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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 29 - Evidence


OTTAWA, Tuesday, May 7, 2002

The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to examine issues facing the intercity busing industry.

Senator Lise Bacon (Chairman) in the Chair.

[English]

The Chairman: I welcome our witnesses this morning, from the Competition Bureau, Mr. André Downs, Mr. Gwill Allen and Mr. Joseph Monteiro.

You will recall that we are undertaking a study at the request of the Minister of Transport to examine several aspects of intercity busing, which falls largely under federal jurisdiction but has been delegated back to the provinces under the Motor Vehicle Transport Act. We are studying the intercity busing issues to determine the reasons for the persistent decline in the use of intercity buses over the past number of years.

In our travels to examine this issue, we have heard much about the different patterns of regulations set out by the provinces for the intercity busing industry across the country. We have been to Vancouver, Calgary, Toronto and Halifax. We have heard something about the need for competition in the industry and about the anticipated favourable results if that were to happen. These differing views account for our particular interest in hearing from today's witnesses, who are well-versed in the area of competition. Mr. Downs, please proceed.

Mr. André Downs, Deputy Commissioner of Competition, Competition Policy Branch, Competition Bureau: Good morning. I would like to thank the Standing Senate Committee on Transport and Communications for the opportunity to present the views of the Competition Bureau on the regulatory environment of intercity busing. The bureau believes that the committee's review of intercity busing is appropriate and hopes that our views will be useful in preparation of your report.

[Translation]

As you are no doubt aware, the Commissioner of Competition is responsible for administration and enforcement of the Competition Act as well as certain acts relating to packaging and labelling.

The principle objective of the Competition Act is to promote and maintain fair competition so that Canadians can benefit from lower prices, product choice and quality services.

Promotion of competition via presentations such as this is one of the many tools available to the Competition Bureau to promote the objectives of competition.

[English]

I will review the opinions of the Competition Bureau on intercity busing. A more complete analysis can be found in the submission that we have tabled.

The Competition Bureau has had a longstanding interest in intercity busing. On the advocacy front, the bureau has made a few interventions on the bus industry, including a recent one to the Canadian Transportation Act review panel, which forms Annex One of our submission.

On the enforcement front, the bureau has examined several complaints in the bus industry, some of which have ultimately led to convictions under different provisions of the act. As you know, the intercity bus industry has not prospered under regulation, and there has been a sharp decline in their revenues over the past 15 years. While much of this decline is due to the growing popularity of the automobile, part of it may be attributed to alternative modes of transportation and intercity bus regulations.

The existing diversity of regulations for intercity buses among provinces, disadvantages some carriers, adds to the administrative burden of all carriers, and impedes the movement of passengers. For example, the Royal Commission on National Passenger Transportation noted that regulation leads to excess capacity and higher costs, in part due to lower efficiency. This is ultimately reflected in higher fares. We agree with their views based on the bureau's experience with de-regulation in other sectors.

Historically, the argument for regulation in the intercity bus industry was developed in part under the assumption of a natural monopoly. However, this industry does not exhibit the characteristics of a natural monopoly because the greater proportion of costs is variable, not fixed. In addition, vehicles can be easily moved to different routes or sold to other operators in the same locations or in other locations. Similarly, terminals can also be sold, and sunk costs associated with terminals are not significant. Consequently, this argument is no longer valid.

Another argument in favour is that regulation is required to ensure that small communities and rural areas are adequately serviced with affordable transportation for those with modest means, such as elderly citizens on fixed incomes. These arguments are often used to justify cross-subsidization. However, cross-subsidization does not guarantee provision of services to small communities, as evidenced in Saskatchewan and Quebec, where numerous low- density routes had to be abandoned because of the lack of financial viability. Cross-subsidization has hidden costs, as indicated by the Royal Commission on National Passenger Transportation; cross-subsidization prevents users of profitable routes from obtaining lower prices. It also prevents these services from being competitive with other modes of transportation. Finally, cross-subsidization precludes the development of alternative, viable services on low-density routes.

In our view, there are better ways to achieve the intended objective of cross-subsidization through more transparent means, such as direct subsidies on specific routes, redistribution programs or service commitments. The bureau is of the opinion that deregulation of the intercity bus industry would lead to numerous benefits, including lower fares, increased choice of services and perhaps a reversal or slowing down of the decline in demand for scheduled services.

Initial reviews indicated that the deregulation of intercity busing in the United States in the 1980s led to the introduction of new forms of services and efforts by carriers to reduce costs through franchising arrangements and marketing strategies. Recent reviews show that, while there was some community service loss, the American industry has not shrunk in recent years, contrary to the Canadian situation. The initial experience with express coach deregulation in the U.K. suggests that the majority of coach users have benefited from competition, reduced fares, and improved quality and choice of services on major routes.

Based on these experiences and the benefits that are likely to accrue to consumers of intercity bus services, the bureau would support a recommendation by the committee in favour of the deregulation of extra-provincial and international bus services, including scheduled passenger services, charter passenger services and express parcel services.

[Translation]

In conclusion, the regulatory reforms of 1987 in the extra-provincial trucking industry and the more recent reforms in the intra-provincial trucking sector have not been followed by similar reforms in the inter-city bus sector.

No consensus could be reached as far as the economic regulation of the inter-city bus sector was concerned, despite efforts by the federal government and numerous provincial governments. Still further delay in regulatory reform to the advantage of just some provinces would not be to the advantage of the Canadian consumer.

The United States and the United Kingdom deregulated their inter-city bus industry during the 1980's, and these reforms generated significant benefits in both cases. At the present time, there is no fundamental reason to justify maintaining the present regulatory structure in the inter-city bus sector.

The present regulatory structure involves major costs as far as administrative unwieldiness is concerned, as well as inefficiency because of the administrative costs or cross-subsidization and lack of competitiveness.

In our opinion, deregulation would bring numerous benefits in the shape of increased competition, lower prices and a wider choice for consumers.

[English]

On behalf of the Competition Bureau, I thank the Standing Senate Committee on Transport and Communications for providing us this opportunity to present our views.

The Chairman: I would like to interrupt for a moment to welcome visitors to our committee. They are members of foreign Parliaments, who are attending the Spring 2002 Canadian Parliamentary Cooperation Seminar. We are pleased to have you with us today.

[Translation]

In your experience, does price deregulation generally give good results? We know that things do not always go smoothly in the service sector. Are there clear rules to be followed in order to avoid problems? Are there some clearly established rules?

Mr. Downs: Generally, economic regulation is harmful to resource allocation. If we are talking about bus service, there has to be great flexibility as far as asset management is concerned. There has to be a capacity to use different sized buses on different routes, and this requires a certain flexibility. We have to be in a position to take advantage of changes in costs and adjust prices to reflect these, as costs and demand fluctuate. Economic regulation prevents operators from taking advantage of this flexibility and in that way is harmful to the industry.

[English]

The Chairman: We have heard much about people's concerns regarding regulations during our trips to the various provinces. This is leading to the loss of cross-subsidization and the consequent loss of service. Have you thought about this from the point of view of buses?

Mr. Downs: We do not believe that cross-subsidization is the best way to achieve the objectives of the regulations, essentially because it is a hidden cost for the industry. It is not a transparent means to finance low-density routes where financial viability is a concern. There are more transparent ways meet these objectives, perhaps through direct subsidies, transparent redistribution programs, or service commitments under a licensing program. These methods provide entrepreneurs and operators with the flexibility to manage their assets as best they can.

The Chairman: Some academics have told us that cross-subsidization is a blunt tool, and in the case of buses, it amounts to the poor subsidizing the poor. Would you agree with that categorization?

Mr. Downs: We would certainly agree. The bus mode of transportation — whether in urban or rural areas — is used mainly by people with modest means. Essentially, through subsidization, low-income users in urban areas are subsidizing low-income users in rural areas. We think it is indeed inefficient.

The Chairman: Do you have any views on road-pricing? Should we introduce a scheme making it more expensive to use private cars in some applications, and include a price structure that might lower costs for buses?

Mr. Downs: We believe we should make the relative price of busing more interesting and attractive. This could be achieved through deregulation leading to lower fares for bus services. Mind you, by increasing the cost of using a car, you have the same relative price effect, but it would not be the most efficient way to do it. The most efficient way would be to reduce the administrative costs associated with the current web of provincial regulations.

[Translation]

The Chairman: Do you know whether regulation of inter-city bus transportation in one province can have negative impact on another province? Do you have any examples of this?

Mr. Downs: There are several examples in our interventions. If we are talking about inter-city or extra-provincial transport for instance, an operator based in Alberta wants to service an Alberta-Ontario route. If we prevent him from stopping and providing service between two Ontario points on the same route, this has a negative effect on equipment use. Intra-provincial regulation is likely to remain under provincial jurisdiction. There is a risk of differences developing. If, however, an operator running between provinces were allowed to service stops along his route, this would generate better use of his fleet and gains in efficiency, which would result in lower ticket prices.

[English]

The Chairman: A number of witnesses have complained to us about the unfair competition VIA Rail presents to buses because of the large subsidy they receive from the federal government. Do you have any views on VIA subsidies?

Mr. Downs: It is very localized as VIA Rail is essentially operating in the Quebec-Windsor corridor, while the bus industry is operating across the country. Of course, there is some competition in the corridor, but not elsewhere.

There are some other social and environmental objectives met through rail transportation. Some may argue that these justify subsidization of rail transportation.

The Chairman: Do you see any way of satisfying the transportation interests of the elderly and the disabled in a bus system serving rural parts of Canada where no service exists today?

Mr. Downs: If we were to allow operators more flexibility under safety regulations in selecting the rolling material used to serve rural and remote areas that would allow services to be provided in some of these regions. For example, maybe a small van would be sufficient to serve a remote area or a small community. You may not need a big coach to serve a rural area.

Our market system works in such a way that if there is a demand someone will fill it, unless restricted by regulation or other means.

The Chairman: In the Atlantic provinces, we heard that people use vans to service rural areas with small localities. We asked the questions in the western provinces, and they want small buses. They would not use vans.

Mr. Downs: It is a question of preferences. Maybe the distances are longer in Western Canada, so they put more emphasis on comfort. Also, average income is higher in Western Canada, so that may have an impact as well.

Senator Comeau: I wish to ensure I understand cross-subsidization. Is the regulation such that, if one wants to have a route from Halifax to Yarmouth, for example, the company needs to pick up passengers along the way in rural areas? Thus, in order to have that route you need to do certain things? Do I understand that correctly?

Mr. Downs: Cross-subsidization can operate in different ways. On a specific route, it could be that the operator has to do specific things. An operator may be licensed to serve between A and B. However, to obtain that licence, the price on the route will be regulated to ensure that it is profitable and can provide additional revenues for service to the C to D route, which is essentially low density and has low financial viability.

Senator Comeau: Are you suggesting that we should no longer have this requirement on the part of the service provider to stop in the low-density areas?

Mr. Downs: Under a licensing program, an operator may get a licence to operate between A and B and they can set the fares that they want — the price would not be regulated. However, at the same time, they would be required to serve the low-density route C to D. This way, the operator would have the flexibility to use different rolling material on the low-density route. So it is a package, it is not only removing prices.

Senator Comeau: There would be more flexibility, however in order to get the profitable route, the operator would be required to make sure that people along that route in the low-density areas are being served.

Mr. Downs: Continue to be served. An alternative would be to provide a direct subsidy. You could say, ``You get the licence to serve A to B and we will give you X dollars per passenger for you to serve on route C to D.''

Senator Comeau: The problem with a direct subsidy is that governments are notorious in ensuring these are the first areas that are cut when budget time rolls around. The question of direct subsidization would not be very appealing to parliamentarians in general because we are very familiar with this tendency to cut back, especially if the area does not have political clout during a certain period of time. We would need to be very careful if we were to consider direct subsidization, would we not?

Mr. Downs: There are two ways. You could have a legislated long-term commitment by providing this subsidy for the next five or 10 years. As economists, we like the transparency of direct subsidies because it is obvious to everyone how the service is subsidized. It could be a disadvantage for some, but transparency is a key component of such a scheme.

Senator Comeau: I noted that you made some comparisons with the United Kingdom and the United States. These are two areas that really do not compare with Canada where we now have very little rail service other than Windsor- Montreal corridor. The distances for travel in Canada are tremendous — even in the Maritimes and the West is even worse. The U.K. does not compare at all to Canada from that vantage point. The U.S., which has a much more extensive rail service, also does not compare to Canada.

Have you looked at countries with similar kinds of geography and distance problems as well as a small population to see if their experience would provide us with some guidance?

Mr. Downs: At first glance there are not many countries that compare to Canada in this particular regard. Maybe Mr. Monteiro has knowledge of this because he has been reviewing this issue.

Mr. Joseph Monteiro, Economist, Competition Policy Branch, Competition Bureau: We have not made specific comparisons with other countries. When these countries did deregulate, this was the effect. You can make a direct comparison on whether their data is similar to our data, but we have not taken that into consideration — nor would we suggest that.

Senator Comeau: I am uncomfortable knowing that we are trying to extrapolate information from the U.K. and the U.S. and compare them with the reality in Canada.

Mr. Monteiro: What you say is correct. However, it is like other industries where we deregulated, although it is up to you to decide whether you can exactly compare it to busing or not. We suggest that these are the likely outcomes. If you take, for instance, industries such as natural gas, the airways, the railways or electricity and suggest what may be likely outcomes. We are not suggesting there is a one-to-one relationship between the busing industry and another mode of transportation.

Senator Comeau: However, the positive benefits that you have mentioned occurred in those countries might not result in Canada. I am just suggesting the realities. This is something we will have to take into account, Madam Chair, in how we approach our recommendations.

Mr. Downs: The experience with deregulation elsewhere has led to lower fares and better choices for consumers, and that is as far as the busing industry is concerned in other countries. In Canada, we have had deregulation in several other industries, which also led to better allocation or resources, lower fares and better choices for consumers.

There is no absolute guarantee that deregulation will lead to lower fares and better choices for consumers. However, our experience tells us that it has been the case in other countries and in other modes of transportation and in other industries. We are not the only ones essentially sharing that view.

Senator Comeau: I am just concerned about the impact that services leaving the rural areas of Canada would have. For example, when rail left Nova Scotia for all practical purposes other than Cape Breton, it had a negative impact — not only on the communities but also on economic activity and on the population. When airlines reduced their services dramatically in some of these areas, it had a major impact — so much so that many of these communities now have negative population growth.

While it can have positive impacts on places like Halifax, there will be repercussions for areas outside Halifax. As we have a small Canadian population, we need to consider whether we want to empty the more rural areas.

Canada has traditionally been very mindful of its rural areas. Now it seems that we are emptying many of these areas. The question is: do we want to do this?

Mr. Downs: That is a wider question that is related to subsidies of different industries in rural areas or remote areas and that is related to the transfer system. I understand this has been a huge philosophical question for the government for decades and will continue to be. As economists, we have some views on these particular issues.

Senator Callbeck: Thank you for sharing your expertise with us. Has the Competition Bureau done any studies on the busing industry that you feel this committee should be aware of?

Mr. Downs: We have not made specific studies. We have reviewed other people's work on the issue and we have made policy submissions to different government institutions in support of deregulation over the past couple of years. Annex 1 of our submission is the part of our submission to the Canada Transportation Act Review Panel dealing with the bus industry.

We have had a long-term interest in this industry because we had to investigate several complaints in the industry in the 1980s and we have reviewed several mergers. As you know, Laidlaw has become a major player in the industry, and each time the bureau has had to assess the merger and provide a decision. We are relatively familiar with the industry, without wanting to appear as experts on busing.

Senator Callbeck: In your opening comment, you said there are better ways to achieve advantages of cross- subsidization. You mentioned direct subsidies, which Senator Comeau has talked about, or service commitments. By ``service commitments,'' do you mean there would be a subsidy there again? Do you mean that if there were a commitment to do that route for 10 years then the government would provide a subsidy?

Mr. Downs: One form of service commitment could be part of a licensing program whereby an operator is granted route A to B for a period of 10 years under the condition that he maintain service to route C to D. That is similar to the undertakings of Air Canada in 1999, when the industry was restructured. It would be an undertaking by a firm to maintain services in a remote area. It could be temporary. It could be longer term.

Senator Callbeck: When the provincial regulatory board restricts competition by controlling entry, must they have an exemption from the Competition Act?

Mr. Downs: No. That falls under the category called ``regulated conduct defence.'' Any behaviour or activity that is sanctioned by a law of Parliament cannot be deemed anti-competitive under the act. If a law of Parliament permits it, it cannot be anti-competitive.

In your example, activities by a provincial board would fall under the regulated conduct defence category. Am I correct Mr. Allen?

Mr. Gwill Allen, Senior Economist and Strategic Policy Advisor, Competition Policy Branch, Competition Bureau: That is right.

Mr. Monteiro: This has not prevented us from investigating situations that are approved by other boards. For instance, there was a case where the Canadian Transport Agency approved a merger. We investigated the matter and sent it to the Competition Tribunal. It does not prevent us from exercising our power.

When these boards give a licence, it is generally given under their own act. They have conditions. Some are under the public convenience and necessity conditions sometimes. Sometimes competition is considered under that definition; and sometimes it is not.

Generally, when the board wants to grant a licence, it wants to identify your customers, and where you will get your business. That is one of the basic considerations of board. How will it affect other busing services? In a sense, the board considers competition, but it does not make it the major objective in considering the application.

Senator Callbeck: They do not need an exemption then under the act?

Mr. Downs: Essentially, there is a statutory exemption.

Senator Callbeck: Senator Comeau talked about rural areas. Certainly, that is something that concerns me a great deal too, being from a rural area.

You feel that the bus industry should be deregulated. In fact, you say that there is no rationale for continuing regulation. Like Senator Comeau, I am concerned about what will happen to rural areas if that were to occur. We know what has happened in the United Kingdom and the States. You have indicated that in the United Kingdom the majority of people benefited from deregulation on the long routes, but I took that to mean that the rural areas did not benefit.

If deregulation does come about, is there anything under the Competition Act to protect the public interest in the rural areas?

Mr. Downs: Yes. Deregulation could be done progressively. One of the major problems with busing regulations is that they are patchwork; they vary from one province to another.

A first very important step would be to harmonize to the lowest common denominator because there are some important administrative costs and important disincentives provided by the diversity of existing provincial regulations in the busing industry. That is the first part of your question.

There are several provisions in the act dealing with abuse of dominance in the market. In the busing industry, it can be prevalent — you have one operator on one specific route. There are provisions under the act to ensure that the operator does not abuse its dominant position in the market.

Senator Callbeck: Give me some examples of what that abuse might be. Are we talking price?

Mr. Downs: It could be prices and/or services.

Senator Comeau: Hours of service?

Mr. Downs: It would mostly be prices, I would say. If we were to get a complaint, we would look into it. If there is a basis to the complaint, the bureau could investigate further and undertake judicial proceedings.

Senator Callbeck: That complaint could come from an individual in a rural area?

Mr. Downs: It could come from an individual. It could come from a competitor or potential competitor.

Senator Callbeck: You would investigate?

Mr. Downs: We would investigate.

Senator Jaffer: I will follow along Senator Callbeck`s questions. You opened with a statement that intercity buses do not prosper under regulation and then you set out the advantages of deregulation.

Several of the stakeholders have come before us and have said that the Canadian airline industry has not benefited from deregulation. How would you respond to that?

Mr. Downs: The experience with the airline industry until 1999 was extremely powerful in demonstrating the benefits of deregulation. We signed a air transportation services agreement with the United States that has led to a better allocation of resources and much lower fares.

Canada is different to a certain extent if you look at the progression of fares in the airline industry. However, take the rail industry as an example of the benefits that can be generated by deregulation.

There are other factors. Deregulation was important in the airline industry, but there were several other important factors that led to the current situation.

Senator Jaffer: I see busing or airlines more on the social side because they must reach more people. If not commercially viable, trucks do not have to go into rural areas. The trucking industry is a little different than buses or airlines where people need transportation. That is why the concern is with deregulation. People who really need the transportation will not get it.

Could you respond any further to that?

Mr. Downs: We are saying that deregulation is not the only way to achieve these social objectivities. We would also support more methods that are more transparent such as direct subsidies, service commitments or redistribution programs. These would show consumers the cost of maintaining these services. It is very important to see how much it costs to provide a specific service.

Senator Callbeck: I have a question on bus depots. You mentioned in your opening comments something to the effect that costs are not significant. Perhaps I misheard?

If we go to deregulation, the existing bus operators that have the terminals now will have a great advantage over new people getting into the business because it is costly to get these terminals into places where the public wants them. Many cities will not want them because of zoning regulations and traffic jams and so on.

Do you see that as a big advantage to the existing bus owners?

Mr. Downs: It could be. Under deregulation, current terminal owners could abuse their dominant position by charging operators and arm and a leg to access the terminals. However, as part of deregulation, you should have measures to ensure that easy access is provided to the terminals; otherwise, you would create barriers to entry. If you want competition, you must minimize these barriers to entry.

Senator Callbeck: Are you saying that the existing bus owner could charge these operators for using his terminal? What if he denies access to his terminal?

Mr. Downs: That already happens in other sectors. In the rail industry, for example, you can appeal to the Canadian Transportation Agency. You could regulate some access provisions to these terminals, and then you could have an appeal mechanism to the CTA, for example, to prevent abuse on the part of the owners of the terminals.

Senator Callbeck: Are you saying that if I own a terminal and another bus owner comes into the business if it were deregulated, it is possible that I would have to give that bus owner access to my terminal?

Mr. Downs: Yes, through regulation you can achieve it.

Mr. Allen: It is not dissimilar to what happened in the airline industry with gates and slots in Toronto, where the airport is ``slot constrained.'' Air Canada had to give up some slots to allow other airlines to enter the market. It is similar.

Senator Callbeck: It seems to me airports are different from bus terminals. If I own that bus terminal, I own it 100 per cent, but I can be forced to give another bus owner access?

Mr. Downs: If you look at the terminal, for example, it is like an airport or a rail station. It is what we would call ``an essential facility.'' You need this infrastructure to operate. However, with these, fixed costs are relatively high, so you need to generate economies of scale. Therefore, you need to support a higher usage of these terminals. For example, you could make access to the terminal by other operators a condition of the licence of the owner. You could say, ``We will give you your licence from A to B and B to C under the condition that you allow access to your terminal at point A and point B.'' It is not a question of saying free access. It has to be at an acceptable cost that will allow the operator to upkeep the terminal and provide adequate compensation for the users of the terminal. However, there are different ways and mechanisms to ensure that access is provided to potential competitors.

The Chairman: If the government were to decide to deregulate intercity buses, would you see the need for some sort of intermediate step, such as the reverse onus test for entry as was done for trucking in the 1990s?

Mr. Downs: That is one way to ensure that services are maintained to the benefit of Canadians. It would ensure that you have to prove that it is in the public interest to do something. That is one test that could be implemented.

Senator Kinsella: In your vision of a deregulated international bus transport system, will cabotage apply within Canada? For example, would private buses coming in from New England into the Maritimes be able to pick up passengers at, for example, St. Stephen and take them to Saint John?

Mr. Downs: We do not allow it in the rail, air or trucking industry. I would be extremely surprised if the government were to allow cabotage in the busing industry. My personal view is you keep these things as bargaining chips when you negotiate trade agreements with your trade partners. Unless there are some very strong economic arguments in favour of it, for example, if there were no busing operators in Canada, then instead of having to provide heavy subsidies to create the industry, maybe foreigners could be allowed in your market. However, that is rarely done, and it is not done in the other transportation modes.

Mr. Monteiro: In the shipping area, for instance, if you do not have a licence and there are no Canadian carriers to satisfy a service, some of these foreign shipping companies can go apply to the agency for a licence. The agency will consider the matter and may give a licence, but these are very small percentages — roughly about 2 per cent of all licences provided.

Mr. Downs: They are temporary licences as well. It can be done under specific circumstances, but not as a general rule.

Senator Oliver: Your recommendations do not surprise me, but they are of interest to me because you are strongly in favour of deregulation. You say that it might do something to stem the lack of ridership, and there will be more competition and so on.

I am concerned that in a deregulated system, many rural parts of Canada would not have service because in a deregulated system, people will go where they can get bang for the buck or the greatest dollar.

As a Competition Bureau, would you not need some form of regulation to ensure that all Canadians had access in your deregulated system?

Mr. Downs: There are no guarantees that services will disappear in rural areas. Some would argue that services would vanish from these low-density routes. However, you could provide operators with enough flexibility and possibly other transparent ways to ensure that these social objectives of regulations are met. For example, direct subsidies, service commitments or redistribution programs could provide the incentive to operators to keep services on these routes. There are other means.

There are no guarantees that services will disappear, especially if you provide some kind of financial support to maintain them. In a deregulated environment, operators can benefit from more flexibility. I am sure you have heard that before. If you provide the flexibility to operators to use different rolling material so they can provide services in rural areas or on low-density routes, then there is no guarantee that these services will disappear.

Under deregulation, we may see new forms of services. We could see some franchizing arrangements or development of other means of transportation. However, as a basic principle, if there is a demand for a service in a market economy, someone will provide it.

Senator Kinsella: What do you envisage would be the opportunity for greater cargo being part of the load for bus transport?

Mr. Downs: That is already done, essentially. You can use a bus to deliver a small parcel if it is urgent, for example. Let us say that you are in Ottawa and want this document to be in Quebec City tomorrow morning, you put it on the bus. Essentially, deregulation would allow more of that.

Senator Kinsella: Is there a regulatory demarcation line between passenger and merchandise transport?

Mr. Downs: My understanding is that safety requirements may be different. Essentially, the conditions imposed on the vehicles may be different, but fundamentally, there should not be any difference.

Senator Kinsella: The regulations that apply to the national transport infrastructure would not apply to the bus system, even if 90 per cent of the payload was cargo; is that what you are saying?

Mr. Downs: I am not sure I understand the question.

Senator Kinsella: How much cargo can a bus carry to remain defined as a passenger bus and not a cargo transporter?

Mr. Monteiro: I do not think there is any specific demarcation. They carry as much as they can. The service provided by buses is basically from one terminal to another. Bus transportation is like the airways: Terminal to terminal. It is not like a courier service that provides door-to-door service. However, buses are getting into door-to- door service because that is a lucrative business.

Senator Kinsella: Would the regulatory regime that you envisage impede that? If current passenger bus operators decided to go into the courier business as well, so that when a bus arrives at a major centre, their little vans are there to deliver the packages, is there an impediment for them to do that?

Mr. Downs: There is no impediment at present, unless you have a regulatory system that supports cross- subsidization, and then there are important issues in that regard.

The present UPS situation in the United States is a good example of cross-subsidization being an issue. If you have a regulatory system that includes cross-subsidization and the operators who benefit from cross-subsidization are also operating in other industries, then you can get into legal trouble. One must be careful about this issue of cross- subsidization.

The Chairman: There being no other questions, Mr. Downs and Mr. Monteiro, thank you very much for being here this morning. It has been a pleasure.

The committee adjourned.