Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 8 - Evidence, November 3, 2009


OTTAWA, Tuesday, November 3, 2009

The Standing Senate Committee on Transport and Communications met this day at 9:32 a.m. to study emerging issues related to its communications mandate and to report on the wireless sector, including issues such as access to high-speed Internet, the supply of bandwidth, the nation-building role of wireless, the pace of the adoption of innovations, the financial aspects associated with possible changes to the sector, and Canada's development of the sector in comparison to the performance in other countries.

Senator Dennis Dawson (Chair) in the chair.

[English]

The Chair: Good morning. Honourable senators, this is the Standing Senate Committee on Transport and Communications' twelfth meeting on our study of the wireless sector. We have with us from Rogers Communications Inc., Bob Berner, Executive Vice-President, Network and Chief Technology Officer; Ken Engelhart, Senior Vice-President, Regulatory; Sylvain Roy, Regional President, Quebec; and Dermot O'Carroll, Senior Vice-President, Network Engineering and Operations.

[Translation]

Rogers Wireless provides wireless voice and data communications services across Canada to more than 8.2 million customers under both the Rogers Wireless and Fido brands. According to the CRTC, Communications Monitoring Report, 2009, Rogers is the dominant player in the wireless market with 38 per cent of subscribers at the end of 2008 and 40 per cent of wireless revenues.

[English]

Dermot O'Carroll, Senior Vice-President, Network Engineering and Operations, Rogers Communications Inc.: Honourable senators, Rogers has three operating units: wireless, cable and media. Under the stewardship of Ted Rogers, we have become a leader in multimedia telecommunications. We are known internationally for leadership in technology innovation and for the quality and performance of our networks.

Rogers Wireless is the largest wireless company in Canada serving 8.2 million subscribers. The technology we use in wireless is known as GSM, global standards for mobile. This is the world standard for wireless communications. We were the first company in Canada to deploy this technology. Its significance is that it allows our customers to use their phones and devices anywhere they travel in the world.

Two years ago, we launched broadband Internet access over our wireless network. This offers true broadband service to our customers at speeds of up to 7 megabits per second. This year, we have upgraded our network to offer Internet access at 21 megabits per second. To put this in context, it is the fastest Internet access wireless network in North America. Only six companies in the world offer Internet access at this speed.

Our cable company serves 2.8 million customers in Ontario and Eastern Canada. It is a leader in broadband Internet access, voice services, business services, high-definition television and VOD services. Rogers Media operates TV, radio and magazine services.

Wireless is an enabler of today's digital economy. Through our wireless network, we provide telecommunications, Internet access and electronic transactions anywhere, any time. Our investment contribution in the economy includes an annual infrastructure investment of $1 billion per year by our wireless arm. In 2008, $1 billion was spent in the purchase of AWS spectrum.

In network investment, Canada's wireless companies spend significantly on their wireless infrastructure. Rogers Wireless invested $9.7 billion in its network infrastructure between 1987 and 2008 and continues to invest at a rate of $1 billion per year. As you will hear from Mr. Berner later, this investment has resulted in a world-leading network capability, enabling growth and productivity in this Canadian economy.

Bob Berner, Executive Vice-President Network and Chief Technology Officer, Rogers Communications Inc.: On page 6, you will see many of the innovations that Rogers has put into the marketplace leading the charge in Canada, North America and the world. Ted Rogers, our leader for many years, was a great innovator and an icon in the telecom industry. I was privileged to work with Mr. Rogers for 24 of the 25 years I have been at Rogers.

There has been much talk in the media that Canada is some sort of wireless technology backwater and that we trail the world in many aspects of our mobile wireless telecommunications. That is not the case at all. In my long history at Rogers, having deployed many of these innovations, I can attest to the fact that we have and continue to lead the country, the continent and the world in the innovations we have in place.

As early as 1985, we were the first to make a cellular call in Canada. When companies were only deploying in urban areas, Rogers had the largest cellular coverage on the planet from Windsor through Quebec City in 1987.

Rogers was the first to deploy digital packet wireless switching in North America. We had mobile wireless data in 1989 on a technology called Mobitex, which we still have operating today. This is the technology on which Research In Motion built their first product, the predecessor to the BlackBerry.

In 1992, Rogers was the first carrier in North America to deploy digital mobile wireless communications. We were the first to offer PCS service, the first to launch BlackBerry and the first in Canada to develop and deploy the world standard of GSM that Mr. O'Carroll mentioned. We have had nothing but new services since and we continue to ensure that Canadians receive the best quality and most innovative services.

Rogers is the only carrier in North America to have a launched true high-speed Internet service. Cellphones have gone through three generations. They started with analog phones that you could talk into only. Those phones were remarkable in that they let everyone break free from their wired connections. Later, we deployed digital technology, which let us do slow data speeds, by today's standards, but nonetheless remarkable for its time. Now, we have moved into true broadband service, which provides an equivalent to what you can get at home plugged into a high-speed connection, except that it is available anywhere the user is within a coverage footprint. We deployed our high-speed data two years ago at 7.2 mega-bits. What does that mean? It means a higher data rate than most people get in their homes, and they can get it on their mobile devices throughout our footprint. The Americans are just now deploying 7.2 megabits in some markets and hope to finish by 2011. We have been there for a long time.

Both Bell and TELUS have announced that they will join the family of Global System for Mobile Communications, GSM, technologies with the launch of their third-generation service in the upcoming weeks. When this happens, Canada will have three third-generation networks available to customers at those high broadband rates. Not another country has three operators offering those services at the same time. This will mean that we have gone from originally GSM in 2001 and offering, by today's standards, very slow but remarkable data rates. By 2003, we increased that throughput 300 times from where we started just two years earlier. In 2006, we deployed that first third-generation broadband network. In 2008, we doubled the speed and in 2009, we tripled that speed. That evolution will continue because we are part of a global community of technology capabilities. Canada is a small country from the standpoint of total customers but, by joining that global ecosystem, we are able to deploy those technologies at the same time or even in advance of most companies.

The next slide shows that mobile broadband is becoming the most important technology in business innovation in recent years. We are so pleased that this committee has chosen this subject to study because mobile broadband will become the dominant way that customers around the world will connect to the Internet. This is so important because it provides ubiquitous service without digging up the streets to run wires everywhere. We will continue to see a variety of means to access the Internet in urban areas but wireless mobile broadband technologies will become the dominant way around the world for rural people to access the Internet.

There has been much said about the iPhone launch in the U.S, Canada and around the world. When the iPhone was first launched in the U.S., it suffered a number of problems and there was much publicity about poor network quality and service. When Rogers launched the product in Canada, iPhone customers did not experience the same performance issues that people in the U.S. experienced. That is because we made the necessary investments in advance of demand to ensure that we would have the capacity and the quality to offer high-speed services in a way that was satisfactory to our customers. We have the fastest and most reliable network in Canada, and it is among the best in the world.

Devices have evolved enormously. The cellphones that we had 25 years ago were large, expensive and could only be used for talking. They were marvels of technology for their time and one could develop a great deal of arm strength carrying portable units around. Since then, the industry has driven enormous innovation in the marketplace. Today, we have a combination of Smartphones, BlackBerry-type devices, iPhone-like devices and the next evolution is mobile broadband access over form factors such as the rocket stick. The Rogers Mobile Internet Stick is a standard connection that plugs into the side of a laptop to provide mobile broadband access up to 21 megabits per second, which is highly competitive with the fastest wired networks. It is easy to install: Just plug it in and it installs itself. You do not need an IT unit to do it. It is a consumer-oriented product. We have other form factors, such as what looks like a standard router that you can buy in any store. Rather than plugging a wired broadband connection into the back, it utilizes our third generation network to feed it. You can run an entire household using Wi-Fi, the standard technology used by all computers to communicate with each other over the air, through this device. Essentially, it allows access to the Internet for all your household computers with one interface point and one subscription to the Rogers network.

We are Canada's most reliable network. This is a fact that has been proven by independent third-party analysis. We have invested an enormous amount of money. Those of you who travel to other destinations outside of Canada might realize that wireless service quality in Canada is second to none in the world; and Rogers is at the top of the Canadian wireless service quality. That position has allowed us to invest in innovation and capacity far in advance of demand. Today, our GSM service is available to 95 per cent of Canadians. Our third-generation wireless service is currently available to 84 per cent of the population, and we will reach 90 per cent in 2010. Our high-speed 21-megabit service is available in the top five markets in Canada and will be available to 90 per cent of Canadians during 2010. These fabulous innovations can be used by our customers immediately upon roll-out using the devices I have described.

Ken Engelhart, Senior Vice-President, Regulatory, Rogers Communications Inc.: I will talk to you about pricing and availability of wireless services because we read a lot about this in the media. International pricing plans and practices are difficult to compare. Some recent poorly designed studies suggest that Canadian prices are not competitive. The baskets used in these studies to compare countries do not reflect North American usage and fail to account for discounts, promotions, et cetera.

The OECD came out with results of a study a few weeks ago, and people were worried because Canada came out badly. The study claimed that the United States is the most expensive wireless country in the world, whereas within the industry, it is generally believed that the U.S. is the cheapest wireless service in the world. You have to be careful when you look at the results of some of these studies. We recommend the industry standard way of doing these comparisons using a simple methodology: Average revenue per minute. Tally up the total revenue from voice services in a country and divide that by the minutes of wireless voice services in a country and the resulting figure is the average revenue per minute. It is not perfect, but it is the most reliable way to make an international comparison. When the comparison is done in that way, it shows that Canada has very low wireless prices.

There is a selection of countries at page 16 of the material before the committee. The data come from Merrill Lynch's Global Wireless Matrix 3Q09. They come out with this study every quarter. It is a treasure trove of valuable data for the study of international wireless service. For example, it shows that wireless prices in Germany are 16 cents per minute, 15 cents per minute in Italy and 12 cents per minute in the U.K. Canada is at 8 cents per minute and the U.S. is at 5 cents per minute. Certainly, the U.S. price is lower than ours, but we are remarkably low-priced providers given our far-flung geography.

The next slide contains all the data that Merrill Lynch publishes. Canada is toward the right part of the graph, among the lower-priced countries, and those to the right of us, other than the U.S., are in many cases not Western industrialized countries. Our trading competitors are all to the left of us; they are all more expensive.

To put that into context, one of my children goes to school in Philadelphia, so I thought I would be a good dad and get her an iPhone. We went to the AT&T store, and I found that it was a little more expensive than in Toronto, so I had our marketing people do a comparison.

There are different price plans. You can get an iPhone cheaper than this in Canada and in the U.S., but this is more or less the plan I got for my daughter, and I thought it was a good comparison. You pay $95 in Toronto and $115 in Philadelphia. You get 1,100 anytime minutes in Toronto and 900 in Philadelphia. In both places you get unlimited evenings and weekends. In the U.S., you get unlimited data and in Canada, you get 500 megabits of data a month. You can see that they are comparable.

I should tell you that because wireless data is compressed, it is very hard for anyone to get to 500 megabits of data on an iPhone in a month. Our average customer uses about 300 megabits.

Comparing Canada and the U.S., the U.S. is cheaper on average revenue per minutes, but for a medium price plan, we are about the same. For huge buckets of service, the U.S. is cheaper, and for smaller buckets of service, used by lower-income people, Canada is cheaper than the United States, so we think we are very competitive in price.

Senator Fox: Does that include the cost of the acquisition of the iPhone?

Mr. Engelhart: The device purchase cost is about the same, except that we have a three-year contract and they will have a two-year contract. With a two-year contract in the U.S. you can get the device for about $200. In Canada, you can get the same device with a three-year contract for about $200. Both countries are heavily subsidized. Our cost is much more than that.

Another statistic that we hear a lot about is wireless adoption rates, and people look at penetration rates. Canada comes out very poorly in penetration rate. Penetration rates look at the total number of subscriptions in a country divided by the population. However, in our view, it is not a very useful metric. In Canada, about 66 per cent of the population has cell phones. In some European countries, like Greece, the penetration rate is 200 per cent, but you cannot have 200 per cent of a population. That means that in Greece and many other European countries people have one phone, but they have three or four subscriptions. They have different SIM cards that they put in and take out of their phones at different times of the day. Do not be troubled if you read that Canada has fewer subscriptions. You want to measure the use of wireless technology in an economy, and the metric for that is minutes of use per capita. You take the total minutes of use and divide by the population.

You see on the graph that Canada is again one of the world leaders. The U.S. is ahead of us, but on the next slide Canada is way over to the left, indicating one of the highest usages of wireless services in the world, again leading most of our competitors.

Sylvain Roy, Regional President, Quebec, Rogers Communications Inc.: As Mr. Engelhart has explained, Rogers has been obsessed with technology and innovation, and with winning the battle. To continue winning, we have developed a new obsession with customer service.

As recently as one month ago, I was running the Fido brand for Rogers, which is for quality of customer service, winning the J.D. Power award for best customer service of a wireless carrier in Canada.

We need to translate this technology obsession and maintain our technology leadership, but we must direct our energy and focus to customer service to continue winning and to exercise our leadership. We have demonstrated this commitment by publishing it, first. Second, we have established an escalation process. We are all consumers and know that nothing is more frustrating than not getting our service issues resolved.

We have a three-step approach. If a customer is not satisfied with the answer he is getting, he can escalate to a second step. The third step will be the president's office. We will try to address the issue and resolve the customer concern. In the event that that does not work, we have created an ombudsman position that handles complaints from customers who are not satisfied by the president's office. We publish monthly reports on the number of complaints going through all the different levels. We try to learn from this and to improve and simplify processes to improve satisfaction.

On the spectrum side, I will begin by quoting the chairman of the FCC, Julius Genachowski:

Spectrum is the oxygen of our mobile networks. While the short-term outlook for 4G spectrum availability is adequate, the longer-term picture is very different. In fact, I believe that the biggest threat to the future of mobile in America is the looming spectrum crisis.

While Mr. Genachowski refers to spectrum as the oxygen, we like to refer to it as the real estate of the business. Regardless of how much technology you are willing to invest, you need the real estate on which to place your infrastructure. There is premium and there is average real estate. Quality available spectrum allows us to fully leverage technology, because technology alone will not satisfy the demand.

The graph indicates that mobile wireless will explode over a four- or five-year time frame. This will not take a generation or 15 years. It is very short term. We need quality spectrum so that we can invest in technology and support the Canadian economy.

Investment in technology and coverage creates jobs and thus supports the economic growth of the country. Spectrum fees increase costs to Canadian subscribers. Every dollar spent on spectrum is a dollar we cannot spend on technology and improving coverage to rural areas of Canada. This puts us at a competitive disadvantage. We said that the U.S. has the cheapest service delivery. They also have among the cheapest spectrum fees, basically charging only administrative costs of the spectrum to the operators so that they can focus all their energy and resources on developing the technology and improving service to customers. This results in a more affordable cost of service to Canadians.

It is important for Canadians and the Canadian economy that spectrum licence fees are limited to administrative costs so that instead of spending billions of dollars buying spectrum, which translates into higher costs for Canadian users, the operators can invest all their available resources into improving service to the customer.

Senator Zimmer: Thank you for your appearance today and your presentation. I would like to know more about Rogers' plan for mobile broadband deployment. What are your plans in my home province of Manitoba?

Mr. Roy: Thank you for the question. As part of my duties at Rogers, I have been working for the last year with our now partners, but also competitors, Manitoba Telephone System. We have been working in a set-up that is somewhat different but also more and more required in order to deliver service in rural areas.

Last June, we announced a partnership with MTS to build a network for the entire province of Manitoba. That network will cover over 98 per cent of the population. By sharing costs, Rogers and MTS, who are still competing, will be able to develop the technology to reach the maximum coverage, yet provide an alternative for customers in rural Manitoba where they have only had access to MTS services up until now.

Senator Zimmer: You say in your presentation that higher wireless licence fees are not warranted. Could you elaborate?

Mr. Roy: Resources are limited. Each company needs to invest, and we invest in our employees and our network. When we have to invest in paying the spectrum fee, that money that is not available for other things. Those other things include investing in technology and better customer service.

Mr. Berner: The radio spectrum that the wireless industry uses is a small slice of the total available spectrum. The revenue that is achieved through the licensing of spectrum comes almost solely from the mobile wireless industry. We have a challenge, which was described earlier, in that as mobile broadband use increases and mobile Internet use increases, this will dwarf the demand previously deployed for voice services.

Technology will take us to a certain point to enable us to reuse those little bits of spectrum over and over again, but it will not be sufficient to allow us to satisfy the huge demand that will come from mobile broadband services. If a similar price of spectrum is extrapolated as to what is already paid for the amount of spectrum that will be required, this will limit the ability of the wireless industry to provide that capacity in the future. Consequently, we believe that a model of cost recovery on the part of the regulator, as is used in the vast majority of regulator regimes in the world, is the right model because it encourages investment in the services and in the capacity that customers demand.

Senator Zimmer: Could you explain why Rogers will need additional spectrum in the future?

Mr. Berner: Senator, we believe that the demand on our networks today is a small proportion of what we will see in the next five to 10 years. We need to be able to plan the networks based on what spectrum becomes available. One of the challenges that we have in the world is that this industry is a scale industry. However, spectrum is allocated differently in different parts of the world, and manufacturers have to make decisions on how they will invest in their equipment and devices. If we have spectrum that is allocated differently than it is in other parts of the world, then manufacturers must make choices, and the total number of devices that become available to us becomes much smaller.

The North American spectrum plan is unique in the world, and therefore what we tend to get in terms of devices is a small subset of what is available in other parts of the world. We would like it see more harmonization of spectrum with other regulatory regimes across the planet, which would give our customers a larger selection of devices and lower our costs of providing those services.

Second, we need larger blocks of spectrum. We call them contiguous blocks, so it is continuous blocks of radio spectrum that enable us to provide more capacity in that same amount of spectrum than we could if they were just little bits distributed all over the place.

Senator Zimmer: Have you had any requests from new wireless entrants for roaming and tower-sharing agreements, and how have you handled those? What is the progress on these arrangements to date?

Mr. Engelhart: I am glad you asked that question, because we have been reading in the press some grumbling by some of the new entrants, and it has left us puzzled. Mr. Roy and I, mostly Mr. Roy, have successfully concluded roaming agreements with all the new entrants who have approached us, and we did that in a business negotiation that did not need arbitration or enforcement from Industry Canada. We have also provided access to a huge number of our towers to the new entrants. We believe the government policy that requires us to make those facilities available is working, and we are proud of what we have done.

Senator Zimmer: Thank you for your candour and information. It will be helpful to us.

Senator Fox: Welcome to our committee. The main area of interest for me and for many members of the committee is high-speed Internet access across the country. Some countries have developed strategies to bring high-speed Internet access to most parts of their country. One example is France, with a strategy called France Numeric, which talks of high-speed Internet access as a question of right. Even if you are living in the top of the French Alps, even away from the ski centres, you have right to high-speed Internet access. I do not know how they will deliver it in a cost efficient manner, but that fact is that it is considered to be a right.

In Great Britain, Digital Britain decided they wanted to go toward universal access, but they are more Canadian than the French, and it is "as much as access as possible in the circumstances," which is the good old MacKenzie King aphorism.

I would be interested in your opinion on how we could develop a strategy in Canada to ensure the greatest possible Internet access, particularly in the remote communities. To me, to put a pile of money on the table and have people bid on it is not a strategy; it is a way to block some holes, but not a strategy. We would like to develop a strategy. I would like to hear you talk about the role that high-speed, wireless Internet can play in developing such a strategy. That is my general question.

In your presentation, you say GSM covering 94 per cent of the population. I assume that is at 7 megabits per second, and your 85 per cent refers to the 21 megabits. Would you consider 7 Mbps as high speed Internet access?

Mr. Engelhart: Let me preface my remarks by saying that in terms of broadband deployment, Canada is doing well. Wireline broadband has been the dominant technology to date. We benefit in Canada because the cable and phone companies competed vigorously. This got us out to an early lead, and for many years we were the first or second in the world. We are still the fifth or sixth in the world in terms of household penetration, and we lead the G8, so we are doing very well in terms of penetration of broadband, but as you say, senator, the rural areas are an issue.

Canadians can get high-speed Internet service if they want to get satellite service, which provides high-speed Internet service. It is not as fast as the wireline service my friend Mr. O'Carroll provides, or the wireless service the wireless company provides, but it is fast. It is also a bit expensive, but it is ubiquitously available.

In terms of the definition of broadband, most people would define it as a megabit per second of speed, or a megabit and a half. I believe Industry Canada, in their recent rural broadband project, described it as a megabit and a half. The satellite provides that.

The answer to your question, jumping right to the end, is we think that this mobile broadband technology is the way to serve the rural markets. If you are not content with satellite service as the solution for the remote areas and you want to expand the terrestrial networks, mobile broadband is a much better technology than ploughing fibre optics, because it is cheaper. You can go to an antenna, using wireless microwave, and that antenna can serve several square miles of territory. That is cheaper than installing fibre optics and connecting all the ranches or farms in an area.

It is also better because things like satellite are a one-trick pony — they can deliver high-speed Internet. A mobile broadband infrastructure can provide voice and Internet. As Mr. Berner explained, you can provide wireline services equivalents.

We believe this mobile broadband technology will be the solution around the world in the same way is has been for voice. Third World countries have been looking for years to determine how to provide telephone service for their citizens. As recently as two or three years ago, international groups were debating this issue. There is no debate anymore. Phone service is provided by cellular networks in the Third World.

Mr. Berner: Senator Fox, the numbers are as you indicated. Ninety-five per cent is using our second generation GSM service and 84 per cent is currently with HSPA service at 7.2 megabits per second.

Senator Fox: Do these numbers change, Mr. Berner, with new licensees coming into the market or will they be concentrating mostly on urban areas?

Mr. Berner: It is a good question, Senator Fox.

First, new licensees will overbuild and launch in urban areas of the country according to their public plans. This provides them with a base of customers in a high-density market to serve more economically. Second, the radio spectrum garnered in the last spectrum auction is at a relatively high frequency is unsuitable for rural coverage to any extent.

Companies such as Rogers, Bell and TELUS have spectrum in lower frequencies that has much greater reach. Thereby, we can cover a much larger area from a cell site than with higher frequencies. All of the broad-area coverage on this map is provided at those lower frequencies. We also have the higher frequencies in the urban areas to provide more capacity to our customers.

Senator Fox: Mr. Engelhart, could you help us understand how you pay for this?

We have a tendency to talk about rural communities in the North, but I understand there are 300,000 people on the southern shores of the St. Lawrence near Montreal and Quebec City that do not have high-speed Internet access.

However, let us stick with the northern community. It would have to be some kind of satellite service possibly based on the Cancom model where the community sets up a community antenna. You may have some thoughts on that.

Where does the role of the private sector end and where does the role of government start? I can only assume that the private sector has been able to build this because of investment, profit and return on investment. Is there some way for the two to cooperate to extend high-speed Internet access to areas you generally would not under a normal business plan?

Mr. Engelhart: As you discussed with Mr. Berner, we provide coverage to about 95 per cent of the Canadian population. Bell and TELUS do somewhat better. Between those two, about 98 per cent of the Canadian population has access to some sort of cell service. They may not be planning to roll out this broadband service to the last 5 per cent. They have a voice and low-speed infrastructure. I believe the subsidy they might require to add broadband would be more modest than using any other technology.

There are essentially two models for public-private cooperation. First is for the government to identify an area to which they want to provide broadband. This was done in the current Industry Canada rural broadband program. They then ask companies to make proposals. Essentially, whoever meets their qualifications will get the contract at the lowest subsidy value. It is a good model.

I urge this committee to think about the voucher model, which is the second option. I think it can work better in many ways. The government gives citizens of those communities a voucher for $50 per month towards broadband service. Once the private sector sees demand in the area in the form of government vouchers for broadband service, then the private sector will respond.

Both models can work, but the voucher model has not been tried extensively. I think it allows the marketplace more flexibility.

Senator Fox: Have you any knowledge of how the U.S. has addressed this issue of remote area access?

Mr. Engelhart: It is the former RFP subsidy model.

Senator Fox: We talk about 94 per cent, 96 per cent or 98 per cent coverage of the population. Are you able to give us provincial information on the coverage and whether some provinces are lagging behind? I do not expect you to have this information at your fingertips.

Mr. Engelhart: We would be happy to provide you with that information.

I would like to make one last editorial comment on your last question. We are focused on the multibillion dollar project that President Obama has introduced for broadband deployment as part of the fiscal stimulus. Before that, some interesting things were happening in the U.S. through Connect USA, ConnectKentucky and programs like that. ConnectKentucky was successful in getting ubiquitous broadband deployment throughout Kentucky. They simply published a list of available towers and made those towers available for free.

We sometimes find it very difficult to put up a tower when we go to communities. There is usually only one tall structure in the entire community and it is often a water tower. They sometimes will not let us use it. If we try to build a tower, we get protests and letters from the local MP asking why we are so irresponsible.

Kentucky indicated it had pre-cleared water towers and provided a map of where they were. Companies could use them any time they wanted for free. I cannot tell you how much of a stimulus that was for rural deployment of broadband in the state.

Senator Fox: You operate in every province in the country. There is a program in Quebec using provincial money, Communautés rurales branchées. Are there any provinces that have access programs that you find to be interesting or better than others which you think we should examine in depth?

Mr. Engelhart: We have not won bids in many provinces so we are not crazy about any of them. They all largely have the same model for indicating requirements and seeking proposals.

Senator Fox: Regarding spectrum licence renewal fees, you obviously buy spectrum. Do you still pay annual fees after buying the spectrum?

Mr. Engelhart: Yes. When you buy spectrum in an auction, you pay no licence fees for 10 years. Licence fees are payable on renewal. Industry Canada has indicated they will increase fees from their current level to what they have called "market based levels." We do not know what that means, but we are concerned we could have a huge rate increase.

Senator Fox: You say Canadian spectrum fees are much higher than FCC fees charged to U.S. carries. Is it a material difference going down to the consumer as a result of the fee?

Mr. Engelhart: Yes. It is virtually zero in the U.S. whereas it is a sizeable proportion of our costs in Canada.

Senator Housakos: Your presentation was informative. Senator Fox asked a lot of pertinent questions.

It is very expensive to enter the wireless market in Canada. For example, Globalive's Wind Mobile will spend millions of dollars building a national network. Given the large investment needed to become a player in the Canadian wireless industry, would allowing foreign investment in wireless be a good way to increase competition?

In the same light, the OECD Communications Outlook 2009 reported that the Netherlands, Finland and Sweden had some of the lowest cellphone rates and that Canada and the U.S. had among the highest such rates. Recently in Europe, I found that European clientele are using cellphones almost as their primary way to communicate. They say that it is more cost effective to use a cellphone than to use a land line. I find that the packages and options available in Europe seem to be more competitive than those in Canada. Although I heard part of the answer to my question in your presentation, is increased competition perhaps the answer to both questions?

Mr. Engelhart: It is a difficult question on foreign ownership, and we wrestle with it. We built our networks at an enormous cost. For years, Rogers was spending billions on its wireless network, and we did not see any return on that expense. Fortunately, that has improved during the last three or four years, but it is difficult. One possible answer might be to liberalize the ownership rules. However, by having Canadian ownership rules, we have more high-tech jobs, more head office jobs, more research and development jobs and more innovation in Canada. The government will continue to wrestle with this trade-off. Without liberalizing the foreign ownership rules, we have a great deal of competition in Canada. It is astonishing that Bell, TELUS and Rogers each have a 21-megabit-per-second network; and there are multiple brands among Canadian providers. We have a competitive marketplace in Canada, and there is no easy answer to the question on foreign ownership. We will continue to wrestle with it.

On the question of Europe, as I mentioned in my remarks, I do not think that the OECD study is reliable. In terms of the average revenue per minute, Canada is cheaper than Scandinavian countries. Europeans are devoted to their wireless service because their wire line service is of such poor quality and so expensive. We are blessed in Canada with huge local calling areas and fairly low monthly rates for wire line service. Europeans pay a local measured service which means that they pay for every local call in Europe. As well, it can be difficult to have a wire line installed. The wireless industry in Europe has benefited from the fact that the wire line service is poor.

When making these international comparisons, it is important to remember about Europe is the system "calling party pays." In Europe, whoever makes the call pays for the call. In Canada, if you have a bucket with 2,000 minutes for your wireless phone and someone calls you from a wire line phone and talks for a minute, you have used up one minute of your bucket. That does not happen in Europe. In Europe, an incoming phone call does not take time off your bucket but the wire line caller will see on his bill at the end of the month 15 cents to 25 cents per minute for that call. All incoming calls for wireless customers in Europe are free. Many people have cellphones that cost them nothing because they do not make outgoing calls. Kids will get calls from their parents at work and the employer sees the calls on their bills, but the cellphone does not cost anything.

It is a false economy in a way because the expense of those 20-cents-per-minute rates paid by wire line customers is being borne by the economy. It is another reason that we see 150 per cent subscription rates in countries in Europe. A person can stay at a hotel that gives out free phones to receive incoming calls. In most countries, if you turn the phone on every three months, it counts as a subscription.

Mr. O'Carroll has three European subscriptions because he visits Ireland three or four times each year. He has a SIM card that he puts in his phone when he arrives. He is counted as an Irish, Italian and English subscription. You have to look at "calling party pays" when making comparisons between North America and Europe.

Senator Housakos: TELUS recently announced that it would reduce their system access fee from $6.95 per month and drop the 75-cent charge for 911 services. They will not replace these with any other fees. Rogers dropped its system access charge in September but replaced it with a regulatory recovery fee. What is the logic of quoting customers a price for a cellphone service that does not include all fees? In light of recent actions by TELUS, will Rogers consider dropping their fees?

Mr. Engelhart: The regulatory recovery charge is common in the U.S. and around the world. Many countries do it. It is a way of holding governments accountable when they increase the fees paid by the carriers. Your question about our competitive response to TELUS is a good one — our marketing people are looking at that. It is systematic in that we have a highly competitive market. TELUS has thrown a curve ball at us, and we will have to figure out how to respond.

Senator Zimmer: On Friday, October 30, the National Post published an article by Jamie Sturgeon. The heading of the article was "CRTC hangs up on new wireless carrier." It stated:

Globalive Wireless's bid to become the country's fourth major cellphone provider was stopped dead yesterday after the industry's regulator said the company was controlled by its foreign backer and offside with Canadian telecom law.

Mr. Engelhart, do you have any comments on that article?

Mr. Engelhart: Yes. I appeared before the CRTC for that hearing so I am quite familiar with the facts. Orascom Telecom held 65 per cent of Globalive's equity, and virtually 100 per cent of the debt. Orascom Telecom is a non-Canadian company. Orascom provided all technical services under a technical services agreement. Orascom also provided the Wind brand name. Orascom had veto rights over all of the important Globalive decisions. The Canadian majority owner of Globalive had a "put right" that allowed him to sell out to the so-called minority foreign investor at a fixed price after three years.

After looking at all of those facts, the CRTC found that it had no choice. It was overwhelming. It would have created a precedent that would have effectively demolished foreign ownership rules in Canada. As a country, we might need to make a decision on whether to eliminate foreign ownership rules. If it is to be done, we must do it consciously and deliberately, not through the back door by approving a transaction that is so clearly not Canadian.

Senator Fox: The reaction to the suggestion made by one witness that one way to ensure coverage in remote areas would be to have cross-subsidization between telephone users in Canada, in the same way that we once had cross-subsidization between long distance and local calling. Would you support that proposal?

Mr. Engelhart: We do not support it. Currently we must spend 2 per cent of our money on research and development. We have strongly encouraged the government to get rid of that requirement. If they keep it, we believe that we should have a choice between spending the money on research and development or on rural deployment. I think that in many ways rural deployment is better than research and development in terms of benefit to the country.

Senator Fox: Would you explain that? I believe that Ericsson in Montreal and other companies did much of Rogers' research and development across the country. Would it not be a hit on research and development in this country if the 2 per cent were allocated elsewhere?

Mr. Engelhart: Revenues are growing, and we are blessed to be in an industry in which people really want our products and services, so the 2 per cent of that larger and larger revenue number gets bigger and bigger. At some point, we will probably be doing enough research and development and rural deployment would be a good thing to do.

Senator Fox: You would support allocating the 2 per cent elsewhere?

Mr. Engelhart: I would rather leave it to market forces, but if the government is going to extract a tithe from us for something, rural development is probably better.

Mr. Berner: Or at least an opportunity to use some of that commitment for rural deployment.

Senator Fox: By your own company, obviously.

Mr. Engelhart: Yes.

Senator Fox: Does any other method come to mind that this committee should consider in promoting as much high-speed Internet access as possible into areas that are not currently served?

Mr. Engelhart: I will repeat the idea of the voucher. It is something that government officials often do not like, but it harnesses the power of the market, because instead of having to convince a diligent and hard-working public official that you have the best technology, the consumer gets to decide who has the best technology. Because the consumer is in a higher-cost area, his costs are defrayed by the voucher.

Senator Fox: Do the new entrants currently have the 2 per cent obligation for research and development?

Mr. Engelhart: Yes, they do.

Senator Seidman: Thank you, gentlemen, for appearing here today. You have emphasized the importance of mobile broadband going forward and in fact say it will explode over the next four or five years.

Framing my question from the perspective of the consumers, travelling generally involves mobile broadband, and very often for people trying to work. There have been various suggestions that high roaming charges make location-based mobile applications too expensive for Canadians. I always shudder at my Rogers bill. The roaming and the long distance charges seem to double the bill.

Would you comment on the impact of high roaming charges on the ability of Canadians to fully take advantage of mobile broadband?

Mr. Engelhart: Before Mr. Roy responds, to clarify, if you are using your Rogers device within Canada there are no roaming charges because we are a national provider. If you go to the U.S. or Europe, yes, there are roaming charges.

Mr. Roy: Our business is one of scale and volume. There are high fixed costs, which are high, and volume and scale bring down the cost of delivering the service. Data roaming, for example, was nearly nonexistent only a few years ago. With new technology and new devices, it is now available. This volume creates the opportunity to reduce rates, which we have seen in the last couple of years. Frequent travelers to Europe can benefit from various packages and bundles.

Setting up an interconnection with a company in Azerbaijan costs us the same as doing so with Telecom-Orange in France, but perhaps only three Canadians will go to Azerbaijan each month. The fixed costs are higher than the actual costs. Volume and increased traffic puts pressure on price, but more important, it gives us the ability, from a cost perspective, to be more effective and provide better pricing.

Senator Seidman: From the consumer perspective again, when I travel, I call Rogers and try to find a package, but there are so many combinations and permutations of packages that it is extremely frustrating for the consumer. Is there some way that this can be simplified in the future?

Mr. Roy: As I was saying, with the surge in volume comes the ability to be more effective and to reduce prices. In the past we introduced packages that were somewhat cumbersome. We have recently introduced new packages that are easier to work with and for the consumer to understand and utilize. I see the trend going that way. Our customer service focus is to simplify things. I do see it evolving in this direction.

Mr. Engelhart: For the U.S., the new packages that Mr. Roy spoke about are called U.S. value packs. I believe there is a $40 pack and a $60 pack. My wife and I used one recently when we travelled to the U.S. They were much easier to use than the older ones.

The Chair: You spoke about Europe, where people do not hesitate to change their SIM cards. That is not encouraged between Canada and the U.S., is it?

Mr. Engelhart: Currently most North American carriers have what are called locked phones. An iPhone, for example, costs $800 or $900 and we sell it for $200, so there is a big subsidy. We do not want someone to buy the phone from us and take it to a competitor, so the phone is locked, which means it only works on that company's SIM card. You cannot generally put another SIM card in a locked phone.

The Chair: It is done on a regular basis in Europe. Would it not reduce costs for consumers if there was more flexibility in using SIM cards in North America?

Mr. Engelhart: Yes. First, many of our customers get their phones unlocked. It is not hard to do. Second, I do think there will be an increasing market for unlocked phones for precisely the reason you are giving.

The Chair: Since your origins are cable, how do you determine how much to spend on marketing wireless versus your cable Internet services to serve the interests of the consumer with regard to competition?

Mr. Engelhart: About 75 per cent of our market capital and about 75 per cent of our operating profit come from the wireless business now. Purely in terms of self-interest, the wireless company is dominating. We are in no way turning our back on our wireline business, but I suppose the wireless business comes first in those marketing decisions.

The Chair: Would the quantity of spectrum left some day force you to think that there might be some perfection to be made on the traditional cable service in order to compete?

Mr. Engelhart: Yes, both will continue. Mr. Berner can give you more information. In an effort to harness them, we have recently developed a product called UMA. Many people have home phone subscriptions and yet their kids are talking on their cell phones.

The Chair: You have met my son.

Mr. Engelhart: That clogs up our network and we have to put a huge amount of capacity into our network. We have started marketing devices that send that wireless call through the cable television high-speed Internet service, and it meets up with the telephone network at the other end. This is a way of harnessing both technologies to try to save us money and improve service for customers.

The Chair: There being no other questions, I would like to thank the witnesses for their very interesting presentations.

Colleagues, our next meeting will be on November 17, with Research In Motion.

(The committee adjourned.)