INST Committee Meeting

Notices of Meeting include information about the subject matter to be examined by the committee and date, time and place of the meeting, as well as a list of any witnesses scheduled to appear. The Evidence is the edited and revised transcript of what is said before a committee. The Minutes of Proceedings are the official record of the business conducted by the committee at a sitting.

For an advanced search, use Publication Search tool.

If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.

Previous day publication Next day publication

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Tuesday, January 28, 2003

0935

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Peter Harder (Deputy Minister, Department of Industry)

0940

0945

0950

Mr. Larry Shaw (Deputy Director General, Telecommunications Policy Branch, Department of Industry)

0955

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

The Chair

Mr. James Rajotte

Mr. Larry Shaw

1000

Mr. James Rajotte

Mr. Larry Shaw

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

Mr. James Rajotte

1005

Mr. Peter Harder

Mr. James Rajotte

Mr. Peter Harder

The Chair

Ms. Paddy Torsney (Burlington, Lib.)

1010

Mr. Peter Harder

Ms. Paddy Torsney

Mr. Peter Harder

1015

Mr. Larry Shaw

Ms. Paddy Torsney

Mr. Peter Harder

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

Mr. Peter Harder

1020

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

1025

Mr. Pierre-Yves Boivin (Economist, Department of Industry)

Mr. Paul Crête

Mr. Larry Shaw

Mr. Paul Crête

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

1030

The Chair

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

1035

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

Mr. Peter Harder

Mr. Brent St. Denis

The Chair

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Mr. Peter Harder

Mrs. Cheryl Gallant

Mr. Peter Harder

Mrs. Cheryl Gallant

Mr. Peter Harder

Mrs. Cheryl Gallant

Mr. Peter Harder

1040

Mrs. Cheryl Gallant

Mr. Peter Harder

Mrs. Cheryl Gallant

Mr. Larry Shaw

Mrs. Cheryl Gallant

Mr. Larry Shaw

Mrs. Cheryl Gallant

Mr. Peter Harder

Mrs. Cheryl Gallant

Mr. Peter Harder

The Chair

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)

Mr. Peter Harder

Mr. Joseph Volpe

1045

Mr. Peter Harder

Mr. Joseph Volpe

Mr. Peter Harder

Mr. Joseph Volpe

The Chair

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

1050

Mr. Larry Shaw

Mr. Paul Crête

Mr. Larry Shaw

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

1055

Mr. Paul Crête

Mr. Peter Harder

Mr. Paul Crête

Mr. Peter Harder

The Chair

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.)

Mr. Peter Harder

1100

Mr. Larry Shaw

Mr. Peter Harder

Mr. Dan McTeague

Mr. Peter Harder

Mr. Dan McTeague

Mr. Peter Harder

Mr. Dan McTeague

Mr. Peter Harder

1105

Mr. Dan McTeague

Mr. Peter Harder

Mr. Larry Shaw

Mr. Dan McTeague

The Chair

Mr. Peter Harder

The Chair

Mr. James Rajotte

Mr. Larry Shaw

Mr. James Rajotte

Mr. Larry Shaw

Mr. James Rajotte

Mr. Larry Shaw

Mr. James Rajotte

Mr. Larry Shaw

Mr. James Rajotte

Mr. Larry Shaw

Mr. Michael Binder (Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry)

1110

Mr. James Rajotte

Mr. Michael Binder

Mr. James Rajotte

Mr. Michael Binder

Mr. James Rajotte

Mr. Michael Binder

Mr. James Rajotte

Mr. Michael Binder

The Chair

Ms. Paddy Torsney

1115

Mr. Michael Binder

Ms. Paddy Torsney

Mr. Michael Binder

Ms. Paddy Torsney

Mr. Michael Binder

Ms. Paddy Torsney

Mr. Michael Binder

1120

Mr. Larry Shaw

Ms. Paddy Torsney

Mr. Michael Binder

Ms. Paddy Torsney

The Chair

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Larry Shaw

1125

Mr. Joseph Volpe

Mr. Larry Shaw

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

1130

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

Mr. Michael Binder

Mr. Joseph Volpe

The Chair

Mr. Joseph Volpe

The Chair

Mr. Joseph Volpe

Mr. Michael Binder

1135

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 012

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, January 28, 2003

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I call this meeting to order pursuant to Standing Order 108(2), consideration of foreign investment restrictions applicable to telecommunications common carriers.

Today we have, from the Department of Industry, Mr. Peter Harder, deputy minister; Michael Binder, assistant deputy minister; Larry Shaw, deputy director; and Mr. Boivin.

We'll begin with a presentation by the deputy minister. I just want to warn the committee that the deputy minister must leave at 11 o'clock, so your early questions can be given to him. I'm sure his other colleagues will be able to answer any questions further to that.

Deputy minister, welcome to the industry committee, and thank you for making yourself available for the start of this study.

Mr. Peter Harder (Deputy Minister, Department of Industry): Thank you, Mr. Chair.

It's a pleasure for me to appear before this committee on this, your first day of consideration of the restrictions on foreign ownership in telecommunications.

[Translation]

Your work will complement and enhance the contributions that you have already made to Canada's Innovation Strategy, including your June 2002 report on the allocation of federal research funds, and your June 2001 report entitled “A Canadian Innovation Agenda for the Twenty-First Century”.

[English]

I would also mention, in passing, that just over a month ago, your colleagues in the Standing Committee on Foreign Affairs and International Trade made a major contribution to mapping Canada's strategy in the emerging North American economic space when they issued their report, Partners in North America.

As the chair indicated, I'm happy to be accompanied today by Larry Shaw, the director general of the policy group in our telecommunications branch; and Pierre-Yves Boivin, an economist in that branch.

I hope it will be useful to you if we present a little background. First, I propose to review the government's innovation agenda, which represents the context in which Minister Rock asked this committee to review this important issue.

Second, I'm going to ask Larry Shaw to give the committee some background, in detail, on the functioning of investment restrictions that are in place at this time.

Canada's economic situation has shown remarkable improvement in recent years. Indicators that were a cause of concern just a few years ago are now showing real cause for optimism. But as Minister Rock has repeatedly stressed, it's now time to take the challenge to the next level, to address chronic questions of economic performance, and to face our challenges squarely.

Canadians are justly proud of our quality of life, but a high quality of life cannot be taken for granted. Quality of life is a function of our standard of living, our productivity. The key to becoming more productive is to become more innovative, more inventive.

The data is clear that productivity is a real and significant issue. Canada is losing ground, and it is happening in some key sectors. There is more than one way to approach productivity issues. To state it in the most stark terms, we could join a race to the lowest common denominator by gutting environmental protection and ignoring health and safety concerns, and exploit Canada's natural resources in an unsustainable way; or we could use knowledge to create new opportunities, to create distinct products that are sought after around the world, and maximize our value-added to create meaningful and sustainable jobs for Canadians.

Developing innovative industries and firms will improve Canada's productivity while providing opportunities that are meaningful to Canadians. It will allow us to pursue Canadian values, such as an inclusive and compassionate society, a safe and healthy environment, and a quality of life for all.

By all measures, Canada is a success. Our quality of life ranks at the top. Economically, we are doing quite well as a nation, with a very high per-capita level of income. But there are some troubling trends. The income gap with our largest trading partner, the United States, is growing. It is currently in the range of 20%. Fierce global competition for the best knowledge workers is a hallmark of the knowledge economy. Canada's share of North American foreign direct investment, or FDI, is declining.

Canadians agree that innovation is key to continuing Canada's success, to increasing productivity that will improve our standard of living. Innovation will enable Canada to increase its standard of living while allowing us to pursue those policies that make us uniquely Canadian.

We've taken the necessary early steps, but they are not sufficient to improve our performance. Our competitors are forging ahead as well. Canada is presently fourteenth in the OECD in terms of innovation performance. If Canada wants to maintain and improve this position, we must act now to make Canada more innovative. I would remind you that our competitors are not standing still.

The Government of Canada has set the objective of doubling our share of North American foreign direct investment. Obviously, we need to look at both sectors where there are explicit legislative restrictions. As I am sure many of the committee are well aware, telecommunications is the backbone of the knowledge-based economy. The Internet, and all of the private research networks used by universities and the private sector, operate over infrastructure owned and operated by Canada's telecom industry. If the regulatory framework is not world-class, innovation may suffer. Minister Rock has concluded that now is the time to examine Canada's foreign investment rules in the telecom sector.

Let me make another point at the outset. Minister Rock's clear intention is for the scope of this review to include only what some have called the “pipes”--the telecommunications infrastructure. Neither culture nor content are part of this review. It should be stressed that the context of Minister Rock's request to this committee was one of policy mechanisms, not policy objectives. The objectives of maintaining Canada's advantage and increasing investment remain as relevant as ever. The question for the review is how best to achieve these objectives.

¿ (0940)

I'd like to turn now to some international aspects of this foreign investment issue. Where does Canada stand internationally? Are we world-class? We look at this question from a number of perspectives. First, what have other countries done in the face of needing to increase investments in the vital economic sector while at the same time wanting to retain the ability to address other equally important national goals?

The approaches of other countries tend to fall into three broad categories: state ownership, controls on incumbent providers, and licencing. While most countries outside the OECD have state ownership, it is not a model for serious consideration for Canada. Many countries, including Germany, France, Italy, Japan, Australia, Belgium, the Netherlands, Austria, New Zealand, Luxembourg, Sweden, and Switzerland, placed controls on traditional carriers, either directly through share ownership or through legislated restrictions. Investment restrictions for all other providers were removed.

In the Canadian context, this model could be adapted by maintaining legislative investment restrictions only on the traditional providers--Bell, Telus, MTS, Aliant, etc. The 20% limit on direct ownership could increase to as much as 49% but control would remain Canadian. Competitive providers such as AT&T, CallNet, and new entrants would in this scheme not be subject to any foreign investment restrictions.

Some countries, the United States in particular, have put in place a licencing regime for all telecom companies. Mergers and acquisitions are controlled through a licencing process. In principle, there are no foreign investment restrictions, but mergers and acquisitions can be looked at on a case-by-case basis.

Canada could remove its foreign investment restrictions while implementing a licencing system in the context of a policy stating that the transfer of licences of major companies would require government approval. Proposed mergers could be denied or approved subject to conditions reflecting the public interest, such as location of head office, levels of R and D, etc.

As I just noted, many countries have substantially liberalized their foreign investment restrictions. So just where does Canada stand among the OECD countries? Are we more open, about the same, or more closed than other countries? This graph illustrates that almost all other OECD countries have telecommunications investment regimes more liberal than Canada's. Only Turkey is more closed, but it too has indicated that when its monopoly for the state-owned provider ends later this year, it will allow up to 49% foreign investment. At that point, it will be positioned in a “less restrictive than Canada” category.

The committee will want to consider whether having more restrictive rules than most members of the OECD is in Canada's best interest.

As stated earlier, this review is not about lessening our ability to pursue the public interest. Rather, it is about improving or assuring our ability to achieve our policy objectives. It is worthwhile to go back to just why these restrictions were introduced in the first place. The actual decision to introduce these restrictions was taken in the context of the Canada-U.S. free trade negotiations in 1987. At that time, the United States had restrictions that applied to all users of radio frequencies, but Canada had no such restrictions. In fact, two of our largest companies, BCTel and QuébecTel, now both part of Telus, were owned and controlled by the U.S. carrier GTE, now Verizon. The U.S. sought in the free trade agreement to preserve the right to maintain these restrictions. Canada had to indicate its intent to have similar restrictions at that point or preclude itself from being able to do so in the future.

¿ (0945)

Ironically, the United States, like most OECD countries, removed its restrictions in 1996 as part of its WTO commitments. Interestingly, while the U.S. removed its restrictions for telecommunications carriers, to this day it maintains them for conventional over-the-air broadcasters.

I think that over the coming weeks you will hear a lot of discussion on the importance of these restrictions. It is wise to consider them in the context of an overall telecommunications regulatory framework. Canada has a very modern, effective regulatory framework, with a strong independent regulator, the CRTC.

Some may suggest that altering these restrictions might irrevocably weaken the ability to pursue the public interest to act in the best interests of Canadians. The CRTC would retain all of its powers to regulate in the public interest, and as noted earlier, there are other more direct means to meet non-regulatory objectives. This is a review that seeks to better understand how we can strengthen our ability to achieve these objectives.

The next question I believe we should ask ourselves is how Canada compares in terms of overall investment in this sector relative to other OECD countries. This chart shows that prior to 1993 Canada significantly outperformed both the OECD average and the United States. But since that year, while investment continued to increase, relative to the OECD average it declined.

Canada's overall investment in the sector has been at or below the OECD average since 1993. Average performance is not what the Canadian economy will need if it is to effectively address its productivity performance.

The other factor that comes across clearly in this slide is that our largest trading competitor for investment and our trading partner, the United States, has invested significantly more per capita, as high as three times as much, over the past 10 years.

This chart suggests that there has been some improvement in this gap in 2001. So you might ask, is this going to continue? You will see in the next slide that the answer is, likely not.

This is a good time to turn from these international comparisons to the question of how overall domestic investment is doing. This slide shows actual capital expenditures in this sector, beginning in 1997. You can see a pattern of fairly consistent investment. Other OECD countries have outperformed Canada because they have been increasing their investment while Canada's has remained essentially flat.

Just a few weeks ago, Statistics Canada issued new data for the first three quarters of 2002. They show, for the first time, a significant drop in industry investment, about 25%, compared with the same period in 2001. We are forecasting that for this year these levels will go down to those experienced four to five years ago.

I am not arguing that the foreign investment restrictions are the only reason, or even the main reason, for this decline, but rather I point out that when investment is declining in a key sector, it ought to be of concern to us.

This slide provides a breakout of capital expenditures between incumbent carriers, Bell Canada for example, and competitive providers, such as AT&T and Microcell. The totals may be slightly different from the previous slide, as it is based on private forecasts from IDC data, but we believe the trend it shows is quite accurate. It shows that the competitive sector has all but ceased to make capital investments. Their investment has declined 65% since the year 2000, whereas those of the incumbents, Bell Canada for example, actually increased 5%.

You will hear a number of witnesses from competitive providers. You should ask them why they have had to reduce their capital expenditures so dramatically, and the effect this has had on their ability to be a competitive force in the marketplace today and provide services to Canadians.

¿ (0950)

Let me turn briefly to the key question that Minister Rock posed in the decision paper, which I have produced here on the slide. I want to make what I think is an important conceptual point flowing from this.

We have identified our major policy objectives in this area—investment and public interest. By public interest we mean access to innovation and quality services at reasonable rates from a choice of providers. This review is not about whether we should change these policy objectives; I cannot emphasize this more. Rather, it is a review that seeks to understand if there are better policy mechanisms or instruments for achieving these objectives. From Industry Canada's perspective, this is the key challenge before you.

When Minister Rock asked the committee to undertake a review of the foreign investment restrictions, he published a discussion paper on this issue. It contained a number of questions, and we would be pleased to answer questions that you might have on it.

I'd like to focus on three important themes in these questions. First, as I said at the outset, Canada faces a productivity challenge, and telecommunications is vital to our economic well-being, particularly in the knowledge-based economy. We are concerned about our apparent average investment performance relative to the OECD as a whole and about the significant gap between investment in Canada relative to our major trading partner, the United States. The question you should try to answer is whether the existence of the foreign investment restrictions has any impact on this, and if so, to what extent.

Second, we have a competitive sector that is weakening and for which investment has fallen dramatically. It is said this sector is much more reliant on external sources of capital than incumbent providers are, which have significant internal revenue sources. Can the restrictions be said to favour the incumbent providers such that they are impairing competition?

Lastly, and I think this is the fundamental question, are there other, more effective ways of achieving our overall policy objectives? If so, what might these be, and should they be adopted?

I'll now ask Larry Shaw to describe how the current regime of foreign ownership restrictions works.

Mr. Larry Shaw (Deputy Director General, Telecommunications Policy Branch, Department of Industry): Thank you.

The basis for the foreign ownership regime is laid out in general in the Telecommunications Act, and it's given substance in the Canadian telecommunications common carrier ownership and control regulations. There is a parallel regime set up in the Radiocommunication Act, and the radiocommunication regulations. The reason is that the telecommunications carriers, as defined under the act, are regulated by the CRTC. It is responsible for determining the Canadian ownership of these companies. The Radiocommunication Act is administered by the Minister of Industry. He and the department are responsible for the administration of the ownership regime under the Radiocommunication Act.

Under the Telecommunications Act, telecommunications carriers that own or operate facilities are required to be Canadian-owned and -controlled. This means that Canadians must own not less than 80% of the corporation's voting shares; 80% of the members of the board of directors must be Canadian; and the corporation must not otherwise be controlled by persons who are not Canadian. It's kind of an awkward formulation, but what it means is that the corporation must be controlled in fact by Canadians. So there must not be any direct or indirect control by foreigners.

The regulations also permit up to one-third foreign ownership of the voting shares of a telecom holding company. This is done by defining what Canadian is for the purposes of the act. Obviously a Canadian citizen is a Canadian for the purpose of measuring Canadian ownership; but also, a Canadian corporation or a qualified corporation, as referred to in the regulations, is defined as Canadian. To be a qualified corporation, it must have a maximum of one-third foreign ownership and be controlled in fact by Canadians. I'll come back to this on the next page.

Virtually identical rules exist under the Broadcasting Act. There's a small difference with respect to the requirement that management, in particular the CEO of a broadcasting company, be a Canadian. Otherwise, the rules are basically identical.

Certain companies, such as the cable companies, that offer Internet are providing both telecommunications and broadcasting services as defined under the two acts. Therefore, they are subject to the provisions under both acts.

On the next slide, we have a chart that lays out graphically how the rules work. I want to draw your attention to the number at the bottom right-hand side, 46.6%. This is a number you'll undoubtedly hear fairly frequently during your deliberations. It is the combined maximum direct and indirect foreign ownership. If we trace it through, we will see in the middle of the page that you can have 20% direct foreign ownership. If we go to the top centre part of the page, you can have one-third ownership of a holding company that owns the other 80% of the operating company. So, for example, if we use BCE as the holding company, and Bell Canada as the operating company, there can be up to 20% direct foreign ownership of Bell Canada, and up to one-third foreign ownership of BCE. When you do the math and work it through, you end up with 46.6% combined direct and indirect foreign ownership.

As I mentioned before, the holding company, in addition to having a maximum of one-third foreign ownership, must also be controlled in fact by Canadians and meet other requirements under Canadian corporate law.

Thank you.

¿ (0955)

The Chair: Thank you very much.

We will now proceed to questioning.

I ask Mr. Rajotte to begin.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): How much time do I have, Mr. Chairman?

The Chair: About eight minutes.

Mr. James Rajotte: Eight minutes, okay.

Thank you very much, gentlemen, for coming in today.

The first thing I want to do is to clarify a couple of smaller matters. You touched on the international benchmarks and pointed to the countries that are less restrictive than Canada. Then you talked about Turkey moving towards a 49% foreign ownership level.

What other percentages would these nations, which are less restrictive than Canada, allow for foreign investment? This would be on page 6.

Mr. Larry Shaw: A number of countries have no restrictions at all in fact, as the deputy pointed out. Most OECD countries have no restrictions at all, other than a few of them that have restrictions on traditional carriers. So in our context that would be the equivalent of Bell Canada or Telus.

I can read you some of them and we can provide more detail to the committee, if you wish.

À (1000)

Mr. James Rajotte: If you could provide the detail, that would be great.

Mr. Larry Shaw: Just provide the detail, then?

Mr. James Rajotte: Yes, or you could even identify, for instance, what Britain would....

Mr. Peter Harder: It's 100% private. At the back of the discussion paper there are some data, but if you would like more, we could give you more.

The other point that we should emphasize is that in a number of countries they are moving from state-owned enterprises to private sector, so there will be state-share ownership that is passive and there's a public policy to reduce it. In Germany, for example, Deutsche Tel; I think they are at 42 now and they've made a commitment to reduce that even further.

Mr. James Rajotte: Okay.

The second question I have is this. We're trying to keep this within the Telecommunications Act, with telecom carriers, but in your view or in the department's view, does this apply to cable companies? Should this be part of the discussion?

Mr. Peter Harder: The issue before the committee is companies under the Telecommunications Act. Inasmuch as cable carriers are governed by the Telecommunications Act, as they are Internet service providers, for example, they are covered by these rules so they are captured in this discussion. And I believe a number of companies are going to be represented in hearings before the committee.

This paper does not cover companies governed by the Broadcasting Act. Obviously, where a company is subject to both the Telecommunications Act and the Broadcasting Act, they would have to conform to both acts were there to be a different regime of foreign ownership under each.

Mr. James Rajotte: I guess that leads to the general question then. I'm sure you've read the articles detailing the disagreements at the cabinet table between ministers Rock and Copps on this. How does the committee not get involved in a turf war between Heritage Canada and Industry Canada and these two ministers on this issue? It's fine to say, keep this contained within the Telecommunications Act, but obviously it will have broader implications beyond that.

Mr. Peter Harder: I won't comment on the politics that you raise except to say that the mandate of this committee is the Telecommunications Act. I believe you have a number of witnesses who will be anxious to report to you their views on this issue in respect of the Telecommunications Act.

Mr. James Rajotte: Okay.

On page 12, you say this: “How can Canada secure access to a larger capital pool...without compromising its national sovereignty, security and cultural policy objectives?” Perhaps I'll ask the question in a different way. Is it reasonable for us as a nation to allow fewer restrictions on foreign ownership of the “pipes”, as you describe it? Won't that put more pressure, then, on relaxing the cultural restrictions and the CRTC's role in regulating that? Isn't it logical to assume that if you allow more foreign ownership, these people will then put pressure on relaxing the content restrictions?

Mr. Peter Harder: I think the issue for Parliament and for cabinet is what is in Canada's interest, and the interest of Canada will generate the conclusion of that discussion. I believe there are other regimes where ownership restrictions are different for infrastructure and content. As I indicated earlier, the Americans have restrictions on broadcast undertakings.

Countries do what's in their interest, and the question for the committee is to determine what is in the Canadian interest and whether we have the right mechanism to ensure the Canadian interest is assured.

Mr. James Rajotte: So in any other nations that you've studied with regard to foreign ownership restriction, you've seen no linkage between the amount of foreign investment allowed and any pressure to change the cultural policies of that particular nation. Is there any evidence either way on that?

Mr. Peter Harder: Not that I'm aware of.

Mr. James Rajotte: Did the department study that at all?

Mr. Peter Harder: Inasmuch as we reviewed other countries' regimes, yes.

Mr. James Rajotte: On page 16, Mr. Shaw, you identify the percentage that is allowed. Obviously, the minister put this to the committee for a reason. But does the minister or the department have an opinion as to what percentage should be allowed, or is it leaving it up to the committee to determine that?

Mr. Peter Harder: I'd like to answer that, because it's really a statement of in what spirit we're approaching this. In my statement and in the discussion paper I have tried to be scrupulously neutral in terms of framing the issue. We really are interested in hearing from stakeholders and through this committee your views. We have no preconceived notion of where the committee's recommendations or indeed the government's position should come out, except to satisfy ourselves that we have a regime that is governed by the best mechanism to achieve the public interest as described in the document and in my opening statement.

Mr. James Rajotte: I'd like to bring you back for the productivity study we'll be doing.

You did bring up the whole issue of the background of the economic climate that Canada is facing. This is obviously within the whole innovation context. You talked about innovation being an answer to the fact that, in your words, Canada is “losing ground”, and our income gap with our major trading partner is “growing”. If the answer is innovation, how did this happen? How is it that Canada is losing ground vis-à-vis the United States and we are experiencing an income gap? What is your analysis of the problem that leads you to the conclusion that innovation is the answer?

À (1005)

Mr. Peter Harder: As you know, there have been a number of studies that our department has done, as well as other private sector studies, which we've referred to. They form the background of the major innovation paper that was put out by Minister Rock last year in the consultation process with all stakeholders. The paper was informed by the view, and the consultations confirmed the view, that Canada had to enhance its innovative performance relative to our competitors if we wished to secure our place in the knowledge economy, and to do that we had to better perform in some key sectors.

In one of the charts--I forget which page it's on--you'll see a sector-by-sector breakdown showing that our performance in some sectors is better than in the United States and in other sectors not as good. What we are seeking to do with stakeholders in the private sector and others is to ensure that the public policy framework is right for enhanced investment and higher productivity in those sectors, and it's a function of capital requirement, of the human capital that's necessary, and of being first to market for innovative discovery, commercialization.

Mr. James Rajotte: So what were the policies in place that caused this? You've given an answer. But what is the problem that caused this?

Mr. Peter Harder: I don't think I would frame it quite that way. Our economic performance has actually been quite good in a number of key areas of macroeconomic and microeconomic policy.

What we're seeking to do now is to really home in on some key drivers of productivity to accelerate our performance relative to others and our breakthrough. That's why the government, with it confirmed in the consultation with other stakeholders, has galvanized around some key indicators as to where we want to be by the end of this decade, moving from fourteenth in the OECD R and D intensity into the top fifth, which will take a huge effort on our part for all sectors to achieve.

The Chair: Thank you, Mr. Rajotte.

Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): I have a couple of questions. First, I'd argue that quality of life is not just a function of productivity and that the income gap is not really as relevant if I have to buy, with those extra dollars, things that are provided in other regimes, health care for instance--it'd cost me twice as much, but I've got half as much money at the end of the day, I'm no further ahead. So to me, quality of life is really a quality of services, and I don't see in what's been presented this morning an actual comparison of products. For instance, we have banking restrictions. Well, I'd argue that our banking system is a hell of a lot better than the American banking system, so the restrictions have served our purposes. I'd like to know where the quality comparison is.

Mr. Rajotte asked about content. Clearly, within the OECD countries that have been outlined in the restrictions in the discussion paper, content is only relevant in the English and French environment, because Hungarian content is not going to be relevant in Ireland or in Portugal. It's completely irrelevant. Of course they're going to have their own content. So it's within the structure of the English- and French-speaking arena that we need to see whether there's been a challenge in content. I'd like your comments on that.

Further, one of the areas for question, question 6, regards deployment of broadband infrastructure in rural and remote communities. I'd like to know if the companies that have been approaching to get relaxation of the foreign ownership restrictions are companies that are looking to invest in the lucrative Toronto and Vancouver markets, or are they clamouring to get action in Saskatchewan and Nunavut? If they are, hey, that would be very interesting, but I can't imagine that's where they're looking.

Those are my three questions.

À (1010)

Mr. Peter Harder: They're very good questions. Let me take a stab at them.

On your first item, there was actually a very good piece by Paul Krugman in the New York Times Magazine last October making your point. One should not look at standard of living as the only indicator, which is why in the innovation piece we've sought to have a number of indices, because there is no one index that itself drives, in a sense, well-being or quality of life. So there's no problem with that.

As to services, I think that question would be well asked of some of the providers. There are indices that show Canada's uptake in some of the new technologies and investments in those technologies are not at the same rate as in Europe or the United States. But I think it's their case to make to what extent foreign investment restrictions are the drivers of capital investment.

With regard to the question on broadband, I would point out that the task force on broadband deployment in its final report spoke to the consensus of that group, which was well represented by all of the stakeholders in the sectors, that the government undertake exactly this review. So the government, among others, is responding to the broadband task force report. The argument made in their report was that access to capital and the cost of that access was a driver in rolling out broadband across the country. Roughly 80% of Canadians have access to high-speed broadband, and 80% of Canadians communities do not. If we want to roll broadband into that 80% of communities, it will take a significant capital investment.

Again, that would be a good question to ask the service providers, to determine whether or not, in their view, foreign ownership restrictions, should they be altered, would enhance their capital investment plans.

On the content one, I don't dispute your point on language, although there are some legitimate issues of the dominance of English, even in non-English-speaking countries. I would point out that in the United Kingdom the content issues are not framed as they are here, but there's no reason to believe the content restrictions couldn't continue.

Ms. Paddy Torsney: Is it not possible that we could implement some kinds of targets for investment within the companies? I think there are industries where we made them commit themselves to research targets or other things in exchange for changes in regulations. Is that something that is open in this area as well? Does any other country have a target where companies have to invest in R and D 10% each year or anything like that?

Mr. Peter Harder: I'll ask Larry to comment on other countries. I would remind you that in Canada in the wireless sector there are R and D targets. So that's, in a sense, using the licensing regime to establish targets. I believe it's 2%. One could envisage a regime where licensing was the instrument of determining the public good you wanted to achieve.

À (1015)

Mr. Larry Shaw: I'm not aware of investment targets in any of the OECD countries. It's actually a fairly common practice in developing countries--LDCs--where they award a franchise for the telecommunications service and part of the award is a requirement that the franchisee provide so much investment per year, put in so many new lines, etc. So that's fairly common in LDCs or other developing countries. I'm not aware of any OECD countries having investment targets.

Ms. Paddy Torsney: On page 4 of your presentation you said “we have an objective to double Canada's share of North American foreign direct investment”, and that caused you to look specifically at those sectors where there are explicit restrictions for that investment. Well, isn't there another way to look at it? That is, look at what is taking place, try to double it in the areas where there are no restrictions, and figure out why there was such an investment and why that was so interesting--in other words, the “bird in the hand” principle; rather than looking for a new market, go with the one you've got.

Is something already being undertaken in that area, or have you just decided to go shopping for new customers?

Mr. Peter Harder: I want to emphasize that we are approaching this review without preconceived notions of what we should be doing. My statement was designed to put the foreign investment restrictions in the broader context of Canada's requiring foreign direct investments. And there have been patterns of foreign direct investment that are worrisome. We have, in the last 15 years, halved the percentage of direct foreign investment destined for North America, and that's of some concern if you're requiring foreign direct investment.

Are we doing some things about that? Absolutely. There are campaigns for investment promotion. You'll remember that last year the Prime Minister and premiers led their annual trade mission with an investment angle to it, because they visited Germany, where the issue isn't what governments can do to enhance trade relationships, by and large; it's how can we use those occasions to brand Canada as a destination of foreign direct investment in North America? We have not done an adequate job, I would argue, of portraying Canada as a destination of choice for the NAFTA marketplace. A number of studies show that Canada's performance could be better because of certain key advantages. I point out the KPMG study.

So, yes, absolutely; I don't mean to portray this issue as the single determinant of Canada's FDI performance.

The Chair: Thank you very much.

[Translation]

Go ahead, Mr. Crête.

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you for your presentation. There's no question that we're dealing with a highly complex subject and before I ask a question, I would like to state clearly that in my opinion, we cannot examine the question of telecommunications without taking into account the cultural side of the issue.

While the Telecommunications Act is at issue here, clearly we cannot discount the impact on other sectors. In his letter, the minister himself alluded to the fact that the Heritage Committee was examining these questions and urged us to keep abreast of that committee's work and of questions of mutual interest. Therefore, some matters certainly cannot be brushed aside.

The key question raised by the minister in the discussion paper is this: How can Canadians secure access to larger pools of capital...? Do you have a study or any background information on the current shortage of capital in Canada? Is there some way for us to know if this shortage is genuine and if so, what kind of shortage are we talking about?

Mr. Peter Harder: That's a question you can put to companies. It's really up to them to provide an answer, because they've told us that this has restricted their actions. We'll see.

À (1020)

Mr. Paul Crête: However, the question asked is how Canadians can secure access to a larger capital pool. If Industry Canada cannot supply us with any figures or studies at this time to show that there is in fact a capital shortfall, then what is your basis for putting this question? There must be some level of unease. If not, we shouldn't be creating any artificial problems, because we already have enough real problems to resolve.

Mr. Peter Harder: I believe the figures on page 9 show that Canada lags behind other countries, in particular the United States, when it comes to investment capital.

Mr. Paul Crête: I was just wondering if the line for the OECD included the United States. Is this the overall average?

Mr. Peter Harder: Yes.

Mr. Paul Crête: Therefore, if the United States had been included in this line, Canada, at least in 2001, would have probably fared better than the OECD average, because according to this graph, the United States, an industry giant, significantly impacts the OECD curve. However, if we exclude the United States, wouldn't the level of investment capital in Canada in fact be higher than the average level in OECD countries?

Mr. Peter Harder: I can't answer that question, but we can supply you with the figures.

Mr. Paul Crête: The reason I'm asking is that Canada's performance is probably equal to or better than that of other countries, with the exception of the United States. Would you care to comment? You're telling us to ask the companies. I've nothing against them, but they are not interested in the common good. That is the domain of the government and if you can't provide us with any information, I think someone from your department should look into this matter and come up with some figures for us, to give us a basis for comparison when we do hear from company officials. Then we can compare the figures they present with those you have given us.

Mr. Peter Harder: We can provide you with figures that do not include the United States, but let me say two things: first, the real competition in North America is with the United States, and second, do restrictions act as an impediment to other countries when it comes to their breaking into the Canadian market? That's also a question for other...

Mr. Paul Crête: That's the fundamental question addressed in the study, and I'm not denying the relevance of the Minister's question. However, in order to carry out a more detailed analysis, we need to have the pertinent figures.

If I still have some time remaining, I'd like to ask another question. If the level of foreign investment were to increase, what would be your priority area of consideration? Additional foreign capital would allow us to increase our presence in Montreal, Toronto and Vancouver, as Ms. Torsney pointed out earlier, but it wouldn't resolve problems related to the size of the country and small rural communities that are overlooked when it comes to investment, not because of a shortage of investment capital, but because companies don't view investing in these regions as a sufficiently profitable venture.

Mr. Peter Harder: It's really up to consumers to decide what services are innovative. This week's issue of The Economistcontained a very interesting article on the digital economy, new services and investment which is a service prerequisite. The committee might be interested in the article.

Mr. Paul Crête: If I understand what you're saying, if we were to expand opportunities for entering the foreign ownership market, the reason for this would not necessarily be to fill market needs that are not currently being met. The reason would simply be to allow better overall competition in Canada. In any event, this wouldn't resolve the problems associated with smaller markets.

À (1025)

Mr. Pierre-Yves Boivin (Economist, Department of Industry): In my opinion, it's somewhat premature at this stage to jump to these conclusions. One thing is clear to me, namely that the minister has asked the committee to look into matters relating to foreign property. If, as part of its study, the committee comes to some conclusions, then it would be interesting to know what those conclusions are. I don't think we should be jumping to conclusions on the very first day of the process about the exact impact increased foreign ownership would have on certain sectors. We should await the committee's findings on the subject.

Mr. Paul Crête: I'm not jumping to any conclusions. I'm merely trying to gauge the desired effect. Ownership restrictions can be changed to improve the performance of the industry overall, but elected officials also have a responsibility in terms of services to the public. Improving corporate profits may be a laudable objective, but it may not be a sound enough reason for changing ownership provisions.

My initial question is more fundamental. I see nothing in the department's presentation to warrant additional investment in this sector.

Will the figures for 2002 be available shortly?

Mr. Larry Shaw: OECD figures will probably not be available for six months yet. We've just received the data for 2001.

Mr. Paul Crête: Could someone draw up a table for us showing the various OECD countries based on their respective demographic or geographic importance? We've long known that the United States and Canada are the proverbial elephant and mouse.

[English]

The Chair: We appreciate that.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chair, and thank you, gentlemen.

Further to Monsieur Crête's last comments about the breakdown, I was going to ask, similarly, whether it was possible to see a breakdown of urban versus rural, more specifically. Is that data available? For those of us who represent rural ridings, this is always a concern.

In the same vein--as to whether it really is important or not, I guess only by asking you will I know--prior to 1991-93, the graph on the investment in OECD countries seems to have a different direction for the graph lines of the U.S. and Canada prior to 1993. Going back to the early 1980s, do we have cumulative totals per capita that might show in fact that, as of 2001, the gap was not so great?

One could presume from this that, prior to 1991-93, the U.S. was behind on per capita spending on telecommunications infrastructure. There was a catch-up there. So I think it would be of some relevance to have a cumulative total per capita, maybe going back to 1981, and then we have two periods of ten years. Is it possible?

Mr. Peter Harder: We can do that for you, and we can get the rural/urban data that is available.

Mr. Brent St. Denis: Okay.

Mr. Peter Harder: I would also encourage you, in your questioning of companies, to ask for some company data on those issues as well.

Mr. Brent St. Denis: Thank you.

I have a couple of other short questions, Mr. Chair.

À (1030)

The Chair: Fine.

Mr. Brent St. Denis: You mentioned, Mr. Harder, that if a cable company becomes an Internet provider, which many of them have obviously done, they cross the line and are now under the ownership restrictions that apply to the telecommunications sector.

Is it in black and white that when you cross the line, you go from one regime and ownership to another? Is there a formula for a cable company where if it is 25% an Internet provider, it is only 20% under the rules of foreign ownership? When you cross that line, are you then fully under the telecommunications ownership restrictions?

Mr. Peter Harder: No, the company must be compliant with both acts in total. Were the acts to have different regimes, they would have to be compliant with both acts. Therefore, without getting into the specifics of the company and the circumstance, the higher, more onerous expressions would apply to the company, depending on how they structured the company, of course. Those are questions you might want to ask some of the presenters.

Mr. Brent St. Denis: So, generally, the more rigorous of the two regimes would apply to the total.

Mr. Peter Harder: They must be in compliance with both acts.

Mr. Brent St. Denis: Fair enough.

In an increasingly wireless world--and if one believes some forecasters, that trend will continue--when you talk about these questions, you mention in this discussion, this study, the “pipes”. Do I take that to mean physical pipes, or are we talking about wireless pipes as well? Or does the wireless issue blur this so considerably that it will make the answers to the questions more difficult? Or is it an irrelevant point?

Mr. Peter Harder: Nothing you ask would be irrelevant.

Mr. Brent St. Denis: I don't know about that.

Mr. Peter Harder: The pipe is more a euphemism in the sense that it includes satellite and mobile, although, as you know, in the distribution of satellite and mobile technology, we do have licensing arrangements in the distribution-of-radio spectrum.

Mr. Brent St. Denis: But when you get into things like—not to advertise for anybody—BlackBerry technology and whatnot, does that kind of technology not blur it at all?

Mr. Peter Harder: No, because it's a service.

Mr. Brent St. Denis: Fair enough.

I'll conclude with one more, Mr. Chair.

Mr. Peter Harder: And it's not regulated. Like Nortel or Alcatel or Microsoft, the service providers do not foreign restrictions.

Mr. Brent St. Denis: Fair enough.

In the summary of the discussion table that was provided to us here—this is after a question 12 on page 8, under “Timing of Implementation”—the comments there suggest—and it's appropriate, certainly—that there is pressure from different quarters to do different things. We will no doubt hear that over the study period in the weeks ahead.

Because the department no doubt also receives these things through your normal channels, is it possible for you to characterize the nature of the pressure to do one thing or another? Can you do that without getting into companies and specifics, but by way of giving us a heads-up on what to expect in the weeks ahead? Can you characterize the nature of the pressure and the weight of it?

Mr. Peter Harder: I think you'll find that the competitive industries— that is to say, the non-incumbents—will argue their need for foreign capital, and the restrictions limit that need. They might argue that the cost of capital is higher, and that it prevents them from being more competitive in the marketplace and bringing services to the customer that they would wish to make. It's no secret that AT&T has had some challenges, and it would be important for you to pose those questions to the new service providers.

The incumbents have had more stability of funding from internal streams of revenue for their capital requirements. That's why that chart with the split on capital investment is a rather interesting one, and it will be for the committee to determine to what extent the foreign ownership restrictions are important in the demonstrated inability of the competitor companies to make those investments.

À (1035)

Mr. Brent St. Denis: Is there anyone arguing for a reduction in foreign ownership, for going the other way?

Mr. Peter Harder: For increasing foreign ownership restrictions?

Mr. Brent St. Denis: Increasing restrictions to reduce the ability of foreign corporations to--

Mr. Peter Harder: I have not been pressured in that regard.

Mr. Brent St. Denis: So it's status quo or an increase of foreign ownership allowances.

Mr. Peter Harder: Correct, but again, I would want to emphasize that the issue, even in the debate from the companies, has not been simply on where the foreign ownership restriction number should be; it's making the point that there are other instruments of public policy that could leave the benefit of foreign direct investment while preserving the public interest in terms of issues that would be of concern to a government, and licensing regimes.

So, really, it will be important for you to probe with companies whether this is just a numerical test, or what is the public interest that is at play.

Mr. Brent St. Denis: Thank you, Mr. Chair.

The Chair: Thank you, Mr. St. Denis.

Ms. Gallant.

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chairman.

We saw slides on the telecommunication investment comparing the U.S., Canada, and the OECD countries. But have you compared the capital investment on the basis of foreign ownership itself? Is the money actually being invested in countries where they've loosened up their foreign investment policies?

Mr. Peter Harder: Given the fact that only Turkey has a tighter regime, it's pretty obvious.

Mrs. Cheryl Gallant: With regard to that money that is being invested, how do we know that it is going into capital infrastructure? Has that been looked at?

Mr. Peter Harder: The investment numbers on page 9 are capital investments, so obviously they're--

Mrs. Cheryl Gallant: But is it actually going into infrastructure?

Mr. Peter Harder: Capital investments are investments in infrastructure.

Mrs. Cheryl Gallant: Is the infrastructure staying, as Mr. Crête asked, right in the cities, or are they using it to expand to areas that have little or no infrastructure?

Mr. Peter Harder: Oh, I see.

The coverage of infrastructure in Canada has traditionally been quite good. We have the highest penetration in a number of modes of communication. I would point out that western industrialized countries are all facing the challenge of how we roll out broadband. A number of countries are taking different policy instruments to enhance the rollout of broadband.

If that's the question, I would be hard-pressed to say that foreign ownership alone is the issue. But the level of foreign investment, some will come here and argue, would enhance the rollout of infrastructure to presently non-served communities and enhance the competitive process.

À (1040)

Mrs. Cheryl Gallant: I'm not just talking about broadband, but you did answer that question, and I got what I wanted to know.

The reason I ask is that right now people who subscribe to long distance plans are required to pay an extra $1.25 a month, and that $1.25 a month is supposed to go toward providing infrastructure to the rural areas. So far we haven't seen any evidence that this money is actually going to the underserviced areas. In fact, we have residents living just an hour outside the national capital who don't even have basic phone service, let alone cell or access to this broadband service.

Again, if we're going to open up foreign investment, how do we know it's going to go to these Canadians and not just toward adding options and extras in the urban areas, which already have coverage?

Mr. Peter Harder: The issue you're raising is under the authority of the CRTC. So it is part of the regulatory framework, and I'm sure that the issues you're raising are legitimate ones within that regulatory framework.

Your question is, if you ease foreign direct investment restrictions, how do you know where the money will go? It's either going to be an open market in which the market will determine that, or you will have some kind of licensing arrangement that will provide some direction as to where that investment will go. I think that in many respects the challenge for the committee will be to determine what's the instrument that's in the public interest and how you have the benefit of competition and the innovation of new services taking place with the capital requirements that are demanded of the company.

Mrs. Cheryl Gallant: So the capital will go to where the greatest profit margins are.

Have you compared capital investment in telecom on a country-by-country basis, using capital tax rates as the variable as opposed to just foreign ownership?

Mr. Larry Shaw: No, we have not. We've used the OECD study that is referenced here, and we'll provide you more details on that, but we have not done an independent analysis of what factors govern investment in the other OECD countries, such as the tax rate or anything like that.

Mrs. Cheryl Gallant: So we're just making the assumption, then, that foreign ownership rules relaxation would automatically improve investment, as opposed to--

Mr. Larry Shaw: We're not making any assumptions whatsoever. What we're showing is that there are different levels of investment between Canada, the OECD in general, and the U.S. As the deputy said earlier, where we are so far out of step with the U.S., it's certainly something that needs to be looked at. We're not even saying it's necessarily bad; we're saying it needs to be looked at and considered.

Mrs. Cheryl Gallant: What, if any, are the risks of not relaxing the rules with respect to the WTO?

Mr. Peter Harder: There are no WTO risks.

Mrs. Cheryl Gallant: So if the United States has already relaxed their rules, there's nothing that could come back to us insofar as not making things equal?

Mr. Peter Harder: No.

The Chair: Thank you very much.

Mr. Volpe.

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.): Thank you, Mr. Harder.

What I'd like to do, if you don't mind, is just take you back to the chart that precedes the “crossing” of the investment in 1993. You've already acknowledged that Canada has the highest penetration of cable and Internet services anywhere. So the question I ask follows up on the one from my colleague, Mr. St. Denis.

There comes a point in any economy where you have market saturation. I'm wondering, then, if we're talking about foreign investment in infrastructure, whether we have been witnessing a period of stagnation of investment because of the market saturation. Have your studies answered that question?

Mr. Peter Harder: We could bring some data that would show you the state of competitiveness, and inasmuch as the existing infrastructure is overwhelmingly incumbent, I think you will have witnesses here who you will want to probe on the ability of the new entrants to compete in the marketplace in terms of having the capital resources to have that mix of facilities-based competition, the hybrid model that we have. I think that would be worthy of some enquiry, because if you have a mature infrastructure but a monopoly, you may not have the public interest, and that will be a challenge.

Mr. Joseph Volpe: You've been very, very good in directing us to what we should ask the industry when it comes before the committee, and that guidance is more than appreciated. I haven't heard, to my satisfaction, at any rate, the reasons the department felt that this was a really good place to go.

À (1045)

Mr. Peter Harder: I appreciate your questioning. I think it's important to underscore that the department felt that it was important to have this discussion take place, and the document that generated, the discussion document, was designed by the department to raise the issues that had been raised with us, because there is not an obvious and data-proven argument one way or the other.

So what we've sought to do in the document is to raise some of the very issues and frankly consult with the stakeholders, using this committee as the forum. We do not, as a department, have a preconceived view on where we should go. We do raise the difficult public policy issues. We have an FDI challenge. We have, we would argue, an underinvestment in the telecom sector. The telecom sector performance is key in a knowledge economy. Do we have all of the public instruments aligned in the right fashion?

I am not for a moment saying foreign ownership restriction is the one issue that stands between hyper-performance in the sector and mediocre performance. It will be interesting for us, as for you, to hear the arguments from various representatives of public interest and corporate interest.

Mr. Joseph Volpe: I take that to mean you're looking for the political role to develop through this particular forum.

Mr. Peter Harder: Sure, in the sense that parliamentarians have a particular talent for discerning the public interest, and the public interest is at play in determining what regime should be in place, in terms of foreign ownership restrictions or not in this sector. If not, what instrument of choice would be available for ensuring that public interest--in terms of competition, low prices to the customer, competitive rates, and so on--would take place?

Mr. Joseph Volpe: Mr. Harder, thank you very much. I'm looking forward to seeing the elaboration on those tables and charts.

The Chair: Thank you very much.

Mr. Crête.

[Translation]

Mr. Paul Crête: Thank you, Mr. Chairman. I'd like to come back to the graph which I find extremely interesting. Isn't it true that American telecommunications companies are currently in rather dire financial straits, to say the least?

Mr. Peter Harder: That would be a fair statement.

Mr. Paul Crête: If they had an opportunity to take over Canadian telecommunications companies that are faring somewhat better... Is it fair to say that generally speaking, Canadian firms are doing a little better that US companies? Correct me if I'm wrong.

Mr. Peter Harder: I wouldn't say that's true of AT&T, but perhaps it's true of Bell Canada.

Mr. Paul Crête: That company's outlook is better.

Mr. Peter Harder: As far as markets are concerned, yes.

Mr. Paul Crête: Is it possible that easing ownership restrictions for American companies could result in a situation where a financially strapped US giant could take over another company to improve its overall financial situation, without this acquisition having a positive impact, in investment terms, in Canada? Does that hypothesis warrant further consideration?

Mr. Peter Harder: As I see it, that's a hypothetical question. We would need to know which kind of system applies, that is whether a licensing system is in place. Are markets totally unrestricted? It's a difficult question to address.

Mr. Paul Crête: Supposing the system would be fairly similar, but would allow for a higher percentage of foreign ownership. In a case like that, couldn't this hypothetical situation exist? An American might view the acquisition of Bell Canada as a positive investment, one that could help to restore some balance to the overall situation. However, this acquisition might not necessarily improve the quality of services in Canada.

À (1050)

Mr. Larry Shaw: For example, there's the case of SBC, a large US telephone company, that decided to sell its Bell Canada shares three months ago. It held 20 per cent of Bell Canada's shares and it had its reasons for taking this step.

All financial reports currently coming out of the United States indicate that US companies want to remain in the United States, or at least concentrate their operations in that country. That could change over time, but there's no way of knowing.

Mr. Paul Crête: Are you telling us that even if we eased restrictions on foreign investment, the Americans wouldn't be interested in putting their money into Canada?

Mr. Larry Shaw: I was only talking about US telephone companies. There are other American investors, pension plans being just one example. Currently, many US companies invest in BCE.

Mr. Paul Crête: Mr. Harder, you mentioned the current climate. Could your department extrapolate on various potential scenarios over the next few years, depending on which model is used? For example, if foreign ownership limits were increased from 20 per cent to 40 per cent, what impact might this have, depending on whether a licensing system was in place or not? Could you give us an overall idea, without providing us with exact figures, naturally?

Mr. Peter Harder: In my view, it's difficult to speculate as to how markets might react. We could come up with a kind of licensing system, but it would be difficult to guess the reaction of pension plans or of other companies.

Mr. Paul Crête: In your opinion, if limits on foreign ownership were increased, would it be worthwhile to consider the advisability of imposing restrictions on the type of investment allowed, or on how this capital is distributed? Or is that a little far-fetched or unrealistic? I don't know if I'm making myself clear. For example, could we tell US companies that they can invest more, but for every $100 million invested, they would be required to invest 5 per cent or 10 per cent of that total in markets that might not initially appear to be a sound bet? Would that be possible, or would we merely be complicating matters?

[English]

Mr. Peter Harder: I guess the best answer I can give is to say that if a company were to invest in a Canadian telecommunications company, they would want to make sure that the investment was a sound one and they continued to enjoy good returns. To do that they would have to compete with customers, bring innovative services, and keep their market share. That's the dynamic they would have to live by, and if they didn't, their share price would be affected.

So I don't think we have any basis on which to say that foreign ownership itself or foreign funds operating have a negative effect on the interests of Canadian corporations. CN has performed very well, and has a large foreign ownership base among pension funds, as do a number of others, such as General Motors and Ford.

À (1055)

[Translation]

Mr. Paul Crête: Are you telling me then that 80 percent of all municipalities or regions aren't served by Canadian companies because it's not feasible for them, from an economic standpoint, and not because of any capital shortfall? An influx of capital won't make it any easier to reach this market. We need to find a way for companies to turn a profit on their investment in these markets.

Mr. Peter Harder: When you talk of 80 per cent of communities without service coverage, you're referring to broadband telecommunications.

Mr. Paul Crête: Yes, but consider the matter of...

Mr. Peter Harder: That would be a good question to put to companies. The National Broadband Task Force has asked the government to raise this question, and it would be interesting to hear how they respond. Would changes to the regulatory regime have a positive impact in terms of access to broadband technology?

[English]

The Chair: Thank you, Mr. Crête. We'll be back.

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Mr. Chair, and gentlemen, thank you for being here today.

Mr. Harder, I appreciate your comments about the political environment in which we live, and trying to determine what is public interest. We too are interested in that.

The timing of this review is very interesting for all of us, given that 72% of Canadians this morning are reporting they are not in favour of any changes that would allow Canadian media or telecommunications conglomerates to be determined or to be owned by foreign entities or foreign operations.

I'm interested in the reason for the department's looking at innovation and productivity strictly through the issue of telecommunications. I appreciate it's an important issue. It is for all of us here at the table. Why wasn't there any consideration given to a much broader review of productivity and innovation across the Canadian economy? We understand there have been some changes in the area, of course, in foreign banking.

While you're deliberating on that one, perhaps you could also give some view as to whether or not we might ultimately find a situation whereby the involvement of direct foreign investment in telecommunications may in fact intensify concentration as opposed to providing more competition, given the global alliances we see around the world and the reality of a diminishing market that demands greater returns as opposed to investment of more sunk costs.

Mr. Peter Harder: Well, let me start with the first question. By no means are we looking at productivity only through the lens of foreign ownership restrictions. It's one element.

We have spent the last year consulting with 81 sectors of the Canadian economy on what it would take, from their perspective, to enhance their economic performance and productivity. We've consulted in the context of 34 community events, leading to a national summit in November in which a number of conclusions and areas of consensus were achieved with the private sector, the not-for-profit sector, the universities, and governments at all levels. I think that speaks to the broad nature of the focus we need to apply to enhancing our economic performance and quality of life.

The foreign ownership issue came to the government because a number of private sector companies and, in the case of the broadband task force, a broad representative group of stakeholders beyond the companies, suggested that the government ought to launch such an inquiry. There were strongly held views that the ownership restrictions themselves were a barrier to competition, capital investments, innovation, and service provision in Canada.

That's why this discussion paper was launched and the hearings are taking place. It is by no means the only issue or even the most important issue. That's why I wanted to characterize the context for this as, yes, it's in the context of innovation, of enhancing our performance, and of the need for enhancing foreign direct investment in Canada, but it will be in the hearing process that you will be able to determine whether or not the foreign ownership restrictions have significant bearing on company performance in the telecom sector.

The second point I'd make is one that you referred to. The telecom sector is an awfully important sector in itself in the knowledge economy. If you're going to have more than average growth, you need to have some sectors that have high performance. Certainly the telecom sector, by virtue of the networked economy, is key. All the difficulties that the telecom sector is having worldwide have some context to this.

The last point you raised is whether foreign ownership in itself will restrict competition. If I remember correctly, if you look at competition in the telephone sector, 84% is with the incumbents.

Á (1100)

Mr. Larry Shaw: It depends what market.

Mr. Peter Harder: We would be hard pressed to have further concentration in the area of competition. It would be interesting and important for you to inquire particularly among the new entrants as to how this question would play in their corporate strategies. We are very concerned about the state of competition in Canada.

Mr. Dan McTeague: Mr. Harder, that's an interesting area, because we have seen cases in the past where liberalization of various regulations has had the opposite effect of what was intended. This is certainly the case on this very topic, which is why I raised it.

Is there not, in your view, the possibility that after all this the committee may come to the determination that in the current market conditions, given Canada's penetration rate, the extent of the audience that is here, and the possibility through global alliances, you will simply see one of the large incumbents swallowed up by another entity, and you'll have at the end of this process perhaps an argument or measure of public interest, but some deliberation and discussion over whether or not there's going to in fact be more and better competition? Some may simply not choose to come here, or better yet, may never bulk up sufficiently to take on the current incumbents with foreign investment liberalization.

Mr. Peter Harder: We have no preconceived notions of where the committee will come out. I would point out again that there are models government could adopt that would have some bearing, through licensing, on obviating the scenario you're describing. This is a really complex issue, in which, as I said earlier, there is no obvious truth or simple solution.

Mr. Dan McTeague: I'm shifting gears for just a moment. We've gone through the whole process as to how BCTel, QuébecTel, and other companies were able to be grandfathered prior to the act in 1993. I'm interested, for instance, in this anomaly where you have one company, Telus, able to certainly get around the existing rules and how that plays, in your view, in respect of the importance of this overall issue.

Mr. Peter Harder: I would ask them to comment on that. Each company has taken and will take a look at this issue in the interests of the company as they see fit. Arguments have been made in various ways by different companies.

Mr. Dan McTeague: But doesn't the ownership rule seem to apply very differently in this case, as a result of a historical situation? Some of us here would probably like to learn a little more from your perception.

Mr. Peter Harder: They certainly have to comply with the Telecommunications Act.

Á (1105)

Mr. Dan McTeague: Except for foreign ownership.

Mr. Peter Harder: No, subject to foreign ownership.

Mr. Larry Shaw: What perhaps was lost in the explanation was that BCTel and QuébecTel were grandfathered under the Telecommunications Act when it came into force, but since that time the company has merged with AGT, what became Telus, and the end result is that the ownership of Verizon, the American company, is now below the ownership level. So Telus is no longer grandfathered, it's subject to exactly the same rules as every other company, exactly the same rules as Bell.

Mr. Dan McTeague: Thank you for that important clarification.

Mr. Chairman, thank you.

The Chair: Mr. Harder, I understand you have to leave at 11 o'clock or shortly thereafter.

Mr. Peter Harder: Yes. I will leave my grandfathers here.

The Chair: Thank you. We will need them.

Mr. Rajotte.

Mr. James Rajotte: Thank you, Mr. Chairman.

The first question I have would relate to the chart again on page 9. As Mr. Crête pointed out, the OECD green line includes the U.S. I'm curious as to why this chart was included, because if you take the period from, say, 1994 until 2002, and then you take from 2000--and it will be interesting to see where the 2002 figures are--we're dealing with an anomaly there. Should we really be comparing ourselves to the United States, particularly during that period? It was during the nineties that they had the explosion in investments in telecom and in high technology, but it was a bubble that burst. I certainly hope the industry department is not suggesting that's a pattern we want to follow here in Canada. Why was this chart chosen, when you basically show an anomaly during a period we should certainly not want to emulate?

Mr. Larry Shaw: I would simply point out that the trend started well before the telecom bubble. The trend of rapidly accelerating capital expenditures in the U.S. started back in the early 1990s, which was well before the telecom bubble. Your point is well taken if we look at the latter years of that line, where the American line turned sharply upwards. We're certainly not for a second suggesting that Canada should be dollar-for-dollar with the U.S. We're not even remotely suggesting that. We're simply pointing out that there's a pretty wide discrepancy here, and that's something the committee will wish to consider.

Mr. James Rajotte: When would you say the bubble started in the U.S.?

Mr. Larry Shaw: Back in 1997-98.

Mr. James Rajotte: If you take 1994 to 1996, from about 1996 on is where the divergence is really prominent.

Mr. Larry Shaw: I don't disagree.

Mr. James Rajotte: Is that a pattern we want to follow here in Canada?

Mr. Larry Shaw: As I said, we're not suggesting for a minute that Canada should emulate the U.S. on a dollar-for-dollar basis.

Mr. James Rajotte: What's the purpose of the chart then?

Mr. Larry Shaw: The purpose of the chart is to show that there is a discrepancy, and you quite rightly have identified the fact that at least in the later years, a good portion of the discrepancy can be attributed to the high-tech bubble in the U.S. Canada wasn't immune to that high-tech bubble either. We didn't get hit to the same extent, but we weren't completely immune to it.

Mr. Michael Binder (Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry): Can I jump in now for a second? We hear from the industry that there is a requirement for capital for the new technology. People are talking about the maturation of market. If you talk to the high-tech companies, the answer is, you ain't seen anything yet in investment in wireless, next-generation wireless, next-generation satellite, next-generation digital TV, interactive TV, interactive wireless, radio--all new technologies. Somebody has to pay for this. The industry is telling us, we need access to funds. Whether it's true or not, I think, as Mr. Harder said, it's up to you to determine.

Á (1110)

Mr. James Rajotte: Perhaps I can follow up on that. I'm just astounded that a department of industry would not have a recommendation to a parliamentary committee as to whether... You certainly seem to be favouring it, but you're stating that you're neutral in all of this. Is it really the position of the department that they are completely neutral on whether we should relax or change foreign ownership restrictions?

Mr. Michael Binder: Everybody has an opinion. The point was that we would like to hear some testimony and some real, hard arguments with respect to all the various options, from the status quo to wide open, and in between those two extremes there are all kinds of options. We would like some advice from you after consultation with the industry.

Mr. James Rajotte: On page 13 the department asks, “Do these rules remain an effective way of meeting our overall policy objectives, or should other mechanisms be considered?" What are some other mechanisms?

Mr. Michael Binder: What we're talking about is the range of instruments available, from completely wide open markets, to licensing provisions, to different rules for incumbents, to the status quo. Those are different regimes with different impacts and different indications, and we would like to get some advice on what your opinion on this matter is.

Mr. James Rajotte: I'll just turn it around again, and I'll probably get the same answer. As a parliamentary committee, we study hundreds of issues all the time. The industry department has experts who study this issue probably very well. We would certainly benefit from any expert advice you have on what other mechanisms there are and which way the department feels the industry should go with these mechanisms. I don't know if the answer is the same, that the department is just seeking parliamentary input.

Mr. Michael Binder: The answer is truly the same. As Mr. Harder said, there is no silver bullet that will solve this problem. It's a complicated kind of problem that could stand some input from industry and from parliamentarians with respect to public policy. It's handier, and that's what we're seeking.

Mr. James Rajotte: Mr. Harder made a point of saying this is only one issue within the whole innovation agenda, so why is it that the industry minister and the department moved this to item number one and asked the committee only in December to study this at the end of January? That's obviously a lot of political pressure to move this to the forefront of political discussion, so why the emphasis on this issue over any other within the innovation agenda?

Mr. Michael Binder: Within the innovation agenda there was an item about “smart regulation”. This particular review was being recommended to us I think in the year 2000, after we finished the broadband task force. It was a recommendation from them.

It is not necessarily the most important issue. There are many other issues in the innovation agenda, but it is one that can particulary be handled by this mechanism of a parliamentary committee because it does deal with an existing piece of legislation in which the industry and our consultation have indicated it needs a review.

So we thought it was a fairly good excuse to bring it up to the fore right now.

The Chair: Thank you, Mr. Rajotte.

Ms. Torsney.

Ms. Paddy Torsney: I wonder if we could get some kind of a chart of where the sources of money are that we're hoping to attract. If we relax the restrictions, is it the U.S., is it France, is it Britain? Where does it seem there is the most capital that people are looking to invest? And is there some kind of an indicator of what's left after the investments?

Certainly on the chart on page 9, the U.S. has had lots of investment but they've had incredible instability. They've had bankruptcies, they've had consumers being left with chaos in terms of their phone services, but at the end of the day, are they any happier, did it work for them? Certainly there's been lots of money invested, but where is it now? Is there a way to track that? How much of that is domestic and how much of that is foreign at this point?

I'm not sure if there's a way to pick up on that one.

In the province I'm from, we've seen, oh, yes, you can create some new policy, you can copy it from Alberta, but I'll be paying for the hydro that we're consuming now until I'm beyond my grave, no doubt. The policy was a terrible thing to implement. They had foreign investment that had to be taken back over by the government.

We are in a period of change, and certainly if the source of money is from the Americans, they're going to be investing in their own economy right now instead of looking to go outside. Some of them are probably a little annoyed with us, on top of everything else. First, with instability you retract, so I think we need some more information here.

Last, I don't know if it needs to come from our researchers or from the department, but perhaps we could get a chart about what is really covered.

It was interesting to hear that BlackBerry services are not covered and some things are. In what consumers would think of as the telecommunications industry, if we could pull out what we're actually talking about and track what's actually covered by this and what's not in a simple chart, that would be really very useful in this exercise. So if it's cable lines versus satellite, or whatever else, we'll have a better idea of what we're actually talking about.

Á (1115)

Mr. Michael Binder: We can give you a fairly good explanation of what's covered.

On the attraction of money, economists will tell you that foreign investment into Canada is a good thing; it generates jobs. The question is, do we want to actually decide what kind of foreign investment we want to attract?

Right now we are campaigning and promoting Canada; we are branding Canada as a good place to do business to anybody who will listen. So it's not only in the U.S., it's also in Europe. We have tried to get the very large companies to invest in Canada.

We have been focusing on people coming and buying some companies, but there are also companies that would like to come in and set up a new business. They find it very difficult, particularly in this sector, to come in and set up a business because they cannot own and control it. If you are a French telecom or a Deutsche telecom, you cannot do that. You have to actually buy or find a Canadian front. So the question in front of you is this: Is that good or bad? We don't know the answer to this, really.

Ms. Paddy Torsney: No, and I imagine it's very difficult to track exactly how many people have ever knocked at our door or have looked at us as a place to invest, but there has to be some indication of where there are companies that are looking to invest. The economists have some predictors of who you'd be looking at if the restrictions were changed, whether those companies are coming from the U.S. or elsewhere.

Given that the U.S. has already had a relaxation of its foreign investment restrictions, what has been the impact on the industry at the end of the day, and not just from those intense investments? Are the companies still there? Are the pipes still there? Do they feel any better off at the end of the day? Or has it just been huge investment and great chaos when it all pulled back out, for both consumers and the people who work in the industry? At the end of the day, are they any happier with what they have for the investment that they've made?

Mr. Michael Binder: I'm not going to answer this philosophical kind of a thing, but just let me share with you—

Ms. Paddy Torsney: But there are some indicators that we can put on paper. There are more pipes, there are more people who have access to this or that or the other, comparative to Canada.

Mr. Michael Binder: My friend the director of the bureau of competition will tell you competition is chaos. It's a market where companies come, companies go, etc. But the more there is competition, then the more there is innovation and the better the service is to the consumer. That's where—

Ms. Paddy Torsney: Talk to us in Ontario after we have brownouts. Will we be any happier?

Mr. Michael Binder: The point is that you have competition. If you have lots of competition, that's the theory of the competition in the marketplace. Here again, is telecom such a market or not? I think it's something you should ask the companies, and see what they will tell you.

Á (1120)

Mr. Larry Shaw: If I may just add a point, our foreign ownership rules haven't protected Canada from instability in the marketplace. Per capita, we may have had even more instability than the U.S. We've had a number of bankruptcies. All the major competitors have either restructured or are going through restructuring. So, again, the foreign ownership rules haven't protected us from that. I wouldn't argue that they've made it worse, but they haven't protected us from that instability.

Ms. Paddy Torsney: But if you're going to present the investment in OECD countries in the telecommunications sector, and if you're going to present that the Americans have double or triple the investment that we do...

Of course, Mr. Crête, mathematically the OECD is obviously going to be, at a maximum, at the same level of investment as Canada. When you take out the U.S. though, it's going to be dramatically reduced, so we're going to be above OECD averages, with the exception of the U.S.

If you're going to say this black line is a better thing than the red line, then at the end of the day you have to ask if more people have phone service, if more people have high-speed Internet, if more people have whatever the indicators are, if the investment meant anything from start to finish. At the end of the day, are they better off as consumers or as an industry because of all this activity? I have a feeling some of that activity was all on the New York Stock Exchange and that nobody has any money at the end of it, but I don't know that until I see where they are. That's what I'd like to see. Can we actually have a chart of indicators of why we want this kind of investment, what they got out of that kind of investment, and whether we're any further ahead?

Yes, competition is a great thing and I'm all for it. But in certain sectors, being the turtle is better than being the hare if you're both at the finish line at the end of the day.

Mr. Michael Binder: I think we can supply you some of the data, because right now our economists argue that there is a productivity gap between Canada and the U.S. that leads to a standard-of-living gap. Some economists are arguing that it's in fact because of not enough investment in the ICT sector—information and communication. So we can provide some of this data.

Ms. Paddy Torsney: Yes, and then I'll talk to them about health care.

The Chair: Thank you very much, Ms. Torsney.

Just as a reminder, when you're submitting the information, submit it to the clerk. He will distribute it to all of our committee.

Mr. Volpe.

Mr. Joseph Volpe: Thank you, Mr. Chair.

I'd like to follow a similar line of thought here. I thought I heard you say you'd already consulted on eighty-some-odd different occasions with industry sectors and interested parties throughout the country, and that those consultations culminated in a two-day conference. I guess I'm probably off by one or two on those, but you must have heard or learned something in those eighty seminars that would benefit this committee, even though you say you didn't get the answer from those eighty. This committee will get the answer from its six, because that's how many hearings we're going to have on this topic, but I'm just wondering whether we can have access to the kinds of information you picked up in all of those consultations.

Mr. Michael Binder: Absolutely. I think you're making a reference to the innovation consultation process that we went through. There is documentation, and we'd be happy to share with you the results of those consultations and the kinds of advice we got from local communities and from the various sectors that we met. In fact, we produced a document, entitled “What We Heard”, and after the summit, there was another document on what the industry is proposing that the government do. We can share all of that information with you. It would be a pleasure.

Mr. Joseph Volpe: I wonder if we could have it at the earliest possible moment, because we wouldn't like to receive that kind of information for reading after we've made a decision.

Mr. Larry Shaw: Is it clear that those eighty sessions referred to innovation in general, not to foreign ownership?

Á (1125)

Mr. Joseph Volpe: I'm not sure what they refer to. You're the ones who put the figure forward, and you gave us an indication that you had been consulting widely but that you didn't have an answer. Well, we're anxious to find an answer as well, as you can tell by the questions. Certainly there must be a body of information that has already been cultivated and analyzed that led you to a conclusion or a non-conclusion that we will want to address. We would like to have the benefit of that, too.

Notwithstanding the talent at the table, I'm sure that after having had the weight of at least eighty consultations, you probably will have covered some material that we won't in six. And I'm not being sarcastic.

Mr. Larry Shaw: I just wanted to clarify the fact that the reference to the eighty sessions or consultations referred to the whole innovation agenda. Foreign ownership was raised in a couple of the sessions, but it certainly wasn't a major topic.

Mr. Joseph Volpe: In the context of today's discussion, I suppose what would be of more germane interest to us would be the competitive part under foreign direct investment, especially that which pertains to the issue that my colleagues have raised over the course of the last half hour about the behaviour of the marketplace. I guess you will have tried to predict whether, in the face of the logistical problems for investment in infrastructure—I think that's what we're talking about—we won't have foreign investors essentially buying up existing companies to get at market share. The question will be whether or not they'll continue to invest to improve their market share, or whether they'll just simply retrench and try to get the benefits of consolidation.

Those are the kinds of things I'd be interesting in knowing. I'm sure you've gone through that already.

Mr. Michael Binder: Historically, there have been studies that companies have done, but I think Mr. Shaw's qualification is crucial. In the innovation consultations, foreign ownership was not a big item. We can go back and try to dig up where it was raised and what the analysis behind it was, and we'll share that with you. However, I'd again like to point out that when you are meeting with those industry people, some of them may have their own kinds of analyses that they may wish to share with you about this whole topic.

Mr. Joseph Volpe: I'm sure we'll ask them.

I'd like to ask you one other question. Earlier on, Mr. Harder gave an indication that for every investor in this field...they may or may not, but let's take the scenario in which they may find themselves being part of the infrastructure or a provider. They may come under your department's jurisdiction or they may have to be governed by the CRTC. If any company finds itself in a scenario in which it would come under those two regulating bodies, the higher onus is the one that's the operative one.

I guess Mr. Crête and Mademoiselle Torsney expressed a serious concern about the cultural impacts, and therefore about the companies' consideration of what their obligations would have to be under the content rules. Would you be satisfied that this committee could provide you with the appropriate answer to your question in the absence of having the other committee that would govern content as also part of the input?

Mr. Michael Binder: Let me say it this way. I believe the mandate, role, and responsibility of the CRTC in the content world is not impacted by this review.

Let's assume you are a foreign supplier of telecommunications services. If you want a broadcasting licence in this country, you'll have to appear in front of the CRTC, which has all the abilities to provide Canadian content and bilingual requirements, regardless of who you are. So if Disney wants to come to this country and get a broadcasting licence, they'll have to go through the same process as everybody else.

Á (1130)

Mr. Joseph Volpe: Or they won't invest.

Mr. Michael Binder: Or they won't invest, absolutely.

Mr. Joseph Volpe: So if the CRTC is not satisfied that they can meet the rules, but Disney has an economic analysis that says that without the foreign restrictions, they can make quite a bit of money if they stayed in this one sector, but they can't get past the CRTC, which decision do they make?

Mr. Michael Binder: If they want to come and build a broadband service in a small community, which has nothing to do with content, it's just a pipe, if you allow them to come in, that has nothing to do with the CRTC powers to dictate what content is in it if it's deemed to be a broadcasting service, for example.

Mr. Joseph Volpe: We want one of those fabulous Asian construction companies that put up buildings that defy logic and the imagination of the typical Canadian straight-line, rectangular construction. They could come here and put up all the factories, and that wouldn't be any problem. That's really what you're telling me, right?

Mr. Michael Binder: Sorry, I missed something here. We went to construction...

Mr. Joseph Volpe: Well, that's really what you're talking about. When you're talking about a pipe technology, and all they tell me is that a Disney can come in here and put in all the pipes it wants, but if--

Mr. Michael Binder: They become a carrier under the definition of--

Mr. Joseph Volpe: That's not--

Mr. Michael Binder: No, a carrier means somebody who provides service to Canadians, which is regulated as a carrier. So you have a carrier obligation, which is completely different from the content on this. The two are separate. If companies want--

Mr. Joseph Volpe: I understand that. I'm going to come in here, and I'm going to become a carrier. I've got nothing to carry. I'm going to make an investment.

Mr. Michael Binder: That's a business decision you have to make.

Mr. Joseph Volpe: Yes. That's why I asked you whether we should have the other committee here in order to understand the complexity of the final decision that will go before either one of the ministers. Our mandate is for the industry minister, so that we can make an intelligent decision for him, but perhaps we ought to have another committee present as well.

I can't imagine that a Disney would come in here and build its infrastructure without taking into consideration what the content rules are going to be. It's just not the nature of the business.

Mr. Michael Binder: But they know they can go to the CRTC and ask for a licence. If the CRTC gives them a licence, it's fine.

Mr. Joseph Volpe: But the CRTC is now a year and a half behind in its considerations simply because they can't make decisions on the basis of the content applications that are before them.

I'm sorry, Mr. Binder, I don't want to get argumentative.

An hon. member: It's too late now.

Some hon. members: Oh, oh!

Mr. Joseph Volpe: It just seems to me a little facile to say that someone can go and make an application. Of course anybody can go and make an application. I see some people here in the audience who are skilled in the art of crafting applications for their clients, and they're still on a waiting list. Some of the people are--

The Chair: Mr. Volpe, I think we might be getting off our immediate topic, and we're going to argue to the end.

Mr. Joseph Volpe: No. Just a second, Mr. Chairman. Now that I'm in my argumentative mode, give me a break.

The Chair: I'm going to give you a break by cutting you off.

An hon. member: You'll be giving us a break.

Some hon. members: Oh, oh!

The Chair: Thank you, Mr. Volpe.

Mr. Joseph Volpe: Mr. Binder, I come back to the first question I asked.

The Chair: Make it very short.

Mr. Joseph Volpe: What led the department to ask for this when it has been operating under the premise that the creation of carriers of significant magnitude that would allow them to compete not only on a national scale but on an international scale, i.e., with the United States, was the way to go? Judging by the chart on page 9 or 13, whichever one it is, there is an indication that maybe that particular approach was successful prior to 1993. There was more investment in Canada than there was in the United States presumably, but we don't know because we don't have the full picture.

Mr. Michael Binder: I can only reiterate that what we are trying to do, with this committee's help, is get some advice about whether the status quo should continue, or whether we could have a different regime while still sticking to our public policy objective.

I don't find it bizarre that in this fundamentally hyperactive sector, from time to time, we actually take a review and try to determine, with existing instruments, if they apply or if we can do better. We don't know the answer to that, and that's why we seek your guidance.

Á (1135)

The Chair: Thank you very much.

I'd like to thank the department for being with us today. This is only the beginning, and I'm sure we'll need your help during the next 11 sessions that we're going to have. Hopefully, by the end of the month we will conclude all the hearings, and then have further discussions in the committee. So I would like to thank the department.

Members, we'll take a small break and then move in camera for two short items of future business.