INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Thursday, February 20, 2003

¿

0940

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

Mr. David Edmonds (Director General of United Kingdom Telecommunications)

¿

0945

¿

0950

The Chair

Ms. Claire Durkin (Director of communication networks, broadband and Internet policy, Department of Trade and Industry, Government of the United Kingdom)

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

Mr. David Edmonds

¿

0955

Mr. Brian Fitzpatrick

Mr. David Edmonds

À

1000

Mr. Brian Fitzpatrick

Mr. David Edmonds

Ms. Claire Durkin

The Chair

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

À

1005

Ms. Claire Durkin

Mr. Serge Marcil

À

1010

Mr. David Edmonds

À

1015

Ms. Claire Durkin

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. David Edmonds

À

1020

Ms. Claire Durkin

Mr. James Rajotte

À

1025

Mr. David Edmonds

Ms. Claire Durkin

The Chair

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

À

1030

Mr. David Edmonds

À

1035

Mr. Brent St. Denis

Mr. David Edmonds

Mr. Brent St. Denis

Mr. David Edmonds

Ms. Claire Durkin

Mr. David Edmonds

Ms. Claire Durkin

Mr. Brent St. Denis

Ms. Claire Durkin

À

1040

Mr. Brent St. Denis

Ms. Claire Durkin

Mr. Brent St. Denis

Ms. Claire Durkin

Mr. David Edmonds

The Chair

Mr. David Edmonds

The Chair

À

1045

Mr. James Rajotte

Ms. Claire Durkin

Mr. David Edmonds

À

1050

Mr. James Rajotte

Mr. David Edmonds

Mr. James Rajotte

Mr. David Edmonds

Ms. Claire Durkin

À

1055

The Chair

Mr. Serge Marcil

Ms. Claire Durkin

Á

1100

Mr. Serge Marcil

Mr. Brent St. Denis

Mr. David Edmonds

Ms. Claire Durkin

Á

1105

The Chair

Mr. Dan Shaw (Committee Researcher)

Ms. Claire Durkin

Mr. Dan Shaw

Ms. Claire Durkin

The Chair

Mr. Dan Shaw

Mr. David Edmonds

Á

1110

Mr. Dan Shaw

Mr. David Edmonds

Ms. Claire Durkin

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 022

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, February 20, 2003

[Recorded by Electronic Apparatus]

¿  (0940)  

[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I now call the meeting to order. Pursuant to Standing Order 108(2), we are considering foreign investment restrictions applicable to telecommunications common carriers.

    Today we have witnesses from the Government of the United Kingdom: Claire Durkin, of the Department of Trade and Industry; and David Edmonds, director of OFTEL.

    I'd like to thank you very much for being with us today. Normally we don't meet on Thursday mornings; that's why some of the people are at other committees.

    Just as a preamble, please don't touch the microphones. The controller behind me will control it, because it's for recording. I'm sure all the members of the industry committee and the heritage committee will want to read the Hansard as it's printed.

    Again, I'd like again to welcome you here today to the industry committee. I would ask you to make opening remarks as you see fit. You might want to tell us a little bit more about your backgrounds and responsibilities so we understand that and we can put that on the Hansard, and then we'll go into questions.

    So who's going to begin? Mr. Edmonds, please do.

    Mr. David Edmonds (Director General of United Kingdom Telecommunications): Thank you for your courtesy and the opportunity to talk to you today.

    My name is David Edmonds; I'm the director general of telecommunications in the United Kingdom, which means I am the regulator for the telecommunications sector and basically responsible to Parliament for my actions. I'm not a politician; I'm head of a non-ministerial government department. And although my appointment was originally by the secretary of state, and indeed I've been reappointed by the secretary of state for a second three-year term, I have all the famed independence that regulators constantly seek. For the last five years I've been heavily involved in the evolution of regulation in the U.K. and have therefore a degree of experience about the issues that your committee is addressing.

    I should emphasize today, if I may, Chair, that my remarks are made on my own account; I'm not representing the U.K. government. I'm me, the regulator. I should also make clear that it's an interesting time in the U.K. because we are moving from a system of single regulation of an industry, which currently I'm responsible for, to a much more collective approach. Later this year, when legislation is passed through Parliament, a new body is going to be created, called the Office of Communications, which is going to regulate telecommunication spectrum broadcasting content. So we're creating a new and converged regulator.

    I'm probably setting a record today, because three weeks ago I was in front of the trade and industry committee of the House of Commons, being grilled for two hours on my stewardship of telecommunications. So appearing before the committees of both of the parliaments in the space of two weeks probably is a record, which will probably never be repeated.

    What I really want to say, very briefly, in introduction, Chair, is that my own experience in the U.K. is based on what I'm all about. I think there's a very interesting difference with what I perceive to be the basic premise of the Canadian 1993 act, where telecoms, it says, perform “an essential role in the maintenance of Canada's identity and sovereignty”. My role as director general is quite different. My role, set out in the U.K. Telecommunications Act 1984, is to promote the interests of the U.K. consumer, insofar as possible, by developing competition in the U.K. So I have an absolute pervasive function, which is to support or help the interests of the U.K. consumer, both in terms of the economic delivery of telecommunications and of course the quality of the services that the telcos produce. Although it doesn't mean I'm an Adam Smith type of economist who believes in competition, competition, competition, it does mean that in the U.K. marketplace there has been now a great deal of experience through the benefits that competition provides.

    I think the particular relevance to today's hearing is that much of that competition has been created through the coming into the United Kingdom of foreign companies bringing their own capital, bringing their own skill sets, bringing their own resources. I profoundly believe, as indeed I'm sure does your committee, that the innovation that comes from competition is almost totally positive and totally productive.

    In the U.K., the development of the mobile industry, the development of the Internet access industry, the development of basic telecommunications, business telecommunications, and the development of digital television have all been hugely enhanced by competitors coming into the U.K. marketplace from abroad.

    The U.K. does have--and I won't go on about the U.K. experience--low prices, high quality, and a great deal of choice. The most notable example I would give of the beneficial impact of inward investment is the fact that the U.K. cable industry, which now covers something like 52% of the U.K. population-wise, was wholly funded with foreign capital. NTL and Telewest, two major companies, were both enabled to roll out their coverage in the U.K. with private capital, without government subsidy, and have created, as a result, major competition for the incumbent. What we have seen with the introduction of that capital into the U.K. is real pressure on the incumbent British Telecom in terms of the service offered to consumers and a lowering of prices.

¿  (0945)  

    Canadian prices are very low, I think. U.K. domestic prices are ever so very slightly lower than Canadian prices, and there isn't much in it. And we've put much of that down to the competition that cable industry has produced in the United Kingdom.

    I think the second major example I would give of the beneficial impact of foreign investment into the U.K. is what is currently happening in the world of third-generation mobile telephony. We already have a very competitive second-generation--or two and a half generation--sector, where, I should add, two of the four companies are wholly foreign owned. They both have about a 25% market share. One is owned by a French company and one is owned by a German company.

    The real stimulus that we now see to the introduction of 3G--and I suspect after Japan, Britain is as far ahead as anywhere in the world--comes from investment in the U.K. by Hutchison 3G from Hong Kong, with capital provided entirely from their own resources. They are building the first third-generation network in the U.K. They are going to launch services later this year.

    I have no doubt that the introduction of that fifth player into our marketplace with the 3G licence and the fact that they are now competitively rolling out the new services is probably the key determinant, the key stimulus, in ensuring the four second-generation companies are keeping pace. So for inward investment into cable, inward investment into third generation, indeed, inward investment into second generation, I think the examples I would give for the U.K. would be almost wholly, indeed totally, beneficial.

    My final point is that we've also seen companies such as Motorola and Nortel move into the U.K., I think as a result of the total lack of restriction in the marketplace. There are in the U.K. research and development facilities funded by those inward investors.

    I know, Mr. Chair, the situation between the U.K. and Canada is different. You're addressing, though, the theme of inward investment, the impact that can have, and the question of foreign ownership. We have in the U.K. a great deal of foreign ownership of the telcos that operate there. In return, British companies such as Vodafone have made huge investments out of the U.K. Vodafone owns a large interest, as you know, in the United States and in Germany. And I think that to-ing and fro-ing, the combination of flows of capital in both directions, has again been incredibly useful in terms of the stimulus it has brought back into the U.K.

    As to the downside, I have to say that in my five years as director general, I don't see the downside. The regulation I apply to companies is absolutely even-handed. It doesn't matter whether they're registered in the U.K., France, Germany, or America; they are treated in exactly the same way. There are no restrictions on the nationality of people who run telcos. British Telecom is now actually run by a Dutchman. One of the mobile companies has a chief executive who is American. One of two deputy chief executives in BT is French. We benefit hugely from the range of expertise that having these executives come into the U.K. has delivered.

    As you can picture, I am a wholehearted advocate and exponent of competition in the telecommunications sector. The U.K. government, as it moves toward this new converged world we're all struggling with, has taken some quite big decisions in terms of other parts of the communications market. It is releasing the restrictions on foreign ownership of two independent television channels--ITV and Channel 5. The government believes that all of the national interest it needs to preserve in terms of independent production quotas, the quality of programming, and the news output can actually be delivered through regulation that the new regulatory body will put in place. We're also liberalizing the ownership of the radio world in the U.K.

¿  (0950)  

    Quite deliberately and quite specifically, we are moving towards a world where foreign investment or foreign ownership is seen as producing benefits. Where social and quality constraints need to be imposed, we see ways of doing this through regulation, like touch regulation, backed clearly by the full authority of Parliament.

    Thank you for the opportunity to set out my personal view, based on the experience of five years.

    Claire Durkin, who is with me today, is a senior civil servant from the Department of Trade and Industry. Perhaps she could introduce herself and add anything she would like to my opening statement.

    The Chair: Thank you very much.

    Ms. Durkin.

    Ms. Claire Durkin (Director of communication networks, broadband and Internet policy, Department of Trade and Industry, Government of the United Kingdom): Good morning.

    I'm a civil servant and director of communication networks, broadband and Internet policy in the Department of Trade and Industry. This effectively means that I'm responsible for the regulatory framework that created David and keeps an eye on him, and which is creating OFCOM, the regulatory body that will cover culture and media as well as telecommunications. The legislation is going through Parliament, and my staff are taking it through Parliament in the U.K. right now.

    I would simply like to say that as a civil servant who obviously represents the government, we certainly fully endorse everything David has said. The department's focus is on productivity and enterprise, so the policy across the whole department is to strengthen our economy in terms of the productivity of U.K. companies.

    Our experience over the last 15 to 20 years has certainly been that inward investment has been a stimulus far beyond the stimulus of the considerable finance coming in—amounting to some $50 billion a year in inward investment—but a stimulus in terms of ideas and activity that has been of tremendous benefit to a very small island.

    I have to confess that when I first took up my post to look into telecommunications, it was entirely new to me that Nortel was Canadian. It was a big, fantastic company, with some fantastic offices doing some fantastic work in the U.K., and it acts like a U.K. company in the same way that others act as U.K. companies. So the inward investment from Canada has certainly been nothing but good, as far as we can see.

    I look forward to the debate this morning.

    The Chair: Okay.

    Mr. Fitzpatrick.

    Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): Thank you very much.

    From what I can gather, listening to the testimony, the liberalization of the ownership restrictions in the U.K. is far ahead of that in most other countries in the world. You're a leader. From what I can gather, the winners in this process are improved service, reduced cost, and better choice for the consumer. These seem to be the benefits flowing out of this.

    Among other concerns here, the big concern is that if you lift ownership restrictions on the network or delivery system, somehow Canadian content and culture will be the big loser. Has this been the experience in Great Britain, that British culture and content have been sacrificed or diminished because of these liberalized ownership rules?

    Mr. David Edmonds: In the telecommunications sector, which is basically a network, it is absolutely indistinguishable what has happened. I referred to the fact that three of the mobile networks are foreign-owned. As a mobile phone user, I don't give a jot whether it's run by a German-owned company, a French-owned company, or a Hong Kong-owned company. It doesn't show in my end service, because what I do know is that I'm getting competition and some of the lowest prices in the world. What I do know as a consumer is that the impact of the two major cable companies coming into the U.K. has been a huge incentive for the domestically run networks—both independently owned and British Broadcasting Corporation owned—in terms of the range and quality of the services U.K. consumers have been provided with.

    Of course, one important issue is that we have a must-carry obligation, which I think exists in Canada as well. If you have a company coming in that provides a range of cable and telecommunication services, the legislation enforced by me—and to be enforced by OFCOM—says that they must offer carriage of this on their networks at no cost. So the homegrown cultural programs of the independent television commission and the BBC are fed through the cable network, which has no option but to carry it. It is there.

    I haven't mentioned this, but it's apposite to your question that the Australian-owned Sky, or Murdoch's News International, satellite operation has been growing immensely quickly in the United Kingdom and has been a huge stimulus to the quality of services provided by the domestic producers. Now, Sky, which owns the satellite, has an obligation to offer to the BBC and the ITV—which are proxies for the domestic industry—access to their platform and encryption methodology at a fair, reasonable, and non-discriminatory price. If there is a dispute, I actually set that price. So the ITV stations and the BBC go on to the Sky satellite, and pay a fair, reasonable, and non-discriminatory price to beamed back into the home by it.

    Notwithstanding the arrival of the massive News International or Sky Broadcasting Corporation, you see in the U.K. that satellite channel continuing to beam back the whole range of U.K. programs. But above all, through investment by a foreign company into the U.K., you see competition for the U.K. consumer in terms of the much wider range and provision of services, including sport. Thanks to a foreign competitor coming in, all of us are seeing much more domestic football, cricket, and tennis now than we ever did before.

    So my answer to your question is I have not seen any evidence of the diminution you alluded to.

¿  (0955)  

    Mr. Brian Fitzpatrick: In Canada, the cable industry is regulated separately from the telecommunications sector. With convergence and so on, a lot of people are really questioning the intelligence of having two separate regulatory regimes in place to deal with something like this.

    We've heard no end of fear-mongering that cable is something sacred. It is said that it has to be Canadian-owned, that it would be just terrible if Canadian cable were owned by or there were a big stake in it by foreign investment, because it would just undermine, destroy, and block out Canadian content. From what I'm hearing you say, it's been the exact opposite in Britain, that having expanded services and so on through liberalized investment rules has enhanced British production content.

    Mr. David Edmonds: I profoundly believe it to be the truth, but it would be impolite of me to comment on what happens in Canada. All I can say is that the impact in terms of variety and choice, and the driving out of higher standards of programming across much of the television and radio sector in the U.K., has owed a great deal to the introduction of competition.

    If the cable networks had not come in some ten years ago and were competing in just telephony, and not in the carriage of a whole series of new channels, we would not have had the enormous stimulus to the homegrown companies we have had. I think we see some very high-quality programming.

À  (1000)  

    Mr. Brian Fitzpatrick: I'd like to make just one further observation. Maybe I'm off base on it, but I appreciate British programming. I'm trying to recall where I have watched most of it in the past ten years, and it seems to me, as unusual as this may seem, it comes through American providers who get into our system, such as the Public Broadcasting System. In some convoluted way, maybe the American access to our system has helped to promote U.K. culture in this country.

    Mr. David Edmonds: I hope so.

    I would also refer to your question about divergent regulation. I think what we are trying to do in the U.K., which is to move towards converged regulation, is very important. I think there are some very real issues underlying your question—and you're hearing from me, as I said at the outset, as me.

    There are people in the U.K. who fear that if we move towards, for example, an American company taking over our two independent television companies, which currently have about 25% of audience in the U.K, there could be an impact on U.K. culture. That's a real anxiety that is expressed in the U.K. I'll give you an honest answer to that.

    The answer, I then believe, is for the new regulatory body, OFCOM—of which, incidentally, I'm going to be a board member; I stop being director general and I then move onto the board of the new company, so I have a huge interest in your subject—to stipulate where production should be, how much should be homegrown, how much can be imported, how much should actually come, very interestingly, from independent production companies.

    Underlying your question is an interesting question. Should you actually stimulate competition to the indigenous broadcaster? It is a U.K. policy objective to stimulate competition to the main companies, to the BBC and to the independent companies, through saying to the independent companies and indeed to the BBC that a significant proportion of their output shall be produced by independent companies.

    With a converged regulatory regime, backed by Parliament.... I profoundly believe the underlying principles of national culture, an approach to sovereignty in the way you've described it, should be set by Parliament, not by the regulator. The legislation currently going through Parliament is going to set out some basic conditions of the content of the independent companies, which the regulator will have to apply. Even after liberalization, if large chunks of the presently British-owned television industry and radio industry were to be bought by foreign companies, exactly the same stipulations on production would apply as apply now, and indeed they could be toughened up.

    Ms. Claire Durkin: If I may just add a specific example of this that you may not be aware of but I think is quite relevant to your country, we have a channel called S4C. It's a Welsh channel, and it is obliged to convey programs in Welsh, and obliged not only that it be in Welsh but that certain standards of programs, a certain quality of programming, be maintained. That continues irrespective of whosoever might own that channel. The obligation is to provide those programs in Welsh to that quality.

    The excitement, as far as the government is concerned, is to get new skills and initiatives there, and to regulate as much as they think is necessary to ensure the culture is maintained. It is not completely abandoning those interests. It's just maintaining them in terms of parliamentary regulation rather than ownership.

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

    Mr. Marcil.

[Translation]

    Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Good morning. If my understanding of the way you liberalized the telecommunications market in the United Kingdom is correct, you opened up the market to all companies interested in investing, but from what I understand, that was done very cautiously. I would like you to take a few moments to explain what steps were involved, since you said that a cautious and gradual approach was used.

    First of all, you understand our system. There are no government-owned corporations as such. Bear in mind that Canadian companies own the telecommunications companies here. Our regulations do not allow foreign companies to purchase Canadian telecommunications or broadcasting companies. So it is not privatization, but rather liberalization or deregulation, in that the market was opened up to foreign companies.

    You achieved that using a cautious and gradual approach. Could you explain the process to me and tell me how long it took, more or less?

À  (1005)  

[English]

    Ms. Claire Durkin: Certainly there were timelines, and 1984 was a big step. I am, alas, old enough to remember it from the outside, and it was really quite an impact in Britain. As you say, you're in a position of liberalization, and this was privatization, and it was an early privatization. It was earlier than many of our other privatizations.

    There was quite a sense that telephones are the infrastructure of the community, they're publicly owned and therefore for public use. It was a big, radical step at the time. It's very hard to believe, but it was. That's why it was done cautiously. There was a sense that it was moving into the private sector, but it was nevertheless a very serious single organization.

    What we set up was a duopoly. We, the government, put a lot of effort in creating a second organization. That second organization, called Mercury, had a fairly limited role in the network. So what we did, really, if you go from 1984 to now, is we proceeded in stages. In the early 1990s we took a further step of trying to open it up further to carriage, and then the biggest step was in 1997, when we swept away all restrictions, except for one very important one, obviously, which is national security.

    Again, I want to emphasize that none of this has ever been done carelessly, and if there were any sense of threat to our national security, the government would step in. But with that one exception we've done it step by step, I think in order to take the confidence both of the country and the industry with us.

    When we established OFTEL, it was to try to--because we had a state monopoly--tackle that state monopoly. David will speak on the role of OFTEL in that liberalization process. The more interest there was in the network, and the more competition there was in the network, the more we felt as if we could withdraw and then we got to the liberalization process.

    I have to say, the reason we have done it step by step is because at each step we found huge benefits. It was after the benefits of three or four years that we were confident in order to take the next step forward in terms of the liberalization process. The liberalization in 1997 was because we were really confident in a fairly vibrant market. We wouldn't have got that, I think--and I'd be interested in David's comments on his role--without the competition. It was straightforward competition, and it was cable that provided it, but it was cable for telephone services that really mattered. But the telephone services provided by cable were of course entirely content-neutral. There was no impact on the individual.

    I'd like to say, in terms of the individual, the whole of the provision is content-neutral. I know if I weren't doing this job.... Certainly none of my friends have a glimmer of who owns what of the process that comes into their homes in terms of the fixed telephone networks, because we have choice there too, and certainly in terms of the mobile it is content-neutral.

    Sorry. To get directly back to your point, the steps have been there only when we've been confident that it's been safe and sensible to do so, so we've been reasonably cautious. It's this logic that has left us in the position of being the most liberalized sector.

[Translation]

    Mr. Serge Marcil: Before you go any farther, I would like to add another element. Everything seems so clear and so easy when we talk about telecommunications, in other words telephony, cell phones, and so on, but in your remarks you raise a point that Mr. Edmonds also raised with respect to basic content. The cable is a distributor, an infrastructure for distribution, but today there are more and more companies that are integrating both distribution and content as such. Earlier on, you said that the U.K. seems to be somewhat concerned about its cultural sovereignty.

    Today, how can you intervene to prevent foreign companies that already own telecommunications companies in the U.K. from interfering or becoming too involved in content and how can you prevent that from having an impact on British culture? I am not sure if you understand my question.

À  (1010)  

[English]

    Mr. David Edmonds: I think that the concept of cultural sovereignty is extremely interesting. I suppose I'd answer your question, sir, in two ways.

    First, I think that the timeline you asked for, which Claire described in her answer, has been accompanied by a growth of regulatory understanding and has been supported by regulation at all stages, which has focused on opening up networks, opening up access, and providing more choice. But it has been in a way, as I said in my opening remarks, that has always looked at the U.K. consumer as the be-all and the end-all of policy.

    I don't exist as a regulator to support the interests of the telephone companies, of the cable companies, or of Sky or any of the major companies. My job is to ensure that marketplaces operate in a way that benefits the consumer. Now, the definition of an economic marketplace is much easier to make than the definition of a cultural marketplace. Indeed, maybe the concept of culture in the marketplace has a degree of tension within it.

    But I think there are two answers to your question. The first is one I tried to give before, which is if the impact of foreign ownership or different ownership--it could be a quite different owner--is to enhance the quality of the service being offered to the consumer.... Or maybe in this case let's use a different word, the citizen, because there is a difference between a citizen and a consumer; I think the concept of the citizen is much more rounded and has many of the understandings that underlie your question. If the citizen wants high quality and a wide range of service and the citizen then perceives that this is not happening with his domestic supplier but that he or she can get a better service from the new player, it's a major incentivizer on the domestic producer, the domestic company. So I believe that the sheer fact of competition and the sheer fact that market share may be declining should actually invigorate the home industry. That is my first point.

    My second point is the one I made before, which is that with intelligent regulation you can actually set standards. I think you can set quality standards.

    One of the things the new regulator, OFCOM, is going to do is to demand of each of the television and radio companies that they provide an annual statement of their objectives. The purview of OFCOM, the regulator, backed by the national legislation, will include issues such as national production, quality of programming, diversity of programming, impartiality, local news, and local coverage of regions within the U.K., a whole series of areas that I think exactly go to the heart of your question. They are going to be set out in the background regulation, and it will be the job of the regulator to ensure that in this world those services are provided and that those conditions, if you like, inherent in the licence that is given to the new company are actually met.

    I genuinely believe that there is a real crossover in the translating of our experience in the telecom sector into the world of media and communications--the product, the programming. I also genuinely believe that it is possible to produce the safeguards you allude to and that those safeguards actually come more from an obsession with quality, an obsession with those kinds of things I've mentioned, than they do from ownership concerns. In a way I think ownership may be much less relevant than the quality standards you as a Parliament, your government, or the regulator backed by Parliament puts into the company. I do think there's a way of squaring the circle, but there will of course on occasion be tensions.

À  (1015)  

    Ms. Claire Durkin: I had mentioned at the beginning that my responsibilities were for the communications networks but also for Internet and broadband. I think the government recognizes that with the Internet everywhere now it's absolutely impossible to build stone walls around us and to maintain the content we as government would choose for our people. It's gone.

    I think therefore the stimulus has been to ensure that we have a vibrant homegrown media market in order to actually be able to compete because we have to compete now. We just can't protect ourselves. The doors are open. Therefore, the government honestly believes that getting more investment into that area with the investment coming from wheresoever does actually stimulate the vibrant market.

    We are in a comfortable position. We do have a very strong media content market in the U.K., and U.K. citizens seem to quite enjoy watching it. Perhaps that tradition has sort of kept us more comfortable with it.

    If I could, I'll move into another area where there's actually somewhat more concern politically, and that is newspapers. As I'm sure you as Canadians know, we have a very long tradition of Canadians owning U.K. newspapers. The sense of political domination rather than social and cultural domination has been something we've thought about, obviously, all through the last century.

    Again, we've chosen the solution of trying to maintain competition rather than trying to block ownership. It's the maintenance of competition that's actually going through Parliament at the moment. We're changing that regime in newspapers. It's liberalizing but it's maintaining competition in order to get political balance and thus in the broadcasting arena to get quality. It's not blocking any more investment, it's just regulating to ensure that we have the balance we require.

    I think that with the Internet we know that there's absolutely no way we can just stop things from happening.

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

    Mr. Rajotte.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman, and thank you, witnesses, for coming in today. The presentations are excellent.

    I wanted to ask this first of all. One of the topics we've been dealing with is the issue of broadband penetration. Obviously, with the way Canada is, its geography being so immense and the population largely concentrated near the U.S. border, you have this large land mass with a relatively low number of people. In one of the debates some people who have come before us have said, well, if you allow more competition in the telecommunications sector, this will mean more services to those areas. Other people have come before us and said the exact opposite, that in fact what the telecommunications companies would do with the increased competition would be to focus more on the urban and suburban areas.

    I'm just wondering, just based on your experience, could you indicate what the pattern was in the U.K.?

    Mr. David Edmonds: If I could go back to Claire's answer about one of the stages on the timeline of liberalization, it opened up access to major new infrastructure suppliers to the commercial sector in the U.K. In the early 1990s we saw companies such as Colt, 100% funded from abroad, creating a massive ring infrastructure and then two other major competitors, Cable & Wireless and a company called Energies, which were both homegrown, as well as the incumbent, British Telecom, all competing in our equivalent to your strip that you described. So there are now great big rings going from London to Bristol to the Midlands to Manchester to the northeast of the country, and there's huge competition for the major user.

    Equally, as broadband has been rolled out, and we are behind Canada in terms of the spread of broadband, the first concentration has been in the more populous areas of the U.K. I think there is no doubt at all that the commercial impetus moves you toward the areas where you're going to make more money quicker. What we're now doing is working very closely with the local authority sector--we have some bodies called regional development agencies--on how we can both aggregate demand and stimulate through other means the rollout of technologies into those areas. I think we have a lot to learn from Canada, to be honest.

    The short answer to your question is that we have far more broadband in the urban areas. We certainly have a massive amount of competition in the commercial sector, which does give the U.K. an incredible competitive advantage.

    The upside to your question, if you look at it in U.K. terms, is that because of this, we have very concentrated competition in the big areas and a dominance in the provision of the new call centre technology. We get a much bigger proportion of investment into the U.K. for industry that is communications-based from Japan, America, and the rest of the world. We have a hugely greater share than we ought to have in terms of our population thanks to this infrastructure. So there are some major upsides.

    But the downside is the one you pointed to, and we have yet to crack it. It's one of Claire's main objectives in life.

À  (1020)  

    Ms. Claire Durkin: It is one of my main objectives in life. I thought I had come up with some quite good ideas. Then I read about my minister's visit to Canada, and you seem to have come up with those quite good ideas about six months earlier. But that's good.

    What we've seen is a reluctance on the part of our incumbent to move into broadband. So we are a year behind you, easily. That changed because of competition. Others started to move into broadband, and they realized that they were losing out. So it has moved extremely, dramatically quickly in the last six months, because they realized there is the danger of losing out. You're quite right, it moved in the urban communities where they hoped to be able to make money.

    I have working for me what we call the U.K. Broadband Task Force. I note that Canadians also have a national broadband task force, and yours came first, it's true. It's trying to stimulate action outside the urban areas. Very quickly small companies started to recognize that there were business opportunities there because there would be help from government. Small communities and small businesses therefore were starting to think of those opportunities, interestingly enough very much along the lines that I read in The Globe and Mail this morning, looking at lots of different technologies. Within three months the incumbent has noticed activity in the small communities and has moved in very fast indeed.

    We have a very interesting example in Cornwall, which compared to you is probably not, but for us it's an extremely rural area. It's very small compared to you. It was absolutely unlikely for it to have broadband rollout at all, but with the partnership of business, the community, the incumbent, and the rural development agency, it has been completely broadbanded. In the community next to it, where we did not have that partnership, nothing has happened. Within the next six months it's my objective to ensure that there is big turn in rural communities for broadband, a big wake-up.

    I said at the beginning that our real objective is productivity. Also, we have an objective of government more broadly in terms of rural regeneration. I see it as absolutely critical that we get broadband out there. As you have on your border, we have far too much concentration in the southeast. So we see it as a really major U.K. opportunity to get broadband out there and to use every technology and every which way we can to get the competition from the small companies and the incumbents. I know you're planning exactly the same thing, and I'm hoping very much to learn in the next two days exactly what you're doing and to steal all the ideas I can.

    Mr. James Rajotte: Thank you for that. It's interesting that you said the incumbent was hesitant to get into broadband. If we look at high-speed Internet access in Canada.... I'm from western Canada, and our major incumbent telecommunications provider, Telus, for years was into the slower-speed access to the Internet, but was moving, I would say relatively slowly, towards getting into the high-speed Internet. But then the cable company—Shaw Cable, which is quite dominant in western Canada—moved very aggressively into the high-speed Internet, and now both Shaw and Telus offer very competitive high-speed Internet. I think it's the same situation for us here in Canada, where competition really drove it.

    That leads into another big issue. You talk about the U.K. approach to convergence. One of the main issues for us, even though we're looking at telecommunications and the foreign ownership restrictions there, is the cable companies are arguing that you cannot look at them in isolation because of issues like broadband or convergence; they're competing directly, so if you lower the restrictions for the telcos you have to lower them for the cable companies. I would assume you agree with that, but I just wanted to get you on record and to see whether you have any detailed comments on that.

À  (1025)  

    Mr. David Edmonds: Far be it from me to comment on a matter of domestic Canadian politics.

    From the position of my opening statement and from all my answers this morning, quite clearly my belief is that freedom and liberalization enable a release of innovation in companies, and that innovation has been almost wholly beneficial in the U.K. That's the first point I'd make.

    The second point I'd make is that work we are now doing in the U.K. to create this converged regulatory agency, where we are going to be looking at companies across the whole sector, whether it's satellite, cable, fixed wire, wireless, or terrestrial television—where we're going to be looking at all of those from exactly the same set of rules and standpoints—clearly brings me to the same answer. Who owns it or runs it, it seems to me, is in the U.K. experience broadly immaterial. What matters is first the quality of the products you get, and in economic terms there is no doubt that the quality of our product has improved and the range of services has improved.

    In cultural terms, I gave the answer previously to your colleagues. I would argue, and most people in the U.K. would also argue, that we have seen benefits coming from the diversification of investment and the diversification of management. I actually think it is very interesting when you talk to a Frenchman who is running the domestic side of our incumbent British Telecommunications. He has different ideas. He comes from a different cultural background. It's absorbing listening to him, because he has a different focus from, if you like, a homegrown Brit. It's equally interesting talking to people in the Sky corporation, News International, about the way they regard the viewer compared with how the British Broadcasting Company regards the viewer. I think that mixture, that competition of culture in a way, can bring benefits as well.

    As you can hear, I'm an unreconstructed liberalizer in this particular marketplace, because I haven't seen anything go wrong so far. That's not to say it won't, but in five years sitting in this job looking at the telecom sector, looking at television and radio, it's been almost all upside.

    Ms. Claire Durkin: I think I would just simply add that with such a fast-moving industry and with convergence happening—I mean, there's very little point in putting a paper bag over our heads—we really cannot see how we can maintain a vibrant, first-class industry without strategic regulation, rather than different-siloed regulation. It's with strategic regulation that ours will be sufficiently vibrant that I hope it will be at least one of the best in the world.

    The Chair: We'll be back.

    Mr. St. Denis.

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

    Thank you very much for being here. It's extremely helpful. As I've said to other witnesses, I'm coming to our study with the idea that we should look at relaxing the rules. So to the witnesses generally, show me why we shouldn't. I think you've made a good case in my mind that there really are no major shouldn'ts.

    I'm sure this new bill you're shepherding through Parliament is on a website. I think it would be very helpful for us to have information on that, because we always look for best practices within our own country and elsewhere. It would be very educational for us to have a closer look at that.

    Just for clarification, Mr. Edmonds, in your current role as telecom regulator--and you've explained that you would be part of this new office of communications regulation, a broader-based regulator--what are you exactly regulating if there is open ownership? What is a typical day like for you? What are you getting paid to do?

À  (1030)  

    Mr. David Edmonds: That's very interesting. I sometimes ask myself why I am here. Anyway, I won't go into that.

    Yes, the bill is on the website, and it can be downloaded. I have to warn you it's 400 pages long. It has over 300 clauses and is not the most clearly written piece of legislation I've ever seen, in spite of my friends and colleagues in the Department of Trade and Industry. It's actually a bill that's been prepared by two departments working closely together, the Department of Trade and Industry and the Department for Culture, Media and Sport, which is why all the content stuff is in. But it is there, and it's just about comprehensible.

    There's also on the website a very comprehensible explanatory document that sets out what the bill is supposed to do. It is written in English, as distinct from lawyer-speak.

    What do I regulate? Most of the last five years has been spent in a continuing drive to create more access into the networks of people who have market power. The fundamental concept of economic regulation of telecommunications is to look at a marketplace to see if a player in that marketplace has a position that allows it to move its prices. If it can move its prices and other people don't have to follow suit, we perceive it to be dominant.

    A typical working day over the last five years will have included major pressures on the incumbent, British Telecommunications, to open up its network. The unbundling of the local loop created a vast amount of work for me and something like 30 separate directions against BT.

    I've recently mandated the opening up of BT networks at a much higher level in the network so major competitors can actually plug in their networks and get access at lower prices and with a higher degree of capacity and functionality than before. So opening access has been another major thrust.

    I recently ordered BT to bring down the prices of the lines it in effect leases to major corporations, where I again determined it was dominant in the marketplace and its prices were too high. This is a private sector company, don't forget. I'm regulating a private sector company, not a nationalized industry. I reduced prices by about half, with enormous benefits to industry.

    On another example, I have just won a case in the competition commission that went on for a whole year. I determined that although there was good competition in much of the mobile industry--in the U.K. the calling party pays, basically--the charges being levied by all the mobile networks for interconnection to another mobile network were much too high. I've just put in a price control that will reduce their prices by 15% this year and then by 15% for another three years. So I'll halve the price for interconnection into mobile networks.

    It's interesting that as we've moved from a world where originally we were solely concerned with ensuring that the incumbent charged economic prices to its competitors, we're now in a world where access is paramount.

    If I can give you a final example of what a regulator does, there's the whole issue of what price should be paid for transmission on satellite by other production companies. I recently had an appeal by the independent television companies, which have about 25% market share in the U.K., that the News Corporation's Sky was charging too much for access to the satellite. I held a hearing into that and determined a price at the end of that hearing. So that's what the telecom regulator does in the U.K. Much of it is absolutely apposite to your inquiry because it's all to do with access, competition, and widening access.

À  (1035)  

    Mr. Brent St. Denis: Will much of this be imported into the new legislation? These powers will still exist under this new office. Will there still be two departments and two ministers politically responsible for the infrastructure and the content, at the end of the day?

    Mr. David Edmonds: All the powers I now have and some more—and I won't confuse you by adding that, as we're now part of the European Community, many of the powers I have are set by directives made in Brussels—basically all the powers I've just described, yes, do carry on into the new world.

    I'm also a competition regulator. I have powers identical to those of the Director General of Fair Trading, so I can decide whether to investigate using Competition Act powers, or I can decide to investigate using licence breach powers, and all of that carries over into the new world.

    I'll answer your last question in a moment. The new regulator will be totally converged. All of the five existing regulators are being, in effect, disaggregated and rebuilt. The issues to do with access, which I now deal with, will widen; issues to do with market definition will widen; spectrum allocation, instead of just being done by a technical authority, and the radio authority, and the independent television authority, would all come into the same outfit. We as a board, and there are only six of us, are going to be a totally converged board. We will look at these issues in a quite different way in a converged world. I think there will be some initial frictions, but we are going to try to deal with this in a totally converged way.

    Mr. Brent St. Denis: But political oversight...

    Mr. David Edmonds: Political oversight: I'm just trying to find a tactful way of answering your question.

    Ms. Claire Durkin: Perhaps I should.

    Mr. David Edmonds: Go on, then.

    Ms. Claire Durkin: The answer is yes, there will be the two departments that continue to have their oversight of interests. But last year the U.K. Parliament passed the Enterprise Act, whereby the Secretary of State—the government—stood back far more than it ever has before on competition issues. The Office of Fair Trading, which is our main competition authority, is now statutorily independent, and decisions on mergers, decisions on market investigations—the final decisions—are taken by the regulator, not by government.

    That, for us, is a very significant step. It is carried over, slightly watered down—I'll explain—by the new Communications Act, in that the new regulator will be independent of government on almost all of its decisions. So while it's true that the two secretaries of state will have in their brief an interest, and will be liaising, they won't really have a great deal of direct policy input into the regulator. They will have some powers of direction, but they're very limited. On the whole, the regulator is supposed to be independent from the two government departments, but—and I'm sure you understand how these things work—the two government departments will maintain an interest.

    Mr. Brent St. Denis: I gather from your comments, which are very helpful indeed, that it is possible to separate issues of content from the pipes, from the distribution infrastructure and what has been in the pipes. As was described by colleagues, because cable has a longer history here and there is allegedly the interest of cable companies who own the infrastructure, who may also own production facilities, there's a suggestion that they are able to use that interlinkage to control content. But it would seem from your experience, and going forward, that this can be handled through regulation.

    Ms. Claire Durkin: One area where I think it's very important that we've gone for convergence rather than silo, because of this, is in the Internet. You can get some Internet service providers where there will be something going on that we don't like—and I'm sure there's as hot a debate in Canada as there is in the U.K. on that—where you can fall between stools. Are you actually dealing with content here, or are you actually dealing with service provision? The more we are fitted to the nineties, the more danger there is that we're going to be completely irrelevant to what's happening in the next ten years. That's why we're very anxious that we have a regulator looking across the board and looking strategically, rather than in a nit-picking style or mentality.

À  (1040)  

    Mr. Brent St. Denis: That's very interesting. Rather than try to create governance structures that artificially impose structure on the industry, better the industry should change naturally; let's have governance that mirrors that, as opposed to the other way around. Is that the silo versus...? In other words, is that having convergence in governance, as opposed to worrying about convergence in the industry?

    Ms. Claire Durkin: Exactly, and it's not only that we should be mirroring what they're doing, but actually we have to anticipate what's going to happen. I think there is no way we're not going to have more convergence and more international technologies. I think that's where we've had to take a deep breath and think we just have to go for it, or we'll find an awful lot that we dislike.

    Mr. Brent St. Denis: Can I maybe conclude by asking your opinion? When you go back to 1984, the first of your many bigger steps, arguably even if we went to full-blown, 100% ownership in one step, it's a small step by comparison, because we're not going from a state-owned industry. So do you see the need for us to go part way before going all the way with opening up ownership? It was suggested by an important witness that maybe there's a way to go part way, but I just wonder whether it's worth the trouble of splitting a modest step into two smaller modest steps. Do you have an opinion? Are we worried about something that's not worth worrying about?

    Ms. Claire Durkin: It is not for me, as a civil servant in the U.K., to anticipate your views. All I would say is, reflecting on 1984, which certainly looks very cautious now, it was very big at the time. If I were moving--and some of our sectors are less liberalized than others--I think I would want the comfort that both the industry and the users knew what was happening and were comfortable about it. If by going in two steps instead of one you maintain that, it seems to me a price worth paying, but if you feel as if there's a comfort there already, I don't see the caution.

    Mr. David Edmonds: May I, Chair, add to Claire's remarks?

    The Chair: Yes, please.

    Mr. David Edmonds: I'd be rather more courageous in my answer--again, not to advise you, sir, because clearly what you do is solely for you.

    If I may talk about my experience over five years, if you do the consultation.... Through this bill, we've had two years, nearly three years, of massive consultation. The bill actually was printed as a draft bill, and a joint committee of the two houses of Parliament sat for four months and took evidence, very much like today, from witnesses, including me, about the bill. So there was a huge degree of conversation about how the bill might work, before it was finally introduced into Parliament, and that was, in the U.K. context, quite revolutionary and incredibly useful.

    I think the fact that members of both houses sat together and produced a better bill--the chairman of the committee produced a report that had some 100 recommendations to government, most of which the government accepted--means there is a bill there that now is in pretty good shape. It's flying through the House of Commons with very few amendments, partly because of all this pre-scrutiny, which is good.

    I believe, actually, there is now sufficient experience, certainly in the U.K. marketplace.... And I can't comment on the relationship between Canada and the U.S.A., which does have different issues, I know, from those we face. I know in the U.K. context, I would do the consultation bit. I'd have in place the kinds of safeguards of content, whether it's codes of practice, whether it's production minima, whether it's geographic location, all these kinds of issues. I'd have all that in place, and then I think I would go for it in one.

    There is so much world experience out there now about the benefits to the consumer and the citizen that I would probably, were I working in an environment where it was possible to go in one stage, take the one-stage route.

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

    I'm going to go to Mr. Rajotte, Mr. Marcil, and then take a couple of questions from the researchers, because I know time is going quickly and there's duty in the House.

À  (1045)  

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

    Our Department of Industry has prepared an overview of the telecommunications debate for us as to whether we should lower the foreign ownership restrictions or not, and they have put forward three possible approaches the committee should certainly look at. I want to ask you about two of them.

    One approach is if we lower the restrictions, Canada would look at instituting a licensing regime. Most of the companies that have come before us have been certainly not favourable towards this. I'd like to get your comments from your perspective on that.

    The second approach I'd like you to comment on is establishing what has been called a two-tiered approach, whereby we allow new entrants or competitors, the smaller companies--smaller in the sense that they're not as dominant in Canada--to have more access to foreign capital, but the large incumbents, like Bell Canada, would be more restricted, at least in the interim period.

    I just want to get your comments on those two approaches.

    Ms. Claire Durkin: It's interesting, asking the U.K. about the licensing regime, because what we're doing in this bill is getting rid of our licensing regime, but not because it was ineffective. I think it proved, actually, over the last twenty years, quite an effective measure in, first of all, giving confidence to who was moving into this area--as I said, in the 1980s, it was really a brand-new world for us--and secondly, making sure that use of spectrum is responsible, and so on. So it has proved relatively straightforward. It hasn't been too cumbersome, and I think it has been reasonably successful.

    Moving from that to the new world of non-licensing is, I think, proving a step reflecting confidence, really, in the market, that actually nobody has broken into the market wildly and nobody is doing anything crazily, and when they move into the markets, they have rights and responsibilities. So in a way I think our new approach is a reflection of a mature market. But there are rights and responsibilities, and the regulator will come down like a ton of bricks if those rights and responsibilities are not fulfilled properly.

    So we aren't being high-handed, but we are removing this system of licensing, as we will right the way through Europe. It's a European directive that we are implementing. I think, to be honest, it's a more effective way of approaching the whole issue, if you think those rights and responsibilities can be sensibly regulated, and I think we do have confidence in our regulator.

    On the second one, again, I can't honestly comment at all in terms of the Canadian picture, which I know is very different, and it would be wrong of me even to presume to do so.

    In terms of the U.K. picture, I think it would be an awful thing to do, because we don't actually want a great, soggy, not-very-competitive incumbent just sitting there half-dead over the network with lots of nice vibrant little ones picking out bits and pieces. That's not the picture I have of media ownership.

    I want a really quite sharp, actually, fit incumbent that's no longer an incumbent because all the others are also sharp and fit. So I really feel very strongly that if we are really successful, in 20 or 30 years we will be regulating in a classic competition way, and that's all we will need, because it will be such a mature market and it will be a vibrant and competitive market. To achieve that, we need level playing fields for all the businesses.

    As I say, I'm only speaking in terms of the U.K., but I would certainly advise my ministers against the second one.

    Mr. David Edmonds: If I could add a rider on the first answer, Claire of course was answering your question in the context of the telecoms marketplace, where licences disappear. In television and radio, licences will continue to operate, and in those licences, the kinds of conditions to maintain cultural, social, and other goals that government wants will be incorporated. So there will be, if you like, a twin track, which actually creates one or two difficulties of its own, but certainly in terms of a straightforward radio or television company, a licence will still be needed in the new regime, but not for telecom at all, no.

    On two-tier, I totally agree with Claire. If I can go back to a statement I made in my opening remarks, the sharpening up that's now happening in the U.K. through the involvement of Hutchison, a Hong Kong firm in third generation, is quite remarkable. I have no doubt whatsoever that, for a variety of reasons, including the major decline in the overall sector's economic health, the four incumbent U.K. companies would be sitting on their hands waiting to roll out 3G. The fact that Hutchison is coming in with foreign capital has really focused their minds on delivery.

    It's interesting that in the U.K., you now have a French-owned, a German-owned, and a Hong Kong-owned...three mobile companies competing against two incumbents, and I think it's giving us some very good results.

À  (1050)  

    Mr. James Rajotte: So the licensing regime will stay for radio and television. So the same regulator will apply their licensing regime to radio and television and then will not apply the licensing to telecommunications.

    Mr. David Edmonds: In fact, in the telecom sector, to be honest, licences at the moment are broadly irrelevant. If you turn up tomorrow and come into OFTEL and the DTI and ask for a licence, you get one to provide a resale service. There isn't a barrier to getting a telecom licence.

    There is a barrier to getting a radio or a television licence, because of spectrum. With your licence, in effect, comes the ability to use a particular piece of spectrum. But the licences for the big companies, the big independent companies, are clearly heavily conditionalized, and those conditions will flow through into the new legislation.

    Mr. James Rajotte: I just wanted to clarify something, though I know you've touched on it a fair bit and that I should be clear on it.

    Under the U.K. approach to convergence, you talked in paragraphs 17 to 19 about the single regulator replacing the Office of Telecommunications and the four regulatory bodies, and about the communications bill now before Parliament.

    In Canada, our Telecommunications Act and Radiocommunications Act both come under the Department of Industry, and the Broadcasting Act comes under Heritage Canada. We tend to have some tension between the two departments.

    What is the comparative situation in the U.K., and what is it changing to? These three paragraphs show that it seems to be changing in the U.K.

    Mr. David Edmonds: It is changing. I know that Claire will also have a view, because she works in one of the two departments concerned.

    As someone who has been at the heart of the process of creating the new regulator, I argued and worked very hard to create it. I'm now working even harder to try to produce a really good organization.

    Yes, there have been tensions from time to time between the Department of Trade and Industry and the Department of Culture, Media and Sport, which is responsible for television and radio and content. To a very large degree, the tensions have been removed throughout the production of the bill through setting up effective coordinating machinery. In effect, a joint bill team was created and put into effect. The teams sit together, and every submission on what should go into the bill goes to both secretaries of state or both junior ministers.

    Very interestingly, I think we've actually created a different way of two government departments working together, in the knowledge that the potential tension and fusion that could come through the kinds of divisions that perhaps existed in the past could destroy what we were going for, which was convergence. This has been the objective of the two government departments.

    From my perspective, all I can say is that it's worked far, far better than I'd dreamed it would. It also has had something to do with a strong personal relationship between two secretaries of state, who have worked very closely together on the bill, and a strong personal relationship between the two ministers of state who have also worked on the bill.

    Maybe it would be wrong to conclude that everything in this particular garden would always be rosy, but certainly over the last two years it has been a quite remarkable example of government working together.

    Ms. Claire Durkin: Yes, irrespective of the personalities—who, heaven knows, change very regularly here, and I'm sure change very regularly in your arena—if we had maintained the split between the culture on the one side, and the structures on the other side, those splits could have gone in divergent directions. There would have been more clashes, not fewer.

    By acknowledging them and getting them to discuss...what happens is that we're actually looking at the industry rather than looking at the two silo communities. The same business or industry will be arguing in two different directions, because of the two different interests they might have on the programs they want to show, and on who they want to show them to. By openly getting them through the discussions of convergence, we don't hide those tensions when we get them out in the open. So I think, absolutely irrespective of personalities, it's the right way to go to address those issues and to do so from the point of view of the consumer or citizen, and the industry, rather than just the two sides.

À  (1055)  

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

    Mr. Marcil, did you have another question?

[Translation]

    Mr. Serge Marcil: Yes, Mr. Chairman. It would undoubtedly be very beneficial to go to the U.K. to discuss this approach which is, in my opinion, a very interesting one.

    I would like to raise two points. The first is a comment, but I would like to hear your reaction to it. There are twice as many people in England as there are in Canada. We have 31 million people, and you have 70 or 75 million people in a very small area. The 31 million Canadians, however, live in the second largest country in the world, after Russia. More than half of the population is concentrated along the St-Lawrence River, the Great Lakes, on the Pacific Coast, and along the U.S. Border. So there is large number of small communities in central, northern, eastern, and western Canada.

    Earlier on, you talked about what liberalizing your markets entailed, and you said that at that point, competitive companies were not investing to provide service to the people on the whole, but primarily to make their investments profitable. However, as parliamentarians, we must not only protect our people, but also ensure that all Canadian men and women, regardless of their origins or where they live, have access to the same services as people living in large urban centres like Toronto and Montreal, for example.

    Canadian companies such as BCE have social responsibilities; namely, they must insure the services they provide in the regions. Do you think that the liberalization model you implemented could apply in the same way in Canada?

    My second question will be short; did your integration into the European market, in this case the 25 countries of Europe, force you to undertake this liberalization approach to open up your market to European competition?

[English]

    Ms. Claire Durkin: I will try to take the shorter of your questions first.

    In this area--and it's not always the case in the EU, but in this area we were certainly in the lead--the four European directives we are actually implementing in this legislation give the structure that will apply throughout Europe. It is very much our structure, so it has been the other way around, really. We have been very influential in terms of Europe. It is a case of the U.K. putting pressure on other countries to actually challenge the incumbent rather more than they perhaps would otherwise have done in some of the larger countries; historically, I think, we have been in the lead there.

    In terms of what is going to happen when we move from 15 to 25, as I said, it is going to be fascinating for us to work with and look at. In terms of market opportunities, obviously, it's quite serious, but in terms of the politics of it we have led Europe.

    If I may reflect very lightly on your first question--because really, it's very much for you to make that sort of decision rather than for us to advise--first of all, we would be delighted if you could possibly come to the U.K. and meet other parliamentarians who are dealing with the legislation and other ministers. When my minister came over two weeks ago, he was so enthusiastic that he sent us. We are really serious about wanting to discuss our experiences with each other.

    Your description is perfect in terms of the fact that geographically we are basically opposites. We are very small and very crowded and you're very large and very sparsely populated, I do understand that. But actually, when I've discussed this with counterparts from Canada--I talked with Michael Binder last week--I've found the issues are remarkably similar. It doesn't sound sensible to say that, but they really are. It's quite difficult getting broadband and telecommunications out to the Shetland Islands. I know it's nothing like as difficult as it is getting it up to Yellowknife because you're so much larger, but it's the same problem and it's the same issue of the business model.

    I think it's the same issue of having a universal service provision and saying you can't actually do that unless you promise to provide these services and other services. That's just the same no matter how big the country. It is the same issue in must-carry. Wales is only that big; nevertheless, they must carry Welsh communications. In terms of listing our troubles, listing your troubles, and listing the business solutions, despite the different geography we are remarkably similar.

    I've no idea, obviously, what you might adopt, but I certainly think that there is a lot to learn from both sides.

Á  (1100)  

[Translation]

    Mr. Serge Marcil: To some extent that reflects what Napoleon said about having policies that reflect one's geography.

    Thank you very much for your presentation; it was very enriching. You have given us some ideas and some concepts that we would like --that I would like and undoubtedly other parliamentarians would like--to develop to a larger degree. You have outlined an approach that Canada could adopt for deregulation. If ever we were to opt for that approach, it would be important to carefully evaluate the various advantages and disadvantages, and to outline an implementation plan.

    Thank you very much. I would also like to tell you that I have travelled to the U.K. on several occasions and that you have a very beautiful country.

[English]

    Mr. Brent St. Denis: I want Dan and Lalita to have a good shot at some questions, so if you could, please respond very briefly.

    In your current regulation of telecom, do you concern yourselves with jobs in the domestic market? It's one of the issues some have raised here, that foreign ownership means exporting our research jobs to some other country. Is that something you would concern yourselves with?

    Mr. David Edmonds: I'll talk about regulations if I may, Chair, and Claire would like to talk about it from her perspective.

    The answer is, not really. Again, I've been honest all morning, so I'll go on being honest. I'll answer it with an example. I have recently--again, you asked me what I did all day--deregulated directory inquiries, which previously had a single number. I've opened up the directory inquiry marketplace to all comers, and eight new companies now offer directory inquiry services in the U.K., three of them, I think, from outside the U.K.

    There was a real anxiety that this would mean a loss of jobs in the U.K., but in fact it has meant the creation of jobs in the U.K. It has actually meant that the incumbent has created more jobs, and the companies coming into the U.K. have created more jobs as well. All my experience over the five years suggests that the creation of employment has followed inward investment and that we have seen significant job increases in telecommunications in a number of parts of the country thanks to the inward investment.

    Yes, BT's numbers have come down. The numbers of the incumbent, British Telecommunications, have come down, but the losses have been vastly outweighed by the number of jobs created in the rest of the sector. The balance in terms of the U.K. has been wholly beneficial in terms of job creation.

    Claire?

    Ms. Claire Durkin: I would just say that the government is certainly concerned about jobs in the U.K., absolutely critically. Our chancellor comes from a part of Scotland where jobs are always quite difficult to find, so it is a real priority for him. As far as we are concerned, the push towards productivity is a push towards a stronger economy, so we create more jobs. So it's absolutely critical.

    I'd like to give an example. You mentioned R and D. I made two visits to Nortel facilities, one in Northern Ireland and one just outside London. At the one outside London, which is sort of the headquarters, they're very proud of the fact that it was on that site they first discovered the fibre optic, though it wasn't Nortel at the time.

    It is enormously significant in terms of R and D in the industry, and a very splendid piece of fantastic R and D is going on there. They are in competition with Marconi, and it's in competition in terms of R and D that British Telecom is going forward. The stronger that competition, the better the R and D is, and the more jobs there are going to be in the U.K. rather than found elsewhere.

    Our experience, not just within telecom but in inward investment generally, has been in terms of job creation and actually in terms of quite serious headquarters creation here. As we discussed earlier, I know that's not necessarily translated into the same results in other countries, but there's certainly been a strong stress on R and D and on serious scientific work coming in from the inward investors as well as from the incumbents.

Á  (1105)  

    The Chair: Thank you.

    Mr. Shaw.

    Mr. Dan Shaw (Committee Researcher): First, I'm going to start by apologizing. I don't have as much experience in asking questions as my bosses around the table, so I'm going to ask you easy questions.

    This bears on Mr. St. Denis' question. Foreign direct investment can be viewed and classified in many ways, but one way to classify it would be as what brings in and builds new infrastructure and new networks.

    It's also possible that a company such as BT can be taken over. In Canada the concern is that a foreign company might take over Bell Canada, our general equivalent to BT. I'm not too sure a foreign company would want those shares, or at least would value them as much as a lot of mom-and-pop investors or mutual fund companies would, but there is a fear that the head office would move out of the country, taking R and D jobs with it. I understand that a lot of the R and D in the telecommunications industry is not in the services but in the equipment, although there might be a symbiotic relationship there.

    I'm just wondering, first of all, has there been any foreign interest in BT--taking it over, that is? Second, do you have any safeguards in law or in regulation that would prevent R and D work from moving out of the country?

    Ms. Claire Durkin: The licensing approach is absolutely, quintessentially the question that was put to us in 1994. It was in 1994 that we were worried about this. I remember students being terribly worried about other people taking over our world, but I have to say that we haven't heard it very often since.

    In a mature market we have found different companies buying different parts of different industries. It was the French incumbent that bought Orange, the mobile phone company. We have had lots of to-ing and fro-ing of different aspects of those large companies, but we have had no strange foreigners who we don't necessarily trust coming in to take over our whole infrastructure.

    Had that happened, I think I mentioned at the beginning we do have national security considerations, and if there is any question of national security then we can have all the powers we need to intervene and ensure that doesn't happen. We would either therefore limit how much can be sold, or limit how much can be sold to one company. Everything that other nations have, we have our own version of.

    Mr. Dan Shaw: How do you define national security? Because presumably your military has its own communication system, it doesn't rely on BT.

    Ms. Claire Durkin: I'm pretty confident that--if I can use a contemporary example--if Saddam Hussein came over and tried to buy BT, and Cable & Wireless, and Telewest, we would have concerns.

    The Chair: Is that clear, Mr. Shaw?

    Mr. Dan Shaw: Yes.

    The second question would go to Mr. Edmonds, I think.

    Virtually all the witnesses coming before us said we should lift the foreign ownership restrictions. But one class of witness are the wire-line competitors like AT&T Canada and Call-Net, which you might better know as Sprint Canada. They feel that just lifting the foreign ownership restrictions without any change in the regulations could actually harm competition. They have a special situation; they're not like the wireless companies.

    One of their big concerns is that the charges paid by the incumbents such as Bell Canada are too high for them to connect and get co-location of their equipment on the site of an incumbent such as Bell; and the regulator sets that price. So for the regulator, how would you set a fair price, and is it possible to set a fair price without someone squawking and going to Parliament and second-judging a regulator?

    Mr. David Edmonds: Certainly, Mr. Shaw, I think the heart of the regulatory regime in the U.K. is the setting of fair interconnection prices between the incumbent and those competitors. And the way the fair price is defined--I hope this is the first and only piece of jargon I'll use today--as the long-run incremental cost, which is basically the cost of provision plus a fair--

    Mr. Dan Shaw: Actual or hypothetical?

    Mr. David Edmonds: No, it's based on actual costs, but with a fair markup for profit.

    So we assess a fair cost of capital, we assess what we think is a fair return, and the result is Britain--I'm sorry we're slightly bragging about the U.K. this morning, but in this area I think we have something to talk about--has the lowest interconnection prices in the world. And that comes as a result of the imposition of a long-run incremental cost base to setting those charges. They are controlled by the regulator; the control is renewed every five years, and we continue to roll it forward. And where--and I think this is the answer to your question--the incumbent has dominance in a marketplace, I think that control is absolutely essential to protect the interests of those competitors.

Á  (1110)  

    Mr. Dan Shaw: As a subsidiary to that, then, when you said the actual...there are problems with.... For example, in Canada for over a hundred years we had base rate of return regulation. One of the problems is that while that's very good at keeping prices close to cost, it's not very good at keeping cost down.

    For example, the incentive is you make more profit by overcapitalizing your.... And that doesn't mean necessarily having more switches out in the Timbuktu regions. Even in a concentrated area like Ottawa or the major capitals of Canada you have too many switches, so that you're talking about a lot of cost there that you're now trying to impose if you use actual costs on a new wire-line company.

    How do you address that issue?

    Mr. David Edmonds: We have two options. The first is the price control. Yes, it is cost, but the price control I impose is usually based on a retail price index, minus a number. For example, I will set a price control on BT's interconnection, which allows them to increase their prices each year by the retail price, let us say 2.5%, minus five. I put, if you like, a proxy competitive pressure on the incumbent over a run of years through a price control on its wholesale offering. That's why we have the lowest interconnection prices in the world.

    The second option is competition. When there are companies out there in the marketplace who put their own infrastructure in, competition impacts as well. Ideally, you get to a world where there is sufficient competition not to need a price control. Certainly having now done two of these wholesale price controls since I've been director general, I certainly see them rolling forward for a number of years.

    Ms. Claire Durkin: Might I very briefly add, as a rider, rather than going into the detail of how it happens, I think the key messages are, one, everything that David does is appealable, so that there is always debate, and it can be appealable both through the courts and through our competition regime.

    Second, I think the message is if you want a vibrant market, you need to be confident that you have an intelligent and strong regulator.

    The Chair: I want to thank you very much for being with us today.

    I want to apologize for some of the members; they have had to return back to the House on special items. I know Mr. Marcil is due to be in the House to speak.

    I want to thank you very much for being with us today. I really appreciate it. I'm sure a lot of people will be looking at the Hansard of today's meeting. Thank you very much.

    This meeting is adjourned.