and Telecommunications Commission (CRTC): We are pleased to appear before you as you study Division 16 of Bill C-31. This legislation contains proposed amendments to the Telecommunications Act, including a provision to limit the roaming rates that Canadian wireless companies charge to other Canadian wireless companies.

Let me begin with some facts about Canada's wireless sector. With 28 million subscribers, the sector has grown quickly over the last few years and is of vital importance to the Canadian economy. In 2012, wireless companies reported total revenues of over $20 billion, which accounted for 46 per cent of the total telecommunications revenues of $43.9 billion. According to the Canadian Wireless Telecommunications Association, over 280,000 people are employed in Canada as a result of the wireless industry.

[English]

In addition, smartphones are more particular than ever. An increasing number of Canadians rely on these devices as their primary means to talk, text, surf the Internet, download data and watch videos and television programs. From 2011 to 2012, the number of Canadians who owned a smartphone jumped from 38 per cent to 51 per cent.

The wireless networks that support smartphones as well as tablets and other devices that access data over the Internet are available to 99 per cent of the population. Moreover, companies are making significant investments in next-generation networks, known as Long-Term Evolution or LTE networks. The percentage of Canadians who can access these faster networks increased from 45 per cent in 2011 to 72 per cent in 2012. This is an impressive reach, given the challenges posed by Canada's size and geography.

We are currently gathering the data for 2013. The updated figures will be included in our annual publication, the Communications Monitoring Report.

When looking at the overall performance of the wireless sector, it is important to keep in mind that there is a retail and wholesale market. The retail market consists of the services companies offer to Canadian consumers. Last year, the CRTC introduced a wireless code that is contributing to a more dynamic retail market. It ensures that Canadians can make informed choices about the services and companies that best meet their needs. A feature of the code is that Canadians can cancel their contracts at no cost after two years, if not sooner. The code offers wireless subscribers a number of additional protections, including a limit on national and international data roaming charges.

The wholesale market on the other hand consists of agreements between companies. The revenues generated from these agreements, including roaming, came in at $800 million in 2012. In Canada, many wireless companies have their own networks to serve their customers within specific geographic areas. However, they must rely on other companies' networks when their customers travel outside their coverage area. This is referred to as roaming. Under roaming arrangements, wireless companies make their home networks available to each other. This ensures that Canadians can continue using their cell phones and other mobile devices when they travel.

The CRTC wants to ensure that there is a sustainable level of competition in the wireless sector today and in the years ahead. We recently published an ambitious three-year plan that will take us to 2017, in which we have identified a number of activities to achieve this goal. I would like to give you an update on the public consultations we recently launched with respect to the wireless sector, as well as what we have planned in the months ahead.

In 2013, the CRTC conducted a fact-finding exercise on the rates, terms and conditions associated with roaming arrangements in Canada. Based on the information we gathered, we learned that some national wireless companies are charging or were planning to charge smaller competitors higher wholesale roaming rates than those charged to U.S.- based companies. In December 2013, we launched a public consultation to investigate whether these arrangements may be putting certain companies at an unfair disadvantage. We are currently studying the comments we received from the wireless sector, the public and other interested parties and expect to issue a decision in the next few months.

Earlier this year, the CRTC launched a second public consultation on the wireless sector in Canada. The scope of this consultation is much broader than the one I just explained, as it aims to review whether the mobile wireless market as a whole is sufficiently competitive. Notably, we are examining the wholesale services, including roaming, that wireless companies obtain from other wireless companies.

[Translation]

The CRTC sought comments on three questions. First, what is the state of competition in the market for wholesale wireless services? Second, what impact does the wholesale wireless market have on the prices and services that Canadian consumers pay for and receive? And third, do we need more regulatory oversight for the wholesale wireless market?

The deadline to submit the first round of comments is on May 15. We will examine the submissions in preparation for a public hearing that will be held in the National Capital Region in late September.

[English]

In carrying out these activities, the CRTC wants to make certain that the competitive environment in the wireless sector is sustainable and provides benefits to Canadians. These include having access to high-quality networks and innovative services at reasonable prices.

Bill C-31 proposes to limit wholesale wireless roaming rates in Canada pending the outcome of the CRTC consultations I have just explained. Bill C-31 sets out the formula that would be used to calculate the maximum wholesale rate for domestic voice, data and text services that one wireless company can charge another in Canada. The CRTC will be responsible for implementing the proposed amendments should Parliament decide to adopt the legislation.

We would now be pleased to answer your questions. That being said, there are a number of ongoing proceedings before the CRTC, Mr. Chair, and I hope the committee members will understand that, depending on the question, our answers will necessarily be limited in order to maintain the integrity of those proceedings.

Thank you.

The Chair: I understand you, sir.

Senator Mercer: Thank you, gentlemen, for being here. I find it disturbing that, in your fact finding exercise in 2013, you learned that some national wireless companies are charging or were planning to charge smaller companies higher wholesale roaming rates than those charged to the U.S.-based companies.

This predatory pricing is not unusual in the airline industry, for the big guys to put the small guys out of business. This government and other governments have spent a lot of time trying to ensure that the spectrum has spread around and there has been competition. Are there no rules in place currently to help solve this problem?

Mr. Seidl: The CRTC forbore or stopped regulating rates for the wireless industry back in the mid-1990s. We did retain some powers with respect to that forbearance. In particular, we maintained a power to investigate any issue of unjust discrimination or undue preference. We launched that proceeding in December 2013 to look at those particular cases. There is currently no rate regulation on the wholesale rates that wireless companies can charge each other.

Senator Mercer: You can do the study and release your findings, and the hope is that public pressure will make some changes?

Mr. Seidl: As I mentioned, we have two proceedings ongoing. The first one is looking at the narrow issue of unjust discrimination. From that, we could come with a finding and, if there is an issue, introduce some form of rule to control the rates, if that is necessary. The second proceeding is much broader, and we're looking at the wholesale wireless market as a whole, including roaming and other services. In that proceeding, if deemed appropriate, we could reintroduce certain powers we have and go as far as going back to rate regulation on the wholesale market if we wanted to.

Senator Mercer: Under the heading of other services, are you looking at the accessibility of smaller companies to access the established tower systems that other companies may have across the country?

Mr. Seidl: Our proceeding is open to all wholesale services in the wireless market, including towers. That's in scope in the second proceeding. We also asked for any input in what other services they may want us to look at.

Senator Mercer: CBC abandoned a number of towers a number of years ago when they switched from analog to digital. I do not know whether those towers are being used for telephone distribution or not. Do you have any idea?

Mr. Seidl: The comments on that particular file are not in yet. They are coming in in May of this year, later this month. We are collecting information on which towers individuals are using at this point. I don't have the details in front of me.

The Chair: Maybe you can forward them to the clerk, when made public?

Mr. Seidl: It depends on whether the information will be made public. A lot of the information is confidential.

The Chair: If it is. Thank you.

Senator Batters: Thank you for coming to our committee tonight. I have a couple of brief questions. I am wondering if you could tell us what the expected annual cost savings to consumers might be as a result of this proposed change. I think it's a welcome change and a lot of consumers will notice a difference. Do you have any estimate as to the annual cost savings that could be recouped?

Mr. Seidl: We don't have any specific numbers in terms of potential cost savings. As I mentioned, the wholesale market in Canada in 2012 was $800 million, including all wholesale services, including international companies, and international roamers coming into Canada as well. Really, if there is a reduction in charges from one wireless company to another wireless company, it's up to that wireless company to determine what it does with those savings, if there are some savings. It could pass it on to consumers. It could offer innovative offerings to consumers. It could reduce costs and use those funds for expanding its networks. There are multiple choices a provider can provide.

Senator Batters: I was recently in the U.S. for my sister's wedding. When the flight landed in the U.S., I would get this text that strikes the fear of God into me. ``Welcome to the United States. You are now roaming outside of SaskTel's network.'' I am from Saskatchewan. ``Roaming rates are up to $1.50 a minute, $10 per megabyte and 20 cents per text. Rates are lower with travel add-ons, et cetera. In June, SaskTel will have caps on data charges to help manage your usage. Until then, all data charges apply''. I'm wondering about the caps on data starting in June. Is that as the result of a CRTC initiative, or is that SaskTel doing that on their own?

Mr. Seidl: As part of the wireless code, which I mentioned earlier, we did introduce a cap on roaming charges, both international and national roaming. The cap is $100. The carrier is not allowed to charge you more than that in any particular month, at that point in time, and they're also supposed to notify you when you've reached that limit.

Senator Batters: So that would avoid some of those news stories where you hear about these crazy $8,000 roaming charges on a phone bill.

Senator Mercer: When you reach the limit and they notify you, can you still use the service or do you have to pay extra?

Mr. Seidl: At that point you're given a choice. If you want to continue and go beyond the $100 you can contact your cellphone provider or go to a site and accept it going forward. There needs to be an expressed consent that you want to continue beyond that amount.

Senator Mercer: There is no benefit; you're just being advised when you reach that level.

Mr. Seidl: They won't be able to charge you more unless you expressly consent.

Senator Eggleton: What mechanisms would ensure that the cost savings as a result of this change would be passed on to consumers?

Mr. Seidl: The commission really looks at trying to develop competition sufficient to ensure there is a dynamic retail market. We look at potential supply and demand conditions and the barriers to entry in these markets. Where competition issues are in play, we will try to remove those items and let market forces determine the appropriate price for consumers.

If this is a barrier for certain providers in terms of offering better solutions to consumers, then you would expect that they would be able to compete and offer better solutions. There is no guarantee.

Senator Eggleton: No guarantee, except the fact that the government is putting it in this bill. It wants to see quick results. It's postponing the long-term thing while you're doing your study, but I think they're looking for some short- term, quick results here for consumers. My understanding is that that's the purpose behind it. It doesn't sound like you can do that.

Mr. Seidl: If the amendments in the legislation bring the price down for these wireless companies, then they would have a cost savings.

Senator Eggleton: How do you know they'll pass it on?

Mr. Seidl: That's up to the wireless companies to do that, but if it's a competitive market they will need to compete.

Senator Eggleton: Is it competitive enough, I wonder? Thank you.

Senator Merchant: Thank you, and welcome. My question is similar to my colleague's. Are there any penalties imposed on the companies? If a consumer has a complaint is there going to be sort of an ombudsman that the consumer can call and register his complaint with? How are you proposing to ensure that the consumers have some outlet to voice their complaints?

Mr. Seidl: There is the Commissioner for Complaints for Telecommunications Services, so consumers can call the CCTS and raise their issues. They deal with quite a few wireless complaints. It's probably the largest growing area for that organization. They try to rectify the issue with the provider and the consumer.

In terms of the legislation it is, as I mentioned, on wholesale, so it's to the retail mechanism. Again, it's between wireless companies and their agreements. There is not a direct retail aspect to that.

Senator Merchant: How do you notify consumers? If you have somewhere we can take a complaint, how do you let us know? Is there a number?

Mr. Seidl: We require providers themselves to advertise the presence of the CCTS to their consumers. It's on our website as well. The CCTS does outreach to ensure consumers are aware they can reach out to the CCTS if they're not getting a proper response from the service provider.

The Chair: If there are no other questions, I would like to thank the witnesses.

I will tell the committee we have a dilemma because the following witnesses are spectators in the other committee room. I will ask the clerk to see if they can come here. If not, we will have to wait for the other committee to finish. We can do the report.

We will free the witnesses. Mr. Stewart and Mr. Seidl, thank you.

We have another issue that we have to deal with.

We will go in camera. Is it agreed?

Hon. Senators: Agreed.

(The committee continued in camera.)

[Translation]

(The committee resumed in public.)

The Chair: Honourable senators, we now resume the meeting and continue our study on division 16 of Bill C-31, which amends the Telecommunications Act to set a maximum amount that a Canadian carrier can charge to another Canadian carrier for certain roaming services.

[English]

Our witnesses for our second panel are from Industry Canada. I want to thank them. They are support staff in the other room normally, and they have accommodated us, so we will try to accommodate them, not keeping them here if things are urgent on the other side.

We have Pamela Miller, Director General, Telecommunications Policy Branch from Industry Canada; and Christopher Johnstone, Senior Director, Industry Framework Policy, from the same department.

I invite the witnesses to make their presentations.

[Translation]

Pamela Miller, Director General, Telecommunications Policy Branch, Industry Canada: Good evening. It is our pleasure to be here today to explain section 16 concerning wireless roaming rates and to answer your questions.

[English]

I would first like to explain what is meant by roaming rates in this amendment. This amendment addresses wholesale roaming rates; that is, the rates that are charged between companies to use each other's networks. So that their customers have access to services outside of their network footprint, wireless companies must enter into roaming agreements with other wireless service providers. This is particularly important for new competitors entering the market.

This clause would amend the Telecommunications Act to prohibit Canadian carriers from charging their Canadian competitors wireless roaming rates that are higher than they charge their own customers.

Industry Canada mandates that carriers offer roaming service to other carriers, but does not regulate the price of that access.

We understand that the roaming rates that Canada's largest wireless companies are charging other domestic providers are significantly above the rates they charge their own customers — that is, they have wholesale prices that are higher than retail prices.

These high wireless roaming costs negatively impact competition as new entrants must either pay these costs themselves or pass them on to the consumer.

In its submission to the current CRTC proceedings, the Competition Bureau indicated that incumbents have retail market power and therefore have an incentive to ensure that new entrants are not fully effective competitors.

The amendments set out the wholesale mobile roaming services that would be capped: wireless, voice, text and data services, and include a formula for the cap based on a carrier's average retail rate for a service.

Regarding how this measure relates to CRTC regulatory processes, the CRTC will be responsible for enforcing the roaming cap. The CRTC has launched two proceedings to examine wholesale wireless roaming, and the government has indicated that this measure will be in place until the CRTC makes a decision on roaming rates.

The amendments provide that a wholesale roaming rate established by the CRTC would take priority over the legislated rate.

To summarize, these amendments provide a cap on the rates charged between companies to roam on each other's networks. Capping domestic roaming rates will help Canadian consumers benefit from more competition in the wireless market.

That briefly summarizes the proposal. We welcome any questions. Thank you.

Senator Eggleton: What helps to ensure that the cost savings are going to be passed on to consumers? That, I would understand, is the objective of this exercise. While the CRTC is looking at things long-term, the government wants to see some quick impact here. How is that going to be assured? Sometimes these companies don't always pass on cost savings to consumers.

Christopher Johnstone, Senior Director, Industry Framework Policy, Industry Canada: The amendment does relate to the wholesale cost. It does not relate to the retail cost. That being said, companies such as new entrants into the market are obviously trying to be as competitive as possible in the marketplace.

Currently, because the wholesale rates are at this level, they either need to absorb the cost, which is obviously difficult for smaller companies, or pass those costs on to their customers, so those are the choices that smaller, newer entrants to the market have right now.

Senator Eggleton: So it's really only the small, newer entrants that are going to have cost savings to pass on, is that it? Not the big guys.

Mr. Johnstone: It's not limited to any size or type of company. The measure relates to all companies, but in terms of the companies that stand to benefit a great deal, obviously they are new entrants to the market.

In December, when the government announced this measure, we noted that the roaming rates that Canada's largest wireless companies are charging other domestic providers can be more than 10 times what they charge their own customers.

Senator Eggleton: So if you're a customer of one of the big companies, you may not see any savings at all.

Mr. Johnstone: There are areas of the country where larger companies rely on roaming between companies.

In terms of domestic roaming, however, larger companies don't typically charge their customers for domestic roaming. Usually their plans are domestic-wide.

Senator Eggleton: So all of this expectation about consumer savings is put out there, but it may not be realized for a lot of people.

Mr. Johnstone: The focus of the legislation is on addressing those domestic wholesale rates, the rates that can be 10 times what these companies are charging their own customers. Again, this has been an issue that has been raised a number of times, especially by new entrants into the marketplace. It's a factor that's limiting their ability to compete effectively in the marketplace.

Senator Mercer: Thank you for being here. In 2013, the CRTC conducted a fact-finding exercise. One of the things they found was that national wireless companies were charging or were planning to charge smaller competitors higher wholesale roaming rates than they charged the U.S.-based companies.

It seems to me that this is predatory pricing designed with one thing in mind, to drive the little guy out of the marketplace, because nobody can survive this type of pricing.

I'm actually surprised that the Competition Bureau has no power to deal with this issue and predatory pricing, especially when it involves a spectrum that the government has put out there. The government spent a lot of time, to their credit, and tried to encourage new people into the business but provided no protection to them against predatory pricing and these outlandish, outrageous wholesale roaming fees that are being charged.

Ms. Miller: The Competition Bureau did make a submission to the CRTC proceedings. They actually did find that Canada's largest wireless companies have incentive to use high mobile roaming rates to ensure new entrants are not and do not become fully effective competitors. As a result, new entrants are likely limited in their ability to bring attractive product offerings to market.

They made a number of other observations. They made quite an extensive submission on January 29, 2014, and that is part of the CRTC proceedings that are ongoing. I know you just heard from our colleagues from the CRTC in the previous session and I would again draw your attention to this quite extensive submission the CRTC has presented as part of that.

Senator Mercer: You also talked about roaming fees that the big companies charge each other. As we know, if you have a phone from one company and you happen to be in another part of the country, you may not be able to get direct service from them so you're roaming and you end up roaming on the other guy's network or you don't get service at all.

Do the big three charge each other these outlandish fees, or is this just what they do to the little guy?

Mr. Johnstone: The rates between carriers are negotiated between carriers and are company agreements that are confidential. Again, I would point to the statement that was made in December that the rates the largest wireless companies are charging other domestic providers can be more than 10 times higher.

Senator Mercer: You just said these deals are confidential among the big three, but we know that they're charging the little guy 10 times more. We must know what the rates are or you wouldn't know it was 10 times higher. You can't do the math if you don't have the numbers.

Mr. Johnstone: The CRTC has requested all the information and they've requested all that information as part of the proceedings they're undertaking right now.

The Chair: That's a question I asked before. If they can make them public they will make them public to us as soon as they get them.

Senator Mercer: The Canadian public and people watching tonight are going to be shocked and angry that companies are being allowed to charge 10 times the rate they charge each other with the sole purpose of trying to put the little guy out of business.

The Chair: I'd like to thank the two witnesses for having accommodated the committee. I know you've been asked to move back to the other meeting.

If senators agree, we will adjourn at this point. We will meet next week, on Tuesday morning with The Public Interest Advocacy Centre and on Wednesday with the Automotive Parts Manufacturers' Association.

Thank you, Mr. Johnstone and Ms. Miller, for your presentation and your presence and I hope you have just as pleasant a time at the next meeting.

(The committee adjourned.)


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