INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, February 5, 2003

¹

1530

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

Mr. Jean-François Hébert (General Counsel, Association des Compagnies de Téléphone du Québec inc.)

The Chair

Mr. Jean-François Hébert

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1535

¹

1540

The Chair

Mr. James Peters (Executive Vice-President, Corporate Affairs and General Counsel, TELUS Corporation)

¹

1545

¹

1550

The Chair

Prof. Hudson Janisch (Professor, Faculty of Law, University of Toronto)

¹

1555

º

1600

º

1605

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. James Peters

º

1610

Mr. James Rajotte

Mr. James Peters

Mr. James Rajotte

The Chair

Mr. James Rajotte

Prof. Hudson Janisch

º

1615

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. James Peters

Mr. Larry Bagnell

Mr. James Peters

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1620

Mr. Larry Bagnell

Prof. Hudson Janisch

Mr. Larry Bagnell

Mr. James Peters

The Chair

Prof. Hudson Janisch

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1625

The Chair

Mr. Jean-François Hébert

The Chair

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

º

1630

Mr. Jean-François Hébert

Mr. Serge Désy (General Manager, Association des Compagnies de Téléphone du Québec inc.)

Mr. Paul Crête

Mr. Serge Désy

Mr. Paul Crête

Mr. Serge Désy

Mr. Jean-François Hébert

Mr. Paul Crête

Mr. Jean-François Hébert

Mr. Paul Crête

Mr. Jean-François Hébert

Mr. Paul Crête

Mr. Jean-François Hébert

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1635

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

Mr. Jean-François Hébert

º

1640

Prof. Hudson Janisch

Mr. James Peters

The Chair

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

º

1645

Mr. James Peters

Mrs. Cheryl Gallant

The Chair

Prof. Hudson Janisch

The Chair

Prof. Hudson Janisch

Mrs. Cheryl Gallant

Mr. James Peters

Mrs. Cheryl Gallant

Prof. Hudson Janisch

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1650

Mrs. Cheryl Gallant

Mr. Jean-François Hébert

Mrs. Cheryl Gallant

Mr. Jean-François Hébert

Mrs. Cheryl Gallant

Mr. Jean-François Hébert

Mrs. Cheryl Gallant

The Chair

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

Prof. Hudson Janisch

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1655

Mr. Dan McTeague

Prof. Hudson Janisch

Mr. Dan McTeague

Prof. Hudson Janisch

The Chair

Mr. Dan McTeague

»

1700

Prof. Hudson Janisch

Prof. Hudson Janisch

The Chair

Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.)

Mr. Serge Désy

»

1705

Mr. Jean-François Hébert

Mr. Gilbert Normand

Prof. Hudson Janisch

»

1710

The Chair

Mr. Gilbert Normand

Prof. Hudson Janisch

The Chair

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

Mr. James Peters

Mr. Jean-François Hébert

Prof. Hudson Janisch

»

1715

Mr. Brent St. Denis

Prof. Hudson Janisch

Mr. James Peters

The Chair

Mr. Jean-François Hébert

The Chair

Mr. Larry Bagnell

»

1720

Prof. Hudson Janisch

Mr. James Peters

Prof. Hudson Janisch

The Chair

Mr. Larry Bagnell

Prof. Hudson Janisch

The Chair

»

1725

Mr. James Peters

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 016

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Wednesday, February 5, 2003

[Recorded by Electronic Apparatus]

¹  (1530)  

[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Pursuant to Standing Order 108(2), we are resuming consideration of foreign investment restrictions applicable to telecommunications common carriers.

    Today we have three witnesses: from the Association des Compagnies de Téléphone du Québec, Serge Désy and Jean-François Hébert; from TELUS Corporation, James Peters; and from the University of Toronto, Professor Hudson Janisch.

    Welcome to you all.

    We will go in the order shown on the agenda. Mr. Hébert, you're going to begin.

    Mr. Jean-François Hébert (General Counsel, Association des Compagnies de Téléphone du Québec inc.): Shall I go in French?

    The Chair: Whichever you like.

    Mr. Jean-François Hébert: We'll begin with who we are.

[Translation]

We will tell you what the ACTQ, the “Association des compagnies de téléphone du Québec inc.”, is and who our members are. We will then go on to explain the findings of the ACTQ about the Canadian telecommunications industry and we will conclude with the position the ACTQ intends to take as regards the study.

    First of all, the ACTQ was founded in 1948 and is a not-for-profit organization made up of 13 independent telephone companies serving close to 50,000 subscribers in the rural regions of central Quebec. As local service licensees, the telephone companies that belong to the ACTQ provide basic local service, Internet access service and long distance service, among others.

    The telephone companies that belong to the ACTQ are subject to a special regulatory system under the jurisdiction of the CRTC whereby competition for long distance services is permitted in their operating area, but is not always permitted for local service.

    Like other telephone companies that provide local service, the members of the ACTQ are entitled to a subsidy from the National Contribution Fund established by the CRTC, which makes the provision of local service profitable.

    Now that we have told you who we are, let me turn to our comments on the industry. The ACTQ thinks that the range of telecommunications services offered to Canadians in regions with high population density is, generally speaking, extremely varied, on the cutting edge of technology and available at reasonable rates. However, the ACTQ has noticed that the same variety of services is not necessarily offered in regions with a lower population density. The ACTQ thinks that generally Canadians are in a very favourable position and that the services available to them currently exceed their needs.

    The investments made in the Canadian telecommunications system in the context of the current system, which provides for some limitations on foreign investment, have made it possible to achieve this result. In fact, in many cases, the ACTQ is of the view that the term which applies here is not just “investment”, but rather “over-investment”. Telecommunications companies have invested substantial sums to establish telecommunications networks that will enable them to meet the anticipated needs of the users of the Canadian telecommunications networks. The fact is that the forecast needs significantly exceeded people's real needs. As a result, in the opinion of the ACTQ, we now have a network over-capacity. That means it is very difficult, if not impossible, to get a return on the significant investments that were made to establish these telecommunications networks.

    Our association therefore thinks that the Canadian telecommunications industry is experiencing a crisis of profitability at the moment, rather than a crisis of investment. In this respect, additional investments in the telecommunications networks will not necessarily result in new services or improved services for Canadians. As we mentioned before, the ACTQ thinks that the services currently available to Canadians exceed their requirements.

    It is true that additional investments could stimulate competition in the telecommunications field for a while, but they would probably not result in lower-cost services. In the view of our association, the telecommunications service rates in effect in Canada are among the lowest in the world, and, in many cases—and this is often the problem— the services are provided at a loss.

    The problems faced by a number of competitors once they got into the market were not attributable to any difficulty in getting financing, but rather to the difficulty they had to make the operation and investments profitable. The telecommunications market in Canada is very specific, and very limited: consequently, the pie to be shared among the companies is small, and the advent of a large number of competitors merely reduces the operating revenues of the telecommunications companies and limits their profitability and growth potential. Thus a false competition was stimulated, perhaps through massive investments, but there has already been a necessary move to consolidate.

    Despite the ACTQ's findings regarding services to Canadians in regions with high population density, we must conclude that despite the competition, regions with low-density population, whether in rural or remote areas, have remained almost untouched by competition. The competitors concentrated their investments in high-population density areas, and were almost absent from the rural or remote region. Even the major licensees, namely those which controlled the market when the competition came into play, limited their investments in low-population density regions. How can we explain that?

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Was it because they did not wish to or simply because they had to concentrate their investments in areas where they had to face competition, mainly in more populated regions? Regardless, if we are talking about restrictions on foreign investments or anything else, the situation will not change as regards low population density regions in either the short or medium term.

    There is no need to go further, except to mention what the National Broad Band Task Force said in its report. We quote that report in our brief. It said that private companies cannot invest in rural or remote regions unless they work in partnership with the government.

    The ACTQ thinks that we have to ask wether the negative impact of abolishing or amending the rules limiting foreign investment might not exceed any possible benefits. Once again, ACTQ finds that the telecommunications services offered to Canadians put them in a privileged position and that this is the case despite the existence of the current rules limiting foreign investment.

    A radical change in the current rules will not guarantee an improvement in the situation for Canadians. The current experience shows that limiting foreign participation in Canadian companies does not limit Canadians' access to advanced technologies and high tech services at reasonable prices.

    Moreover, there is a temptation to make comparisons between the Canadian system and that in place in other countries. In the opinion of the ACTQ, such comparisons may be clumsy. In a number of countries that have abolished the rules limiting foreign investment, the telecommunications market is controlled by a single state-owned company. This is not true of Canada. Regardless of the similarities that may be found with some Canadian licenced providers with significant market shares, we do not think the comparison is valid in Canada.

    Moreover, the data available at the moment regarding the level of investment in the telecommunications sector in Canada, the United States and other OECD countries is not up-to-date. The paper prepared by Industry Canada refers to the situation that existed several years ago, even before the profound upheavals experience by the industry in recent years. We therefore think that it would not be appropriate at all to make any decisions regarding changes to the current rules based on this data.

    In light of these findings, the ACTQ thinks that if the Canadian government wishes to proceed with changes to the rules restricting foreign investment, any such changes should continue to insure that Canadians retain control over the telecommunications companies operating in Canada.

    In this way, the ACTQ has no objection to increasing the foreign investment ceiling, which is currently set at 20%. However, the ACTQ thinks that such an increase should not mean that non-Canadians will be able to control telecommunications companies operating in Canada. Moreover, increasing the foreign investment ceiling should be done gradually to enable the government to draw certain conclusions, and analyse the impact of a gradual increase.

    In closing, to come back to what has been said since the beginning, the ACTQ believes the Canadian government must ask itself if it is not taking a risk by changing a system that is working well and allows Canadians to have some of the best telecommunications services in the world at comparable or lower rates than those in place in other countries, where there are no foreign investment restrictions. That is our position.

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[English]

    The Chair: Thanks very much.

    I will now go to Mr. Peters.

    Mr. James Peters (Executive Vice-President, Corporate Affairs and General Counsel, TELUS Corporation): Mr. Chairman, honourable members, good afternoon. My name is Jim Peters, executive vice-president of corporate affairs and general counsel for TELUS Corporation. I want to thank you for inviting me to speak. On behalf of TELUS I'm pleased to have this opportunity to make known to your committee our position on foreign investment rules for telecommunications carriers.

    TELUS commends Minister Rock and Industry Canada for following up on the recommendation in the national broadband task force report and launching a review of foreign ownership in telecommunications. I think we'd all agree that this is a complex and politically charged issue, and that the minister showed courage in bringing forward this timely review.

    On the issue of foreign ownership in Canadian telecommunications, TELUS supports the adoption of any measures that will promote competitive markets, further the government's telecom policy objectives, and provide consumer benefits.

    However, TELUS' support for eliminating or relaxing the foreign ownership limits is conditional on the following. First, foreign ownership limits must be symmetrical for all Canadian telecom companies. Two, foreign ownership rules for both telecommunications and broadcast distribution undertakings must be in complete harmony.

    At the same time, TELUS recognizes that the issue of foreign ownership will be the subject of multilateral negotiations soon to take place at the World Trade Organization. On the specific issues of access to capital in the telecom sector, TELUS strongly believes that the government must also undertake a timely review of the Canadian telecommunications regulatory regime, as called for by the innovation strategy, to ensure that the CRTC decisions are also instilling investor confidence and promoting investment.

    Let me elaborate on each of these points. First, one of the key issues in Industry Canada's discussion paper is whether the restrictions on foreign ownership affect the quantity and the cost of capital available to invest in the Canadian telecommunications industry. Recent studies by Canadian consulting firms such as Wall Communications and Roseman Associates support the view that liberalized rules on foreign investment would bring net economic benefits to the telecommunications sector. However, as Roseman notes:

...the simple act of liberalizing [foreign ownership] restrictions will not guarantee an inflow of investment capital; a country must act on a number of fronts to make itself attractive to foreign investors.

    TELUS agrees with this assessment. Later in my presentation I will discuss how recent CRTC decisions have adversely affected TELUS and other carriers and will potentially impact their ability to access capital markets at favourable rates. I don't think I can stress enough the critical role that a supportive regulatory environment and consistent CRTC decisions play in promoting both domestic and foreign investment.

    Apart from the regulatory environment, investors are influenced in their assessment of where to invest by the certainty of a company's cashflow. The criteria by which credit-rating agencies assign ratings to companies have evolved dramatically in the post-Enron environment. Free cashflow and its relationship to debt levels has emerged as a major credit-rating determinant. It's these ratings that drive investors' perception of risk and subsequently the cost of debt and equity.

    Generally, the cost of capital is higher in Canada than in the United States, which benefits from a deep and liquid capital market, and the perception that it is a safe haven in times of turmoil. In TELUS' view, the Government of Canada should do everything possible to facilitate access to that capital market.

    At the same time, small, financially unstable companies in both countries face higher costs of capital than established companies with demonstrated ability to generate returns for investors. The removal of foreign investment restrictions will not change the reality that companies, both large and small, with a solid business plan, and a proven management track record, will almost always be regarded as less risky and will be more likely able to access capital on competitive terms.

    That's why TELUS has not experienced problems with access to capital. That's also why the former wireless new entrant, Clearnet Communications, acquired by TELUS in October 2000, was able to raise approximately $3.3 billion, with almost half of this amount raised through U.S. investors.

    In the final analysis, access to capital for a company will be a function of many factors, including credit rating and capital structure, growth potential, management expertise, a regulatory environment, and the relative strengths and weaknesses of the industry and the industry participants.

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    Another issue the Industry Canada discussion paper raises is whether there should be restrictions on only the existing so-called traditional telecom service providers. TELUS is opposed to asymmetric ownership limitations. Both telecommunications and broadcast distribution undertaking companies should be treated equally for the following reasons.

    First, it's no longer readily apparent who in Canada is a telecommunications service provider. With convergence, attempts to label companies as pure cable, wireless, telephone, broadcast, or Internet service providers are virtually impossible.

    For example, TELUS competes aggressively with cable companies for high-speed Internet customers. TELUS has also applied for a broadcast distribution licence and will be competing with the cable and satellite companies. If foreign ownership restrictions remain on broadcast distribution undertakings but are lifted in the telecom sector, foreign-owned companies would either be forced to undertake an unwieldy structural separation in order to provide broadcast distribution services, or be prevented from providing such services altogether, and would be forced to analyze each service offered to ensure that it is a pure telecom service.

    Such a regime would be a needless and costly exercise and a blow to Canada's innovation agenda for new media and broadband applications.

    Second, not only is it impossible to label a company a telecommunications service provider today, it's not possible to say who in Canada is a traditional communications service provider.

    TELUS, while an incumbent in its home territories of British Columbia, Alberta, and portions of eastern Quebec, is a new entrant in Ontario and most of Quebec. The company has attracted significant capital to finance these new ventures, which include major infrastructure builds throughout Ontario and Quebec.

    This activity has helped to fulfill key policy objectives of the Telecommunications Act, including competition and development of telecommunications systems. It is disingenuous to label TELUS as a traditional service provider.

    The foreign ownership regime should be technologically and competitively neutral and the rules of the game should not be changed in midstream by economically disadvantaging some competitors by adhering to obsolete labels such as “traditional carrier”.

    One objective of eliminating the foreign ownership rules is to attract investment and to make Canada's telecommunications environment more open and more competitive in the international marketplace.

    However, the imposition of a licensing regime would be contrary to this goal. A new licensing regime would increase administrative and cost burdens on carriers and would add a new and unnecessary layer of government regulation to the operation of telecommunications services in Canada.

    The net effect would be to discourage investment rather than to promote it. It is wrong to assume that a licensing regime would help to achieve the government's telecom policy objective, such as the build-out of broadband into rural and remote Canada.

    If these policy objectives are imposed as a condition of licence, investors, both domestic and foreign, will negatively view them as an additional cost of conducting business in Canada and investment will almost certainly decline.

    An important issue is that of timing. While TELUS supports open markets, it acknowledges that Canada is presently involved in major international trade negotiations, notably at the World Trade Organization. TELUS looks to the Government of Canada's lead to determine the appropriate timing and objectives in this area.

    Finally, the removal of foreign ownership restrictions is not a panacea. Canada must act on a number of fronts to make itself attractive to investors. TELUS supports this review of foreign ownership restrictions but the government must also examine its domestic regulatory regime and the impact it is having on encouraging both foreign and domestic investment.

    When it comes to removing barriers to innovation and investment, the CRTC has a major role to play. While the commission has made strides in promoting competition in investment we believe that recent CRTC decisions are in fact eroding investor confidence.

    TELUS is particularly concerned that certain regulatory policies recently adopted by the CRTC will undermine the capital base of the industry and undo much of the benefit that would accrue from any relaxation of the foreign ownership restrictions.

    These policies put a chill on investment in the telecom sector by imposing a national, one-size-fits-all costing methodology that will deprive companies such as TELUS, SaskTel, and Aliant of an opportunity to recover their companies' specific costs.

    TELUS recently filed a petition to the Governor in Council seeking a remedy to this issue. CRTC decisions must be squarely aligned with the Government of Canada's telecommunication policies and innovation strategy objectives.

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    As called for in TELUS' innovation strategy submission, TELUS recommends that a review of the regulatory structure mandate and practices in the telecommunications industry be conducted and completed as soon as possible.

    Thank you for the opportunity to present our views. I would be pleased to answer any questions you may have.

    The Chair: Thank you very much, Mr. Peters.

    Professor Janisch.

    Prof. Hudson Janisch (Professor, Faculty of Law, University of Toronto): Mr. Chairman and members of the committee, my name is Hudson Janisch, and I hold the Osler Hoskin and Harcourt chair in law and technology at the University of Toronto. I'm presently on a sabbatical leave at the University of British Columbia, where I am the Douglas McK. Brown visiting professor in the faculty of law.

    I'm honoured to be here in response to the committee's invitation to share with you some thoughts about foreign ownership. It is indeed a privilege to be joining you in the assessment of this important issue.

    I've been fortunate enough to be interested and involved in the telecommunications industry for some 35 years, having started out with participation in the 1968 Bell Canada rate case. I have taught and written extensively in the area, and I've organized and participated in many conferences, seminars, and educational ventures of all kinds.

    At the University of Toronto I teach in both the law school and the graduate program in electrical and computer engineering.

    At UBC I'm teaching a seminar with what is claimed to be the longest course title in the faculty of law: “International and Comparative Perspectives on Telecommunications Law, Regulation and Policy.” Yesterday we spent three wonderful hours wrestling with current developments in the People's Republic of China, where huge changes are under way in the wake of China's accession to the World Trade Organization.

    What comparative advantage can I bring to this particular debate? I believe I bring some degree of detachment and a somewhat broader way of looking at the issues. So rather than cover precisely the same ground that has already been covered, and I'm sure will be covered, before you, I thought I'd raise some issues that you might not otherwise be exposed to. These include the international dimension of the issues; the issues' historical context; the danger of unstructured discretion; the disadvantages of a tiered approach to foreign ownership; and finally, the problems involved with the distinction between distribution and telecommunications.

    Of course, I'll be very happy to respond as best I can to your questions on any aspect of the many issues before you.

    Let me turn, then, to the international context. Industry Canada's discussion paper entitled “Summary of Foreign Investment Restrictions in Other OECD Countries” somewhat misstates Australia's current position in that the impression is created that there is a specific telecommunications investment review process there. In fact, Australia has a foreign investment approval regime generally applicable to all sectors under the Foreign Acquisitions and Takeovers Act 1975. The Foreign Investment Review Board examines proposals for foreign acquisitions and new investments and makes recommendations to the Treasurer. Under the act, the Treasurer may reject applications to control a business if he considers the matter to be contrary to the national interest. In practice the presumption is that foreign investment proposals are generally in the national interest and should go ahead.

    Approvals under the Foreign Acquisitions and Takeovers Act have in recent years substantially changed the face of Australian telecommunications. That country's number two carrier, Optus, is wholly owned by Singapore Telecommunications Limited, in a $14 billion transaction that took place last year. The number three carrier in the wireline business, AAPT, is wholly owned by Telecom New Zealand. Similarly, the number three carrier in the cellular market, Vodafone, is wholly foreign owned.

    There are as well numerous other foreign-owned players that occupy significant positions in the market. For example, WorldCom-owned OzEmail is the number two ISP, and the U.S.-owned Primus is an important niche local and long distance services seller, ISP, and data service provider, with its own facilities-based network. As well, Sprint, British Telecom, and AT&T are all active in the market.

    I call this to the committee's attention not because I have any particular interest in the Antipodes--my accent is a residual South African, not Australian--but as a further reminder, if one is needed, of just how far out of line Canada is with its principal trading partners in the WTO. Canada has long been an influential member of the WTO when it comes to telecommunications matters, and it is always with some pride that I point out to my students the influence this country has had in shaping the new pro-competitive international telecommunications regime. I fear that if we do not finally act to remove restrictions on foreign ownership, our influence will turn to embarrassment.

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    What then of the historical context of foreign investment?

    Although it acknowledges that the general legislation was enacted only a decade ago, the discussion paper suggests that there has been a long-standing government view that domestic ownership of Canada's telecommunications infrastructure is essential to national sovereignty and security. This, however, misrepresents the history of telecommunications in Canada.

    When the Bell Telephone Company was established in Montreal in the 1880s, American Bell required it to raise its own capital in Canada. Despite many pleas to Boston for further investment, the Canadian company was forced to strike out on its own. Far from being protected by any long-standing governmental determination to protect Canadian sovereignty and security, Bell Canada evolved in large measure into a wholly Canadian-owned company because of an American corporate structure of self-financing, regionally operating telephone companies.

    It must also not be forgotten that between 1926 and the creation of the expanded TELUS company on January 31, 1999, Canada's second-largest telecommunications company, B.C. Tel, was controlled by American interests, most recently the General Telephone and Electronics Corporation, GTE.

    Under American ownership, B.C. Tel participated fully in the most important nation-building project in Canadian telecommunications, the construction of the trans-Canada telephone system. Indeed, that American-owned company built one of the most difficult and costly sections of the trans-Canada system across the Rockies, and by the 1950s had achieved levels of universal service only slightly exceeded by those in Ontario.

    Incidentally, when in 1926 B.C. Tel was offered for sale to Bell Canada, Bell offered $125 for shares that were trading at about $140.

    This very significant but all-too-often forgotten period of foreign investment and control in Canadian telecommunications provides us with an excellent example of how regulation may readily overcome disadvantages associated with foreign ownership. When it appeared that B.C. Tel was delaying the introduction of new switching equipment because it had not yet been manufactured by GTE's equipment arm, the issue was effectively dealt with by the then regulator, the Canadian Transport Commission, under well-established rules governing prudent investment in rate-based, rate-of-return regulation.

    What this illustrates, I think, is that we need to keep in mind the appropriate role of two quite distinct sets of policy instruments--foreign ownership on the one side, and its restriction and regulation. If restrictions on foreign ownership are relaxed or eliminated, this does not mean that associated policy goals cannot be better achieved by regulation without depriving us of the benefits of an infusion of foreign capital, outside new ideas, new sources of technology, and management efficiency. Indeed, foreign ownership restrictions are a particularly blunt and self-destructive way of seeking ends far more readily achieved by regulation.

    Now, it has been suggested, Mr. Chairman, that if foreign ownership restrictions were relaxed or eliminated, there should be a residual government discretion to block or modify any investment deemed not to be in the public interest. This type of unstructured public interest test is dangerously vague and non-transparent and will lead to excessive delays and under-the-table bargaining. This has certainly been the experience in the United States, where Deutsche Telekom and NTT of Japan encountered all sorts of delay and prevarication when they sought entry into an ostensibly open telecommunications market.

    The danger here, over and above the dissipation of the benefits of direct foreign investment, is the inevitability of reciprocal delays and unexpected barriers being imposed on our companies should they seek to access markets abroad. Moreover, while it may be that the American market is so large and attractive that foreign investors will put up with a certain amount of harassment, I do not think this patience or persistence will be shown by companies seeking to access our smaller markets. I believe we should follow the Australian example by having our structured, generic, foreign investment approval regime vet investments in telecommunications.

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    Until the end of the 1980s, Canada's Foreign Investment Review Act contributed to an image of Canada as a country that imposed restrictions on the entry of foreign businesses. However, overall government anxiety about such investment has greatly subsided, and foreign investment is now generally welcomed and encouraged in Canada.

    Significantly, the Foreign Investment Review Act has been repealed and replaced by a much more welcoming Investment Canada Act. Where review is required of a large transaction, Investment Canada determines whether or not the proposed investment is likely to result in a net benefit to Canada, calculated on criteria including Canadian employment, technological development, and ability to compete in global markets. Broad undertakings may be sought, including guarantees of the level of investment and employment in Canada.

    This type of transparent, structured discretion is far to be preferred to any vague, open-ended public interest test such as the one used in the United States. Should the investment lead to a concern about dominance, or should a merger appear to lessen competition substantially, the matter may be dealt with by the regulatory or competition law authorities.

    Let me turn now to my concerns about a tiered approach to foreign ownership. It has been suggested that it might be appropriate to adopt an asymmetrical tiered ownership regime in which historic incumbents are exempt from foreign investment. This approach may be justified on handicapping grounds, or on the need to create distinctly Canadian champions.

    To deprive incumbents, however determined, of the benefits of foreign capital technology and business know-how in order to give room to new entrants who would have access to foreign capital technology and business know-how would simply lead to a less dynamic market overall, in which the public at large would lose out in order to satisfy the private interests of new entrants.

    As for Canadian champions, this approach would simply weaken our designated runners before they could get out of the starting gate and make them ineffectual international competitors. As well, it would distort regulation, as a champion might feel entitled to favourable rulings, since it would be the Canadian flag carrier, even though this flattering designation has been earned by government fiat, not by success in the competitive market.

    In conclusion, I wish to risk treading on some toes and give you the benefit of advice from someone who has a tenured university job to go back to. I do not believe that a distinction can or should be made between telecommunications and distribution. However, I do believe that despite all the convergence talk, a distinction can be made between telecommunications and distribution on the one hand and broadcast programming on the other. As with any real-world distinction, it will not prove to be clean-cut, but it will be workable.

    I can understand, though I do not subscribe to, concerns about the relaxation of foreign investment restrictions on broadcasting, but I cannot understand how the cable industry can be put into the same category as broadcast programming production--except on the grounds that in an inter-ministerial turf war, cable has been assigned to Heritage and telecommunications to Industry. Yet the greatest growth potential for cable and the area of greatest public concern lies with respect to high-speed Internet access and IP Internet-protocol telephony. This places it squarely in the telecom sphere, even aside from cable's overwhelmingly transmission, not content-creation, characteristics.

    While in the longer run content and carriage may merge, there is still enough of a distinction to warrant cable being included in any discussion of foreign ownership in telecommunications.

    It seems likely that BCE may present the committee with claims of major problems, and the more you hear of complexity and the need for ample time for full and reasonable discussion, the more concerned you should become. I do not believe BCE's precipitous foray into broadcasting and direct-to-home satellite should be allowed to stand in the way of straightforward reform of foreign investment rules.

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I believe BCE's holdings can be sufficiently unscrambled to allow for reform. Indeed, the original extravagant claims for integrative synergy do not even seem to be espoused within BCE these days.

    Certainly I do not think that a private urge to converge should be allowed to stand in the way of a simple, straightforward public initiative to open Canadian telecommunications to the benefit of foreign investment and to bring us into line with our trading partners in the WTO.

    And on that slightly contentious note, I end and look forward to questions.

    Thank you, Mr. Chairman.

    The Chair: Thank you, Professor.

    Mr. Rajotte, eight minutes.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman.

    Thank you very much, gentlemen, for coming in today. I have a number of questions. I'll try to be brief here.

    First of all, a question to Mr. Peters. On page five of your presentation, you make a link between the foreign ownership restrictions--and you see a need to review them--but you also talk about how we also must examine the domestic regulatory regime for telecommunications and how it impacts the capital base of an industry. And you mention earlier on that while the commission has made strides in promoting competition and investment, your organization believes that recent CRTC decisions are in fact eroding investor confidence.

    I'm just wondering if you can elaborate on why the regulatory environment as it is currently is not conducive to investment in Canada. You reference one CRTC decision, but if you have other examples, it would certainly be helpful for us.

    Mr. James Peters: Thank you.

    Clearly, TELUS has been the recipient of what we would consider to be a number of unfavourable decisions recently. But as I pointed out in my original remarks, it isn't just TELUS.

    Two recent decisions of the CRTC--the contribution and re-banding decisions--also had very significant impacts on companies such as SaskTel and Aliant, and in fact when Aliant announced its third-quarter results at the end of 2001, it indicated it would be laying off 8% of its workforce to accommodate these decisions.

    The decision comes down to the fact that the CRTC has chosen to discontinue its policy of using company-specific costs to determine the amount of contribution that companies providing services to rural and remote communities should receive. It has also used this new methodology of using national uniform costing factors in terms of the amount of the discount that is provided to the competitive local exchange carriers.

    That has a huge impact, not only on TELUS, because of the density factors in Alberta, the mountains and river gorges in British Columbia, where it is just much more difficult to own and operate a facility, but also in provinces like Newfoundland and Labrador that have similar issues.

    When we filed our review and vary application to the CRTC, we were supported in principle by SaskTel, Aliant, Manitoba Tel, and Bell Canada. The recent CRTC decision was to reaffirm its decision to use these uniform national cost assumptions.

    Anyone who has been to Newfoundland, or to Vancouver, British Columbia, knows the difficulty and the costs associated with building in that environment. SaskTel made the point quite clearly that the density in Saskatchewan is hugely different from the density anywhere else in Canada.

    So it's in those types of decisions where what is expected is a constancy, a predictability, and a fairness that we think is lacking.

    That's why, in our application to review and vary, and now our petition to the Governor in Council, we have asked for an independent audit of the costing factors. We believe this is an important step that must be taken and is only a small part of the review we've called for in our submission to the innovation agenda for a complete review of the policies, practices, and procedures of the CRTC.

º  (1610)  

    Mr. James Rajotte: Thank you for that, and I do want to follow up. You mention it on page three when you talk about the need for symmetric ownership rules and you state that “TELUS, while an incumbent in its home territory of Alberta and British Columbia, is itself a new entrant in Ontario and Quebec...”, and then you go on to say, “It is disingenuous of some of our competitors to label TELUS or other incumbents as traditional service providers”.

    That certainly is becoming one of the main issues facing us, but it is correct; in my area of the country, in Alberta, TELUS is very well known and very well established.

    I do want you to expand on that, and particularly as it relates, obviously, to the infrastructure challenges you face in moving beyond your traditional base of British Columbia and Alberta. Could you describe some of the challenges you face as you do move eastward, particularly into Ontario and Quebec?

    Mr. James Peters: Certainly. I think many people still think of TELUS as that company from B.C. and Alberta. In fact, until February 1, 1999, B.C. Telecom and TELUS Alberta had almost no revenues outside of the province. Today, over $2 billion of TELUS revenues are generated east of the Alberta-Saskatchewan border.

    Beginning in February 1999, when we consummated the merger, we had a view that TELUS was going to become a national force in Canadian telecommunications, and we have invested significantly in that vision.

    From 1999 to 2001, TELUS averaged capital expenditures in excess of $2 billion a year. We used that to build a national network from Victoria to Halifax. We made acquisitions of a company called QuébecTel, now TELUS Québec, based in eastern Quebec. We invested $6.6 billion in a national wireless platform.

    To give an example of how we've embraced competition, one of the things we announced a year ago was an arrangement with Bell and Aliant whereby we would grant Bell and Aliant access to the wireless footprint that TELUS has in Alberta and British Columbia, a wireless footprint that provided TELUS with huge competitive advantage in the wireless sector. We gave up that advantage because Bell Canada and Aliant agreed to give us access to their footprint in eastern Canada, and that footprint allows us to offer effective, innovative services from coast to coast in a cost-effective way, still providing the consumer with the ability to choose and have these innovative choices that they can make.

    We've made a number of other acquisitions, including TELUS Québec, a company that was based in Rimouski. It is now our force in the province of Quebec. Its management team is the same team that was running TELUS Québec before the acquisition. They are very pleasantly surprising us in terms of their ability to go out and expand into the areas they previously did not serve.

    Mr. James Rajotte: Professor Janisch, you talked about BCE coming here and what they could possibly say about the need for a full discussion and moving slowly, and that we should be suspicious about these answers. It's kind of funny, because those are the answers we get in question period every day, so I don't know if we should be suspicious there.

    The Chair: This is not question period. We want good questions and clear answers.

    Mr. James Rajotte: In the distinction between telecom and broadcast programming, you would agree with the statement that is made by Mr. Peters, that the foreign ownership rules for telecommunications and broadcasting distribution would be in harmony, but you would just separate the content from that. I mean, there are a lot of concerns, and I think that's one of the main concerns of a lot of the members of the committee. So I'm wondering if you could expand on that.

    Some people think if you liberalize the content ownership, that will then put the pressure on the actual content.

    Prof. Hudson Janisch: Yes, I can understand that concern. Indeed, when you look at it from a broader international perspective, you'll find that under the present rules of the World Trade Organization on basic telecommunications, they have defined telecommunications to exclude what I referred to as “video services”. That is pretty well saying we're going to keep out of the broadcasting area.

    That is a matter about which a number of countries have concerns. Mexico, France, and Canada are the leaders in that area of saying, resist the slide from telecommunications into video services.

    On the other hand, Australia and the United States are, in the international sphere, pushing hard to have video services included in telecommunications. So it is a worldwide debate that's going on.

    But I think most countries find, and I think the international regime, as I mentioned, up to this point has found, that it's possible to make a distinction. You don't have to worry that if you said a cable broadcast distribution company, it then becomes a programmer, a program content creator, and so on. I think there's a line we must try to draw between distribution and content creation. I actually think that line can be drawn.

º  (1615)  

    The Chair: Thank you very much, Mr. Rajotte. We'll be back to you.

    Mr. Bagnell.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you, and thank you for coming.

    I'd like to start out by saying if there's anyone against this, be very blunt about it. As the professor said, don't say “ample time for more reasonable discussion”, because almost everyone I've heard here was either in favour of it or at least neutral. If there's anyone we're going to hear in the rest of the hearings, give us some reasons against it and be blunt. On the asymmetrical question too--and I haven't heard anyone suggesting it, of the witnesses I've heard—if there's anyone in the room who's proposing anything asymmetrical, maybe you can talk to me after this. So I don't think you have to worry about that.

    Mr. Peters, I have a couple questions for you. I think a lot of the other interveners we've heard agreed with you that this is not a panacea. One is competition, basically, the regulation, and a big one is the access to local capital—fair access to lines and equipment, etc., by local competitors. Maybe you could comment on that.

    The second one I'd like you comment on is this. I'm from rural Canada, which covers about 80% of the country. A couple of the things you said were a little distressing to me, such as the part about it not being part of the condition. I can understand there's not a business case, but on the other hand I think hopefully you can propose something, at least in a public-private partnership. It still is an essential service that these people need to have, under some consideration. Hopefully the private sector would be part of the solution.

    I hope you'll be more positive about that.

    Mr. James Peters: Let me deal with the last item first. TELUS is committed—and has an obligation—to provide service throughout its incumbent local exchange territory. We do have private-public partnerships with a number of communities. Clearly, all of the communities in British Columbia and Alberta and eastern Quebec are communities where we want to be able to provide the services. It's a question of the cost-effectiveness.

    As I said, in its recent decision, the CRTC are disallowing our actual costs. We're faced with a situation where in 2001 TELUS received hundreds of millions of dollars from the contribution fund. In 2002 we will have received almost nothing, with a net impact of hundreds of millions of dollars that we would have been using for rural upgrades for new, innovative services.

    That's why this decision is so fundamentally important to us. Not to be able to actually use the cost it takes to invest in rural parts of Canada is a significant issue for us, and we are, as I say, petitioning the governor in council to try to address it.

    Perhaps you can remind me of the first question.

    Mr. Larry Bagnell: If there was more fair local access to the lines and everything, under different models.... I think it's the biggest problem the interveners have brought up.

    Mr. James Peters: Well, it's interesting; I would suggest for the most part it depends how you view the local market. The local market is actually several different components of access. Concerning wireless, I haven't heard anyone suggest that wireless access through PCS—

    A voice: No hard lines.

    Mr. James Peters: Yes, but my point is that there are multiple ways of accessing, and if we just focus on the wireline, companies like AT&T Canada have never to my knowledge had it as part of their business plan to provide local wireline access.

    The other issue is, what are the costs that TELUS is able to recover from the local access, and what are the revenues it's allowed to recover? The current situation in Canada is that, if you look at any of the studies that show North America or even worldwide, Canadians have high-quality service at lower prices and they're getting innovative services. And we have high penetration rates—high take-up on high-speed Internet access.

    Canadians are well served, for the most part. I accept your point about some rural and remote Canadians, but for the most part, we have one of the leading telecommunications services in the world, at very attractive prices, and that's been demonstrated by the studies that have been done.

º  (1620)  

    Mr. Larry Bagnell: One of the reasons is that in our area the price of service has gone up many, many times faster than inflation. So I'd like to ask Professor Janisch--in a mind-expanding way--about the same problem. We had another witness suggest the only way to solve this problem about fair access to the infrastructure locally—especially for local access, since long distance is being handled pretty well—was for the municipalities to own the infrastructure. I wonder what your thoughts are on that.

    Prof. Hudson Janisch: It's a very interesting point. Again, putting it in the historical evolution of Canadian telecommunications, we had a very powerful municipal ownership movement in Canada, the progressive movement in the late 19th century and very early 20th century. It was a great argument that we should have government ownership of the lines and then competitive services potentially being open.

    The Europeans used to argue very strongly that the model you should have in mind is a public highway with trucks running on it so you have competing trucks running on the government-owned highway. However, I think in all fairness to that, one of the most important insights in the analysis of recent developments in telecommunications is that facilities-based competition is a much more robust long-term form of competition.

    The danger is that if you go down the road that you suggest, you'll end up with what's called “resale competition”. Competitors will come in with a couple of trucks and run it on the highway or they'll come in with a small service. The best way to get really good competition is to have investment in the basic facilities.

    Now, the counter to that is, it's immensely expensive to replicate the wireline network of the existing telcos. I think the answer to that is to be technologically innovative and imaginative. As Mr. Peters was saying a moment ago, the way to really compete with a wireline system isn't to duplicate the wireline system. The way to come at it is to come around behind it with a wireless system. If I was a telephone company with an immense investment in a wireline, with the way that modern technology is going on the wireless side, I'd actually be quite nervous.

    I think that in fact we are in a situation where more effective competition is going to be possible if you don't make the mistake, that I suspect some new entrants in Canada did, of trying to replicate what's already there. You come around it with something new. That's what I would emphasize.

    Mr. Larry Bagnell: I have one last short question for all the interveners.

    What's the chance, if we put this in, that we have the exact same thing in place that we do now, where we have Canadian companies owned by American companies so we have branch plants and lose all the head offices, etc?

    Mr. James Peters: I'll speak first.

    I think that is a risk. In our written submission, we identify it as a risk that is going to be part of the balancing act. On the one hand, you may lose some senior level jobs, but at what benefit? That's part of the cost. The benefit may well be that you have newer innovative services or lower prices.

    Certainly, in terms a lot of the jobs, they will not be going south if it's a United States company that has the acquisition. Network design, local installation, and a lot of the jobs in British Columbia are in British Columbia because that's where the customers are. Jobs that are in Alberta are there because that's where the Albertan customers are. Certainly, jobs at the executive level are likely to disappear.

    There is a balancing act. What are the benefits that will come from that? Clearly lower costs and perhaps more innovation are the balancing acts that the government is going to have to consider in trying to come to that balance.

    The Chair: Thank you, Mr. Bagnell.

    Professor, do you have a comment on that?

    Prof. Hudson Janisch: My comment would be to say that, although we Canadians are right next door to the United States and are terribly concerned about the big wave coming up from the United States, when I do work looking at telecommunications around the world, the extraordinary thing is that America is not entirely dominating.

    In fact, when you look at some of the most dramatic recent investments, they've not been American investment. It's Deutsche Telekom that's making a multi-billion dollar investment in the United States. It's NTT Japan that's investing in the United States. It's the Finnish telephone company integrating with the Swedish telephone company. It's all that sort of thing that's going on.

    I'm as concerned as you are about the big wave coming up. I also think we have to keep in mind the broader range of developments. I think there are much more exciting opportunities outside of our constant alarm at the United States coming up here.

º  (1625)  

    The Chair: Mr. Hébert, do you have a comment?

[Translation]

    Mr. Jean-François Hébert: I would just like to mention that if you are living in downtown Toronto, there is competition, so there is no problem—the services exist. The question always arises in the case of more rural areas. Let us take the example of the companies represented by the ACTQ. Almost all the 50,000 subscribers represented by the ACTQ in rural regions have the whole range of broad band services. Why? Because these companies are in the hands of cooperatives made up of members who use the services; either the shares in the companies are owned by people in the community who therefore have an interest in developing the services, which is not necessarily the case for a company which is simply trying to make a profit. That is to be expected, after all we live in a system in which profit is the motive. If there is no interest beyond profit, then we will never be able to offer new services to Canadians living in rural regions. New services come about as a result of the efforts of people living in these communities. And let us not talk about foreign investment in the case of the 13 companies that make up the ACTQ, because none of them has any foreign investment. These are not companies that are likely to attract foreign investment.

[English]

    The Chair: Thank you very much.

    I should remind you there are a couple of presentations that will be translated and circulated to the members.

    Mr. Crête.

[Translation]

    Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman. I would just like to make a general comment. You are one of many witnesses who have told us that the priority was not to deal with the problems relating to foreign investment, because you seem to have many other problems with a higher priority. Almost everyone we have heard from has said the same thing.

    In the last paragraph of your paper you say:

In analyzing any change to the current system, the government must consider whether the disadvantages that would result from a change to the current rules would not be greater than the potential advantages.

    Could you outline for us the main disadvantages and advantages you see—say two or three of each—when you say that there may be more disadvantages than advantages?

º  (1630)  

    Mr. Jean-François Hébert: I will probably not talk about the number of advantages and disadvantages involved, nor will I list them. I will just say that, as far as the ACTQ is concerned, the system is working well. Apart from people living in more rural areas—and this is common knowledge—Canadians have a wide range of affordable services available, as well as many innovations. What more could we ask for today?

    Basically, most of these disadvantages are associated with the fact that we are forging ahead and making changes, but not always because there are clear reasons for making them. We say that we want to encourage competition, but why? We have all arrived at the conclusion that, in more rural areas, there would not be more competition because those areas are not going to be profitable for anyone. So what benefits are we seeking by encouraging competition?

    Canada is a very special market. It has a low population density—I believe we can say that—and earnings are, at the end of the day, limited. More competition will not mean more earnings, we already believe that there is overcapacity in the system. Basically, the services provided exceed the needs of Canadians. High-speed Internet access is a good example: in areas represented by the ACTQ, high-speed access is available to almost all subscribers, but the penetration rate is about 7 p. 100.

    At the end of the day, it is incumbent upon those who wish to change the rules to demonstrate why those changes are necessary. And what have we demonstrated? We have concluded that additional investment will perhaps indeed increase competition over a certain period of time, but in the short and medium term, consolidation will be necessary. After all, the pie will not get any bigger and earnings will remain the same. There is already a profitability problem.

    Mr. Serge Désy (General Manager, Association des Compagnies de Téléphone du Québec inc.): I would like to add to what Mr. Herbert said. If the foreign investment rules were changed, that investment will necessarily focus on areas with high population densities, and this could have an impact on small companies like those mentioned by the ACTQ. The small companies will be disadvantaged, or will be concerned about investing, because of the massive investments being made in areas with a high population density. This means we could end up with another price war, since our ultimate goal is profitability. The small companies are going to see the large companies fighting to achieve profitability, and we might end up having to cut prices again to try to achieve profitability with something that is already not profitable.

    Mr. Paul Crête: I have two questions, and I don't want to run out of time. So I will put both questions together.

    You talked about countries in which restrictions on foreign investment have been eliminated. Generally, these were countries with a single national company. I believe it was you who said that. Do you have a list of such countries? This is information we have not received from Industry Canada, but which is relevant with respect to the initial data. It provides greater detail to flesh out what has been said.

    My second question is not on foreign investment as such, but I would like to take advantage of your presence here today as experts on the subject.

    I come from a rural area, and I would like to know what we have to do to get people interested in investing in our regions. You gave a number of examples, but I would like to have more detail. How can we ensure that we get services with small companies? Large companies are not interested. I'll tell you an anecdote that illustrates the problem: in the Temiscouata region, we sent out a call for tenders to five companies—this was for cellular phone service—and all five answered that they were not interested in the project because it was not profitable.

    Those are my two questions.

    Mr. Serge Désy: I will answer your second question, and Jean-François can look at the document to answer your first question.

    First of all, with respect to the small independent companies, we have to know exactly where you are located, and what is the main company providing service to you.

    Mr. Paul Crête: I'm talking about rural areas. I would like to have some tips about what we can do to establish winning conditions.

    Mr. Serge Désy: Well, I could advise you to move into one of the 13 territories served by the Association's independent companies. Then you could have all the services you wanted, from cellular service to high-speed Internet.

    As we said earlier, even broad band high-speed Internet is accessible to all our subscribers, yet the penetration rate is only 7%. But this is not a new phenomenon. Some companies have been providing the service for four years. We can't offer more than we already have. Everything is already available.

    Mr. Jean-François Hébert: Well, solutions might come with regulation, economic incentives, and partnerships with the government and with public companies. This is not an easy question to answer.

    Mr. Paul Crête: Except that, as far as we are concerned, we're going to lose the election if we don't get an answer soon.

    Mr. Jean-François Hébert: There is no magical solution at this time. It would perhaps be easier to tackle the issue by formulating regulations.

    Mr. Paul Crête: What about my first question?

    Mr. Jean-François Hébert: We do not have a list as such, but Industry Canada's document provides a good idea of the regulatory structures that exists in other countries. Everyone who sat on the panel and participated in drafting the document had his or her own experiences with the different countries. But we did not draw up a specific list that we could give you.

    Mr. Paul Crête: There is a list of about 15 countries that have abolished the rules. One is extremely restrictive, while one applies a different model.

    When we look at what is happening internationally to determine whether Canada is receiving as much investment as other countries, we can see—though sometimes we need to look quite hard—that we are not really at a disadvantage with respect to other countries, except when it comes to the United States.

    Mr. Jean-François Hébert: Those data could certainly be examined in great detail. Finding them is not that difficult. We don't have them, but in my view they are not difficult to obtain.

º  (1635)  

    The Chair: Thank you, Mr. Crête.

    Mr. Marcil.

    Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman.

    There are some cynics who that say that certain communications companies want deregulation because their investment strategy has not worked and they want to have access to capital in order to turn things around. Others are calling for neither the status quo nor complete deregulation, as occurred with certain companies in the hydroelectric sector and in some American states.

    In fact, the real question, since we are told that the Canadian regulations are much better than those in the U.S., is whether there are benefits to deregulation, what those benefits are and what the disadvantages are.

    Do Canadian firms have access right now...? Are there things that the government can do to promote the creation or development of Canadian firms without necessarily deregulating the sector and allowing foreign capital to take over Canadian companies?

    We need to focus not just on deregulation. Deregulation often enables companies to take over other companies and thereby take control. Then when there is a monopoly, things are a little more difficult. Moreover, the fact that there is new capital and the sector has been deregulated does not mean that people are going to get better service.

    People that met with us yesterday said that they did not necessarily favour this approach. Today's witnesses are divided. The professor has one viewpoint, a large company has another and the Association still another, but that is the real issue. You should not hesitate to state your views clearly; you should not to try to talk on both sides of the issue, as people so often do. It is important for us to have a clear understanding of how Canadian businesses view these matters.

    Can the Canadian sector develop without deregulation being necessary for them to have access to foreign capital, which would then come in and skim off the best companies? Deregulation has often enabled many small Canadian companies to take advantage of the open market to sell their services at a very good price. As a direct result, those companies have disappeared as they become part of a larger structure and framework.

    There may be all sorts of reasons. If I run a small company in which I have invested a couple of hundred thousand dollars and which is now worth $6 million or $7 million, and if someone offers me $7 million, I will sign on the dotted line, that is for sure. I don't care about development: I have made my profit. That is kind of the way things work, and we always have to take it into account in the innovation strategy.

    Mr. Jean-François Hébert: When a sector is regulated, foreign investment is in fact part of the equation. There is the whole regulatory framework that goes with that. If we take the example of small companies represented by the ACTQ, their existence and their profitability depends in part on the current regulations.

    The CRTC has set up what is now called the National Contribution Fund. In the past, there were other regulatory mechanisms aimed at offsetting the losses that resulted from providing local service. In rural areas, it is difficult to make the service pay for itself because homes are scattered over a wide area. The regulations provide the value-added and make it possible to provide local service profitably. That is one example. If the sector were to be completely deregulated, a freely competitive market would certainly not automatically mean new services or improved service for rural areas and might even result in no service at all. So even good things are best in moderation, if I can put it that way.

    The Canadian system developed as a set of monopolies across Canada over the years, and it cannot be said that Canadians have suffered because of those rules. If we compare the Canadian situation to what has happened elsewhere, it is clear that we are not lagging behind. On the contrary, we have world-class service at prices that are often lower than those in the United States.

    Competition will supposedly add a new element. That is true, but the situation will not change overnight. In that context, some change may be desirable. But why take a radical approach and try to change everything from one day to the next? Changes can be brought in, but regulation does not necessarily mean that there will be no innovation. On the contrary, it can even act in some respects to foster innovation.

º  (1640)  

[English]

    Prof. Hudson Janisch: I try very hard to tell my students not to use the word “deregulation”, because it is a very misleading word. The reality is that we have not in this country, nor have many other countries, sought to go abruptly from a monopoly to total free competition. We have gone through a transition where the incumbents, such as TELUS, stole our obligations to subsidize remote and rural service. We insist that they not just spend their time in the cities, that they do provide a support outside.

    The word that probably is a little better is “liberalization”, with a very small “l”. That really is where we're going.

    I think the experience in many countries around the world--all of whom are members of the World Trade Organization, as is Canada--is that although it doesn't lead to instant improvements, liberalization does introduce more opportunities for competition, for lower prices.

    The consumers in Canada today are far better off than they were in the days of monopoly. Long-distance telephone rates have come down drastically. It is true that local rates have gone up a little bit, but overall, the average consumer of telecommunications in the liberalized regime that we and many other countries now adopt is much, much better off than they were.

    So I think the concern that, for example, liberalization always means that companies will be acquired immediately, particularly by American investors, is not really all that valid. Experience from around the world should reassure us that local companies such as TELUS and Bell Canada are world-class companies, and there's no reason to think they are going to go belly-up if they are subjected to a greater degree of foreign competition.

    I think they'll become even better and stronger companies, and the consumer will benefit. That's what we should always keep in mind here.

    Mr. James Peters: From TELUS' perspective, as I said, we are supportive of relaxation or elimination of the foreign ownership restrictions, subject to the two caveats I put forward.

    But in answer, I think you're trying to get to the practical realities. That is, I don't think, if the foreign ownership restrictions were removed today, it would help Call-Net at all...the company formerly known as AT&T Canada.They're not going to be able to raise money in the United States. They're not going to be able to raise money in Canada. They have significant challenges from their business plan. The concern that the shareholders of AT&T Canada have is, who are they? They're the bond holders. They're not in there for the long run.

    So from that perspective, I don't think it's an access to capital issue for them; I think it's a potential buyer for those types of companies.

    That's why, in the short to medium term, I don't think relaxing the foreign ownership limitations is going to have any impact on those companies whatsoever. Over the long term, I think the principle is that having access to those pools of capital will be a net positive contributor, subject to those balances that I spoke about earlier in terms of some of the other issues.

    The Chair: Thank you very much.

    I'll now go to the next questioner, Ms. Gallant.

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

    Looking at things from the standpoint of the consumer, both in terms of price and access, we listened earlier this week to testimony stating that opening up our markets to foreign capital will not make a difference to competition until the incumbents end their practices of obstructing competition. By that, they're preserving the monopolies by imposing unnecessary infrastructure requirements in exchange for use of the poles and switching stations. And it's not just the telecom companies; it's the cable companies, and Hydro One here in Ontario. These newcomers and local cooperatives are willing to serve the rural communities where the major carriers just outright refuse to.

    So how do you respond to these concerns and allegations?

º  (1645)  

    Mr. James Peters: The first one I'd comment on is that TELUS doesn't refuse to serve. We have an obligation to serve that we can't get out of.

    The CRTC recently came down with the decision that said, for people in remote communities, of the first $25,000 it takes to serve that community, the customer pays $1,000 of it. So TELUS is faced with a bill of $24,000 for a particular consumer. You do the math: There is no way that TELUS is ever going to recover $24,000, even with an attractive cost of capital. So I wouldn't accept that TELUS, or any of the other companies that have an obligation to serve, is....

    If we are failing that obligation, the CRTC has the mandate and the ability to ensure compliance with its regulations and guidelines.

    In terms of competitors to the incumbent local exchange carriers, if they believe we are being obstreperous or anti-competitive, not only do they have the remedies of going to the CRTC, but also the Competition Tribunal, and taking us to task if we are in fact taking anti-competitive behaviours.

    Mrs. Cheryl Gallant: Was that the full five minutes, Mr. Chair?

    The Chair: No, please carry on.

    Prof. Hudson Janisch: Could I come in, Mr. Chair?

    The Chair: Yes.

    Prof. Hudson Janisch: It's very important when we talk about the retention of monopolies in Canadian telecommunications to remind ourselves that the monopoly really is only on local. That is, if we look at the Canadian telecommunications market overall—if we look at wireless, and we look at long distance, and we look at Internet service providers, and at international—there are very significant segments of the Canadian telecommunications marketplace that are extremely competitive.

    I fear sometimes that the persons who have not been successful in entering the marketplace tend to say, “Well, look at the big telephone company monopoly.” But they have in fact taken away very significant market share in areas other than the local.

    That brings me back to my answer to the previous question, which is I am very confident, having been around this industry for more years than I care to remember, that there is very destructive, destabilizing technology—and I'm sorry to say this in the presence of Mr. Peters here, because he may get a little bit alarmed at what I'm saying—which is going to render the copper-wire local network a terrible, disabling effect on the telephone companies.

    In other words, new technologies, whether it be IP telephony that's coming in, or whether it be wireless telephony, are going to undermine that monopoly. Frankly, if I were to invest now, I wouldn't invest in a monopoly, because that monopoly is a very threatened monopoly. So I'm perhaps a little bit more optimistic about the impact of competition than the question, important as it was, implied.

    Mrs. Cheryl Gallant: Okay.

    Mr. Peters, would the elimination of the capital tax stimulate greater capital investment?

    Mr. James Peters: Yes. TELUS has been a big advocate of elimination of the capital tax. We don't believe it serves any real purpose.

    Mrs. Cheryl Gallant: Okay.

    Dr. Janisch, the Minister of Industry has announced that he's going to give hundreds of millions of dollars toward fibre optics, and getting the infrastructure in rural communities. What do you think would be the best method, or the best use of this money?

    Prof. Hudson Janisch: This is a very challenging question, because I think this is what links all of us at the table here. I'm very much persuaded that the development in rural telecommunications is going to come from the bottom up, not from the top down, and that what the government is doing—and I regard some of the initiatives the government is taking as extraordinarily important, and a number of provinces, including Alberta, are taking similar, very important initiatives—is to create a contact point with the new technology and then encourage local people, local supporters of the existing basic telephone infrastructure, to link into it.

    I think you can get, in the circumstances that now prevail, a lot of bang for your buck if you don't just, say, subsidize the spread of the Internet but make it possible for people who want and need the Internet in their businesses in the rural areas to get access to a POP, to a point of presence, where they can then plug into the broad-based services. I actually think Industry Canada is doing a very good job. I think the Government of Alberta is doing an excellent job as well in this approach. I hold out that it's going to work out really quite well for us.

º  (1650)  

    Mrs. Cheryl Gallant: Okay.

    Mr. Hébert, other witnesses have told us that the increase in foreign capital will naturally result in greater service to communities who don't even have hard-line service right now.

    In your testimony, you mentioned that in this regard Canadians in rural and remote areas will not necessarily enjoy enhanced core service at all merely by increasing foreign capital investment. Would you care to expand on that for us?

    Mr. Jean-François Hébert: Well, if there is no local investment, why would there be foreign investment in those territories? That's the question. It's very difficult to provide profitable services in those territories, so why would foreign investors be interested in going there?

    Mrs. Cheryl Gallant: Would you agree that eliminating the capital tax would stimulate more capital investment in general?

    Mr. Jean-François Hébert: I would say yes, but you need investment. You need people to invest in those territories. If you don't, talking about tax or anything else is....

    Mrs. Cheryl Gallant: So the bottom line is, it's up to the local communities to make sure they have the access to hard-line fibre optics, or whatever, because it's really in no way in the best interests of the major distributors to provide this service for them?

    Mr. Jean-François Hébert: I wouldn't say it's not in their best interests, but maybe it wouldn't be profitable, so the interest is not there at that point.

    Mrs. Cheryl Gallant: All right. Thank you.

    The Chair: Thank you very much.

    Mr. McTeague.

    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you. Thank you for your presentations. It was very interesting, Mr. Janisch, Mr. Peters, Mr. Hébert, and Mr. Désy.

    I want to follow up on some of the comments that have been made and the questions of my colleagues here. I think some of us are apprehensive for the simple reason we're looking at the whole issue of productivity and innovation. The promise of foreign investment of course and liberalization would normally lead one to the great expectation that the world will suddenly beat a path to our door. But given, as you have suggested before, Mr. Janisch, that Canada enjoys a broad range of options and choices, how likely is it that somebody is going to come in and reproduce what the incumbents TELUS or Bell have created, certainly in terms of their lines?

    Moreover, what benefit could there possibly be, if in fact we may see by these acquisitions, if we're talking about control...if we're not seeing, for instance, takeovers of these existing companies, which might otherwise merge, or for which the technology transfers may in fact leave the country? So rather than Canada creating a niche in one or two areas of new and future technologies, as we've seen in the past, including Clearnet and TELUS, is there now the possibility that the opening up of the market will in fact lead to a flatlining? That is, Canada will not lead; it will not fall behind, but in fact it will become a warehouse for opportunities--for instance, as opposed to seeing new ideas, new technologies, and new investments. You will simply see what we've seen in so many other industries, where Canada effectively becomes a drawer of water and a hewer of wood.

    Prof. Hudson Janisch: I wouldn't agree with that description in any sense in regard to the telecommunications industry in Canada. I don't see any reason to fear that foreign investment wouldn't broaden the base and give better opportunities for Canadian telecommunications carriers, and hence benefit, ultimately, the consumers.

    Let me go back to a little theme that does seem to be coming out in these discussions. If you look at the huge presence of the incumbent telephone companies, in a general sense, you recognize that if you're going to get a more vibrant, competitive marketplace that will offer more choice of services, and more options to Canadians, and take advantage of the trends in convergence and so forth, that opportunity will be enhanced by having foreign investment.

    I think Mr. Rogers, at Rogers Telecommunications, or Rogers Cable, has said over and over again that in the longer run the cable industry is to converge with, and take on and challenge, the traditional telephone industry. That is going to be an immensely expensive undertaking, and it requires an infusion of capital probably in excess of the ability of Canadian companies to raise that type of capital.

    So I actually, as I say, see it in a more positive light than I suspect you might be thinking, because the benefit of foreign investment--and I think this is the experience in many other countries that we could talk about--is that it does improve the quality of the service and doesn't lead to warehousing or lead to the flat line that you fear.

º  (1655)  

    Mr. Dan McTeague: Mr. Janisch, that's interesting, but in the case, for instance, of Rogers, we would know, for instance, their use of capital expenditure in order to fund Bell Canada, having access to public funds. We already have a current range, certainly in urban areas, of a number of technologies. But from a perspective of productivity and innovation, do you not see the prospect, for instance, in this kind of a bold new world where Canada, for instance, would no longer have the propensity, the ability, to invest on its own, and in fact would simply borrow technologies from around the world to maintain a standard of living or standard of technology that is similar to anywhere around the world? And then whoever has new technology in Australia or Finland, or wherever the case may be, may simply, as opposed to making massive investments in Canada, decide to simply bring the product here?

    Prof. Hudson Janisch: But look at Nortel. Nortel is in difficult financial times at the moment, but Nortel is a flagship company. It has been remarkably successful in venturing out around the world. I can go to China now, and all I have to do is mention Nortel, and people will say, oh, Canada. They know all about Nortel Networks.

    Canadian telecommunications companies have been at the forefront, and I think they could remain there. I don't think we should fear that an infusion of foreign capital is therefore going to erode the capability of Canadian companies. They will remain innovative, in fact become more innovative, if they become world players.

    This sounds like a horrible sort of retreat, of trying to get off the world. I am so struck when I go around looking at all the countries that have opened up their marketplaces to broad investment. I see that as a sign that other countries have more self-confidence than we have.

    If you don't mind me saying so, I think your question implies a high degree of lack of confidence in Canada and in Canadian capabilities.

    Mr. Dan McTeague: Mr. Janisch, it's just that we've seen investments being used in the past as a means of suggesting that we should proceed to mergers as opposed to capitalization, and some of us are concerned.

    The model you provided, the analogy of Nortel, is an interesting one, but it deals with the existing arrangement.

    It's not to suggest that there's defeatism in what we're doing, but we must ask these questions. Clearly, there has been a responsibility exercised by regulators and Parliament in the past to ensure the optimum service for Canadians. They currently have that. There is room for improvement.

    The suggestion, however, is that not only should we see productivity and innovation from the perspective of telecommunications, but a panacea for this industry can be achieved simply by foreign investment. Some of us think that we have to look a little further than that.

    Prof. Hudson Janisch: If I could just go back to the point I tried to bring out in my initial presentation, I don't think it's a choice of saying let's have foreign investment and give up on regulation. There's no reason to suggest that foreign investors in Canada don't or won't comply with Canadian laws. As I've argued, many of the goals can be more effectively achieved if you look to regulation rather than to restrictions on foreign investment.

    The Chair: You have time for one more question.

    Mr. Dan McTeague: Mr. Janisch, you raised the issue of the potential not only in regulation, but in competition. I was very pleased with that remark.

    We as a committee are concerned about the use of the efficiency defence. It has been used in other industries to effectively obtain a merger, if you can demonstrate an efficiency elsewhere, which doesn't always have the consumer as its interest.

    Do you have any concerns over the words “control” or “ownership” as we approach the issue of direct foreign investment?

»  (1700)  

    Prof. Hudson Janisch: I have considerable concern under the present rules as to whether lawyers, when they certify that there is continued Canadian control, don't have their fingers crossed behind their backs. These are in many cases, I'm afraid to say, my former students. I have many students active in this area.

    Some hon. members: Oh, oh!

    Prof. Hudson Janisch: I do have a concern that this has become pro forma rather than an actuality.

    If I could just go back again to my remarks, I would like us to look at telecommunications in the broader context of investment in Canada. Certainly, I think we want to look at the net benefit, which the Investment Canada people should look at, of major investments in any industry, including telecommunications.

    I'm not advocating that we just say, “let 'er rip”. I would still like to see some careful monitoring and commitments made with regard to the issues of headquarters, Canadian employment, and so forth. So I'm not a “let 'er rip” guy.

    The Chair: Thank you very much.

    Monsieur Crête, do you have any questions?

    Mr. Paul Crête: Non.

    The Chair: Monsieur Normand.

[Translation]

    Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): After three days here, it strikes me that everyone has told us that they are not necessarily against deregulation. What they are suggesting is that a cautious approach should be taken to deregulating foreign investment, and that deregulation will not stimulate innovation or improve service to Canadians. So it seems to me that we will have to start by redefining what we are doing, Mr. Chairman.

    Second, I am very intrigued by your small companies, Mr. Hébert. I would like you to name some of those companies so that we can see where they are located in Quebec and how this works, since it was probably not the profit motive that led to the creation of those companies, which are probably local cooperatives in reality.

    That leads me to this question. Our service is provided by TELUS, and I have no complaint because we get very good service. I know that they have worked very hard. On the other hand, I have high-speed Internet at my office, but I cannot get it in my home, which is six kilometres away. So I have to go to the office to use high-speed Internet. It does not make much sense because we say that we are trying to help people work at home. I would like to get an idea of what the government could do in that area to increase innovation and promote better service.

    I thought Mr. Janisch made an important point earlier: we need to avoid duplication. If better service will be provided by wireless, then we need to go with wireless. If it is wireline, then go with wireline. But Canadians need the service, wherever they live. I do not know. I need to hear your ideas on this.

    I would like to address a question to Mr. Janisch. When I was Science Minister, I led a number of delegations abroad, particularly in the communications sector, and substantial investments were made by a number of Canadian companies. Do you have research that shows how many Canadian companies have invested abroad? If so, what countries have they invested in and how much money are we talking about? Thank you.

    Mr. Serge Désy: To begin, to give you an idea of the situation of independent Quebec companies, I would say that there are 13 in Quebec and 19 in Ontario. So, we're not alone. Just to give you a few names, in Quebec, there is Sogetel, located in the Nicolet area, and Warwick Telephone, located in the cheese producing region. It's already been on television. There are also smaller undertakings, as small as Téléphone Nantes, located in the Lac-Mégantic area; Téléphone Milot in the Mauricie region and the cooperative CoopTel, located around Sherbrooke. So, these are all small companies spread out in a patchwork across Quebec's territory, and they are there because the large telephone companies—I don't want to name names, but of course I'm referring to Bell—did not provide telephone service at the beginning of the 1900s. So, these small companies got together and formed cooperatives or even private groups and created these undertakings. Don't forget that, despite their small size, they have invested in the same kind of state-of-the-art technology as have the heavyweights, such as Telus, Bell and others.

    Why do these small companies provide these services? You could say that their investments are based on their operations. Despite the fact that there is a fund covering part of local telephone investments, you can't really say that these companies invest in their operations through this fund. More often than not these companies are not associated with one another, but they are in touch with one another and sometimes work on common projects or common networks. From a technological point of view, they have positioned themselves in terms of fibre optics and automatic switching equipment and they provide those types of services.

    In answer to your question as to what it would take to provide this service six kilometres down the road, I think that if you want to provide advanced services to every community, be it on Bell or Telus's territory, which is densely populated, or in a low-density area, the CRTC would have to toughen its regulations. However, this type of investment would have to be funded out of an equalization system like the one which already exists nationally and which everyone would have to contribute towards in order to finance the costs arising out of those services. Why? Because, in my view, whether you eliminate foreign investment restrictions or not, foreign investors will only be interested in one thing, namely profits. If it's not profitable, they won't invest.

    Therefore, if the CRTC decides to regulate the creation of a fund modeled on the national equalization program to fund local service, which is not profitable, then I think that would represent an option which would ensure that all Canadians, whether they live in urban or rural areas, would have access to these services.

»  (1705)  

    Mr. Jean-François Hébert: In conclusion, to come back to your example where you say that you have access to high-speed Internet services at the office, but not at home, which is only six kilometres away, I would say that if a member of the board of directors lives on R.R. 2 or 3 and does not have high-speed Internet at home, it would not be long before the company would be pressured into extending its fibre-optic network. Where there's a will, there's a way.

    An Hon. Member: And if it was a member of Parliament?

    Mr. Gilbert Normand: We would ask the government to invest!

[English]

    Prof. Hudson Janisch: I wonder if I could respond to the investment abroad question, which I think is a very serious question. The reason it's serious is that on the equipment side, I think Canada has a very proud record of success in going abroad. For all the troubles that Nortel presently has, it will return and it will be very successful.

    On the entering in to provide competitive telecommunications services, rather than the equipment side of things, there I think the Canadian record is very disappointing. The tragedy I think was the failure of Bell Canada International, BCI, to make a successful venture into South America.

    At one time, BCI, which was part--and is now being wound up--of BCE, was very successful in entering the South American markets. But as we all know, South America turned out to have a very unstable financial situation, and BCI has had to retreat, frankly, and really come very close to withdrawing completely from the international market.

    I think the question is a good one, but I think the question should be perhaps turned around to say, why is it that Canadian enterprises are not more adventurous in going abroad, and not less? I think part of the experience is that we don't get enough exposure to the true internationalism of modern telecommunications.

    I think it is a question that should concern us, and indeed should, in a broader sense, concern this committee. It is a very excellent point.

»  (1710)  

    The Chair: Thank you very much.

    Mr. St. Denis.

    Mr. Gilbert Normand: Just to finish, you're saying that you have to be a light at home before becoming a star in the sky.

    Prof. Hudson Janisch: That's right. There's a very famous American economist who says that, but far less elegantly than you did. This is Michael Porter, who says that you have to be competitive at home before you can venture abroad to be successful.

    So that's exactly the point, but you said it much better.

    The Chair: Mr. St. Denis, you'll have to start at the high note with those latest quotes. Over to you.

    Voices: Oh, oh!

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

    Thank you very much to the witnesses. You provided us with a very stimulating discussion today. It's become obvious, I think to all of us, that even though our topic was initially foreign ownership rules, it's really only a hook or a reason to talk about much more.

    I'd like to ask any of the witnesses, as we try to get a real snapshot of what the situation is like in Canada now so that we know where to go, can we characterize the history of the evolution of the telecommunications in Canada as a whole series of huge mistakes that have brought us to where we are? Or has it simply been a natural evolution from...?

    Each country has a unique starting point, I'm sure, in terms of their telecommunications history. If you go to some of the African countries, they're starting off with cellphones, for example. We started with wire.

    I'm wondering, can we characterize our jumping-off point as trying to fix past mistakes, or simply that we're at a natural evolutionary point and we must look at how we got here in order to move forward?

    I put that question to any of you.

    Mr. James Peters: My own sense is that telecommunications in Canada has been hugely successful. Just looking at any of the statistics in terms of high-speed access penetration, I think only Korea has a higher rate of high-speed Internet access. In terms of penetration, Canadians have such a high level of penetration compared to other markets. The price is low. The quality of service is high. The innovation is enormously positive.

    I would say we're very much at a stage of evolution, and from a great base. There are companies that have failed and have financial problems. but if you look anywhere in the world now, you will find companies that have had huge financial problems in telecommunications. At TELUS we went through the lows of this past summer when one of four rating agencies downgraded us below investment grade. So even the large companies are not immune to that.

    I'm very bullish on Canadians' performance compared to anyone in the world. So I very much think it's an evolution.

    That would be my comment.

    Mr. Jean-François Hébert: If it's a mistake, it's a beautiful mistake, since it works.

    Prof. Hudson Janisch: I would say it's tricky to say something is a mistake, because we don't have the hindsight of knowing it was a mistake. That said, and having just finished yesterday talking with my students about the fantastic changes that are coming in China, one realizes there are advantages to starting with new technology. China has, first of all, 160 million subscribers to its cellular radio system. It is the biggest cellular radio system in the world, far bigger than that in the United States. It is about to become the world's biggest wireline company as well, so it's not as if they're just relying exclusively on wireless. But the one extraordinary thing about China is that they have made a massive investment in Internet protocol telephony, or IP telephony. That is, they have moved completely out of the traditional circuit-switching telecommunications into a telephony system that doesn't require that type of switching and is regarded by engineers as a much more sophisticated way of doing things.

    So in a sense, developed countries have the drawback of having developed technology that then becomes stabilized, and developing countries, particularly a very dynamic developing country like China, have the advantage of coming in with a new wave of technologies.

    On the other hand, when I look closely at what's happening in China and realize the size of the country as a whole, they have immense problems as well. I don't want to be naive about their having all the answers.

»  (1715)  

    Mr. Brent St. Denis: Thank you very much. That's very helpful.

    I'd like to jump to something that the two of you, Mr. Peters and Professor Janisch, mentioned, and I invite Mr. Hébert to comment as well. It's the issue of the WTO. Can you help us marry what we're discussing here and put it into a WTO context? Is what we're talking about of no relationship to what's happening at WTO? I suggest there is something, because you mentioned it, Mr. Peters. Can you just help us marry the two in our minds, so that in our questions and our thinking we're not going off on a wrong tangent?

    Prof. Hudson Janisch: Let me try. The change that took place in the WTO was the switch from a focus on trade in goods to trade in services, and telecommunications has been treated like other services. The members of the WTO have agreed to in effect liberalize their telecommunications regime in all countries around the world and to open up their markets to competitors to go in. I find this absolutely astonishing, because only a matter of ten years ago we had exclusive monopolies, with no opportunity to go in and provide competitive services in the other country. The WTO has encouraged a much more liberal, much more highly competitive environment in which one acts.

    Now, the WTO does not compel foreign ownership. The WTO itself allows countries such as Canada to say, “We want to limit foreign investment,” and we have limited it to 47%. Other countries have thrown their markets open completely, as you see from the list the Industry Canada people provided for us. But I'm still surprised at how rapidly the evolution is taking place. Again—I'm sorry to bore the committee, but I have China on my brain—China has committed itself to open its entire telecommunications markets to the same level of investment Canada now has, within two years. Even a country as constrained and as rigid and as restrictive as China has opened its market up.

    So it seems to me that it is important—and I think this was something the senior officials from the department reminded the committee of at the start of the hearings— that we not get ourselves too far out of line with the other members of the WTO. That's not to say you are in any sense compelled by the WTO to open up the marketplace, but that it is much more in keeping with the trend in international trade and in developments to open up the market.

    That's how I think the WTO enters into your considerations: not as a binding legal document, but as an indication of a general trend towards greater liberalization and competition throughout the world.

    The Chair: Mr. Peters, do you have a comment?

    Mr. James Peters: I'd only add that from our perspective, as there are pressures from our trading partners, if there were an intention to liberalize the foreign ownership limitations, it would provide Canada with a “bargaining chip”, we'll call it, in those negotiations for other matters, because rarely are issues distinct in themselves. There is always some linkage to other issues, and that may be an opportunity for Canada.

    The Chair: Mr. Hébert, do you have a comment?

    Mr. Jean-François Hébert: I don't have anything to add to that comment.

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

    Mr. Bagnell, you had a short question to ask.

    Mr. Larry Bagnell: Yes.

    Professor, as you beat up so badly on my shy colleague, Mr. McTeague, I want to return to the same theme--in essence, American companies coming in and taking over the good Canadian companies, with us just becoming little subsidiaries of big multinationals and all the brain part, the management and the research and everything else.

    To Mr. Peters as well, given that decisions are all interconnected, I want to key in on the research part of it. What is the environment for research in obtaining research funds and tax credits, etc., in Canada compared with the United States in the telecommunications field? Is it such that if the Americans bought a company they would then move that part of the company to the States?

»  (1720)  

    Prof. Hudson Janisch: I think probably Mr. Peters would be in a better position to answer the specifics of that end of the question.

    If I could put my response in some broader context, a few years ago when Nortel was owned by Bell Canada, or BCE, there was a very strong argument that if you opened up BCE to foreign investment you would lose control of our made-in-Canada technology. I think at the time that was a serious issue, but remember—and I think it's very important for the committee always to keep this in mind—that a decision was made a few years ago to separate Nortel off completely from BCE, so that the restrictions of the telecommunications side don't in any way apply to Nortel. Nortel is subject to the Investment Canada Act. What you have to ask yourself is, are the protections that are built into the Investment Canada Act strong enough to prevent what you fear might happen, which is that there would be a migration of talent?

    If anything, as you know, subject to its recent problems, Nortel has actually always employed more talent in Canada than it has proportionally in the United States. In other words, if you actually looked objectively at how Nortel structured itself, it stayed here in Ottawa much more than it went down to Orlando. So in fact the record is quite encouraging.

    But on the question of whether American telecom companies or manufacturers get more support in the United States than in Canada, I think that might be something others could do a better job of answering.

    Mr. James Peters: Unfortunately, Hudson, it won't be me, because I don't have the background to be able to comment specifically in terms of a comparison between the two. But certainly I think Industry Canada would have access to that type of detail, in answer to your question.

    Prof. Hudson Janisch: Let me just reinforce the point that the issue of research and development is not really the issue of telecommunications investment. It's true that telecommunications carriers do some adaptation of technology, but the real technology know-how is in the equipment companies, and they are not subject to the regulations under the Telecommunications Act.

    The Chair: After one more short question, the chairman is going to ask a question.

    Mr. Larry Bagnell: I have a really short question for the professor.

    It seems that in Canada we had a competition problem. We solved it in long distance, but then it got all moved into local access, where there are still monopolies. This doesn't help people, the poor especially, and people who need it for emergency. How do we solve that problem?

    Prof. Hudson Janisch: We could, if we wanted to, make sure there were very focused subsidies for persons of limited means. In other words, it is possible to design a special tariff—and this has been talked about in Canada and has been applied in some parts of the United States—in which you could say if somebody was of limited financial means, they could get lifeline service. That's the expression that's used. But I frankly feel that although it is true that local rates have gone up, the fact is that the local telephone service to call a million people costs the equivalent of a couple of 12-packs of beer. The fact is that basic telephone service in Canada is still an incredible bargain. Given that you can call, in the Toronto area, a million subscribers, that's an awful lot of bang for that $23 or $25 a month.

    I think that's the way I would address that.

    The Chair: Are there any other comments?

    Thank you, Mr. Bagnell.

    I just want to pose two short questions before we close. To what extent can any differences in investment levels be attributed to the foreign investment restrictions we have today? Would anybody hazard a guess? Have these held back the companies, and if so, to what extent?

»  (1725)  

    Mr. James Peters: From a TELUS perspective, we have not been affected by the foreign investment review restrictions. Last year TELUS went out and got $9.3 billion in debt refinancing.

    We've been able to acquire Clearnet, which was able to go out and raise $3.3 billion on its own. We've done that by having two types of shares, voting and non-voting, in order to continue to comply with the foreign ownership limitations. We are now listed on the New York Stock Exchange with respect to our non-voting shares only.

    So we believe there are mechanisms that work for us, though we're in a different situation given our high cashflow and EBITDA, which tell us who's generating. We're in different situation, but from our perspective it has not had an adverse impact on us.

    The Chair: I want to thank the witnesses for being with us today. It's been a very enlightening discussion for all of us. I'd like to thank Mr. Désy and Mr. Hébert from one of the smaller telecoms, and Mr. Peters from TELUS.

    Mr. Janisch, I'm not going to let you off the hook. Your students this afternoon were the MPs, and as chair of this committee I'd like you to grade their questions today in terms of their effectiveness.

    Voices: Oh, oh!

    The Chair: Thank you very much.

    The meeting is adjourned.