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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Monday, February 24, 2003

1525

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

Mr. Charles Dalfen (Chairman, Canadian Radio-television and Telecommunications Commission)

1530

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

1535

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

The Chair

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

Mr. Charles Dalfen

Mr. Serge Marcil

1540

Mr. Charles Dalfen

Mr. Serge Marcil

Mr. Charles Dalfen

Mr. Serge Marcil

The Chair

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

1545

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

1550

The Chair

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

Mr. Charles Dalfen

Mr. Brent St. Denis

Mr. Charles Dalfen

1555

Mr. Brent St. Denis

Mr. Charles Dalfen

Mr. Brent St. Denis

Mr. Charles Dalfen

The Chair

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

1600

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Charles Dalfen

Mr. David Colville (Vice-Chairperson, Telecommunications, Canadian Radio-television and Telecommunications Commission)

Mr. Larry Bagnell

Mr. David Colville

1605

Mr. Larry Bagnell

The Chair

Mr. Larry Bagnell

The Chair

Mr. Larry Bagnell

Mr. Charles Dalfen

Mr. Larry Bagnell

The Chair

Mr. Joe Fontana (London North Centre, Lib.)

1610

The Chair

Mr. Charles Dalfen

Mr. Joe Fontana

Mr. Charles Dalfen

Mr. Joe Fontana

Mr. Charles Dalfen

Mr. Joe Fontana

Mr. Charles Dalfen

Mr. Joe Fontana

Mr. Charles Dalfen

1615

The Chair

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

Mr. Paul Crête

Mr. Charles Dalfen

1620

Mr. Paul Crête

Mr. Charles Dalfen

The Chair

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

Mr. Charles Dalfen

Mr. Dan McTeague

Mr. Charles Dalfen

1625

The Chair

Mr. Brian Fitzpatrick

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

The Chair

Mr. Andy Savoy (Tobique—Mactaquac, Lib.)

1630

Mr. Charles Dalfen

Mr. Andy Savoy

Mr. Charles Dalfen

1635

The Chair

Mr. Larry Bagnell

Mr. Charles Dalfen

Mr. Larry Bagnell

Mr. Charles Dalfen

The Chair

Mr. Brian Fitzpatrick

1640

Mr. Charles Dalfen

Mr. Brian Fitzpatrick

The Chair

Mr. Dan McTeague

Mr. Charles Dalfen

The Chair

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau, Department of Industry)

1650

1655

The Chair

Mr. Brian Fitzpatrick

Mr. Konrad von Finckenstein

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

1700

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

1705

The Chair

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

1710

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

The Chair

Mr. Dan McTeague

1715

Mr. Konrad von Finckenstein

Mr. Dan McTeague

Mr. Konrad von Finckenstein

Mr. Dan McTeague

Mr. Konrad von Finckenstein

1720

Mr. Dan McTeague

Mr. Konrad von Finckenstein

The Chair

Mr. Brian Fitzpatrick

1725

Mr. Konrad von Finckenstein

The Chair

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

1730

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

The Chair

Mr. Serge Marcil

Mr. Konrad von Finckenstein

Mr. Serge Marcil

1735

Mr. Konrad von Finckenstein

The Chair

Mr. Dan McTeague

Mr. Konrad von Finckenstein

Mr. Dan McTeague

Mr. Konrad von Finckenstein

Mr. Dan McTeague

Mr. Konrad von Finckenstein

1740

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Brian Fitzpatrick

Mr. Gaston Jorré (Senior Deputy Commissioner of Competition, Mergers Branch, Competition Bureau, Department of Industry)

Mr. Brian Fitzpatrick

Mr. Gaston Jorré

The Chair

Mr. Larry Bagnell

1745

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 023

2nd SESSION

37th PARLIAMENT

EVIDENCE

Monday, February 24, 2003

[Recorded by Electronic Apparatus]

¹ (1525)

[English]

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

Today we have two panels. One is from 3:15 to 4:45, the Canadian Radio-television and Telecommunications Commission, and we have Mr. Charles Dalfen, chairman.

Mr. Dalfen, you can introduce the other people with you and then you'll be able to begin. Thank you very much.

Mr. Charles Dalfen (Chairman, Canadian Radio-television and Telecommunications Commission): Thank you very much, Mr. Chairman and members of the committee and staff.

My name is Charles Dalfen, and I'm chairman of the CRTC. With me is David Colville, vice-chair of telecommunications; Shirley Soehn, executive director of telecommunications; and Allan Rosenzveig, the general counsel for telecommunications.

We're happy to appear before you today while you're trying to deal with a very important question. We've been following the testimony of the other witnesses before you, and I understand the different challenges you face as a committee. At the CRTC we are faced with similar challenges on a daily basis. Our job is to consider the often conflicting interests of the parties who participate in our proceedings and to try to make the decisions in the public interest.

The commission was established by Parliament in 1968 as an independent authority to regulate and supervise all aspects of the Canadian broadcasting system. In 1976 responsibility for regulating telecommunications common carriers and service providers that fall under federal jurisdiction was transferred to the commission.

Our powers in this latter area derive from the Telecommunications Act of 1993. Our authority with respect to broadcasting comes from the Broadcasting Act of 1991. The two acts set out different regulatory regimes and fall onto different ministers of the crown: the Broadcasting Act under the Minister of Canadian Heritage, and the Telecommunications Act under the Minister of Industry.

As a creature of statute, the CRTC does not establish the rules pertaining to foreign ownership. Rather, it administers them with a view to achieving the objectives set out by Parliament in each act. The Telecommunications Act specifies as one of its objectives the promotion of ownership and control of Canadian carriers by Canadians, and the Broadcasting Act declares that the Canadian broadcasting system shall be effectively owned and controlled by Canadians.

The actual foreign ownership rules for broadcasting and telecommunications are quite similar. However, two points are worth noting. One is that on the telecommunications side the rules pertaining to ownership are defined in the act itself. On the broadcasting side, by contrast, the rules are set out not in the act but are spelled out in a directive to the commission from the Governor in Council, pursuant to the Broadcasting Act.

Secondly, on the broadcasting side the restrictions on foreign ownership and control are specifically tied to the licensing of broadcasters by the commission. Persons are not eligible to hold broadcasting licences unless they comply with the Canadian ownership rules set out in the directive. The directive is also applied in reviewing transfers of control and large ownership interests in licensee companies where the prior approval of the CRTC is required.

In the Telecommunication Act the ownership rules are not tied to licensing but to the eligibility of a carrier to operate as a telecommunications common carrier, which it may only do if it is Canadian owned and controlled.

[Translation]

The definition of a Canadian is set out in regulations adopted by the Governor in Council. These regulations also empower the Commission to monitor and give effect to the ownership rules. These differences aside, however, as I've already mentioned the ownership rules are similar for both telecommunications and broadcasting. In fact, on both sides the rules specify that: at least 80% of the members of the board of directors of a telecom carrier or a broadcast licensee must be individual Canadians; Canadians must beneficially own no less than 80% of the corporation's issued and outstanding voting shares; and the corporation cannot be controlled directly or indirectly by persons who are not Canadians; with respect to a telecommunications or broadcasting holding company, at least 66 2/3% of the voting shares must be held by Canadians.

Combining these two rules, the effect of foreign ownership can be as high as 46.6% of the voting shares. There are some differences between the telecommunications and broadcasting ownership rules. For example the rules in broadcasting require that the CEO of a broadcaster must be a Canadian.

[English]

A number of witnesses who have appeared before you have addressed the issue of competition in the telecommunications industry.

Telecommunications policy objectives set out by Parliament in section 7 of the Telecommunications Act aim to ensure that Canadians have access to reasonably priced, high-quality, varied, and innovative communications services that are competitive nationally as well as internationally. Paragraph 7(f) establishes the objective of fostering increased reliance on market forces for the provision of telecommunications services and ensuring that regulation, where required, is efficient and effective.

In the long distance, wireless, and retail Internet markets, we have forborne from regulating, because competition was found to be sufficient to allow market forces to discipline prices. However, in the local telephone market we continue to regulate prices, because there is not sufficient competition at this time to allow for deregulation.

The commission believes that ultimately the most sustainable form of competition is what is referred to as “facilities-based competition”, whereby competing telecommunication service providers offer services using their own equipment and facilities, rather than having to rely on the facilities of others.

We believe that over the long term facilities-based competition will best achieve the objectives set out by Parliament in the Telecommunications Act. However, while our goal is to have facilities-based competition, it is necessary to have a period of transition to that model.

This transition is characterized currently by a hybrid approach that allows new entrants to use the facilities of the incumbent telecommunications companies that are deemed to be essential to the entrance operation at regulated rates. An example of such a facility would be the wire that runs from the telephone company's central office to the user's premises.

¹ (1530)

[Translation]

We still have a long way to go to achieve our policy objective of sustainable, facility-based competition. Competition, particularly in local markets, is certainly not evolving as quickly as we had hoped. As the regulatory authority for telecommunications, the Commission has the responsibility to help improve this situation.

[English]

Recent decisions, particularly the recent price cap decision and the follow-up proceedings to it, have sought to identify and remove obstacles to competition. We will continue to do so. However, regulation is only one piece of the puzzle. Other pieces include the recovery of the financial markets, technological developments, and the quality of business decision-making in the industry itself.

[Translation]

To sum up, I have very quickly sketched out the Commission's role with respect to the ownership regimes of both the Canadian telecommunications and broadcasting industries. I have also touched on the state of competition in the telecommunications industry.

[English]

If you have any questions, it will be my pleasure to try to answer them, with the assistance of my able colleagues, should that be required.

[Translation]

Thank you very much.

[English]

The Chair: Thank you very much for that presentation.

I would like to now begin questioning with Mr. Fitzpatrick.

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

Thank you very much, sir.

The issue we've been grappling with is confined to ownership of the pipe, so to speak, in the delivery system. We haven't really got into the content side of the thing, although some people get into it.

My understanding of the opponents of liberalizing the ownership restrictions on the pipeline is that somehow this would gut Canadian content and we'd lose our cultural identity, and that sort of thing. This is the issue that's raised.

The argument, I think, on the other side has been that these are separate issues. The regulatory side of the equation can take care of the contents provisions of the system. Ownership really shouldn't have much to do with it.

The only reason I'm raising those two arguments is because the U.K. people were here on Friday, and this was the first real concrete example of somebody who actually has dealt with the system on the ground. Basically, their comment was that service improved by liberalization, costs went down, quality and choice dramatically improved, and British and U.K. content was actually enhanced because of the changes that came about in Great Britain, with more choice and more openness on the liberalization side. And they had absolutely no problem with the regulatory side ensuring good British content in the system.

I hope I've given a correct interpretation to what they said. For the life of me, listening to the British experts on the whole area, it seems to me their evidence is rather convincing, and I was saying to myself, why couldn't we do the same thing in Canada?

So perhaps you might respond to those points.

Mr. Charles Dalfen: Let me say I actually had the pleasure of meeting the chap who testified, and he did brief me on what he had said. Then we proceeded to talk about the differences between Canada and the U.K. and what we have here on the content side to protect our culture and the vigilance that goes with it.

In effect, they have always been treated separately under both the telecommunications and broadcasting acts, where ownership rules are separate from the content rules. To that extent, I would agree with him, there's a separate regime, one for ownership and one for content, in both acts.

Mr. Brian Fitzpatrick: Let's use a hypothetical, because I need a hypothetical to equate this. What he was saying is that if an American or European media giant bought out a Canadian cable company, under their regime the regulatory regime requires certain U.K. content to be delivered there. That's part of the whole arrangement, and they're required to do that.

He says they've done an exceptionally good job of providing excellent U.K. quality programming on their systems. They have to, because they're in a competitive environment where the consumer wants quality. So they have to provide a quality product, and they do. I'm just wondering why this could not be the same case in this country.

¹ (1535)

Mr. Charles Dalfen: That's one of the tough decisions that you have to make. But to the extent that we can assist you, we can confirm that the two are separate, and that, as I said in my opening remarks, in broadcasting we have a directive on foreign ownership that we administer separately from rules governing content, and that would be the same situation as in the U.K. currently.

So what you're looking at are those foreign ownership rules, and Parliament can adjust them, as it has in the past, or the government, depending on which authority is in play here.

Mr. Brian Fitzpatrick: In the age of globalization and open markets and the movement of capital and so on, can you possibly figure out any logical, rational basis to have foreign ownership restrictions on something like cable television, other than some perceived fear of loss of Canadian content in our media?

Mr. Charles Dalfen: As we represent the commission here today, from the commission's perspective we administer the rules that government chooses to give us, and in its wisdom it makes those policy decisions. There have been in the past--I gave the dates, 1968, 1976--changes in the rules, and since that time we've lived with the changes and we've never found them an obstacle to doing our work. I'm sure that whatever changes are made going forward would be the same.

The Chair: Mr. Marcil

I would just remind you that we're using the six-minute rule because it's two panels.

[Translation]

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

Welcome to the committee.

I understood what you said in reply to my colleague Brian. However, since you are the president of an organization that plays an important role in Canada, I would like to ask you a question. You have your own experience, but you also have an opinion as president. I understand that you speak on behalf of the CRTC, that it is up to Parliament to amend legislation and that you are responsible for enforcing this legislation. I understand all that.

For our part, we would like people like yourself, who have experience and who are familiar with both sides of the issue, to shed some light on it for us. We have heard from all sorts of groups. Some agree, others disagree. As Mr. Fitzpatrick mentioned, it is mainly the companies that are involved in both telecommunications and content that could cause a problem in the case of deregulation, because of Canadian sovereignty considerations.

Imagine what would happen, Mr. Dalfen, if we were to deregulate the sector tomorrow and thereby open up the market to anyone who feels like buying, investing in Canada and developing telecommunications industries.

On the basis of your experience and that of the CRTC, do you think we could deregulate and allow foreign companies to take over Canadian firms or develop new American or European companies here in Canada, while retaining a regulatory framework that could protect Canadian cultural sovereignty? That is really the essential issue.

Mr. Charles Dalfen: Are you referring to broadcasting or telecommunications, or both?

Mr. Serge Marcil: Some companies are just in telecommunications, and in my opinion, this does not present a problem, because they're only concerned about infrastructure. However, companies such as Rogers or Vidéotron are involved in telecommunications, transportation and content at the same time. If an American or European company were to decide tomorrow to buy out Vidéotron or Rogers Communications, how could we ensure that your broadcasting objectives are upheld—namely that all Canadians should get the best possible service and Canada's cultural sovereignty should be protected at the same time?

Would that be possible if deregulation were to happen? Could we introduce a scheme that would enable foreign companies to take over Canadian firms while at the same time ensuring your two objectives are met?

¹ (1540)

Mr. Charles Dalfen: In my opinion, we have to study the objectives of the two pieces of legislation carefully—and I referred to paragraph 7(d) of the Telecommunications Act—because they contain provisions that we must apply in the context of decisions made to promote ownership by Canadian firms and their control by Canadians.

This means that it is not enough merely to adapt or modify our analysis. The whole context of the Act must be reviewed so that we can determine whether this objective must be maintained throughout Canada and, if need be, draw the necessary conclusions. It is relatively easy to change regulations, but we must take into account the entire context to which they are related.

Mr. Serge Marcil: Excuse me, Mr. Chairman. Let us assume that one of the objectives is to ensure that Canadians have access to communication services that are varied, innovative, high-quality, and so on. I think that both foreigners and Canadians could meet such requirements; we could require that the companies meet certain objectives by setting up appropriate rates

In the case of broadcasting, does your day-to-day experience, the battles you are engaged in and the complaints you have to deal with, enable you to tell us what would happen in the case of deregulation? If we were to find ourselves in a free market situation in which everyone could invest, on the basis of your experience as the President of the CRTC and that of your officials, do you think we could have a context in which all Canadians could have access to a fair telecommunications system, while at the same time having regulations that are different from those we have at the moment, which allow foreign companies, as Mr. Fitzpatrick mentioned earlier, to meet Canadian cultural objectives?

Mr. Charles Dalfen: I am trying to answer your question to the best of my abilities, but it is not really an easy task. I am giving you what we described as the bookends. On the one end, there is no doubt that when a foreign company becomes part of our market, it has to pay income tax, get licences for motor vehicles and respect all Canadians laws. That much is clear.

However, if we abolish the rules on foreign ownership, will we be able to exercise the same control over foreign companies? On the one hand, this is a normal situation, because we encounter that every day in government; on the other hand, our experience is limited to regulating Canadian companies, except in the case of resales, where the Act provides that foreign owners can get into our market.

I cannot tell you what will happen in broadcasting if we opt for deregulation. However, I can tell you that we are using these control procedures not only with respect to foreign ownership, but also with respect to the objectives.

Some of these objectives are to promote Canadian programming, the development of Canadian services, the use of Canadian equipment, and so on. So we have a whole series of issues to promote.

We cannot foresee what will happen if we abolish one, two, three or four regulations. Nevertheless, I can tell you that we use these tools on a daily basis.

Mr. Serge Marcil: I'll put that question the other way around.

[English]

The Chair: You've gone way over your time. We have to stick to the six-minute rule, because of the two panels.

Mr. Crête.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Mr. Dalfen, you said that you outlined the commission's role with respect to ownership in the broadcasting and telecommunications industries in Canada. You also state that you provided an overview of the state of competition in the telecommunications industry.

I would like to have your personal recommendations on foreign ownership. Do you suggest that the committee should abolish the provision of the Act under which we have a full public market, or do you suggest other solutions? What is the CRTC's position on this issue?

¹ (1545)

Mr. Charles Dalfen: In the 35 years it has been in existence, the CRTC has never provided that sort of advice. We work with the regulations and objectives I have just discussed with Mr. Marcil, and we can answer any of your questions. However, neither my colleagues nor myself can make such recommendations, because those considerations are not under our purview.

I feel somewhat uncomfortable, because of course we have personal opinions as individuals. However, we are here to represent the CRTC, which does not examine such considerations because they are not under its purview. But I will try to be as positive as I can.

Mr. Paul Crête: I will put the question another way.

Given that the goal is a healthy industry, high-quality production, wide audiences and high ratings in all existing sectors, would you say that the current model is the best one we could have?

Mr. Charles Dalfen: It is difficult to say whether the current model is the best one we could have, but it is the one we have been using for 35 years. Can we change it? Of course we can. In your wisdom, you have made recommendations, and we will take them into account.

Mr. Paul Crête: And in your wisdom, you will have to live with all this as well. You make recommendations, and you implement the legislation. If you could change the legislation tomorrow morning, would you change it, or would you leave it as it is?

Mr. Charles Dalfen: We are not necessarily looking to change the legislation, but we are not against it either. I am not trying to duck your question here, but I am not comfortable with giving opinions on behalf of the institution that I head. That is not our role. I don't know whether my colleagues agree with me. We are subject to a number of directives, but we are still very well able to implement change.

Mr. Paul Crête: I will put a different kind of question. You say that the CRTC essentially believes that the most sustainable competition is a competition based on facilities. Here, I think that we are talking about regular telephone systems.

Please tell me how facilities-based competition can help broaden competition. The concept that every company would set up its own facilities seems somewhat idealistic to me. That is how things are in my part of the world. When you have three towers, or three kinds of facilities side-by-side, that just means you are maintaining the current monopoly.

Mr. Charles Dalfen: Yes, I understand.

We have a resale system that flows from the legislation. Foreigners can take part in it, and that is how some of them penetrate the market. But if we do want to develop long-term competition, we believe that it is important to invest in telecommunications equipment and systems, otherwise we run the risk of needing regulations indefinitely. I don't think that this would be a desirable course.

Mr. Paul Crête: In your view, would changing the foreign ownership percentage stipulated in the legislation change your perspective or your task? Is it a question of percentage, or a question of principle?

Mr. Charles Dalfen: Are you talking about facilities-based competition?

Mr. Paul Crête: No, forgive me. I came back to this because I had very little time.

Mr. Charles Dalfen: We should point out that in the area of wireless communications—such as long-distance and Internet communications—there is a strong facilities-based competition at present. So it is possible. We're not there yet for local telecommunications, but we should remember that in other areas we have got there, throughout Canada.

¹ (1550)

[English]

The Chair: Thank you, Mr. Crête, for being short on your questions, because we have a lot of them to ask.

Mr. St. Denis.

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

Thank you for being here.

I'll try to have a couple of short questions. On page 4 of your presentation, you mentioned that competition, particularly in local markets, was certainly not evolving as quickly as you had hoped. I know there will be a variety of reasons for this, but is it possible for you to rank the top two, three, four, or five reasons? There's an economic downturn, for example, and there's.... Is it possible for you to rank them, Mr. Dalfen?

Mr. Charles Dalfen: That's a very good question. Since receiving the chairmanship of the CRTC over a year ago, I've been looking for that same list. So it is a very good question.

I can't give you that pure ranking, because I haven't been able to find it myself. I can name a number of the factors. The economic downturn since the death of the dot-com boom has been completely unhelpful to the process. You can call it oversupply in the heady days of capacity, relative to where actual demand was going, as distinct from the build-it-and-they-will-come mentality prevailing at the time.

As I'm sure we all do from time to time, if you look back you could probably have fine-tuned some of the regulations to perhaps have ensured speedier access to incumbent networks here and there. The regulator probably bears some responsibility, as we all do.

Another factor was the quality of business decision-making in making those investments in capacity when capacity seemed to be coming on line. More was bought, invested, and put into the ground, which has proven to be problematic.

A further factor was the fall-off in demand as a result of the general economic downturn.

Mr. Brent St. Denis: Thank you for that.

I appreciate that you can't answer policy questions. You administer the rules provided to you by Parliament. But can you answer a hypothetical or what-if situation?

I come to my question thinking we should relax the rules. So I'm looking for reasons why we shouldn't, as opposed to coming to it with a negative view and then looking for reasons why we should. So I come from the point of view of “Let's do it, and let's argue why not”.

If we relax the rules so there is no limitation on foreign ownership of the infrastructure, the pipes and so on, I think most of our concerns would relate to those grey areas where there is common ownership of broadcast facilities and pipes—in cable, for example. You are able to separate those two in your decision-making fairly readily, because both sides of the fence have ownership restrictions. If the restrictions on the ownership of the infrastructure were opened up, could you continue to manage the broadcast content side with your current tools, even though the pipe side was opened up? The interface there would get more complicated. Do your current tools allow you to take care of that?

Mr. Charles Dalfen: To the extent that is similar to Mr. Fitzpatrick's question, my answer would be the same. There are two sets of rules. The ownership rules and the content rules have always been administered differently. These are two statutes setting forth Parliament's policies and objectives in statutory form. They're not just government policy coming out from time to time. They're the law, so we have to give effect to them. In your review I'm sure you'll bear that in mind. As you look at the specific rules, you'll look at the objectives.

The answer is yes, we have administered those two sets of rules quite differently, often looking at both. For example, when there's a change in ownership, you want to make sure it doesn't result in a violation of the directive on foreign ownership. Then you look at programming and other elements. The two can be done independently of each other in that sense.

But there is always overlap flowing from the objectives and also from the fact that, quite apart from the specific foreign ownership rules, as I mentioned to Mr. Marcil, the objectives talk about promoting Canadian sovereignty, identity, and so forth in a way that always requires you to take account of the ownership, control, direction, and influence over the broadcasting undertaking to make sure you're onside with your objectives. It's pretty much a full-scale examination.

I don't know whether that responds to your question.

¹ (1555)

Mr. Brent St. Denis: In my mind I imagine a membrane, if you will, between the two sides. I'm just wondering if the ownership issue on the infrastructure side doesn't do something at that interface that causes a bigger problem for you or less of a problem. I take it that you would still have the tools to do the job if one side of the membrane, the ownership of the pipes, was opened up.

Mr. Charles Dalfen: The membrane is a good example, because it's not a watertight compartment. It's not impermeable.

I don't have an example to give you. Well, I do, actually. We put out a decision just last week with regard to the involvement of a foreign entity. We had to look in great detail at that involvement, not just through ownership but through the branding of its product and the influence on the programming decisions that were going to be made and so forth. It wasn't just a matter of whether or not they matched the 80%. It was whether this was starting to become a control issue. We put out a decision requiring in very nitty-gritty form that the applicant amend various sections of its agreement with the foreign entity in order to bring it onside. So it's a membrane, as you so aptly put it.

Mr. Brent St. Denis: And the pressure on one side might change.

Mr. Charles Dalfen: It could.

The Chair: Thank you very much, Mr. St. Denis. We'll come back to you.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: The objectives I find somewhat interesting. I would have thought that the prime objective would be the creation of a quality competitive delivery system that meets and exceeds the expectations of the end user, the Canadian public, rather than focusing on who owns the delivery system. But Parliament has set out its objectives.

Cable, satellite, and antenna deliver TV signals and content. Cable, the telcos, and satellites to a lesser extent deliver the Internet. The telecommunications are delivered by telcos primarily, but antenna, satellites, and cable can be involved with that. The only reason I'm raising this issue is because a side issue on this is whether we should have one regime to police and take care of the ownership thing. Cable, by its very nature, is in competition with the telcos, and vice versa, and there are other players in the field as well.

My impression is that the U.K. people were rather surprised that we had one regime for cable under one department and the other ones were dealt with in another department with another set of regulations, and the regulations weren't the same. My reading of both of them, if you can read non-verbal communication, was that they were rather surprised that we would have this odd arrangement.

These outfits are in direct competition with one another, so why aren't the rules the same for them? That's the question we're grappling with here. Regardless of what foreign ownership restriction is, shouldn't there be one set of rules to deal with the ownership of all of these competitors?

Mr. Charles Dalfen: The rules now are fairly similar but not identical. You're absolutely right.

The issue, I suppose, is that cable is regulated under the Broadcasting Act for reasons having to do with its origins in extending broadcast signals. Telecommunications carriers are regulated under the Telecommunications Act.

You have to bear that in mind, particularly now. After 25 years of trying to urge them to compete directly against each other, we finally have a real facilities-based competitive service high-speed Internet. As everyone here knows, they're competing against each other like a hammer and tongs for the benefit of the consumer, putting Canada, I think, at number two in the world of broadband extension.

Obviously, you have to take both into account, I suppose, in deciding what to do with the Telecommunications Act.

º (1600)

Mr. Brian Fitzpatrick: In my own view, it's as clear as the sun rising in the morning and setting in the evening. When you have a host of businesses that are in direct competition in the very same type of business, they should have equality before the law. The rules should be the same for all the competitors.

You can say that cable delivers primarily TV content and so on. Throughout a lot of Canada--and you'll know this very well--the telcos are delivering a very strong product through satellites that's in direct competition with the cable organizations and is probably taking over a lot of their turf. It's a very competitive situation.

I think Microsoft is busy trying to figure out a way to make the Internet deliver TV content into a TV station. They do have some prototypes they're working on. I'm not going to rule that out as a possibility a year or two down the road.

Doesn't it make sense, from a policy standpoint, to have one set of rules on ownership for all of the basically similar competitors?

Mr. Charles Dalfen: When regulating them in the marketplace, we certainly do try to provide as level a playing field as we can.

Mr. Brian Fitzpatrick: You do with the content, but I'm referring to the ownership.

Mr. Charles Dalfen: It's not only on the content. It's on the terms and conditions of service, price regulation or de-regulation, and how they deal with the ISPs that deal with them, to make sure that they're being regulated fairly.

Mr. Brian Fitzpatrick: I'm referring to the ownership end of it.

Mr. Charles Dalfen: Right now the ownership happens to be similar as a result of the two regimes. Yes, they're treated similarly there, too.

The Chair: We now go to Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you, Monsieur le Président.

The previous speaker was saying that as surely as the sun rises in the morning, it sets in the evening. In my riding in the Yukon, it doesn't always do that.

If you've watched the hearings so far, you've probably noticed that if the objective is competition, there's something that's even more important than foreign ownership related to competition, and that is a regulatory environment that makes the industry competitive and worth while for people to invest in.

I want to touch on a couple of things we might have touched on already but are related to my riding.

There is not local competition at this time, but you're moving in that direction. I'm very happy to hear that. You can imagine that local access is absolutely essential, especially in rural and remote areas like mine. It's not a luxury. For poor people, all they can afford is local access.

If your woodstove goes out at 40 below, or you fall out of your wheelchair, or the electricity that runs your oil furnace goes off at that temperature, it doesn't take very long to freeze to death. It really is essential.

We need the prices as low as possible. We have the third-highest unemployment in the country at this time, so we need low prices.

What upset me a bit in hearings a few years ago, in relation to the local access, is that you've done a good job with long-distance access in getting competition there, but the telephone companies tried to move more of their revenues into the local access that wasn't protected. You allowed increases far in excess of the rate of inflation in the north.

Hopefully, you will control the regulation of local access until you achieve our common objective of getting competition into local access.

Mr. Charles Dalfen: I'm going to ask David Colville, the vice-chair of telecommunications, to address that.

Mr. David Colville (Vice-Chairperson, Telecommunications, Canadian Radio-television and Telecommunications Commission): It is our intention to keep regulating the local service. As you know, we're still regulating NorthwesTel under the old “rate of return” model, if you will, that we applied to NorthwesTel.

You talked about competition on the local access. In our last decision a couple of years ago, we opened up competition on long distance. That's starting to take hold in your territory. In the meantime, we're going to continue to regulate the local prices for the service.

Mr. Larry Bagnell: My point was that when you regulated the local prices you allowed increases far in excess of the rate of inflation.

Mr. David Colville: We were trying to balance the issue there as we try to move toward an environment that will permit competition. This may go to Mr. St. Denis' question earlier, too, about some of the issues that perhaps competition on the local side didn't happen as fast as we thought it might. The fact is the economics of the local market are quite different from the long-distance market.

I suppose we got caught up with the fact that on the long-distance side the prices were so much higher than cost. Competition took off, prices came down in a hurry. In the local market, for the most part prices were below cost, particularly in very remote and rural areas. If we ever want to have sustainable competition, our view is that we're going to have to try to get to a more rational pricing structure.

In your particular case, the other issue we had to wrestle with was we acknowledged in our high-cost decision that we would have a subsidy from the south to support the provision of service to all residents in the north, including access to the Internet. There we had to make a judgment call in terms of balancing how big a subsidy will we have from the south and how much should it be that the northern residents themselves would pay for the service. We made that judgment call.

It really wasn't a question of looking at the time at the price of inflation or whatever it was. As I say, it was a bit of a judgment call in terms of looking at that target, trying to bring prices closer to cost, probably not at cost, in the very remote and rural areas, and balancing that against how much of a subsidy we were going to have from the south.

º (1605)

Mr. Larry Bagnell: We definitely appreciate that second decision. I just hope you keep it in the back of your mind as further hearings come up.

The Chair: You're going to relate this all to foreign investment, I hope.

Mr. Larry Bagnell: If you remember, Chair, I said that--

The Chair: I wouldn't want to rule you out of order.

Mr. Larry Bagnell: If you remember, Mr. Chair, in the hearings so far people have brought up that the objective of the foreign investment was to increase competition, and the witnesses have brought up something that's even more important for competition. So I was following up what previous witnesses have brought to the table.

Along that line, then, there is the issue of the access to the hard assets, the lines, and the fact that, as some of the interveners suggested, they're at cost, they have to pay what anyone else would, so you can't really have competition and the CRTC should be setting its rates at basically the same costs that whatever telephone company owns the lines would have to pay, as opposed to charging retail, or rates so high that the competitor can't really come in. So it's not really transparent enough or effective enough to really allow sufficient competition.

Mr. Charles Dalfen: In fact, we launched a proceeding recently on a competitor digital network access tariff, which would tailor to the interests of competitors to allow them to do that, to allow them to have access to the facilities of the incumbent carriers at a rate that will be regulated.

Our position is, and I think we feel strongly about this, that we can't require anybody to sell products below cost. The trick is to get the costs right and then to make sure that the markup is as low as you can possibly set it to be fair to both sides. That's the process we're engaged in and trying to pursue. I believe progress has been made. I noticed a number of the witnesses who appeared before you from the competitive side who were acknowledging that. We're not there yet. We put out this annual report each year monitoring the industry and the state of competition in the local markets. It's just not yet satisfactory. So we're going to have to continue to work on that.

Since that time we've put out a number of decisions, not only price caps in this last one I've been talking to you about, but decisions restricting win-backs, promotions, and the like. We're going to have to continue to ensure that competitors have a fair shot at succeeding in serving Canadians.

Mr. Larry Bagnell: Thank you.

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

Mr. Fontana, then I'm going to go to Mr. Crête, and then to Mr. McTeague.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

I want to follow up with regard to a number of questions as they relate to whether or not foreign investment is a vehicle by which to create competition.

In creating competition by getting foreign investment, Brian, I would like to say that the last time someone asked for one body to look at foreign investment and foreign control, it was a group called FIRA that sent the “feara” into everyone with regard to whether or not that was pro or con to Canada's interests. It would seem to me, though, that if in fact foreign investment is a vehicle by which to get capital, by which to have competition, you can do that without sacrificing your sovereignty. Everybody gets hung up on this thing that if someone owns, instead of 48% or 46%, 51% or 52%, all of a sudden somebody's going to be losing something. Canada is going to be losing something.

Brent and everybody else was asking about this, and I found it rather incredible, Mr. Dalfen, that you said it's not your role to give advice to the government. To tell you the truth, if that's the case, then we should ask you: if the CRTC doesn't know what the heck is going on in the country and the world, who does? I would hope that the government would at least ask for....

By the same token, I also have a second question as it relates to when you do get advice from the government, if you listen to it, but I'll ask that one second.

My point is, within the tool box of what Brent was saying, couldn't you do it by regulation? If in fact we want to protect Canadian culture, Canadian content, Canadian this, Canadian that, isn't it far better to do it by virtue of regulation, either on the broadcast side and maybe less so on the telecommunications side, than doing it on the foreign investment side? What do you think?

º (1610)

The Chair: Let's go for the answer before we run out of time.

Mr. Charles Dalfen: We certainly are available to participate in any proceeding and to do reports, and we do. Informally we are available to provide whatever advice we can give. This just happens to be an area that Parliament has reserved for itself and the government to determine. I have asked my staff and others: have we had problems with administering those rules over the years? My own personal experience, and theirs, is that we haven't, including changes that have been made to them. That's our advice. As to how you want to go with it, that's of course up to you and up to Parliament.

We use regulation, we use licensing in broadcasting, and we use orders and decisions to implement policy. We do that all the time, as a matter of course. We will continue to pursue the objectives of the act and carry out our powers in that way. So we don't lack the tools.

Mr. Joe Fontana: My second question was related to the issue of getting advice or giving advice. The question to the CRTC is, who are you accountable to, responsible to, in all of your decision-making? You are a creature of the federal government in terms of your roles and responsibilities and how you do it. So maybe you can deal with that question.

And I want to ask a question on behalf of my colleague, Joe Volpe, who is a member of the committee but couldn't be here. It relates to decision-making responsibilities, and so on, and it has to do with the decision with regard to the broadcast side for World Telemonde, which in fact was appealed. The cabinet asked you to reconsider the application and you ignored the cabinet decision with regard to that particular issue, as I understand it. The industry thinks--and I don't know this for a fact--that you might have botched the decision.

I'm wondering whether or not it's a two-way street. You say you don't give advice to the government, nor should you, but when the government asks you something for maybe policy reasons, public policy issues, with regard to broadcast, multicultural channels, and so on and so forth, you decide to ignore the cabinet altogether, who are responsible and accountable to the people of Canada.

Mr. Charles Dalfen: I don't agree with your characterization.

Mr. Joe Fontana: Of what? That you botched it?

Mr. Charles Dalfen: Whether we botched it or not, you're free to hold that opinion, but I don't accept the suggestion that we ignored the advice of the government. The government asked us to reconsider a decision taking account of certain factors, and that's what we did. The government didn't tell us to come up with a different decision, nor does it have the power to do that under the act.

Mr. Joe Fontana: Who's got the power?

Mr. Charles Dalfen: That's the power the act gives the CRTC, subject to appeal to the Governor in Council and the courts.

Mr. Joe Fontana: So when a person appeals to the Governor in Council, and the Governor in Council obviously turns around and says “we don't like your decision, we think you should reconsider it”, that might be a message or whatever for you to take a look at it again. And you turn around and say that there are others--

Mr. Charles Dalfen: There's another step then. The government can set it aside if it doesn't like it at the end of the day. That's another step in this process. The act very carefully spells that out to ensure fair and reasonable processes. I believe it has succeeded in doing so and that the commission fully reconsidered that decision and fully took account of the point the government raised. The panel unanimously came to the conclusion that the decision should be confirmed.

º (1615)

The Chair: Thank you very much.

Mr. Crête.

[Translation]

Mr. Paul Crête: Thank you, Mr. Chairman.

Based on your vast experience with access to services in rural areas, can you tell me whether free access to foreign investment would really speed up better-quality services to rural areas, or whether it would not have much effect on this at all?

Mr. Charles Dalfen: I have not yet seen anything that would lead me to believe it would speed up the process or would not. During your hearings, you may be able to get a better idea of what would happen.

Mr. Paul Crête: Let's say that, all other variables being equal, we increase the potential for foreign investment. If I am to believe what you say, you do not have the information you need to see whether that would increase market penetration, which currently stands at 20% of the population and covers 80% of the territory, while 80% of the population involved is on 20% of the territory. If I understand correctly, you have no opinion on this. Is that indeed so?

Mr. Charles Dalfen: No, Mr. Crête. I do not see how we could require a Canadian or foreign investor to spend his money in Canadian regions that have less service. The system doesn't work that way.

Mr. Paul Crête: But in your view, if we open up the market and there is more money and more competition, would that make services easier to obtain, or would it have no effect? I am not saying that investors should be required to invest in particular areas, only that such a thing may come to pass.

Mr. Charles Dalfen: Perhaps.

Mr. Paul Crête: I have no views on that.

Mr. Charles Dalfen: Some of your witnesses are much closer to operations than I am, and you will have an opportunity to garner a variety of views on this issue. However, at present, we have a teledensity percentage: in other words, there is 98% penetration of the market for the telephone. As for high-speed Internet access, we rank second in the world. With the current system, we are doing rather well in comparison with other countries. This does not mean, however, that we could not do better. But it is up to you to decide whether foreign investment would or would not be profitable.

Mr. Paul Crête: Let me give you an example. One kilometre away from highway 20, in Saint-Pascal, Kamouraska, there was no high-speed Internet access. As time went by we did get access through microwave technology. Suddenly, Bell Canada found a way of setting up an Internet system there. Here, competition created the need.

We are elected officials who represent Quebecers and Canadians, not business people. We are concerned that by eliminating foreign ownership rules, we will gain no advantage but simply see some consolidation in the industry.

You are an expert on this issue. As far as I'm concerned, the CRTC is one of the Canadian organizations best able to determine what influences the implementation of local initiatives. I would like to know whether you have any views on this.

Mr. Charles Dalfen: Obviously investors are not looking for areas that are not profitable. That means that the more foreign money we attract, the more this rule will apply.

Someone suggested that this could be worse, which is one way of looking at the issue from the opposite perspective. It is difficult to prove that foreign money will enhance the implementation of services in Canada, but will it hurt anything? Perhaps not. That is a good question. One thing is clear, and that is that there are people, whether they be in London, New York or anywhere else in the world, who are going to look for places where they will get a better return on their investment. If Canada proves to be such a country, they will invest in it, if not, they will go elsewhere; they have the choice to do so since this sector is becoming increasingly more globalized.

º (1620)

Mr. Paul Crête: If I understand correctly, foreign investment may enable us to consolidate the industry, but it in no way automatically leads to better service in the rural regions.

Mr. Charles Dalfen: In no way is it automatic.

[English]

The Chair: You still have time for another short question. You'll be back. Okay.

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Chair, thank you.

Thank you for being here today. The great part of being a vice-chair is you get to have all these wonderful questions before you.

Mr. Colville, you and I know that many years ago I was on the heritage committee, and one of the reasons I left the heritage committee was not to have the CRTC appear before us and having to ask tough questions, so I'll try to refrain.

Mr. Dalfen, thank you for your intervention. You made a couple of comments that I thought were intriguing for members, certainly your belief about the most sustainable form of competition, the facilities-based competition. I think, by all accounts, most have agreed the status quo is not acceptable any way you slice this, and you've even suggested here that the situation in local markets has not evolved as quickly as you had wanted. I'm wondering if it is not simply what you would like or what we would be able to do in a perfect world, but that the market is in fact determined for us and what is the most appropriate route.

For instance, if the marketplace were to suggest or this committee were to take the view of some that the Telecommunications Act ought to be amended to remove the criteria of promotion of ownership and control by Canadian carriers, would you still nevertheless see your optimal goal of having, notwithstanding of not being Canadian, more opportunity and a more realistic ability to bring about facilities-based carriers, as opposed to the hybrid that you apparently see as simply a stepping stone?

Mr. Charles Dalfen: Again, I don't see an automatic link there. I can certainly see the arguments in favour of it. As I was saying to Mr. Crête, if you turn the proposition on its head and say you may not be able to show a positive correlation, can you at least say it won't hurt in that regard in terms of the access to and the cost of capital? I guess you could probably say that. Then the question is how does that square with the other objectives you have under your act, and if you're satisfied that you're going to get enough bang for the buck and satisfy these other objectives, that's one thing and you need to go that route.

Mr. Dan McTeague: Short of this committee recommending something like a national securities regulator--which will get a lot of eyebrows raised, of course, because we may or may not be heading in that direction--it seems to me that the marketplace doesn't have a bias one way or another, whether it is a facilities-based competition or whether it is that someone would be able to use someone else's facilities. And of course you're caught in the middle of regulation as it deals with what is fair.

How then do we structure a bias by the CRTC relative to what appears to be no bias by the marketplace and that they've already voted with their shares or with their inability to provide essential funding to achieve the very goals that you have? Basically, what I'm asking is if what you are asking is impossible to achieve under the current construction. If so, what would you propose? I know you cannot propose; you've said that. But if there's no other way in which to achieve competition among those who are facilitators, what other model could you possibly propose that would help this committee resolve what is going to require the wisdom of Solomon to achieve?

Clearly, cabinet has decided that they are of two minds on this. The public is of many minds on this. And you're asking several members of Parliament, who are going to get a quick crash course in telecommunications, how to resolve all the problems of the world overnight. We are expecting the CRTC to provide some direction, but if it has a particular bias as to what it wants but it's not in the context of what the marketplace wants, how do you resolve it?

Mr. Charles Dalfen: I have a number of comments.

That's an interesting proposition. Certainly the Broadcasting Act and the CBC, founded in the thirties, are there because if Canada had allowed market forces to operate they would not be there. It was thought necessary to invest the money and to have the legislation so that we would have a system of our own. This covers or goes over into foreign ownership issues. Although the issues are separable, we've discussed that there are two sets of rules. As Mr. St. Denis pointed out, there's a membrane, which I added the word “permeable” to.

Given the objectives of both acts, there is no question that you have to take account of terms like “Canadian sovereignty” and enhancing and promoting ownership and control of Canadian.... So this is part and parcel of the fabric of these statutes. To separate out that element takes a good deal of care, which is what you're doing. But as I said before, we can and have functioned over the years with changes, and will continue to do so.

Market forces alone would mean we wouldn't have erected those cultural institutions in this country. Indeed, the foreign ownership rules in telecommunications, which came into effect after the war with companies like the then Canadian Overseas Telecommunications Corporation, the international carrier.... It stemmed from concerns over wartime security, because you didn't want anybody else in charge of your vital links to other countries. It stayed in place until it was abandoned some years later. So there was a complete evolution from one side to the other. At the end of the day, Teleglobe became a company that wasn't Canadian-owned.

So opinions and views on these things shift. You're now in the process of asking whether we should respond to change and to globalization, and therefore change our rules. You're getting a picture of how it isn't as simple an issue as it might appear at first glance, not only because of content reasons but also because of the entire fabric of the objectives you set up in the statutes.

º (1625)

The Chair: Thank you, Mr. McTeague.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: I respect your position. You are a creature of an act of Parliament, which is where your jurisdiction flows from. I would be more concerned if cabinet or the PMO were ordering you to do things you felt you were required to do in terms of Canadian content. Personally, I would find it disturbing and offensive if it were happening. So I respect your position on that front and I'm not going to challenge that point of view.

We've had witnesses here who talked about major problems gaining access to the pipeline, and difficulties and affiliation agreements, and all of these sorts of things in getting in there and getting their shelf space, so to speak. If I understood some of them, their position was that public ownership would be the best system for gaining access. Canadian monopoly private enterprise would be second best. Foreign ownership would be terrible, as it would just be awful to have to go to Dallas or South Korea or someplace else to lobby to get channel 36 on the system, and so on.

I really had a lot of trouble buying into that argument, because if I understand your role, sir, if anybody has a legitimate complaint that they aren't being treated fairly by the cable operator or by the people providing the satellite system, they have recourse to the CRTC. You have the power to provide those folks with fair and reasonable remedies for any unfairness that occurs, regardless of who owns the system.

Am I correct in this assumption?

Mr. Charles Dalfen: I would agree with that.

Mr. Brian Fitzpatrick: That's all I need for an answer, because it says a lot.

The Chair: Is that it, Mr. Fitzpatrick? Thank you.

Mr. Savoy.

Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you very much, Mr. Chair.

Thank you very much for coming today.

Around the table, we all understand the dilemma in the situation we face. As Dan said, the wisdom of Solomon is what we need.

My particular interest is Canadian productivity and research and innovation in Canada, and how we move this agenda forward. Within the telecommunications sector, we have issues of R and D and innovation. We also have outreach programs in terms of telecommunications to rural and remote communities, specifically regarding the Internet.

If we were to look at your facilities-based model, it would require substantial investment. But by the same token, if we don't look at lifting or at least scaling back foreign ownership restrictions, don't you think there is a contradiction between this general need or request for new capital for productivity, innovation, outreach, and IT services and your request for facilities-based competition? Don't you think we'll need new foreign dollars to move forward with this facilities-based model?

º (1630)

Mr. Charles Dalfen: We may. You'd think, on the face of it, if you eliminated the rules, access couldn't be any worse. Obviously you'd open up a universe of new share buyers and financial institutions. I think that is a common-sense, obvious point.

The link that is hard to draw automatically is to then say that will guarantee that we'll have all the investment we'll need for facilities-based application. As a number of people have said here, until markets turn around, people regain confidence in the sector, and business plans commend themselves on the basis of their merits, neither Canadians nor foreign investors are going to invest. When the atmosphere is right, as it was in the late 1990s and 2000, there is no trouble attracting money anywhere. The bottom line is that in Canada we have broadband access that is among the best in the world, and investment in a telephone system that's the best in the world.

There's an interesting thing about telephone penetration in the U.K. Mr. Edmonds, whom I talked to, may have said this to you; I don't know. The truth is that when competition in local telephony emerged, it emerged on the backs of cable operators. Canadians, including Videotron and BCE at the time, were prominent in that. I think he would agree, and anybody who used the system in the 1960s as I did, that was because the service was awful compared to what we were used to in Canada.

The BT government monopoly at the time simply didn't have anywhere near the level of service. So when the cable guy came around door to door in the U.K. offering telephone service, it was not very hard to make that telephone service better. They didn't even have detailed billing for the accounts. You'd get a phone bill like your electric utility bill, saying you'd used so many units. You didn't know where, when, how, or why. You'd get a single bill for it, and the service was shoddy. So that poor service helped the Canadians go into the U.K. and sell telephone service as well as cable service.

In Canada, though--and this is a long-winded way of answering your question--all of us have grown up with top-flight service in telephony. Our broadband now is top-flight. So obviously over the years, whatever the rules were, we've managed to attract investment into these sectors. It's the same with cable television and high-speed access.

So have we really had a problem raising capital to date? That's a question I'm sure you're going to examine. But if you look at the common-sense proposition, could it be any worse if we opened it up? It probably couldn't be, because you'd obviously have more sources of capital and more investors. But on what the benefits of those would be, I'm not sure there's an automatic link to be drawn.

Mr. Andy Savoy: In terms of facilities-based competition and new entrants specifically, I know you've provided an outline for new entrants to use existing infrastructure of the larger users, larger telcos. But if new entrants require the equity to become facilities based without the lifting of direct foreign ownership restrictions, that may be very difficult.

Let's speak specifically to new entrants now. Do you have a different perspective on new entrants from that on existing larger telcos?

Mr. Charles Dalfen: There are new entrants in resale. As you know, you can get resale long-distance telephone service from players based in Florida and California. They don't even have business offices in Canada. You can still dial those multiple numbers and get cheaper telephone service.

They're in the Canadian market, and Canadian consumers benefit from them. But they're not interested in facilities; they're taking advantage of the resale regime in Canada we've had in force now for 12 or 13 years, which continues to provide excellent service.

I'll use this quote, even though it's a little glib. The president of Harvard University, formerly Secretary of the Treasury, said that in the history of the world, no one has ever washed a rented car. The lesson of that is if you're only a reseller of somebody else's product, are you really going to give it the care and concern and make the investments necessary to provide yourself with a long-term sustainable business?

Our belief is that while there is room for those players in the Canadian market and while they're here, that shouldn't be the basis on which we build an innovation agenda for Canada and long-term benefit to the consumers. It will always have to rest on regulatory intervention to keep margins down and prices up, as far as the incumbents are concerned. That's why we're in favour of it.

Will the new entrants absolutely need foreign capital in order to succeed? That's a decision you'll have to make. We haven't seen that. One of the new entrants has said that in some of the situations today you couldn't get investors from Mars to invest in these companies. Everything depends on the business plan at the end of the day.

º (1635)

The Chair: Thank you very much.

I'll go to Mr. Bagnell, and then to Mr. Fitzpatrick--short questions, please.

Mr. Larry Bagnell: I just want to continue from exactly where I left off, at reasonable access to the pipe. I'll put my question in a form the chair will accept.

If foreign ownership freed up some capital that people could invest--and we want, of course, the environment to be competitive enough so that it's worth their investing in--when you're determining the costs for the competitor to access the pipe, what type of objective third-party investigation and calculation are you doing? Are you doing any more of that, or are you just allowing the incumbent to come up with the costs?

Mr. Charles Dalfen: The methodologies are developed through public proceedings in which all parties have an opportunity to comment. The cost inputs are in the particular possession of the incumbents, where incumbent facilities are concerned. Then we filter them. We pass them through our own gaze. Ones that aren't confidential, we put to public scrutiny, and the process is a very open and transparent one.

I think you had one incumbent before you complaining about us altering what they consider to be their costs, on the basis of national averages and estimates. So I think it's pretty clear that the incumbent's costs are put to a tremendous amount of scrutiny, as are the methodologies by all concerned, to make sure that we not only get the right costs, but that where people are, as in remote areas, getting subsidies, we don't raise the rates too high so that everybody has to pay excessively high subsidies.

As you know, the national contribution rate in the last year or so has gone down from 4.5% to under 1.5% currently simply because of that scrutiny that we've given to costing.

So we're trying to balance a desire not to require anybody to sell below cost and to make sure that the costs are as accurate as they can possible be. So not only do you get third parties, but you get second, third, fourth, and fifth parties, everybody participating in the process inputting to that.

Mr. Larry Bagnell: So you have access to the site, to go on site and inspect these things and everything?

Mr. Charles Dalfen: We do. We are in constant contact with them.

One is a corrective for the other. Because we have TELUS, SaskTel, Manitoba Tel, Bell, and Alliant, you get a chance to compare costs from one company to another. When one seems to stand out, out of whack, you question that and ask, why are these costs so high here compared to the rest of the country? Then they say there are issues of terrain and climate and so forth that you have to factor in. But we try to scrutinize those as carefully as possible, because that's the key to making those fair decisions, making sure that costs are down right.

The Chair: We'll go to Mr. Fitzpatrick for one question, and then to Mr. McTeague.

Mr. Brian Fitzpatrick: I just want to go back to the U.K. experience. The more I start hearing about some of this Tony Blair policy over in Britain, sometimes I start to think he's on the right track, this fellow. But if I understand their philosophy on this thing, the liberalization of foreign investment equated to greater competition. Greater competition put the emphasis on the consumer. The consumer became the choice of things. People who provide lousy service, poor choice, poor content, all those sorts of things, lose out in that competitive environment. People who meet and exceed customer expectations in these areas win. And if you input a good regulatory environment for content, the big winner is British content.

For the life of me, I don't know why this wouldn't be a pretty good approach to follow in Canada too, where we'd let the 30 million Canadians here into a system in which they would make the choices. Rather than a cabinet or a bureaucracy or somebody else, let the Canadian person make the choice on what's quality Canadian content in a competitive environment.

I guess I'm really looking for your opposition or reaction to my observations here.

º (1640)

Mr. Charles Dalfen: You've raised many issues, Mr. Fitzpatrick, and to the extent you want to rely on the U.K. model, which has caught a lot of attention everywhere, you'll want your researchers to compare and contrast Canada and the U.K. and see where we stand.

Under our regime, I think we come out pretty well in terms of prices, expansion of broadband, and so on, compared to the U.K. But again, that's not to say you can't make improvements, and their regime is attracting interest, not just here but worldwide.

Mr. Brian Fitzpatrick: One of my favourite programs, by the way, is Mr. Bean. It is interesting that I had my exposure to that through the Public Broadcasting System, which is an American system fed into our system. It wasn't Canadian companies making it available. A lot of other good quality programs I find on Showtime and public broadcasting are coming through American providers. So through the back door we're getting good quality stuff.

The Chair: Thank you, Mr. Fitzpatrick.

Mr. McTeague, you'll wrap up.

Mr. Dan McTeague: Mr. Dalfen, I really appreciated your analogy about the rental cars. It reminded me of the rental I had to pay for the other day, which I'm sure included a charge for washing the car, among other things. And perhaps they took me to the cleaners as well while I was there.

I want to ask a question about the process. If someone, for instance, isn't happy with the decision, say the interconnection with AT&T, what is the recourse? What is the usual process? We've heard from other witnesses in the past, and there are examples of other countries where you can simply take it to court. In essence, you don't become the final arbiter on a question of retail or wholesale pricing.

Perhaps you could explain this to the committee.

Mr. Charles Dalfen: Absolutely.

We in Canada have avenues of recourse galore. For example, in the United States, if the FCC makes a decision you don't like, you have to go to court. There is no appeal to government. Here there are three levels. One, it can go back to us. We have the statutory power under the act to review and vary our own decision. Two, you can go to the cabinet and the cabinet can review or vary or ask us for a report or ask us to set aside the decision. And three, you can go to court for all the legal grounds if you think you have a legal case.

So we are a body that is accountable. Mr. Fontana has left, but we are accountable to ourselves. There's a second go, where we use a different panel, the cabinet and the courts of the land, to look at the subject matter the second time so that there's no bias coming from the first panel's view.

I can't look at every other jurisdiction, but it is certainly more than in the U.S.

The Chair: Thank you very much. That wraps up this panel. We really appreciate your being with us today. If there are any questions, I'm sure the researchers will get back to you to get some more definition.

We will suspend for two minutes.

º (1643)

º (1648)

The Chair: We'll resume the meeting. On our next panel, we have Konrad von Finckenstein, the Commissioner of Competition of the Competition Bureau. We welcome him back to this committee. He's been here many times to help us out in understanding the various things on competition.

Sir, it's great to have you back.

We have Mr. Gaston Jorré, who is his assistant.

Mr. Finckenstein, you will begin with some opening remarks and then we'll get right into questions.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau, Department of Industry): Thank you very much, Mr. Chairman.

Good afternoon, members of the committee. It's a pleasure to appear before you and to give you a competition policy perspective on foreign investment restrictions.

[Translation]

As you are aware, the Competition Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marketing Act. Our role is to promote and maintain fair competition so that Canadians can benefit from lower prices, product choice and quality service.

º (1650)

[English]

As Commissioner of Competition, I also have an efficacy role to promote competition policy in general. The Competition Bureau promotes competition in all aspects of economic activity, as we believe that the market forces are the most efficient allocators of such scarce resources.

However, we recognize the government also has to pursue other public policy goals--for instance, cultural and social policies--that may take precedence over competition objectives. Where such public policy concerns override competition, market interference should be kept to a minimum.

I presented the bureau's views on foreign ownership when I appeared before the House of Commons heritage committee in December 2002. Allow me to reiterate and amplify the points I made then.

First of all, access to capital is essential for a dynamic and efficient industry, and squeezing out foreign capital is inconsistent with an effective capital market. A diversity of options and sources of capital, including diverse sources, diverse risk acceptance, and diverse terms and conditions, are necessary for the market to function as best it can. For instance, greater access to foreign capital could help long-distance telecommunication firms, cable companies, and others who are contemplating entering local telephony markets. It would also be of benefit to cable and telecommunication companies wishing to upgrade existing networks.

Secondly, foreign capital is not only about bringing cash to Canada but involves bringing outside financial ideas, financial influence, sources of technology, and managerial efficiency to Canadians. The media sector in Canada and around the world is in transition. Convergence, a poorly defined term to which the industry flocked, has so far not been found successful. No sound and profitable business models have evolved. Adjustments in the media industry are expected in the near term. Access to foreign capital will only facilitate the transition and ensure the development of a stronger Canadian industry.

Thirdly, in our view, in terms of carriage, there's no distinction between carrying a telephone signal and the carriage of a broadcasting signal. Consequently, the carriers of either signal, be they telephone companies or broadcast distribution undertakings, should enjoy the same access to capital and be bound by the same ownership rules. Anything less would give one sector an unfair advantage over the other and distort economic decision-making.

The cable companies, or BDUs, as they're called, when testifying before the heritage committee made it quite clear that they're willing to structurally separate themselves into carrier companies and content companies in order to take advantage of any relaxation in foreign ownership rules for telecom carriers.

We do not believe that foreign ownership restrictions are necessary to achieve a healthy and vigorous telecommunications industry. Under the present Telecommunications Act, the regulator has broad powers over telecommunication carriers by having the ability to, for instance, set rates for incumbent carriers, determine quality of service, ensure affordable service in rural and remote areas, and discipline anti-competitive behaviour in areas still under regulations. Of course, any areas that are not subject to regulations are governed by the provisions of the Competition Act.

Fourth, if the regulator's powers are insufficient to allow it to achieve the government's goals--a fact to which we don't subscribe and which yet has to be proven, in our view--this committee could contemplate amending the Telecommunications Act to introduce a requirement for licensing of telecom carriers. Such licensing is permitted under the WTO rules and is practised by most of our trading partners. Such licences, of course, can be made subject to such terms and conditions as are necessary to achieve goals allegedly unattainable under the present regime.

[Translation]

I would like to stress that these four points relate to telecommunications companies regardless of whether they carry telephony, broadcasting or Internet access signals.

[English]

When I appeared in December before the heritage committee, the bureau recommended that the government

Include, as part of Canada's broadcasting and regulatory policy:

a) an objective that regulation, where required, be efficient, effective and directed solely to the realization of the Act's core cultural objectives;

b) an objective of increased reliance on market forces; and

c) an objective of enhanced efficiency and competitiveness of Canadian broadcasting services.

Those were the recommendations we made with respect to the Broadcasting Act.

In conclusion, the bureau's message is simple. We do not see what can be achieved through the blunt and stifling instrument of foreign ownership restrictions that cannot be achieved by other more subtle and less distorting regulatory means.

º (1655)

[Translation]

Our recommendations apply to all carriers of telecommunications signals regardless of type. A signal is a signal and the same rules should apply to all carriers.

I am delighted to have been asked to appear before you. I hope that a competition policy perspective can contribute usefully to the deliberations of this important policy issue. I look forward to your questions.

[English]

The Chair: Thank you, Mr. von Finckenstein.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: Thank you, sir.

Sometimes I think that in this country we have a bias toward monopolies. We somehow think that's a better system and that there's something sinister and evil about a healthy, competitive marketplace and things like foreign ownership and so on.

I'm not from that school. I've heard some pretty compelling evidence from the U.K. that would confirm my point of view, that a healthy, competitive, liberalized environment is the best way of delivering quality programming to the public. I haven't heard anything really compelling the other way.

I've heard your report and I've looked at your concluding comments, and they confirm what I've heard from the U.K. about their experience. Basically, there's nothing in your report I can really disagree with or criticize or cross-examine you on. I think it's right on. With that, that's my question, my comment.

Mr. Konrad von Finckenstein: I'm glad to hear this.

The Chair: Your next question is...? Is that it?

Mr. Brian Fitzpatrick: That's it. I have nothing to argue with. I think he's right on.

The Chair: Okay. Mr. Bagnell.

Mr. Larry Bagnell: It is good to see you again, Konrad. It's about twenty years we've been working together.

If we allowed foreign investment, as you seem to suggest wouldn't cause a problem, and we had some huge American takeover of our existing businesses and some real major player leading to a monopoly, I'm worried that the smaller players, when they're accessing our whole competition regime, wouldn't get through fast enough to ensure their survival.

When we were doing the competition hearings, you'll remember, I asked ad nauseam if there was enough money in the system to get things done quickly and efficiently. Specifically, we have a new small airline that's had a problem with Air Canada, and I think they are too frustrated to go through the system after watching WestJet, who I don't think are even showing up for their own hearings because they don't think it's fast enough or that there are enough resources in the system.

I wonder what your comments are on any of that.

Mr. Konrad von Finckenstein: Thank you.

You're now talking about the competition system in general, especially our ability to deal with the abuse of dominance. That clearly is a big issue.

The act was amended, thanks to your committee, last year and has now provisions regarding cease and desist orders that can be issued by the tribunal in order to stop conduct while the tribunal holds the hearings and while it's determined whether the conduct is indeed abusive or not. So hopefully that will provide some relief. That kind of power was not in place at the time the WestJet case started.

The WestJet case--by the way, they are at the hearings--is the first one, and it's taking an awful long time for a whole series of reasons, such as 9/11, the presiding judge had cancer, and so forth. There was a lot of disruption. Hopefully, other cases will be dealt with faster.

However, you put your finger on a very valid point. I mean, administering a competition regime is expensive, and you need resources. We are under-resourced. I have said that before to this committee, and it is still the case. If you're not properly resourced, you obviously cannot deal with the cases. We have to priorize, and it may be that small cases take a back seat. I hope that's not the case, and I hope that's not the case with regard to the airline in your riding, but those are the realities of life. As an administrator of the act, I can only do so much with the small budget I'm given.

Mr. Larry Bagnell: Of course, I haven't given up my crusade to have the whole system apply to very small business.

Related to your report, on page 8, the three objectives at the bottom of the page, I take issue with the word “solely” in objective (a). It seems to suggest that you're saying solely objective (a) can be followed, which is that it's solely for the realization of the act's core cultural objectives, which then doesn't leave room for the next two objectives.

» (1700)

Mr. Konrad von Finckenstein: No, this is taken out of context. What I tried to indicate by this quote is that when I appeared before the heritage committee--we were obviously talking about the Broadcasting Act--I made a series of recommendations. The key one was that the regulations through the CRTC should be directed to the realization of the act's core cultural objectives; i.e., objectives other than cultural objectives should not be part of the CRTC's consideration. They should not make economic judgments. They should not try to favour one competitor over another or take a position as to whether somebody will succeed or not. It's the entrepreneur who is risking his dollars who should make those decisions.

The CRTC should set up a framework. The framework is there to foster the Canadian broadcasting system and to ensure the augmentation and spreading of Canadian culture.

Those are the core cultural objectives, and that's what they should concentrate on. They should not make economic judgments.

Mr. Larry Bagnell: You're just talking about content?

Mr. Konrad von Finckenstein: We are talking about the Broadcasting Act. The Broadcasting Act has at its core the promotion and advancement of Canadian culture, and that's fine. All the regulations that are made should be done with regard to that point of view.

In terms of competition, in terms of whether something is likely to be profitable, likely to succeed or not, that should not be a concern of the regulators. The regulators should set a framework that advances the cultural objectives. The entrepreneur will then decide how to structure and adapt himself in order to take advantage of the system to make a maximum return on his money, but because of the regulatory framework, he will foster cultural objectives.

Mr. Larry Bagnell: When you were suggesting the same access to foreign investment for cable broadcasting and telecommunications--I'm sure there are people in this room who will be happy with that--I guess the big objection the heritage committee is bringing up is that it may not be possible to protect content, so they're more worried about the broadcast.

Do you think that through the CRTC, or whatever method, it's possible to protect content on both those modalities?

Mr. Konrad von Finckenstein: What I'm saying is when we're here talking to you about telecommunications, we're talking about signals being transported over a pipe. Whether that signal is a telephone signal, an Internet signal, or a broadcasting signal makes no difference. What you're doing is you have a pipe and you're sending electronic signals through it. The rules for that should be the same.

They are in each other's business already. Cable gives you access to the Internet. You have cable telephony in some areas. Telephone right now gives you access to the Internet, and in some areas they are into experimental ways of trying to send broadcast signals over telephone wires, etc. To the extent that they are in the carriage business, the same rules apply.

When we talk about content, it's different. There you clearly want to ensure and protect Canadian content and Canadian culture. When the cable industry appeared before the heritage committee, Janet Yale, the president, accompanied by three presidents of her association, said they were ready to structurally separate. They said “If you're going to relax the rules, make sure the same rules apply to us, insofar as we are carriers of a signal, as to the telephone companies, because we have the same business”.

So presumably what it means is the cable company will split itself in two. Take Rogers as an example: you'll have Rogers content and Rogers carriage. For Rogers carriage, the same rules will apply as to any telephone company. For Rogers content, the broadcasting rules would be applied. Clearly, the carriage company could not own any channels, do any broadcasting, or do any content. All they will be doing is conveying an electronic signal.

Now, if you set the framework up that way, it's up to them whether they want to take advantage of themselves and split themselves or whether they think there are enough synergies in having the two under one roof and pay the penalty of foreign ownership restriction. That's for them to decide.

I think the framework should allow sufficient flexibility that they can take advantage. In my view, they all will, but that remains to be seen. You'll have a level playing field for people who are in the same business--i.e., the carriage of signals.

» (1705)

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

Mr. Crête.

[Translation]

Mr. Paul Crête: Thank you very much, Mr. Chairman. When the President of Bell Canada, Mr. Sabia, appeared before us, he recommended caution with respect to liberalization. This matter will be the subject of international negotiations and, in his opinion, if we were to automatically eliminate foreign ownership restrictions we would be showing our hand.

Does your hypothesis whereby foreign ownership restrictions will disappear enable you to reassure us that content rules will be protected, or should we instead expect companies to institute legal proceedings under the pretext that this is restricting free competition? Should that be the case, both foreign ownership restrictions and content protection would disappear.

Mr. Konrad von Finckenstein: First of all, I would like to clarify that international negotiations on content are not my area of expertise.

Mr. Paul Crête: No, but some of these negotiations do deal with a whole set of situations. Currently, a significant debate is taking place in order to determine whether or not there should be an exception for culture. Culture may or may not be effected by these negotiations. We are therefore playing a waiting game and it may be dangerous to put all of our cards on the table immediately.

Mr. Konrad von Finckenstein: But what I'm suggesting has nothing to do with content. I'm only talking about signal carriage.

Mr. Paul Crête: But people from the Canadian Heritage Committee and those who have testified before this committee said that those areas could not be separated. In their view, if we give companies operating in both sectors the opportunity of penetrating this area with their signal, they—particularly cable distributors—will end up trying to influence content.

Mr. Konrad von Finckenstein: There is an existing WTO agreement on the carriage of telecommunications signals. I was a member of the Canadian delegation that negotiated the agreement, and I can tell you that it does not touch on content or broadcasting. It is solely an agreement on telecommunications. I have not heard of any movement that would be in favour of including broadcasting and content. In fact, many countries other than Canada are concerned about revisiting the subject. I think that the difference between carrying signals and determining content is clear and well understood.

Of course, we have to ensure that those two ideas do not become confused when we negotiate internationally. But I don't see how my suggestions here today could somehow jeopardize any aspect of our international negotiations.

Mr. Paul Crête: Do you have any projections showing what affect eliminating foreign ownership restrictions might have? If you have no such projections, what are your own views? Let say that we accept your proposal and eliminate the restrictions. Do you believe that Canada will have real competition in those markets in 10 or 15 years, or do you believe there will simply be one giant monopoly left, something like Bell, but open to foreign investment? Do you have any idea of the sort of industry we will end up with? Of course everything might remain the same, with forces remaining equal. What do you think?

Mr. Konrad von Finckenstein: It is difficult to predict how the markets will evolve. The only thing we can do is establish a regulatory framework that allows competition. And on that score, the Competition Act ensures that there is no anti competitive activity.

It is difficult to predict how things will develop, particularly in a small market like ours. Canada's population is not like the U.S.'s. Generally, population in Canada is more concentrated than in the United States, because the market is smaller.

I do hope that your hypothesis does not come to pass, and that we do not end up with one giant monopoly. Would we have two or three giant players? I don't know. I have no crystal ball.

» (1710)

Mr. Paul Crête: But since we do have our American neighbours to the south, could the result in Canada be different from what it would be in European countries or elsewhere? Given the set up here, might eliminating restrictions not have more serious affects, than it might elsewhere? For example, we might have a massive inflow of U.S. capital.

Mr. Konrad von Finckenstein: That is possible, but it is equally possible that we would have access to a greater mass of capital, investors, and so on. A Canadian company would not necessarily have to be amalgamated with a U.S. giant. The Canadian company might find a niche, become specialized, and in addition to having a part of the Canadian market, it might penetrate the U.S. market and specialize there. Many Canadian companies have been successful.

North American integration can be seen as a danger or as a business opportunity, depending on whether one is an optimist or a pessimist. What we have seen, particularly in the telecommunications industry, is that many companies are seizing the opportunities that arise.

Mr. Paul Crête: When it comes to media content, do you really believe that there will be no impact on the creative sector of the industry, and that in the medium term that created sector can carry on and remain competitive, even if the owner of the telecommunications interest is in the U.S.?

Mr. Konrad von Finckenstein: This is really a broadcasting issue. The dangers I foresee in broadcasting are many, but they are technological dangers, which will only increase as the Internet evolves. Whether it be next year or in five years, it will become increasingly easier to access all broadcasts over the Internet, simultaneously and immediately. This means that people will be able to circumvent all the regulations that govern broadcasting. That is where the real danger lies.

What will we do then? Will we be able to regulate the Internet? Should we promote Canadian creativity and programs? Should we establish support programs? In my view, that is where the real danger lies; it does not lie in eliminating foreign ownership restrictions.

Mr. Paul Crête: Thank you.

[English]

The Chair: Mr. McTeague.

Mr. Dan McTeague: Mr. Chair, thank you again.

Commissioner, Mr. Jorré, thank you for being here.

I'm not sure if you had an opportunity to hear my last question to Mr. Dalfen on the CRTC regarding processes where people would seek remedies if they incurred a problem as adjudicated by the CRTC. Of course the CRTC gave several, but I didn't hear in that the Competition Act or the Competition Bureau--nor should there be. I think you very clearly set out here a definition of areas that are not subject to regulation but that are governed by the Competition Act.

It's struck me over the years, Commissioner, because I've run into a number of areas where there was obviously a concern about the effectiveness of our markets, that markets may have had a better means or mechanism or vehicle in which to provide good public policy.

By the way, I am concerned about your observations in terms of resources. I understand that we as a committee did recommend to our government greater resources for your department. I'm not necessarily convinced that we should ensure that those resources are only based on mergers in an era when there have been fewer and fewer mergers.

I will take it up with the chair to ensure that our recommendations last year have the effect of ensuring that we have an effective, vigorous umpire.

I'm wondering, though, about your comments here. You seem to invite the CRTC to delve into areas that are, in my view--and I think in the view of many people who have reviewed this file--areas that ought to be considered competition jurisdiction. They certainly are in the United States, where if I am concerned about AOL Time Warner, I can take my case to the Department of Justice, the anti-trust division, or to the FCC or to a court.

If we are trying to achieve market-driven solutions, are there areas in which you believe the regulatory environment, notwithstanding a proposal for foreign investment, still becomes so onerous that you will not be able to achieve the objectives of bringing outside financial ideas, as you say, financial influence, and sources of technology unless they're seen as outside of the regulatory ambit?

» (1715)

Mr. Konrad von Finckenstein: That's somewhat difficult. What you're really asking me to do is comment on the regulatory processes of other agencies. I'm sure Mr. Dalfen answered your question. There have been complaints about the CRTC, about its slowness and ineffectiveness, whether they're justified or not. I think you should speak to the people who are making those allegations and to the CRTC. I don't think it's my role to comment on the effectiveness of the processes of the CRTC.

Mr. Dan McTeague: Commissioner, two or three years ago I wrote a letter to the Prime Minister, and I copied almost everybody under the sun, with my concern over the wave of convergence that was occurring in the summer of 2000. At the time, I suggested perhaps a hybrid committee would be charged with, upon the advice of cabinet, a review of the effects of convergence, which had obviously a number of competition concerns.

Obviously the people on the broadcast and heritage side of things were concerned about issues of content and objective editorial opinion, and those were sort of borne out in some circumstances. But I too was concerned about the quality of competition, and obviously a question of price.

In this kind of circumstance, if we were to recommend and follow your advice here in terms of providing greater foreign investment, would we also have to look at the regulatory environment as it relates to who does what pursuant to your recommendation? Is this advice or a direction that the committee should or ought to take, in your view?

Mr. Konrad von Finckenstein: Mr. McTeague, you put me in a difficult.... I'm here as a champion of competition. What you are really asking is whether the present regulatory regime for competition is for communications optimum--that the division between some responsibility in Industry Canada, some in the CRTC, and some with the Competition Bureau is the best way of doing it. Probably not. There are probably better or more efficient ways of doing it, but I don't think it's my place to advocate realignment of those.

Mr. Dan McTeague: Commissioner, perhaps you could then help us. An easier way of putting this is that there obviously have been examples right around the world where we have had an increase of foreign ownership or where there has been an abatement. Australia would be an example, and the U.K.

Can you perhaps give an illustration to this committee of how the relative competition authority there is involved with respect to telecommunications? Has it enhanced since deregulation? With the notion of foreign investment now become seized in those countries, is there greater intervention or oversight by the competition authority, the same, or less?

Mr. Konrad von Finckenstein: I guess, broadly speaking, all the countries that have liberalized communications and have allowed greater foreign ownership have seen, as a result, more competition in their market. That greater competition has resulted in better prices, greater quality, and more innovation in those sectors. Some countries have opted to put the competition agency and the regulator in the same agency and have given the same agency both the responsibility for competition as well as for fostering.... Others have split it.

It's generally the experience that where you put it together, after a while the regulator becomes co-opted by the regulatee, and competition concerns take second seat to industry-specific concerns.

We certainly believe strongly--and it's shared, for instance, by the Americans and by some of the Europeans--that you should separate those two. You should have one agency that has as its goal the fostering of competition, and the other one, regulating the industry, ensuring access, and so on, because you need to have a different viewpoint. If you always regulate the industry and deal with it day to day, you tend after a while to see them from their point of view. You just do that. It's very difficult for even the best and most well-meaning person to remain objective and at the same time to recognize the interests of consumers, of users and outsiders who want to enter that industry.

» (1720)

Mr. Dan McTeague: As a final question, Mr. Commissioner, last year and over the past couple of years, this committee was significant in proceeding with international cooperation agreements with other jurisdictions around the world. Do you believe this move will strengthen the ability of your bureau to be able to detect, should there be any questions of concern, foreign investments that might have an international aspect? Does this assist you in being able to do your job? Should there be any concerns about vigorous and effective enforcement of legislation?

Mr. Konrad von Finckenstein: I think we see in North America, particularly through economic integration, the same issue appearing on both sides of the border, which requires cooperation between the agencies. Just this week, for instance, we and the American Federal Trade Commission, together with the Mexicans, jointly shut down an outfit that was selling fake cancer cures to desperate people who were willing to do anything in order to find a cure. It was something that had absolutely no value. It was a cure allegedly to be had in Mexico, which was sold to both Canadians and Americans. Through cooperation we managed to put it out of business. Of course that's an extreme case.

You also have other cases where you talk about anti-competitive conduct or where you have a merger and different information is available to agencies on both sides of the border. Our ability to work together is absolutely essential in order to deal with an economy that doesn't recognize borders any more and where the major trade flows are north-south and not east-west.

The powers we were given last year in the amendments to the Competition Act are very helpful. We now have cooperation agreements with Mexico, the States, Australia, and New Zealand. We are in the process of finalizing one with the U.K. We have one with the EU. These are being very vigorously used and have to be used in order to ensure that the same rules apply everywhere and that companies cannot play off one jurisdiction against the other.

The Chair: Thank you very much.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: There's an underriding assumption here, sir, about ownership. It seems to me that people automatically assume that once you have foreign capital involved with an organization, it's going to lose its national identity. I seriously disagree with the notion. I think of companies such as Sony, Toyota, Nokia, and Seimens, which aren't American companies, but when people think of them, they think of the country where they originated. The Japanese don't see Toyota as being anything less than a Japanese company even though it trades in a lot of markets throughout the world. I see the same thing with CNR, Magna International, and Nortel Networks. People see those as Canadian companies. They've grown. They're not into all these magical formulas saying that this company can't have more than 25% or 48%.

That's not really my question, but if you want to comment on that when I've finished with my question, you can go ahead.

We did hear evidence about the small players in the marketplace attempting to gain access to the incumbent network. I'm not up to date on all the lingo that goes with the industry, but my reading of it was that they felt they should be able to get a wholesale price to get into those systems. But they weren't getting a wholesale price. In fact, they weren't even getting a retail price. They were paying an exorbitant price to gain entry to those systems. Because of that imposition, it was very difficult for them to create a truly competitive environment with these big incumbents and to make a profit and do a good job. I wonder if you would have any comments on that evidence. We did hear from the small players that for them this was a major impediment to competition and health for their companies.

» (1725)

Mr. Konrad von Finckenstein: On foreign ownership, I absolutely agree with you. I have appeared before your committee and others to advocate against foreign ownership restrictions, because I really don't see what you're protecting and what you're achieving with them. For instance, why do you have foreign ownership restrictions on airlines? It seems to me that if you wanted to, you could regulate.... As far as I am concerned, whether Air Canada or WestJet are owned by Canadians or by foreigners doesn't make a difference to where they fly. They will fly to where they can make money, and if they can't make money, they won't fly, or they'll fly a smaller plane and have less service. You presumably regulate for a purpose, but I don't know what purpose is being achieved through the foreign ownership restriction.

The access issue you're talking about comes to the question of what kind of competition you want in Canada. We have made extensive submissions to the CRTC on the price cap hearings, which is really what this is all about. Our submission quite clearly said that facilities-based competition, to use the lingo of each carrier having its own facilities competing with each other, is really pipecleaning for Canada. For a country with a small population base and a huge area, you can't have competing networks. That means you have to have access to the other person's network. You may have some pipes at the end, but otherwise you use the others'. So then you should have access at wholesale prices, not at retail prices, or maybe at a discount, because the carrier sells it to you and doesn't have any advertising or marketing costs, etc.

So you should have a mixed system of resale and facility-based competition, which is the best you can achieve. Having a pure facility-based system will never be achievable, because at the start you're putting in enourmous investment costs on new entrants, which would never pay for it. So far, our argument has only been partially accepted by the CRTC. They have accepted some points.

What people have been complaining about is that to the extent they have to use the facilities of the incumbent carriers, they want to be able to get it at wholesale prices minus a discount.

The Chair: Mr. Bagnell.

Mr. Larry Bagnell: I guess our conundrum is that in telecommunications there doesn't seem to be much problem with foreign ownership. But some of the broadcasters, including cable, etc., think they should be treated equally. Then there's more of the problem with content, which is a bigger problem there at the moment, although it's all going to be melded together soon.

We were talking about this a minute ago. You talked about Rogers pipe and Rogers content and about splitting the companies. Under those circumstances, are you suggesting there's no cross-ownership or no common ownership of those two companies?

Mr. Konrad von Finckenstein: I am suggesting they have the ability to avail themselves of the situation, and to do it for the best interest. If you have a cable company that decides to structurally separate and puts all of its content, all its specialty channels or whatever, on one side, and on the other side just carries content and basic signal—i.e., for its sister company and also with Internet access, etc.—it should then be able to decide whether it wants to do a public offering in the States, London, or wherever, and have as much foreign ownership or as little as it decides is necessary to maximize its returns. They can control their company or control can be ceded to somebody else, which is up to them. They can decide what is the best way to maximize their business.

In our view, this will in no way interfere with the content regulations we presently have in place to maximize and foster Canadian culture. That will be in place.

But to the extent these people are really in the business of transporting electronic signals, the same rules should apply to them as apply to telephone companies.

So you make your offer, basically, and they will decide where the economic fortune lies, whether they want to avail themselves of the possibility or not.

Mr. Larry Bagnell: Don't you think the people carrying the signals with similar or American ownership can have an influence on what they carry?

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Mr. Konrad von Finckenstein: Why would they? If you're in the business of carrying signals, what you want to do is to carry as many signals as you can for the biggest bucks you can charge. That's all. You don't care about what the signal contains. You make your money on the quantity of signals you carry.

Mr. Larry Bagnell: Just to play the devil's advocate, my second question is related to your championing of competition. There's only so much of a market for adding people with big pockets to the equation, and people could actually have a better chance of controlling the whole kit and caboodle and in reducing competition.... Given this, and that you and I and Dan agreed earlier that this system is not as quick as it could be and is harder for smaller companies to access, and the fact we haven't even approved paying damages into this system yet, is there not a chance that increasing foreign ownership could work against your raison d'être of improving competition?

Mr. Konrad von Finckenstein: As you say, our raison d'être is to make sure that doesn't happen, so we have provisions allowing us to block mergers. If it's by way of anti-competitive conduct, then again we can defeat it.

To what extent is this possible? I guess anything is possible. I'm of the firm view that most people are in business to make money, not to pick a legal fight with a regulator. So presumably anybody entering the Canadian telecommunication market will structure themselves and operate in a way to maximize their return, and not in order to be dragged before the court by us or the CRTC.

Mr. Larry Bagnell: Where they don't have to pay damages. But that's okay.

The Chair: Okay.

Mr. Marcil, did you have any questions?

[Translation]

Mr. Serge Marcil: Yes, indeed. Please forgive me for leaving a few minutes ago, there was a witness before the Transport Committee I wanted to interview.

My question is very simple. As I understand, and this may well be so, you get straight to the point when discussing competition. At the Competition Office, of course, you talk about competition. You are not required to take into account content and cultural sovereignty. When the CRTC appeared here today, their representative did not want to express any views on deregulation. The Competition Act is there to promote competition.

Earlier, we were talking about telecommunications, a field that seems easy to regulate. But when it comes to content, telecommunications companies are less concerned, stating that market forces could ensure that Canadian values are respected. Could we establish a framework to make sure it happens?

Mr. Konrad von Finckenstein: I believe you may have misunderstood what I said. On page 3, I stated that cultural and social policy goals may take precedence over competition objectives. That is clear to me. When there is a conflict, those are the values that prevail. I am just saying that, in cases where there is no conflict between cultural values and competition, we should disengage values from competition so that we can have a competitive market. I recognize that public policy issues are extremely important, but they take precedence, and they should be preserved.

In answer to Mr. Crête's question, I said that I did not want to do anything that would undermine the protection and promotion of Canadian culture. But abolishing foreign ownership for a signals carrier would in my view not provide greater protection for Canadian culture.

Mr. Serge Marcil: I understand what you're saying. So there might be a way of deregulating and allowing foreign companies to own Canadian companies, or to develop companies in Canada. In your experience, there are also ways of opening our markets through deregulation, since we are living in a North American economy. We should be open to all points of view, though culture remains a priority. Therefore we could establish a framework that would include some requirements, regardless of who would own a given company in Canada.

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Mr. Konrad von Finckenstein: We absolutely agree.

[English]

The Chair: Thank you.

Mr. McTeague.

Mr. Dan McTeague: Commissioner, the fellow who came here before you, the chairman of the CRTC, had us all in stitches in saying that those who are involved with the hybrid approach that allows new entrants to use the facilities of the incumbents are like someone renting a vehicle and never washing it. Of course, the theory is that he believes, as does the commission, that the most sustainable form of competition is what is referred to as facilities-based competition. I think you've touched on this.

It's a very interesting theory, but I'm not so sure it's borne out with respect to market forces. I recognize your constraints as competition commissioner, but is there a particular theory—market-driven, I suspect—leading you to conclude it's not such a bad thing, and that you would want to build two or ten completely separate facilities? Do you have a comment on this?

Mr. Konrad von Finckenstein: No. As I mentioned, we stand on record as believing that the best we can achieve is a hybrid system of facility-based competition and resale competition. In terms of the analogy you have brought up about cars, there are lots of companies that make a lot of money leasing cars, so you can make a lot of money leasing lines. So I don't quite see that as an apt analogy.

I think it's too optimistic, too utopian, to think that we can have pure facility-based competition in Canada. We just don't have the sufficient people and density, and we have great geographic distances. In small areas, clearly, such as in downtown Toronto, you will want to have facility-based competition, but you're not going to have it in Moose Jaw. That's something you have to realize. So if you want to have local competition, it will be done through resale or through a mix of resale and facility-based.

Mr. Dan McTeague: Do you see the resale as being an effective long-term solution? Obviously you do. I almost took the comments to be disparaging, but I say that with all due respect. It would appear to me that we have some very good people out there who have tried to make ends meet here and they're doing their very best under very trying, very difficult, and very confusing circumstances. The confusion also extends, obviously, between yourself and the contrast you have with the CRTC on this issue.

I'm not so sure the chair would want me to have another votable bill before this committee dealing with trying to give more powers to the Competition Bureau's view of the world as it relates to this issue. But I'm wondering if you could perhaps comment on something, on the analogy that has been made here, which is do we really need to open up a series of lofty goals to address, as Mr. Bagnell has suggested, very small and very constrained markets while at the same time achieving all of these wonderful ends of making sure we have a competitive environment while providing perfectly good conduct?

Are there areas around the world you're familiar with where there have been very successful hybrids, like the one that currently exists within Canada, under similar regulatory regimes?

Mr. Konrad von Finckenstein: I'm sorry, can you repeat the question? I want to make sure I answer your question.

Mr. Dan McTeague: It seems to me that the commission is asking for something that is utopian in terms of facilities-based competition. Are there examples where there has been liberalization around the world where you continue to have a decent blend of state structure or facilities-based providers, essential facilities being very successful in competing with the resellers or those in the downstream who are competing against them at retail?

Mr. Konrad von Finckenstein: If you look in the United States, there are many areas where you have thriving companies that are primarily in the resale business and have a very small facility base. There are other areas where you have companies competing with their own facilities. So it's clear that both models work. They are different business models, and you have to align yourself appropriately and to choose your customers carefully, etc.

I think the CRTC itself will say that we have a hybrid system right now. What we said in our last submission to them, on the price cap, is your overall goal is facility-based, and we think that's illusory; don't even try to go there; you have to have a mixed system.

Now, the quantity of the mixed system may vary from region to region, but don't start off with a goal you can never attain. Start off saying you will always have a mixed system, so how can we make that mixed system open, so that new entrants can enter but incumbents can also make a legitimate return on their investment so that they're not building facilities that they have to then rent out to incumbents at uneconomic prices?

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The Chair: I'm going to ask Mr. Fitzpatrick, and then Mr. Bagnell will finish up.

Mr. Brian Fitzpatrick: I have a couple of more observations.

I'm from a remote part of the world too. There's some sort of assumption that remote areas lose out from a competitive marketplace. My own view is that a highly competitive, healthy sector leads to technology that helps the remote areas, and I can think of nothing clearer in my mind than satellite communications through dishes for content. Somebody living in the Northwest Territories can access the same sort of content as somebody in Toronto. That wasn't available 20 years ago or 30 years ago, and it has nothing to do with the CRTC or anything; it comes about from technological innovation. I don't buy into the argument that somehow it's a danger to remote areas. I think if you analyze it, they're wrong in their assumptions.

The second point I'd like to raise, which I think is wrong too, is that somehow we have to have ownership restrictions because somehow that's dangerous to our national identity, our culture.

I was reading an article not long ago, and maybe you're more familiar with it than I am. Thirty years ago the German pharmaceutical sector was the leader in the world; their companies were the top pharmaceutical companies in the world. The German government decided in its wisdom that this industry should be sheltered and protected from competition and so on because it's a national treasure and so on. Today I think the biggest German pharmaceutical company is fifteenth in the world. They've lost their leadership in that area. The liberalized open economies have taken over, mainly the United States.

I hear the argument that maybe Bell Canada would be taken over by some big American company if we had an open thing here. I look at it the other way. I look at the problems in the American sector, and it would seem to me that the more obvious possibility would be Bell Canada would be going into the United States and picking up pieces in the United States. I certainly can't see WorldCom coming in here and taking over Bell Canada. SPC Systems is about the only thing down there that's healthy right now.

I don't understand all these underlying things like--

The Chair: Is there a question in there?

Mr. Brian Fitzpatrick: The question really is whether there is any sound, logical policy reason to have these foreign ownership restrictions in place.

Mr. Gaston Jorré (Senior Deputy Commissioner of Competition, Mergers Branch, Competition Bureau, Department of Industry): JOn telecom, we don't believe there is a need for such restrictions. On the other hand, there are other considerations for the government in the broadcast sector that have to be considered differently, and that can be dealt with. But we agree with you on telecoms that people should be able to invest and companies should be able to decide on the best way of dealing with things.

Mr. Brian Fitzpatrick: What about cable?

Mr. Gaston Jorré: Cable is a transmission facility. And we've said that whether you're talking cable, whether you're talking telephone, whether you're talking Internet transmission, all the transmission facilities should be treated the same way, which is different from broadcast content.

The Chair: Thank you.

Mr. Bagnell, you have the last short question.

Mr. Larry Bagnell: Mr. von Finckenstein, I assume you would agree that people make decisions not only related to the bottom line--whether they're you or me, or presidents of companies; in making regulations for government, we make decisions for reasons other than those related to the bottom line.

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Mr. Konrad von Finckenstein: Clearly we are economic animals, but not exclusively, yes.

Mr. Larry Bagnell: But if we're not exclusively economic animals, just previously you said that if we split Rogers into content and pipe, the pipe would only be exclusively economic. The thing is some of that is controlled through content control regulations, but there is some leeway related to when you put the channel on. If we're talking about an American owning something, Americans are very patriotic and may have certain things.... A president of a company, who is only human, could influence the time of day, the way they advertise, the types of things they want to carry even if they're not economic. Is that not possible?

Mr. Konrad von Finckenstein: Obviously you can always have irrational decisions. I assume that people in business primarily make rational decisions. The president of the company you talk about has to justify himself to the shareholders. He has to justify why, if there's a more profitable way, he is choosing a less profitable way, etc.

I assume that what we are talking about here are economic decisions, that they're done on a rational basis and done with a view to the bottom line. That's why you run a business. Now, if you run a business for other reasons than the bottom line, unless you own it, sooner or later you're going to have some accounting to do. If you own it, then you might go out of business. That's your choice. But generally speaking, in all our projections our assumption is that we're talking about companies that are running a business on economic, rational lines and their goal is to maximize their returns.

Mr. Larry Bagnell: Mr. Chair, could I close with a short story to illustrate my point?

There was a company in Fairbanks, Alaska, whose president I was meeting one day, who owns a big mining interest that's all over the United States. I said, “Why would you have your head office in Fairbanks, Alaska? It costs more money. You're not near your centre. It's very uneconomic.” He said, “I like to live here.”

So there are some decisions that aren't economic.

Thank you.

The Chair: Thank you, Mr. Bagnell.

I'd like to thank the witnesses, not only for their presentations but for their questions and answers today. Thank you very much for appearing. I'm sure that if we need any additional advice, we'll be back to your office. Thank you very much.

The meeting is adjourned until tomorrow.