Rogers is pleased to be before you today to assist with your deliberations on the foreign ownership rules.
Rogers has no formal position on the merits of changing Canada's foreign ownership rules, and likely will not have a position until such time as the government releases a formal proposal. However, we think there are important considerations that should be kept in mind and guide you as you consider possible changes to the current regime.
First, if you are going to change the foreign ownership rules for telecommunications, we think it only makes sense to change the rules for cable television at the same time. Convergence has finally become a reality. The basic structure of the telephone company network is a fibre optic cable containing voice, data, and video bits. Similarly, the basic infrastructure of the cable television company network is a fibre optic cable containing voice, data, and video bits.
Telecommunications carriers and cable television companies are increasingly offering the same services. It makes no sense to allow foreign ownership for telecommunications and not allow it for cable. They are both distributors; they are both pipes. They both carry content and communications and they do not engage in programming. If you artificially change the foreign ownership rules for telecom but not for cable television, then you make it impossible for integrated carriers to pursue the advantages of foreign ownership liberalization. You would also create a strong disincentive for foreign carriers to enter the Canadian market. Why would they want to do so when they will be precluded from offering cable TV services as part of their service package?
We would note that it is not necessary to liberalize the foreign ownership rules for programming services such as radio stations and TV stations. These entities do create programming and create and foster the development of Canadian content, which is an important policy objective in Canada. There are many who feel it would be unwise to allow programming entities such as these to be foreign-owned. You could remove foreign ownership rules for telecommunications and cable television and keep the rules for radio and TV stations.
I often hear people saying that it would be complicated to liberalize foreign ownership rules for cable television and not do so for radio and TV stations. As a communications lawyer, I disagree. Cable television services have a different type of licence from programming services. Cable television has a broadcast distribution undertaking or BDU licence. The Broadcasting Act would simply be amended to say that BDU licences can be foreign-owned and programming licences cannot be foreign-owned.
People are also often confused as to how such a regime would apply to companies like Rogers, which provide telecommunications, cable television, and programming services. If a company such as this wanted to sell its cable television and telecommunications assets to a foreign entity, it simply could not sell the radio and TV stations to that foreign company. They would have to stay in Canadian hands. This would not be a form of structural separation; it would be a divestiture of these assets.
I would also like to take issue with the Competition Policy Review Panel report. This report argued that Canadian telecom companies with a market share of 10% or less should have no foreign ownership rules immediately and that larger telecom players and the broadcasting sector should see liberalization after a five-year period. If liberalization of the foreign ownership rules makes sense, it makes sense for all players. Micromanaging the market to change foreign ownership rules for one part of the market today and another part in five years introduces artificial barriers and distortions. It makes no sense to allow large global players to enter the Canadian market and to buy and sell their assets to anyone on the planet without allowing Canadian companies to do the same thing. The government needs to decide whether telecommunications networks can be foreign-owned, and if they can, all of the networks should have the same rights.
The Canadian telecommunications market is an exciting, vibrant, and dynamic market, and Rogers is proud of the role we play in it. We have the fastest, most powerful wireless networks in the world, and our ultra-fast wireline broadband networks deliver world-beating levels of reliability and performance. Canada leads the G-8 in broadband penetration, and we lead the world in the proliferation of HSPA plus, high-speed packet access wireless networks. Rogers intends to be a proud contributor to the Canadian telecommunications sector, whether or not the foreign ownership rules are changed.
I look forward to your questions.
Thank you, Mr. Chairman and members of the committee. We at Shaw also appreciate the opportunity to participate in this proceeding.
I am Ken Stein, senior vice-president of corporate and regulatory affairs at Shaw Communications. I am joined by Jean Brazeau, who is the senior vice-president of regulatory affairs. I will start our presentation, and Jean will conclude.
We support the initiative taken by the committee to study Canada's foreign ownership rules and regulations. We urge the committee to ensure the non-discriminatory elimination of restrictions on foreign ownership under the Telecommunications Act and the Broadcasting Act.
Shaw has consistently demonstrated our commitment to Canada's productivity by investing, innovating, providing facilities-based competition, serving customers, and employing now over 10,000 Canadians. As Canada moves to a knowledge-based economy, investments in digital infrastructure are the most important investments we can make.
Shaw has invested $6.5 billion since 2000. As a result, our 2.3 million cable customers have benefited from significant capacity upgrades to support over 150 digital services, 50 high-definition channels, pay-per-view, video on demand, and 3-D television. We have over 9,000 satellite customers, including many in rural and remote communities.
We have over one million high-definition customers. We have one million digital phone customers; in fact, 42% of our cable customers now take our phone service. We have 1.7 million Internet customers. We provide customers with Internet speeds up to 100 megabytes per second, and this year we expect to become Canada's first provider to trial the use of gigabit Internet technology delivered over fibre to the home, which will offer revolutionary speeds of 1,000 megabytes per second.
We have closed the broadband gap—despite what some people may say—by providing high-speed Internet service to small towns such as Wasa, British Columbia; Magrath, Alberta; Stonewall, Manitoba; and Red Lake, Ontario. Our critically important investments and our deployment of new technologies should be supported, not undermined, by government policy and regulation, including the foreign investment rules.
We would like to make the following specific recommendations.
First, as we have just explained, we are not just a cable company. We are a fully integrated communications company. We compete with other telecommunications, cable, and satellite companies in telephony, wireless, Internet, and television distribution markets. In this converged environment, it is unacceptable to lift ownership restrictions in only one sector or for the benefit of only one group of competitors. Such an approach will inappropriately distort the market and provide certain competitors with a significant and unfair advantage. Any changes that are discriminatory or unfair will not help achieve our policy goals of increased investment and greater productivity. Furthermore, we do not support the incrementalist approach to amending the Telecommunications Act as recently proposed in the budget implementation bill, because the rule changes apply only to one narrowly defined sector.
Our second point is that Canadian cable and satellite distribution companies must not be treated differently because of misconceived cultural concerns. In countries across the world, foreign investment has helped create strong cable and satellite companies without compromising domestic cultural or other public interest objectives. The U.S. has no foreign ownership restrictions on cable companies, or for that matter on cable programming services, and they maintain those restrictions only for over-the-air broadcasters. Moreover, European Union member states do not restrict foreign investment in telecommunications and cable companies. This is so even though they are concerned about the cultural influence, as are we, of U.S. media content. To address those concerns, the EU mandates effective domestic content rules for broadcasters and it permits member states to enact cable carriage rules. This is appropriate. However, the EU sees no contradiction between open capital markets and cultural regulation. In Canada, the policy objectives of the Broadcasting Act have helped to ensure predominance of Canadian content.
The rules governing content will stay in place, regardless of who owns the pipes.
Jean.
:
Our third message is that we are opposed to the rule changes that benefit foreign entrants but harm domestic companies. Such an approach is not good public policy or in the best interests of Canada or Canadians. Therefore, it would be unfair and discriminatory to allow a foreign company to establish a new business in Canada or to acquire an existing telecommunications company with a market share of up to 10%, as proposed by the Competition Policy Review Panel. It would be ironic to provide advantages to foreign competitors while restricting the ability of Canadian companies to access foreign capital.
Finally, we would like to address an increasingly harmful level of red tape, regulation, and tax that threatens to undermine many of the government's objectives for the digital economy.
On June 1, Shaw and other parties will appear before the Federal Court of Appeal, because the CRTC wants the jurisdiction to regulate and tax ISPs. In September, we will return to the Federal Court of Appeal, because the CRTC wants to create a new copyright over broadcast signals. The CRTC proposes a regime that will allow broadcasters to remove their signals and black out U.S. programming unless distributors agree to impose another fee on their customers. These taxes are in addition to the new 1.5% levy on cable revenues for the local programming improvement fund, the required 5% revenue contribution to Canadian content, and several other fees paid by our customers to subsidize broadcasters and producers.
Currently, Shaw customers pay over $140 million dollars a year as a result of indirect CRTC taxes. This is money that is not reinvested to deploy new technologies, improve Internet speed, enhance customer service, or extend our broadband reach. The CRTC taxation and subsidy regime damages productivity and stifles innovation. This is inconsistent with the government's stated policy of stimulating economic recovery.
Regulatory taxes and subsidies are also inconsistent with the bold investment-based approach advocated by the government and currently being studied by this committee. We ask this committee to approach changes to the foreign investment restriction in a manner that is competitively neutral for all telecommunications and broadcasting distribution companies. Public policy for the elimination of foreign investment restrictions and the elimination of red tape and taxes should not pick winners and losers. It should provide a level playing field and a new climate for increased investment and productivity to strengthen Canada's economy.
We thank the committee, and we look forward to answering your questions.
:
Our view would be that in terms of new services, from a customer point of view the most important is our ability to offer multiple platforms. It's difficult for new entrants to come in and be able to do that. From a customer point of view there would probably be that kind of consolidation because of the advantages of one provider being able to offer multiple platforms.
On the other hand, we've learned over the past decade that it's very difficult to predict how technology is going to unfold. It's going to be very difficult to see what the new wireless applications are.
We have some interesting ideas. We've waited a bit to be able to invest in a new technology for the wireless services we'll be offering. They will offer further applications, and I think that's going to provide more richness.
It may well be that there will be different entrants, if they can figure out certain niches. It's the same in programming services. We used to think there would be a few companies, then it became maybe 20 or 25 companies, and then it came back to a few companies again. It will go back and forth. The one thing we've learned about technology is that you get a lot of start-ups, a lot of them get consolidated, and then you get a whole bunch of other start-ups again. It goes in waves. There's no real defined number; it cycles through.
I think the main thing you want to encourage is large companies and small companies to be innovative and entrepreneurial and provide them with the opportunities to develop new kinds of applications. The ability to develop those kinds of applications is probably the problem we face in Canada. For whatever set of reasons, the ability to develop new applications is a challenge for us in Canada. I think that's going to be really important as wireless unfolds as a new platform.
Thank you for being here this morning.
Telecommunication networks are critical to the economy. It's becoming what telephone was years ago, and it's a basic service that has to be out there. We're finding more and more that if you don't have it, you're falling further and further behind. As parliamentarians, our goal is to ensure that services are widely available, modern, high quality, and reasonably priced. The argument I've been hearing, up until today, it seems, is that if you want better service, better coverage, you have to open up the markets and let the markets prevail. I believe, Mr. Engelhart, you mentioned that we have to work at it until markets take over and until we get to a certain point, and then it will be fine.
Now my concern is that by opening it up, we talk about foreign investment, and there's a difference between foreign investment and foreign ownership. I think Mr. Masse touched on it earlier, in that if we allow foreign ownership, then it's a whole different story. What ends up happening is we end up with a branch plant, and major centres will be covered but I'm not sure about rural Canada. That's an area that really interests me, being from a rural area.
How do you see the changes coming up affecting services in rural areas, or the changes that just happened, such as what happened with Globalive with the trust in the market?
:
That's exactly my concern with the opening up of the market. How does that affect you as far as servicing rural areas is concerned?
I have constituents come to me constantly who say they have no service. I'm not sure how well the Rocket works. I don't know if it even exists—but I guess it does in northern Ontario in certain places. Mine is a Rogers' phone and it works well throughout—I just want to point that out—wherever you get service, but there are a number of dark spots. Norm Hawirko, a constituent in my riding, is 20 minutes away from Temiskaming Shores. He's trying to run a business but can't do it.
How do we encourage that? Just last night I was talking to a lady, Cindy Duncan McMillan, from Farrellton, Quebec, just an hour north of Ottawa. That's not that far north. She runs a business selling beef, but to send her price list out, it takes 20 minutes because she's on hard wire. She tells me she doesn't have an alternative. How do we get around that?
I guess you anticipated my question and where I was going. Maybe, Mr. Engelhart, you can elaborate on what we can do as a government to ensure that rural ridings, rural constituents, get service.
:
Good morning, Mr. Chair and members of the committee.
I am pleased to share Bell's views on possible changes to Canada's foreign ownership rules in the communications sector. Before I do, I would like to briefly tell you about Bell.
We are Canada's largest communications company, offering wireless, TV, Internet, and wireline voice services to residential and business customers. We have 50,000 employees and $17 billion in annual revenue.
For 2009 and 2010, we will have invested $6 billion in capital, all in Canada and all during the great recession. This includes hundreds of millions of dollars to build the most advanced broadband network any Olympic games has ever had, which delivered every image and sound to more than 3 billion people worldwide.
Bell Canada is also now the largest R&D spender in the country. Ours is one of the most widely held stocks in Canada. So we touch Canadians not only as their communications service provider, but also as an investment and savings vehicle.
[English]
While we seek to be helpful by providing a concrete proposal, which we will do, developing our position has been a challenge. I say this because proposals typically are intended to solve an identified problem. In this case, the objectives are less than clear. There is a perception that wireless pricing in Canada is high and that we lag behind in investment and innovation. This simply is not correct, and misperceptions should not drive policy in Canada. We will soon have nine national or regional wireless carriers in our country. Only one European country has even five. Canadians already enjoy the second-lowest average wireless cost per minute among the G-7. I believe we are third-lowest among the G-8, and the ninth-lowest in the G-20. We have three providers operating on state-of-the-art 3G HSPA plus networks, and there will soon be more.
Bell's brand-new wireless network reaches 93% of the Canadian population. This means that since November 2009, thousands of small and rural communities across the country, such as Happy Valley-Goose Bay, Summerside, Chicoutimi, North Bay, and High Level, have had access to high-speed wireless broadband. We lead the world in wireless technology today. The U.S. in fact lags behind us.
That said, we do acknowledge the benefits of being global in our thinking. So Bell is not opposed to relaxing the foreign ownership rules, provided any new rules apply symmetrically between large and small carriers and between carriers who have broadcasting assets, known as integrated carriers, and those who do not. Symmetry keeps the playing field level and avoids favouring some carriers over others. You certainly heard my colleagues from Shaw and Rogers this morning express the same concerns rather emphatically.
Changing only the telecom rules but not the broadcasting rules will have little positive impact. As you heard this morning, almost every telecom carrier in Canada today--Vidéotron, Shaw, Rogers, Bell, etc.--has broadcasting assets, so a telecom-only fix won't help the integrated carriers, all of whom would still have to satisfy the current thresholds if the broadcast rules were left unchanged.
[Translation]
To the contrary, we would be placed at a cost of capital disadvantage relative to the pure-play telecom providers. Surely there is no public policy benefit to disadvantaging the integrated carriers, who all make significant capital investments in Canada, who offer service to large and small communities alike and who create tens of thousands of well-paying, highly skilled jobs in Canada.
Ironically, a telecom-only fix is equally unlikely to help new entrants because they likely would have to remain pure-play telecom providers with no scope to provide the converged telecom and broadcast offerings that consumers seek today.
[English]
Regulations should not force carriers to choose between having easier access to foreign capital and offering converged consumer and business services.
While we do not believe that there is a problem today, given our investment, innovation, and competitiveness, if the foreign ownership rules are to be liberalized, we think the best model is the one proposed by the CRTC: boost the foreign voting share limits for telecom and broadcast operating entities by up to 49% while retaining the Canadian control-in-fact test.
Now, Bell and the CRTC don't often agree on anything, so this might be a good start here.
Here's why we feel that the 49% model is the best approach. It's a meaningful increase to direct foreign investment in telecom and broadcast operating entities from 20% to 49%. And it avoids the need to establish complex holding company structures to comply with today's rules.
Also, the change can be applied symmetrically to large and small telcos and broadcasting entities. This would allow all players to benefit from increased foreign capital. And it would give them the flexibility to offer consumers the converged services they crave more and more. All the while, through the continued application of the Canadian control-in-fact test, it would address the concerns of those who wish to ensure that Canada's broadcasting assets remain in Canadian hands.
I close with this final thought. If Verizon, AT&T, and T-Mobile owned Bell, Rogers, and TELUS, Canada today would not have the world's best HSPA plus wireless networks, and certainly not in small and rural communities across the country. Only now are U.S. carriers beginning to roll out their own HSPA plus networks. Our success in leading the pack should be celebrated.
Given the time constraints, I'll close here. I thank you, and I welcome your questions at the appropriate time.
:
Thank you, Mr. Chairman, for the invitation to attend this morning.
With 6,000 employees across Canada, $1.9 billion in revenues, nearly two million total customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba, and a national broadband and fibre optic network that spans almost 30,000 kilometres, MTS Allstream is one of Canada's leading telecommunications providers.
We compete with TELUS in the west; Bell in the east; and Bell, TELUS, Rogers, and Shaw, among others, in Manitoba, where we are the incumbent.
We are the only national facilities-based competitor advocating for a pro-competitive regulatory and policy framework left in Canada. There were at least 14 facilities-based competitors present in Canada in 2000, all of which failed or were consolidated into the existing incumbents, in part because of Canada's foreign investment restrictions.
As a result of our history, we have unparalleled experience investing as a national competitor. We were the first competitor to successfully build out a national IP-enabled network. We did so at a cost of approximately $4 billion and with the consequence that, as AT&T Canada, we also underwent the second-largest CCAA proceeding in Canadian history as of that time. This was due in large part to the fact that we were paying $400 million in annual interest charges on the foreign debt required to fund our capital build, a situation no large incumbent would ever face.
My point is that MTS Allstream has a proven track record as an innovative and successful competitor and is one of Canada's most innovative telecom providers. We also have the scars to prove it, and the perspective, we believe, to contribute to this very important discussion we're having today about foreign direct investment and the need to increase competition and innovation in Canada's telecom market, and ultimately, economic productivity in Canada as a whole.
We offer a unique perspective on these discussions for two reasons: first, because we operate and derive half of our revenue respectively as an incumbent in Manitoba and a competitor across the rest of the country; and second, because as a competitor we have experience in trying to establish and maintain international partnership with AT&T and have directly experienced the negative effects of current foreign investment restrictions.
The government's decision to move forward and examine ways to increase foreign investment in our telecommunications sector is welcome news for Canadian consumers and business. It has been recognized for some time now that the current restrictions on foreign investment in the telecom sector are counterproductive to Canada's goals of maintaining leadership in the realm of telecommunications and ICT and of ensuring Canada possesses the infrastructure necessary to support and enable the innovation and productivity-enhancing technologies that are key to our economic success. Our national interest is represented in welcoming global investment to assist in this essential task and thereby empower Canadians and Canadian businesses.
The need for reform has been recognized in numerous reports and studies: the 2001 broadband task force report; the 2000 report of this standing committee, Opening Canadian Communications to the World; the Telecommunications Policy Review Panel Final Report 2006; and the 2008 competition policy review panel report.
Among the expert bodies that have studied this issue, there is remarkable unanimity. For the last decade, all have advocated scrapping the sector-specific restrictions. None have made the opposite case. In every case, the current rules have been recognized as slowing competition, innovation, and productivity.
What's more, Canada's rules are out of step with the rest of the world. According to the OECD, Mexico, South Korea, and Canada have the most closed markets with respect to foreign investment. Since this study was published, both Mexico and Korea have begun easing their restrictions, leaving Canada as the sole laggard in this regard.
In short, in 27 out of 30 OECD countries, a company like MTS Allstream would be able to access capital from anywhere in the world. This may help explain why so many international companies have effectively left the Canadian marketplace over the last decade, including AT&T, Verizon, MCI, Sprint, SBC, and British Telecom.
Greater foreign direct investment plays an important role in generating innovation, competition, and prosperity. Removing the current restrictions from the Canadian telecommunications market would bring tangible benefits. As the telecommunications policy review panel noted in its final report,
The economic case for liberalization of FDI is so well established in Canada and other OECD countries that the main area of economic debate is not whether it boosts domestic competitiveness and productivity, but by how much.
Greater direct foreign investment encourages the growth of efficient Canadian companies that can better compete at home and abroad. It would help foster a more dynamic and competitive business market. Indeed, Bank of Canada Governor Mark Carney is the most recent economic expert to link foreign direct investment to increased productivity.
One need only look at the oil and gas sector to see what can happen to Canadian industry when capital investment is allowed to flow unimpeded and Canadian corporate ambition is not snuffed at the border. In the 1970s, over three quarters of the industry was foreign-owned. The industry was highly regulated and subject to the oversight of the Foreign Investment Review Agency.
After FIRA was dissolved, domestic ownership went up. Today, almost 50% of the industry is owned by Canadian-based companies that can freely access global capital, and many of those Canadian companies are globally competitive.
Today, most Canadians recognize that our economy has matured and that ideas and approaches that may have helped us in the last century won't work in the 21st century. Most Canadians understand that Canada can and should compete with the global community to attract the investment that leads to innovation, jobs, and long-term prosperity, while building Canadian entrepreneurs and companies that can compete at home and abroad.
We are the most reliant nation on foreign trade when measured against our GDP. It is in our DNA to be able to survive and thrive in the international marketplace. As essential as a modern and competitive telecommunications marketplace is to the digital economy, there is just no rationale for erecting barriers to the investment and foreign players that we require to achieve our own ambitions. Indeed, we should signal to the international investment marketplace that Canada, with its strong currency, enviable fiscal situation, vibrant labour pool, and access to the massive NAFTA marketplace, is committed to growth through investment and to being an incubator of next-generation communications networks and enterprises.
The investment equation for large incumbents versus competitors is very different. Competitor investment, which is crucial to greater competition, lower price, and greater choice, especially in the business market, is entirely risk-based. The stakes are higher, the risks are greater, and the necessary risk capital far less available from Canadian sources. As a result, competitors have often been reliant on foreign debt, and, for the past number of years, largely absent.
Conversely, the large incumbents, whose ubiquitous networks were in significant measure funded by the foreign capital now not available to competitors, can leverage their economies of scale and free cashflow to significantly but incrementally invest in their existing networks. This investment is inherently less risky and consequently inherently more attractive to Canadian sources of investment.
The consequences of this asymmetry are tangible. Our small and medium-sized business community in particular is characterized by lagging innovation and adoption of new technologies, which is directly linked to their lack of competitive choice for next-generation telecom services. For example, Canadian retailers lag their U.S. counterparts by about four years in online sales, according to Statistics Canada.
Our goal in opening up investment in our telecommunications industry is clearly to encourage the development of leading-edge infrastructure. In today's environment, that infrastructure transmits to Canadian consumers telecommunications services and TV signals. To be clear, the government can and should lift the foreign investment restrictions related to this carriage, while retaining the ability to regulate content, and indeed continue, if necessary, to restrict investment in broadcasters and programming licensees.
There is no slippery slope here. There is a clear line between content, on the one hand, and carriage on the other. Consequently, it is, in our view, indisputable that the proper policy, legislative, and regulatory tools can be employed in support of the important objectives of protecting and promoting Canadian content and culture.
No doubt, as when the government moved to open up the wireless market to greater competition, there will be resistance from those whose interests favour the status quo. However, the status quo doesn't serve our national interest or the interests of Canadian business and consumers. The status quo has led to higher prices, the slower adoption of new technologies, and less choice.
We commend you on your review of this important set of issues and urge you to take action to assist in Canada becoming a more competitive, productive, and innovative nation.
I apologize for my pace.
[English]
We appreciate this opportunity that you've presented to TELUS to give you our views on whether or not to liberalize the restrictions on foreign ownership of telecommunications. We would agree not only that this is an issue of national importance, but it's an issue that we believe Parliament, and only Parliament, can and should decide on.
Let me sum up our presentation in a few quick messages.
Premièrement, any new rules cannot advantage foreign investors to the detriment of Canadian companies. So we're saying fairness requires equal treatment for all Canadian carriers.
Deuxième, Parliament must recognize that communications today is an integrated business and you cannot effect change without changing the Telecommunications Act and parts of the Broadcasting Act at the same time.
Troisième, liberalization that does not include integrated companies not only will damage the competitiveness of Canadian companies but it will reduce the benefits of liberalization for all consumers.
Quatrième, culture is not impacted by liberalization because it is easy to separate the ownership of broadcast channels from the transmission of these channels on carrier systems.
For the record, TELUS has long supported liberalizations of the rules for all carriers, including cable and satellite companies, while still maintaining these restrictions with respect to the ownership of broadcast channels, radio and TV. The Canadian market, like the U.S. market, is unique in terms of a much greater degree of competition between cable and telecom carriers across all markets. Virtually every communications carrier in Canada today carries voice, video, and data traffic over integrated networks, and as a consequence there is no way to fairly change our ownership restrictions unless we liberalize both carriage, under the Telecommunications Act, and carriage, not content, under the Broadcasting Act at the same time.
We remain convinced that you can change the Broadcasting Act only on the carriage side to achieve the full benefits of competition without undermining our cultural objectives. All that is required is a rule prohibiting foreign-controlled carriers from owning broadcast stations or TV channels.
So with respect to investment, a principal argument supporting liberalization is that Canadian enterprises are not competing or investing sufficiently. Even though we support full liberalization, we reject this argument. Ten years ago, TELUS simply did not exist as a national company. TELUS was just another regionally based local telephone company operating out of Alberta and British Columbia and parts of eastern Quebec.
We now compete across Canada for wireless, for small business, for business enterprise solutions. We're Canada's leading video conference provider and we're Canada's number one e-health service provider, and we hold some of the major contracts in terms of business data services today.
In the west and eastern Quebec, TELUS competes head-to-head for phone, Internet, television, and wireless companies, and we have accomplished this because over the last ten years we have invested $20 billion in capital to grow from that regional telephone company into a multi-service national competitor in business, wireless, e-health markets. How much have we invested? TELUS has maintained over this period of time the highest wireline reinvestment rate among major North American companies and competitors. Our capital investments from 2001 across the entire business exceed 20% of total revenues. By comparison, if you look at Verizon or AT&T, they have not had a single year since 2006 in which their total capital investments reached 20% of their revenues.
We have invested in Canada, both when and where it counts, including areas of the country where no foreign investor is likely to ever consider investing, and in the depths of this recession we increased our capital spend by 13%, at a cost of lower share price. We increased it to $2.1 billion and built what is recognized as one of the largest and most advanced wireless networks in the world. In fact, our 3G wireless network, which is wireless broadband, now reaches 93% of Canadians with world-leading advanced services. In 2010 we're investing over $1.7 billion in a fibre-supported Internet TV build in western Canada and eastern Quebec, in order to increase competitive intensity in the cable and the Internet market.
So these investments have produced real competition, real jobs, and real consumer benefits where clearly none existed before.
We agree that full liberalization of the foreign direct investment restrictions on carriage can lower costs and increase choice and increase innovation as long as Canadian companies are treated fairly.
Where Canada differs primarily from the U.S. today is that we lack scale. More scale translates into lower costs, more investment, and more opportunity to reduce price. So for us, the issue is fundamentally one of scale. Therefore, any change that does not allow all Canadian companies to equally benefit from scale opportunities will be changes for the worse, since Canadian carriers still have the largest territory to serve and the smallest population, among the OECD countries, to fund investment. In fact, it has the smallest population of any of our trading partners.
That goes back to my point that any changes should ensure that companies that continue to invest in Canadian employees, Canadian infrastructure, and Canadian communities, rather than in only the most profitable businesses, such as wireline, or the biggest cities, such as Montreal and Toronto, are not harmed by these changes.
Canadian companies rely on integration, and the cross-subsidies that allows, to keep all our businesses viable. As much as we need scale to grow, we need integration. If asymmetric policies undermine that in the name of wireless competition or cultural protection by restricting domestic carrier growth, we think the integrated carrier model in Canada will begin to fall apart.
The Canadian system has always benefited from a level of cross-subsidy, be it from urban to rural or from growth business to high-cost segments. That remains true today. In Canada today, wireless is the growth engine that generates the revenues and the earnings that support reinvestment in next-generation broadband and telephone networks. This is a critical point to consider. Growth businesses, such as wireless or Internet, support declining businesses, such as telephony. That does not mean that growth businesses should be insulated from increased competition. That's why we support removing the rules. Rather, competition, and particularly foreign-based competition, should not be advantaged by handicapping Canadian companies.
Liberalization has to be as fair to Canadians as it will be to foreign entrants. That is why, we submit, Parliament should support liberalization for all carriers. Unless all carriers are able to benefit from liberalization, the opportunities from increased scale, such as lower prices or more investment, will be consequently diminished for many consumers and communities. That is also why fairness dictates that both broadcast distribution, the carriage element, and telecommunications carriage must be changed at the same time.
Merci. I look forward to your questions.
Good morning, gentlemen, and welcome.
The problem when you go second is that a number of issues have already been addressed. To my mind, the government or the OECD has it all wrong when it says that we lack innovation. On the contrary, I think we are innovative. Certain reports, other than the government's and the OECD's, even say so, for that matter. Now we see we are front and centre and at the heart of the problem. What percentage of foreign investment should we allow, and to what extent?
TELUS recommended total liberalization. Bell, however, recommended liberalization up to 49%. The chairman of the CRTC was also in favour of the 49% threshold, but he did not mention anything with respect to broadcasting. So the issue could be debated rather extensively. One thing is certain: why go beyond the 49% threshold in telecoms when we know full well there is convergence? As my colleague said, the one who controls the medium also controls the content, when all is said and done.
I want to know what you, the other two stakeholders, think—it is somewhat innovative, but not necessarily without risk—of Bell Canada's proposal to open the market to foreign ownership up to a limit of 49%. That also includes all integrated carriers, which would mean a certain measure of equality as well as an impact on broadcasting companies.
:
I have a couple of comments.
My argument would not be that there's no innovation in our telecommunications industry. There is, but it's patchy. It depends on the sector and the extent to which competition has reached the sector. Our small and medium-sized business community is lagging, and that's one of our problems in building the economy. It's having our small and medium-sized business community be quicker adopters of new technology of things like ICT. One of the problems in that sector is that's the most difficult sector for a competitor to get to. We have arguments at the CRTC all the time over access to incumbent infrastructure. That's one piece of the equation. The other is where a competitor can find the money to invest in that risky venture. Mr. Hennessy is right, risk capital is very difficult to find in sufficient pools in Canada to warrant that kind of investment by someone who doesn't have that existing ubiquitous network. So innovation is present, but patchy.
We have an urban-rural divide in Canada. We also have an emerging digital divide between large and medium-sized enterprises and smaller enterprises. Small business is the main source of employment in the country, so that's a really important feature.
In terms of the carriage content, the problem, as both have said, is that the same network is carrying the TV and the data or other type of signal. So all of us transmit TV signals, data, and voice all through the same network infrastructure. So if you're not to liberalize for BBUs, for the carriage element, then I don't see how that would be workable for anyone. But you can easily liberalize for that carriage while protecting all of the content issues you're talking about. It's just like saying if someone is coming in to invest in our oil sands or oil and gas industry, they have to follow the environmental rules of Canada.
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A minute and thirty seconds, wonderful. Thank you, Mr. Chair.
Since I do not have much time, I will speak quickly.
You said two things, Mr. Hennessy, that really struck me. The first being that it is easy to separate the ownership of broadcast channels from that of telecom companies. The second had to do with prohibiting foreign-controlled carriers from owning TV channels. That really surprises me because we can no longer separate TV channels from telecom companies—wireless on one side and TV on the other. Wireless service providers now have their hand in broadcasting, as well.
And to illustrate my point very clearly, I will refer to a Bell Canada ad, which comes from our friend here, Mr. Bibic. The English ad, shown in Ottawa, promotes 16 applications. It clearly offers customers Maclean's magazine, CBC Radio, Scotiabank and Disney. Bell offers some free applications and is clearly involved in broadcasting. It has a hand in broadcasting. Also on the way are short TV episodes, which will be called “mobisodes”. They are episodes for wireless mobile telephones. There is a clear involvement in broadcasting. It will no longer be possible to separate the two, and they will become more and more intertwined. So that is not possible.
Given these circumstances, I do not think you would recommend a division of broadcasting: TV channel owners on one side and wireless carriers on the other. It cannot be done. You can even speak to the Rogers representative, who was here this morning, or to Quebecor.
Thank you all for appearing. I mean that, too. I really appreciate your testimony. It's remarkable to listen to you, and the achievements that you've made in this country are commendable. I think you need to be told that, as well.
There's one element, though, and I'm going to touch on that at the risk of possibly exposing myself as a base capitalist. I'm an auto dealer, and, like you, I went to work each day. We like to talk about our achievements and the things we've done, and they sometimes need to be acknowledged. It was Adam Smith, I think, who said something to the effect that it's not for the benefit of the butcher that the baker gets up in the morning and bakes his bread, and I think that's something that we have to recognize. There's nothing wrong with that. If we're basically honest, we can say that too.
What I'm trying to translate to you is this: the good things that you do for consumers, you do for profit. You know what? There's nothing wrong with that. That makes sense. That's how our system works.
Understanding that, accepting that, and admitting to that, when you look at competition, each one of you has said that you really don't have any objection to that. I know the former panellist said something to the effect of how they had built up capital, and that's an incredible advantage. If somebody's going to enter the field and offer a new service, he has to go through all those painful endeavours that you've gone through, and you're now at a plateau where you can say “Bring it on”.
So having said that—and I think this is the real crux of the issue here—what is better for the consumer, competition or a form of regulations? I'm going to ask each one of you individually if you want to touch on that.
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The best option, I think, is as much competition.... We welcome competition. And less regulation--we are far too highly regulated in telecom and broadcasting today. The amount of regulation we have in this country and the regulatory fees and charges that are imposed on us constitute a major drag on additional investment, notwithstanding the $6 billion that we've done in the last two years. If we had fewer of these fees imposed on us, we'd do even more.
All we're saying is, number one, if you're going to liberalize the foreign ownership rules, make it symmetrical. We all should have the opportunity to get cheaper access to capital. What we tried to put forward is a proposal. We're dealing with the facts on the ground, frankly. Let's put a proposal forward that liberalizes foreign ownership but is realistic and can be implemented. You have to balance the issue of access to foreign capital, Canadian jobs, rural deployment of broadband, cultural concerns, and we have to deal with the minister's indication that the Broadcasting Act won't be touched. So we put together a model that addresses those issues. It's realistic, 49%. By the way, that can be done without amending the Broadcasting Act.
So we put a pragmatic proposal forward: new entrants will have greater access to foreign capital in that way; we'll have greater access to foreign capital in that way. Competition.... We have a lot of carriers coming in on the wireless side.
And the last final point is that on the wireline side that Mr. Peirce is actually focusing on, I would urge you all to read the FCC's national broadband plan in the U.S. Here's what they said: the wireline business is a high-fixed-cost, high-sunk-cost business. Let's be realistic, and let's not expect that we're going to have a multitude of wireline providers coming in and offering services. It's just too expensive. But wireless offers great hope for additional competition, and in Canada we'll have eight and nine carriers. We're in pretty good shape.