INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Monday, February 3, 2003

¹

1535

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

Mr. Vic Allen (Chief Executive Officer, Upper Canada Networks)

¹

1540

¹

1545

The Chair

Mr. John McLennan (Vice-Chairman and Chief Executive Officer, AT&T Canada)

¹

1550

¹

1555

The Chair

Mr. John McLennan

º

1600

The Chair

Mr. William Linton (President and Chief Executive Officer, CallNet Enterprises Inc.)

º

1605

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. William Linton

º

1610

Mr. James Rajotte

Mr. William Linton

Mr. James Rajotte

Mr. William Linton

Mr. James Rajotte

Mr. John McLennan

Mr. James Rajotte

º

1615

Mr. John McLennan

Mr. James Rajotte

Mr. John McLennan

Mr. James Rajotte

Mr. John McLennan

Mr. James Rajotte

Mr. John McLennan

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. John McLennan

º

1620

Mr. Larry Bagnell

Mr. John McLennan

Mr. Larry Bagnell

Mr. Vic Allen

º

1625

The Chair

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

Mr. William Linton

Mr. John McLennan

º

1630

Mr. Paul Crête

Mr. John McLennan

º

1635

The Chair

Mr. William Linton

The Chair

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

Mr. John McLennan

º

1640

Mr. Dan McTeague

Mr. William Linton

Mr. John McLennan

Mr. Dan McTeague

º

1645

Mr. William Linton

Mr. John McLennan

The Chair

Mr. Vic Allen

º

1650

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. William Linton

Mr. Brian Masse

Mr. John McLennan

º

1655

Mr. Brian Masse

Mr. William Linton

»

1700

Mr. John McLennan

The Chair

Ms. Paddy Torsney (Burlington, Lib.)

Mr. William Linton

Ms. Paddy Torsney

Mr. William Linton

Ms. Paddy Torsney

Mr. William Linton

Ms. Paddy Torsney

Mr. William Linton

Ms. Paddy Torsney

Mr. William Linton

Ms. Paddy Torsney

Mr. William Linton

Mr. John McLennan

»

1705

Ms. Paddy Torsney

Mr. John McLennan

Ms. Paddy Torsney

Mr. John McLennan

Mr. Vic Allen

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

»

1710

Mr. John McLennan

Mr. Brian Fitzpatrick

Mr. William Linton

Mr. John McLennan

»

1715

Mr. William Linton

Mr. John McLennan

Mr. Brian Fitzpatrick

Mr. John McLennan

Mr. Brian Fitzpatrick

Mr. John McLennan

The Chair

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

»

1720

The Chair

Mr. John McLennan

Mr. William Linton

Mr. John McLennan

»

1725

The Chair

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

Mr. John McLennan

The Chair

---

CANADA

Standing Committee on Industry, Science and Technology

---

NUMBER 014

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Monday, February 3, 2003

[Recorded by Electronic Apparatus]

¹  (1535)  

[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.

    We have a number of witnesses here today. I will introduce them: from Upper Canada Networks, Mr. Vic Allen; from AT&T Canada, John McLennan and Chris Peirce; and from CallNet Enterprises, William Linton, Jean Brazeau, and Ian Scott.

    The witnesses have ten minutes for opening remarks and then we will open it up for questions. I would ask you to begin. I will just go down the list as shown on the agenda.

    Mr. Allen.

    Mr. Vic Allen (Chief Executive Officer, Upper Canada Networks): Thank you, Mr. Chair, members of the standing committee. I am delighted to be here this afternoon to share with you what life is like at the grassroots of the telecommunications and community networks part of the world.

    Upper Canada Networks is a not-for-profit Ontario corporation created specifically to enter into an agreement with the provincial government for seed funding to build a community network throughout the united counties of Leeds and Grenville. Leeds and Grenville, for those of you who may not know where it is, is directly south of Ottawa. It is the neighbourhood next door to greater Ottawa.

    Our mission is to provide access to affordable broadband to the public and private sectors within Leeds and Grenville and all of the constituents. The network we have put together is perhaps best illustrated by what was published in the National Broadband Task Force on how Canada might deliver broadband to communities outside the large urban areas.

    Ours, as a community network, was written up in the final report of the National Broadband Task Force. As a member of that task force and now as a member of the national selection committee, I would like to illustrate that community networks are really seen as the only viable vehicle for connectivity to small town and rural Canada. As such, at the moment, over 200 communities have put in applications to Industry Canada for some seed money to create a business case and hopefully move from there to the building of networks across the country. The movement is viewed certainly as fundamental to community building in the 21st century with particular emphasis on Canada, on urban areas.

    I would like to give you a flavour of a couple of things that have happened in the short life of Upper Canada Networks. We started our program in April 2000. This was after a year or more of preparing submissions for funding. When we moved into our office in Kemptville, just south of Ottawa here, we thought that as a purveyor of broadband connectivity we should have access to some form of broadband to share and show our neighbours.

    We made application to the incumbent and we made application to AT&T Canada. These were the only two people who could provide us with T1 connectivity--for the members of the committee, T1 is 1.4 megabytes per second. We received the two quotes, and the incumbent gave us a quote of $5,515 a month, plus a $4,000 connection fee, and AT&T Canada came in with a quote of $2,800 a month. Neither of those prices could possibly meet our capability to pay, and we looked to Ottawa for fixed wireless firms, selected one that provided us with a pilot site,and the price for the T1 equivalent over using fixed wireless turned out to be $300 a month.

    I make this point just to illustrate that there is a tremendous swing in prices here, and affordability being absolutely key for small town users, I think that story is illustrative of the challenge in what has to be done on the affordability side.

    Our network became operational in May 2002. In the first ten months of our operation we were able in our community to save and/or create over 60 jobs. Sixty jobs in our community is valued at about $30,000 a job per year. So our early beginnings really amount to a payback of about $1.8 million to the community, and that's just for starters.

    This is really to illustrate, ladies and gentlemen, the power of what a community network can do in terms of job creation and improvements in health care and education for rural communities that are presently beyond being connected through the normal channels.

    The question is, what on earth has a community network experience got to do with foreign investment restrictions? In our view, it has everything to do with foreign investment review or foreign investment restrictions. The marketplace in the telecommunications market today is not fully competitive. As a matter of fact, there are fewer competitors in the market today than there were two years ago, and as a consequence, choice is limited.

    If, in the example I gave about the T1, we were still in that context and only had one supplier to look to, namely the incumbent, we would have been in a lot more trouble at the outset than we ultimately were. The industry needs more competition. The community networks that will be evolving over the next year and a half across Canada must have a choice of suppliers and a choice of partners. Without the removal of the restrictions, we are concerned that these communities will not have that choice, and as a consequence, either their programs will be delayed or will not be as robust as they should be.

    It is clear that the two major area monopoly providers, which do a good job, have strong balance sheets and are well funded to move forward. Their competitors are not in the same set of circumstances, and as a consequence, this certainly does not create a level playing field in terms of serving the best interests of Canadians.

    Another factor that comes into play is that the CRTC has ruled that all incumbent facilities should have open access; that is, outfits such as our community network should be able to locate our equipment and have access to those facilities. In actual policy it's a good policy of open access. In practice I can tell you it doesn't work. Unless Upper Canada could afford a couple of lawyers for several months, and several engineers, and we had very deep pockets, we would never get access to the incumbent's facilities. Such was not the case with AT&T, who have partnered with us from the very outset. That is a consideration that all community networks serving rural Canada will ultimately face as they evolve.

    The question that appeared to us to need to be answered in preparing this document, and in thinking of appearing before this committee, is, has the restriction policy added value to the telecommunications sector? In terms of the research, reading, and experiences that certainly we have had, we would have to come up with a no to that question.

¹  (1540)  

    Secondly, is the restriction policy likely to add value to the community network movement across Canada? Again, our answer would be no to that.

    Finally, since our focus is trying to serve small town and rural Canada, we ask the question, will the restriction policy help small town and rural Canada to participate effectively in the global economy? If you are not connected these days, ladies and gentlemen, you know you are not a player. We cannot see where the continuation of this policy will add value at any of those levels.

    Rural Canada has to have affordable access to broadband, and right away. It needs a choice of carriers and suppliers, and that means a competitive environment must exist. Without better access for the competition and new entrants to the telecommunications market, we are concerned that the competition, the health of the competition, and encouraging new entrants to the market will not be robust enough to be of real assistance to wiring and connecting rural Canadians.

    Thank you very much.

¹  (1545)  

    The Chair: Thank you very much, Mr. Allen. I appreciate your staying right within the time limits.

    Now I will go to AT&T, Mr. McLennan.

    Mr. John McLennan (Vice-Chairman and Chief Executive Officer, AT&T Canada): Thank you very much, Chair.

    You should have all received copies of our formal submission by now. I believe they were all submitted last week. Our whole position on the subject is detailed and outlined in the document.

    With your permission, I am going to provide you with my own comments, not all of which are contained in the document. I will just start right in, if that's okay.

    The Chair: Yes, please do.

    Mr. John McLennan: AT&T Canada is Canada's largest national competitive provider of wireline telecom services to Canadian business. We have over 4,000 employees across Canada, and we have invested billions of dollars in building a local and national telecommunications network. But after having invested these several billion dollars, our national network footprint remains a small, small fraction of the former monopoly telephone company's infrastructure.

    I have worked in the Canadian telecom industry for over 30 years now, and it has indeed been a great and exciting time, with lots of changes. I was fortunate enough to have previously served as the CEO of Bell Canada. I worked in a couple of cellular and wireless companies and was executive vice-president with one of the early Canadian technology success stories, Mitel Corporation, just out here in Kanata, during its first eight years of extraordinary growth.

    At AT&T Canada, we are in the process of restructuring the debt on our balance sheet, which has direct implications on the ownership of our company, a subject that I would like to return to.

    In conjunction with that restructuring, U.S.-based AT&T Corp. has decided it no longer wishes to be an equity holder in our company. We will therefore be renaming ourselves and adopting a new corporate brand over the next number of months. So coming out of our financial restructuring at the end of March, we will be an independent Canadian company, competing with the former monopolies, Bell Canada and TELUS, as well as with any other competitors left standing, such as my colleague here, Mr. Linton. We are a competitor that has and will continue to struggle under the existing regime--the regulatory regime, most importantly, but also the current restrictions on foreign ownership.

    Trying to persuade the regulator and the government to introduce an element of competitive neutrality into the existing unbalanced regulatory regime has certainly been a preoccupation of mine over the past two years, and I could spend the rest of the afternoon just talking about that. However, that's not the matter you have asked me to address, and so this afternoon I will just focus on foreign investment and the issues surrounding that.

    Before putting our own situation in front of you, I would like to position the issue of access to capital in the context of the Canadian national interest, as I see it, and as, I might add, a very proud Canadian.

    I agree wholeheartedly with the ambitious goals of Canada's innovation strategy and with the notion that in the 21st century Canada's opportunity for success is to extend its economic influence, its sovereignty, if you will, beyond our borders. It's not enough for us to merely succeed at the national, Canadian level. We must seek to operate and to lead at a global level, because the new economy is nothing if not global. To do so in this industry sector we must become leaders in research and innovation and in the creation, the management, and the distribution of knowledge, clearly one of the fundamental ingredients to such leadership in a competitive telecommunications framework, which provides the highway for that new economy, because vibrant, competitive telecommunications platforms connecting seamlessly with the world are one of the crucial catalysts in creating and commercializing the new technologies, the applications and products that form our real opportunity for leadership on the world stage. This new economy trades on intellectual capital, not physical assets, but it must ride the rails of a world-leading communications infrastructure.

    To be competitive on a global stage, our infrastructure relies on a competitive industry that is capable of furnishing the continued capital investment in facilities, services, and technologies that this industry demands. For competitive providers like ourselves, that investment is simply not available solely from Canadian sources. The capital we need is best termed higher-risk capital, certainly much, much higher than for the former monopolies, Bell and TELUS, and there is simply not a lot of such risk capital in Canada.

¹  (1550)  

    As is generally the case with the rest of the Canadian economy, the bulk of higher-risk capital comes from beyond our borders, and most notably from the United States. But more than just the pure dollars, in order for us to compete successfully against the large Goliath incumbents Bell Canada or TELUS, competitive providers like us need to be able to align ourselves strategically with international partners, who expect to have the ability to exert influence commensurate with their committed risk, certainly not an unreasonable requirement.

    I therefore firmly believe foreign investment restrictions, certainly as they relate to competitive providers like ourselves, stand directly in the way of achieving Canada's national economic goals. They are contrary to the Canadian national interest. In fact, the restrictions are, to my mind, so counterintuitive, given our economic aspirations, that rather than asking whether changes to the restrictions are justified, I suggest the proper question for this inquiry might be, can the restrictions themselves be justified? In the context of competitive providers of telecommunication services, the answer clearly is no.

    So what are the consequences of the existing restrictions for competitive providers like ourselves? The practical effect of the current restrictions is simple. Competitive providers like ourselves have had to rely on foreign debt for the bulk of our capital requirements. I have to tell you, I struggle to understand how that furthers the Canadian national interest.

    Take my company, for example. Since the restrictions limit foreign equity participation, the bulk of our capital has come in the form of public debt from the bond market, foreign bond markets, primarily in the U.S. We could not possibly raise sufficient equity in Canada, given our risk profile as a competitor. Similarly, Canadian debt participation has also been limited. We didn't choose to go outside Canada for our capital requirements; it was the only option. It must also be said that the original limited equity participation by AT&T Corp. from the U.S. and the bondholder investment that followed were quite clearly predicated on the belief that foreign investment restrictions would have been removed some time ago, and certainly by now.

    Now let's fast-forward to the present. The few competitive providers left standing--and the two major ones are right here--have all come to the conclusion that they could not possibly repay the debt that was necessarily incurred to build the network facilities required to compete--facilities, I might add, that government policy continues to require us to build. In the case of our company, certainly the largest facilities-based competitor in the country, the public debt totalled nearly $5 billion and required annual interest payments of over $400 million--interest payments, incidentally, that are in addition to the over $400 million we pay annually to Bell and TELUS in order to gain access for our customers via the existing public network.

    These bondholders, who invested predominantly from outside Canada, are now willing to participate in our restructuring and exchange all their debt for equity in lieu of liquidating the company and its assets, because they recognize that with just under $1.5 billion in annual revenue and significant network assets and customers all across Canada, we do have the potential to be a competitor with a future. These bondholders are again willing to take the risk right here in Canada, but the current investment restrictions forced us to tell them that they could only have, in the main, an economic interest in our company, and certainly not any significant voting equity or any control in how the company is run.

    Absurdly, they cannot meaningfully participate in corporate decision-making; yet without these investors, our company and competition itself in wireline services literally would not exist. Obviously these investment restrictions have needlessly complicated our restructuring effort, and I have to ask to what end. To deprive the bondholders who invested in Canada of the opportunity to gain repayment, short of forcing a breakup of the leading national competitor? Surely not.

    That brings me to how the current restrictions affect the incumbents, Bell Canada and TELUS.

¹  (1555)  

    Let me be clear that we do not oppose symmetrical removal of the restrictions for the competitors, incumbents and cable providers alike. Let me be emphatic in stating that the existing restrictions are certainly not symmetrical in their impact today. I use that term because I know you will hear it from the lips of the incumbents when they come before you.

    While competitive providers struggle to support and restructure foreign debt and create business plans that have the possibility of attracting new investment--a challenging endeavour given the uneven regulatory playing field--the incumbents are able to raise all the capital they need. Because of their monopoly legacy, the fact that they continue to control well over 90% of their local markets, and the attendant certainty of revenue earnings and cashflow, I call them near-monopolies.

    Take Bell Canada as an example. In 2001 and 2002 they raised $1.8 billion in long-term debt, and in 2002 they raised $2 billion in equity. Also, in 2002 they sold their directories business for over $2 billion to foreign interests. The directories business is an asset that is entirely a legacy of Bell's monopoly heritage. So the debt and equity they raised could be accomplished in a heartbeat, given the fact that as a result of its near-monopoly status, Bell Canada in 2002 was the fourth most profitable company in this country, far more profitable than it ever was as a regulated monopoly.

    I would like to be clear that no competitive telecommunications provider has ever been able to make a profit in the over ten years that we have been trying to establish wireline competition in Canada. The result is that the incumbents can speak about liberalization of the restrictions in a purely academic fashion, with the knowledge that they are clearly advantaged by the existing rules in relation to their competitors. I can understand completely why you will hear from Bell Canada that there is no urgency to this question. For the incumbent, life is extremely good here in Canada.

    So you see, the existing restrictions are not symmetrical in their impact. To use the phrase that I believe to be very applicable, they are not competitively neutral. Competitively neutral access to capital is one of the two key ingredients to sustainable and profitable competition, a competitively neutral regulatory regime obviously being the other.

    Our submission deals with several of the arguments you may hear in support of the status quo or go-slow approach. In this regard, I find the words of John Kenneth Galbraith to be compelling:

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

    To briefly address these issues, first you should not be troubled by the broadcasting versus telecommunications debate. The rest of the world has quite neatly separated the two issues, typically maintaining investment restrictions over broadcasters while liberalizing for telecommunications. For those like cable or BCE that hold both, the issue can be dealt with by structurally separating assets.

    You should not be troubled by the argument you will hear concerning symmetry. First of all, most countries do differentiate between competitive new entrants and traditional providers. They have liberalized completely for the former and have maintained some restrictions for the latter. And that makes sense. After all, we new entrants are being asked to build what the traditional providers built over 100 years in a monopoly-guaranteed rate-of-return environment. We need access to capital wherever we can find it.

    The Chair: Mr. McLennan, I'm going to have to ask you to wrap up. We've gone over the time limit. You might want to do it quickly and then bring out some of your points during your answer period.

    Mr. John McLennan: I'll do my very best.

    In summation, it's been an extremely difficult few years for the industry globally, but I believe the economy will recover. With the right regulatory and investment rules, Canadian providers, including some competitors, will emerge with a renewed focus. But if we are to succeed we will need capital. I have no confidence that the competitive industry can repeat the withering cycle of reliance on high-cost foreign debt. So I ask you to act now, remove the investment restrictions for competitive providers, and license major incumbent suppliers if you feel you need to, as our submission points out.

    I will leave the rest for questions.

º  (1600)  

    The Chair: Thank you very much.

    Mr. Linton.

    Mr. William Linton (President and Chief Executive Officer, CallNet Enterprises Inc.): Mr. Chair, members of the committee, on behalf of CallNet and our subsidiary, Sprint Canada, I would like to thank you for the opportunity to join this discussion.

    I'm glad to see that the issues facing Canadian telecom, a vital part of our infrastructure, are being discussed at the highest levels. We hope we can continue to be part of the process, assuming of course we are still around next year.

    I'd like to start by making a prediction. This isn't something we do very often in telecom, especially if you have read the headlines about this industry over the last couple of years, but I'm going to venture one anyway. I predict that our presentation will have a different emphasis than almost every other industry submission you'll receive. That's because we do not believe that the question of foreign ownership is the most pressing issue facing our industry today.

    If we were to list the three most urgent areas of attention for us as a competitive telco, foreign ownership might come in a distant fourth. Do we support the liberalization of the restrictions? Yes. But in the absence of domestic telecom policies that clearly encourage competition, this is a dead issue for us right now. In fact, we believe that a quick move to change foreign ownership restrictions without addressing the state of telecom competition in Canada is going to have the opposite effect on the existing competitors. Let me explain this.

    A competitive landscape is not only one of the stated goals of the Telecommunications Act, it is part of Canada's economic foundation. For almost 11 years CallNet, through Sprint Canada, has brought competition to Canadians, but we are still burdened with a government approach that has failed to bring about a level playing field. It may permit it, but little has been done to promote competition.

    Consider these facts. In the market for business local service the incumbents enjoy a market share of roughly 96%. On the residential side of local services the picture is even worse, with the incumbents maintaining a market share greater than 99%. Consider that the major trend we have seen in the industry isn't more innovation, better service, or greater choice; it's the failure of promising CLECs such as Group Telecom, AXXENT, C1 Communications, and Cannect. It's the failure of long-distance providers such as 360 networks and wireless carriers such as MaxLink. Clearly there is something wrong when the only players thriving are the ones that had a 100-year head start on the rest: the incumbents, Bell and TELUS.

    We could open the floodgates tomorrow and invite every international investor we can find to invest as much as they would like in the Canadian telecom industry. But why would anyone who could so much as balance a chequebook choose to invest in a sector that has claimed so many victims and seen so many investments disappear? Until we have a level playing field and healthy competition there will be little investment.

    This is not necessarily true for the former monopoly telephone companies that have thrived under the current rules. In that sense, lifting foreign ownership restrictions now would provide an instant benefit to the Bells and TELUSes of the world, but it would offer absolutely little short-term relief to companies like ours.

    The fact is it is not access to capital that is holding back competition in Canadian telecom; it's the lack of opportunities to earn a return on investment. Right now the domestic policy framework for telecom and regulatory decisions affecting it have a much greater impact on the success or failure of competition in this sector. In short, without an updated telecom policy that clearly encourages competition, foreign ownership is a complete non-issue.

    Leading with such a review is like trying to fix four flat tires on your car by filling up the gas tank. Until you fix the real problem--the one preventing you from moving forward--you are not going to go anywhere. More foreign capital won't get competition moving. It won't level the playing field. It won't reduce the inflated rates we pay to the incumbents for access to their networks that they inherited from a 100-year monopoly. It won't change the fact that this country's policies have never been adjusted to fully integrate the idea of competition, and as a result most competitors have floundered rather than flourished.

    There is a way to fix it. The government, the CRTC, and the industry must work together to create a framework that is fair to both the incumbents and the competitors--one that promotes rather than just permits competition.

º  (1605)  

    We have taken the liberty of including many of our ideas on how we can approach this challenge in our written submission, which has been presented to you today.

    Now, I don't want to leave you with the impression that we reject the need to change the foreign ownership rules or that it is not an important issue. I answered the question with a “yes, but”. In fact, we believe a reworking of the restrictions is inevitable. It can bring real benefits, but for CallNet it's just a question of priorities. We support the idea of phasing in the changes once the domestic industry is in better financial health. But even then, we would hope that the government thinks very seriously about the ways in which the restrictions are eased.

    Our telecom infrastructure may be adequate for today, but as the wired world evolves, one day further capital will be needed. Those investments will be important to our competitiveness as a nation and our ability to create the lasting knowledge-based jobs on which so much of our future depends. Important decisions will have to be made about the nature of those investments--the whats, the whens, and the for whoms. These are decisions that will have an impact on Canadians, economically and culturally.

    The question we will have to ask ourselves is where we want these decisions to be made. Do you want them made in Canada by Canadians who have a strong interest in our competitiveness, or in San Antonio, Kansas City, or New York boardrooms, where the Canadian region will be just another shaded area on the map, waiting on the whims of executives with a dozen other regions to consider? I believe these decisions are much too important to our survival to be left to another country. That's why we strongly urge that when the foreign ownership restrictions are modified, it is essential we don't simply throw another country the keys and say “I'll drive in the back”.

    The important operational decisions must continue to be made by Canadians for the benefit of Canadian consumers. There are many ways this could be accomplished. For example, the licensing system could be employed to ensure minimum investment levels in research and development, the presence of Canadian head offices, employment obligations, or the composition of boards of directors. These kinds of measures, also included in our submission, would have the effect of protecting Canadian control of a vital part of our infrastructure while maintaining an openness to international investment capital.

    But for CallNet, these are questions for the future, after a new policy framework is in place to promote competition and create an environment where investors see the potential for returns in our competitive industry. Without that, I can make another prediction. We won't need to worry about promoting competition, because all the competitors will have been driven out of business.

    Thank you again for the opportunity to appear today.

    The Chair: Thank you very much. We will begin with questioning for eight minutes.

    Mr. Rajotte.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman. Thank you, gentlemen, for coming in today and for your presentations. I have three questions that I hope I can get through in eight minutes, so I'd ask you to please be brief in your answers.

    The first one is a rather large question and it's for CallNet. You talked generally in your speech about the need for the government, the CRTC, and the industry to work together to create a framework, and you've included this in your brief. Could you just briefly itemize some of the specific changes you're asking to have made before we talk about lifting the foreign investment restrictions?

    Mr. William Linton: The most important change is the requirement for competitors like ourselves and AT&T Canada to have access to those parts of the network that will not be duplicated. They're called essential parts of the network. So, for example, the drops that are in your house will never be duplicated. No one is going to put any more copper into your house. We need reasonably priced access to those services and many, many others in order to compete with the telephone company and thus bring different feature sets, different pricing, different bundling of services to consumers, both business and residential. The piece of copper is an example. There are many, many other pieces of essential services.

    The second part is the costing, which is another component of that. Right now, there's a very complex method of costing that is in the process of being reviewed this year.

º  (1610)  

    Mr. James Rajotte: Would you agree with Mr. Allen when he said that the CRTC has ruled that all competitors should have open access to incumbents' facilities, but that this is in fact not happening? Or would you agree that it is happening, but the price that is being charged is simply prohibitive?

    Mr. William Linton: It is happening. It's happening slowly, but the price is still prohibitive.

    Mr. James Rajotte: My second question actually comes from your presentation, Mr. Linton. But I want to pose it to Mr. McLennan to give him an opportunity to address it.

    Mr. Linton states that lifting foreign ownership restrictions now would provide an instant benefit to the Bells and TELUSes of the world. But the last group of witnesses we had said very much the opposite. They said the differential, particularly in terms of access to capital, would actually shrink.

    So perhaps, Mr. Linton, I should get you to explain why you disagree with witnesses who argued this before us last time.

    Then, Mr. McLennan, could you tell us why you are arguing before us today that this differential will decrease?

    Mr. William Linton: The reason I made the point is that competitive telephone companies in Canada have no access to capital right now. Our domestic rules are such that no one will invest in us—debt or equity, at any price. Yet the incumbents are in a tremendous situation, where they are very profitable and have access to capital. One of the issues is that they pay a slight premium because of foreign ownership, which would be removed.

    Mr. James Rajotte: Mr. McLennan.

    Mr. John McLennan: On many of the issues that Mr. Linton has raised, I could have become equally energized in supporting his views.

    I'm not sure I agree that if foreign ownership restrictions were removed today, all of the benefit would go to the incumbents. As I pointed out with the examples in my remarks, the incumbents are quite capable of raising capital.

    I'm not sure I disagree with Bill, though, on the point that if foreign ownership restrictions were removed today, we would all be able to raise as much capital as we need, for all the reasons he stated. We are in very tough; we are in extremely tough. With the latest decision coming out of the CRTC at the end of May last year, we are in just as tough as we have ever been, because they specified very clearly that everything has to be a facilities-based environment. Of course, you need capital to build facilities. We have already spent billions.

    You are not going to overbuild the telecommunications infrastructure, especially the local part of the infrastructure. Nobody is ever going to finance that. So as Mr. Linton said, we need access to that—not below the incumbent telcos' costs, but at a reasonable reduction in price from retail, so that we can use it as part of our pricing and costing strategy as we put competitive bundles together.

    So this is a very complex issue. I choose not to go into all of the other issues. Foreign ownership is an important one. But I would agree with Bill, it's certainly not the most important one at this particular point in time. But the removal of the restrictions would at least be a step in the right direction. There are many other issues that have to be addressed to create a sustainable, competitive environment for competition.

    The wireless side is a quite different subject. But on the wireline side, we are talking about wired, long distance data networks, local networks, and all of that. It is completely in jeopardy right now in this country.

    Mr. James Rajotte: Just following up generally on that, we have certainly heard from other witnesses before that the telecommunications sector is not profitable.

    Should we simply look at foreign investment restrictions within this current review, to make the sector profitable? And is this one step, or are many more steps needed at the same time to make the industry profitable?

    One of the arguments the incumbents will certainly make is that there are too many competitors in Canada, because of—

º  (1615)  

    Mr. John McLennan: There are now two of us.

    Some hon. members: Oh, oh!

    Mr. John McLennan: And it's shrinking fast.

    Mr. James Rajotte: They would consider themselves as competitors.

    Mr. John McLennan: Life is extremely good for the incumbents in this country right now, whether you look at the regulatory framework Mr. Linton referred to or at foreign investment. They are in real solid.

    Since the decision last May, I have predicted that Bell Canada will become the most profitable telephone company in the world. It is well on its way to being that, if you take a look at its last quarter's results. It's all primarily the result of the regulatory framework and structure set up in this country.

    You either want competition or you don't. A lot of potential foreign investors who have tried to invest and participate have essentially walked away.

    Mr. James Rajotte: Well, can you give us an example, then? One of the witnesses last time actually gave us some real examples of some strategic investors who were prepared to invest, but because they would basically have non-voting shares, they were not prepared then to step forward and ante up.

    I certainly don't want you to compromise any potential deals or agreements, but are there examples you could provide to the committee that say, yes, we actually have strategic investors?

    Mr. John McLennan: Yes. Let me give you the most obvious one in our case, AT&T Corporation. It has invested a lot of money, participated in investing as much equity as it could and as much debt as it could. It lent its brand, its name, its support for, I would say, the better part of eight or nine years. And the corporation waited quite diligently for this last regulatory decision that came out in May. I think when AT&T saw that--the corporation would have to speak for itself, but I would say that's an example of the last straw.

    Mr. James Rajotte: Now would AT&T be interested again if these foreign investment restrictions were reduced, or would it need other issues addressed as well?

    Mr. John McLennan: As Mr. Linton said, it's a lot more than foreign ownership restrictions. I would place foreign ownership restrictions in a group of four major, major issues that need to be addressed. Certainly I agree with Mr. Linton. The first one that he identified was access to the incumbent facilities at some reasonable price.

    If you take a look at what's going on in the U.S., there is an incredible intensity. There is no incumbent telco sitting comfortably down in the U.S. right now. There is no competitive company competing with them sitting comfortably. They are all in a furor. But the customers are winning. The consumers are winning, and there's a much more competitive environment down there.

    So it's a complex issue. I'm not saying it's straightforward, but it's so obviously unbalanced in this country that I agree with Bill. I'm not sure removing foreign ownership restrictions will attract a lot of money at this time. I think it could, depending on how you structure the business plans. I referred to the business plan in my remarks. We are working very, very hard to put a business plan together that can attract investment. It's going to be difficult.

    The Chair: Thank you very much. We'll be back.

    Mr. Bagnall.

    Mr. Larry Bagnell (Yukon, Lib.): I agree with what Mr. Linton said on competition, having worked in the anti-poverty field exactly on this topic, and I would encourage the minister and the committee to do anything we can about that at some time. But that's not the question today. I have some other questions here.

    Mr. McLennan, thinking of the effects if this investment comes in, and on the premise of those who want this that this type of risk investment, a high-tech knowledge investment, is a little scarce and there's only a certain amount, is there a chance that it would not go to the purpose we want, to increasing competition, as everyone seems to have agreed, or would the limited amount of foreign investment available end up just buying the big successful Canadian companies like TELUS and Bell and actually hurt those who wanted it in the first place so the smaller companies could increase their competition?

    Mr. John McLennan: Well, that's a difficult question to answer. Certainly, if foreign ownership restrictions were removed across the board on the incumbents as well as the new entrants, I think there would be potential buyers for TELUS and Bell. The government has to decide what is strategic and how we are going to create this environment of innovation, of actually stepping out on the world stage. I don't think there is going to be a Canadian facilities-based carrier that will become a global leader as a facilities-based carrier.

    I do believe, though, that there will be an equal number of potential investors that would look at Mr. Linton's company and my company to see how to really enhance our fundamental business plan and how to add more than just money to the equation to make it a successful plan. If at the end of the day they determined that we could create a successful business plan by combining their resources, not just money but some of their technology platforms, their back office platforms, the products and services that we don't have, then sure, there would be investment and there would be much greater competition.

    So I don't think Bell and TELUS will necessarily just be sold. As a matter of fact, in our submission, we talked about the fact that the government could be a licensor to each company--this is what they do in the U.S. So everybody would have to be licensed to be an operating carrier, and then anybody who wanted to buy Bell or TELUS would have to go through an approval process or the licence would not be transferred. That's what happens when large mergers are attempted, and in the case of Sprint and MCI, it did not work.

    I'm a little bit more bullish about the opening of foreign ownership than my friend Mr. Linton, because I think there would be international players who would really try to see how they could help lever our core business platform into a profitable business. But I can tell you right now, if they could not do that they would not invest, straight out, because the days of speculation and hope in the telecom industry are long, long gone.

º  (1620)  

    Mr. Larry Bagnell: I agree with using both methods of competition in foreign investment to get a proliferation of companies in competition. But just to play the devil's advocate on the other side, you talked about all these American companies, and it reminds me of how in the Great Depression there was a proliferation of American banks that were less regulated than our strong banks, and virtually all the bankruptcies were in the American banking system.

    If we had this proliferation of companies in a fixed market, is there any chance we would be setting up more potential failures in the industry than we have now, to the detriment of the consumers, who would lose a very critical infrastructure? As I mentioned at the last meeting we had, some of my constituents were damaged, not by bankruptcy but by a loss of a service.

    Do you see that at all with this?

    Mr. John McLennan: In my opinion, removing foreign ownership restrictions would not result in a proliferation of new companies. It would result in some very interested international players taking a real hard look at Mr. Linton's company and mine. But trying to catch up to what we have accomplished in the last eight to ten years is not going to be easy, so you are not going to see a proliferation of new facilities-based companies. You are going to see perhaps some hope for the two remaining.

    Mr. Larry Bagnell: Okay. My last question is for Mr. Allen.

    I come from an area similar to yours, I think. It's very remote--the Yukon--and some communities have no networks yet. Could you give me some details on how those 60 jobs were maintained and created? What's being done in those jobs that wouldn't have been done otherwise?

    Mr. Vic Allen: Yes, I'd be delighted. There were roughly 25 to 26 jobs associated with a trucking company that is one of the major transports in eastern Canada and they have offices in Mississauga and offices in Prescott. Their founding home is Prescott just down by the river. They were faced with the need.... As you know, the trucking sector is virtually all digital; trucks are dispatched and managed electronically and controlled all over North America. And they had a problem. The best they could do was to get access to rather expensive T1 connectivity from the incumbent, and one T1 line wasn't enough.

    So they were looking at a fair bit of money, and the option for them to follow was to move some 20-plus jobs out of Prescott, where they were digitally disadvantaged, and ship them to Mississauga. It makes sense except that eastern Ontario in particular, over the last 15 years, has been in a very slow decline.

    Mr. Larry Bagnell: And the other 34 jobs?

    Mr. Vic Allen: As for the other 34 jobs, there was a printing company that had contracts in the United States, in Watertown, and the folks there were really upset at having to drive copies and documents from Watertown all the way to Prescott, for example. We put in a two-megabytes connection and all that has disappeared. They were faced with having to move some 20-odd jobs physically out of the area, probably into Ottawa, with the loss of those jobs in a community that desperately needs jobs.

    On the other side, there is a brand-new enterprise called Lab 7 Networks Inc., who are creating security software actually in part for the Department of National Defence, and they were looking for a place to have an office and thrive as a young beginning company. Highway 416 makes it easy to get down to Kemptville. We have a community venture capital fund that was there and able to support them with some venture capital, which is much needed, and in our shop they could get access to broadband connectivity for a couple of hundred dollars instead of thousands of dollars. So they located where we were, and that was 12 or 14 jobs.

º  (1625)  

    The Chair: Monsieur Crête.

[Translation]

    Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman. Thank you for your presentations.

    Having glanced through your two documents, I have been wondering what answer you would give the minister who wrote us in December asking us to review foreign ownership rules.

    In the document of Mr. McLellan from AT&T, I took note of this statement on page 30 which says

If the rules necessary for a sustainable competitive environment are not created, then the fact that the market is open to foreign direct investment will not in and of itself bring the investment required.

    And in Mr. Linton's presentation, he says:

In short, without an updated telecom policy that clearly encourages competition, foreign ownership is a complete non-issue.

    And Mr. Linton adds:

In that sense, lifting foreign ownership restrictions now would provide an instant benefit to the Bells and TELUSES of the world.

    I you had to write the reply to the minister who consults us on the need for foreign ownership restrictions, would you end up telling him that he is not asking the right question and that it would be more important to establish a proper competition framework? What would be the few major points you would include in your letter about what kind of framework would establish real competition?

[English]

    Mr. William Linton: I agree with you completely. I would say that it's an important question, but at this time it is not the correct question, and I do not want the minister to believe that any actions in this area are going to solve the problems facing the wired telecom industry. It's a nice thing, but it will only have relevance some time in the future under the assumption that we have a successfully competitive industry.

    Mr. John McLennan: If I could answer that question as well, I would answer the minister that changing the foreign ownership restrictions is necessary. It's not the total solution to the problem. It's a piece of the puzzle, so please let's get on with it. AT&T Canada currently has an appeal in cabinet as we speak. It's in the minister's office now, and we have asked him to address a lot of the issues that Mr. Linton has referred to. That will be going to cabinet sometime in the near future, and we eagerly await his response to a lot of the other issues that have been referred to that would complete the puzzle, if solved.

º  (1630)  

[Translation]

    Mr. Paul Crête: Mr. Chairman, could the witnesses provide us in summary form the major changes that are required within the system in order to have adequate competition, including the points Mr. McLennan--and maybe also Mr. Linton--just made?

    If I understood you correctly, you have made proposals to the minister in this regard, Mr. McLennan. Without asking the minister for confidential documents, it might be interesting for us, as a committee, to include these requests in our response to the minister. We will have to decide what to include in our report.

    We could say yes, it would be a good idea to open the door while pointing out that it is only a part of the solution and then we could set out what would be more important in our view. If you have any material you could provide in this regard, it would be appreciated since we are not all experts in this field.

[English]

    Mr. John McLennan: In our submission to the minister in appeal to the CRTC decision in May, we very specifically addressed the number one issue--that is, the utilization of the incumbent's facilities at a reasonable cost. If we have to pay full retail price to utilize their facilities, we might as well not utilize them. But if we can't get to the customer, then we are obviously restricted from competing.

    The decision that came out from the regulator at the end of May very specifically said they want facilities-based competition and facilities-based competition only. We have tried to make the point quite a number of times that there is no capital in the world available to overbuild a local telephone network.

    We recommended during the regulatory hearings that we actually be allowed to purchase the facilities from the incumbent telcos at no higher cost than what it costs them. That's what I mean by competitive neutrality, and that is the single most important issue.

    We even proposed that, over a period of time, we should wean ourselves off those facilities onto our own facilities. But in the meantime, if you want to stimulate competition, we're going to have to be able to get to the customers at a reasonable, competitive price. Without competitive neutrality, you can't have competition. It can't sustain itself.

    In wireless, they both started at the same time. You had two: the telephone company and the new entrants both had to build a network. They both had to start from scratch. There was no head start.

    It's much more complicated in wireline. There's an infrastructure that has been in place for well over 100 years. We can't duplicate that infrastructure, so we need access to those facilities at some sort of reasonable wholesale price that is not below their cost--and one of the biggest complications is what their cost is, because that's very complicated, yet we think there are ways of getting to it.

    We made very realistic proposals during the hearing, and this regulator went completely away from that kind of solution.

    That is exactly the solution that's being enacted in the U.S., where the long distance companies are being allowed to access the customers, and the cost to them to access that customer is being mandated by the state regulators. It's very controversial. There is no black-and-white issue here, but it seems like it's going to evolve that they're going to leave these wholesale prices in place.

    A company like AT&T, for instance, acquired over 500,000 new customers through that kind of pricing mechanism last quarter. That's a lot. The local telcos are allowed to recover their costs plus a small markup, but they don't get the huge markup they get on local rates, and then the long distance companies are allowed to compete.

    Down in the U.S., in exchange for that, the local companies are allowed to get into the long distance business. Unfortunately, up here, our telephone companies remain fully integrated, so they're already in the long distance business; they're already in the local. They're in all these businesses.

    So what we've really asked for is that the appeal be ongoing. I know there's great discussion in there.

    As Mr. Linton said, those are very, very big issues, and certainly carry, immediately, tremendous weight, but the removal of foreign ownership restriction should not be neglected, should not be put off to the side. It is an important step to get to an environment where we can compete openly. So I guess I would answer it that way.

º  (1635)  

    The Chair: Mr. Linton.

    Mr. William Linton: I could summarize what we have said under three categories. The first one is cost-based access to essential services by the ILECs. The second item is that the new entrants bear all the risk of the regulatory process. So right now we put in a discussion point about getting access to a certain item of the network and a year and a half later they decide, yes, you're right, Mr. Linton, it should be 50% of that cost. But we get it from the time they make the decision on, so for the last five years we haven't been able to get that benefit. So the regulatory lag is on our nickel as opposed to the ILECs' nickel.

    And the third thing is there has to be within the CRTC a process where they look at every decision and say, is this pro-competitive? Will this help the competitors get a 10% market share? Only once they have that do the benefits start to accrue to consumers, and those benefits are lower pricing and different and newer services. Right now the CRTC treats Bell Canada and Sprint Canada as being absolutely equal.

    The Chair: Mr. McTeague.

    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you. I want to point out that it is a very interesting presentation by all of you here today, and I see a lot of consistency. Some of us here have been concerned certainly about the issue of re-monopolization as a result of the proposal. Some of us are even confused as to why we are looking only at the issue of foreign investment as it relates to what appears to be a panoply of other options. Mr. Linton and Mr. McLennan both touched on a number of opportunities for us.

    Off the top, is it your feeling that no matter what amount of foreign investments you have, if the margins are this skinny under the current regime, you will never be able to achieve the objective of greater investments--and I think Mr. McLennan you pointed this out--notwithstanding the current market conditions that exist?

    Mr. John McLennan: If I understand your question correctly, certainly with the costs we have, primarily the biggest one being what we pay the incumbents, we actually have it worked now so that we are going to be able to survive. We are going to be able to make a small profit. That's so long as we don't go out and embark on a really aggressive capital campaign. So we don't build these facilities we're supposed to be building. It's like we are getting drips of water instead of a bucket of water.

    At AT&T Canada we have made dramatic changes in the cost structure of our company, where now we have a three-point program to bring this company back to financial viability and profitable status. We have hundreds of thousands of Canadian customers, by the way.

    First, we're going to step up and take as many of the costs out of this company as we can. We did that with well over 2,000 people...and many additional costs.

    Second, we went to our bond holders, to the debt holders, and said, we aren't going to be able to afford to repay the debt, so let's negotiate your taking equity in exchange for the debt. We did a complete restructuring of our balance sheet. At one point the regulator said, we're not going to bail these companies out. Well, I can tell you the equity holders in our company were not bailed out. They lost all their money. Now the bond holders own what is left of the company. So we have done what I would say is everything possible.

    The third major piece of this revitalization of our company was the ongoing battle to create a competitively neutral regulatory environment with many of the issues, and that is the one area that really remains seriously outstanding. Can we survive? Sure, we can survive. Can we go out and raise the capital to really pursue a proactive competitive strategy? It's going to be very difficult.

º  (1640)  

    Mr. Dan McTeague: One of the interesting points that was raised earlier by the first presentation of the deputy minister was a comparison right around the world and how Canada was lagging behind, which is usually an argument that's placed to suggest that it's time for a quick change.

    Can you give to this committee any examples you would have of where you have a similar situation where incumbents have had, as you suggested, a 100-year lead and where there has been this blend that you referred to a little earlier of new entrants being permitted liberalization? At the same time, incumbents would be, to some degree, regulated, and if not we would probably have returned to the good old days.

    Do you have any examples around the world where they've been able to do this, where they've been able to encourage competition, most importantly under a regulated environment that doesn't necessarily invite anti-trust considerations?

    Mr. William Linton: I think the U.S. is a great example of where there has been structural separation. The company that owns 5% of our company and from which I rent the brand from, Sprint, has grown into a $20 billion competitive company in wireless and long distance. They were allowed to compete because they were a national player, whereas the regional Bell companies were only local players.

    So under this very different scenario from ours, where they had structural separation, they have built up a huge industry with many more very large companies—all the regional Bell companies, then the AT&Ts, the Sprints, and WorldCom. They are now slowly merging them back together, with all of them competing against each other in a whole variety of areas, as they continue to open up that market.

    Mr. John McLennan: That's probably the most competitive environment, although most of the other OECD countries have achieved a significant level of successful competition.

    I was very interested in the visit last week of Stephen Timms, the U.K. Minister of State for E-Commerce and Competitiveness, who was meeting with the minister here. When he was asked whether he thought foreign ownership would increase access to capital and aggressive investment, if we removed it here in Canada, this was his answer:

I talked particularly about the communications bill that I'm responsible for taking though Parliament at the moment. And what we're doing in that, or one of the things we're doing, is removing some of the remaining restrictions on overseas ownership in the media sector. Now, in the telecom sector those restrictions went many years ago. And what I would say is that has worked very well for the UK. We have attracted a lot of investment into the telecom sector that we wouldn't otherwise have had.

    So there have been regimes and structures around the world that are pretty darn good examples of fostering investment competition.

    I will make one point. Regulation and the structure of the industry, including foreign investment, is not just important, it's everything. It's everything. It's fundamental to whether you are going to have a successful, competitive environment.

    Mr. Dan McTeague: Mr. McLennan and Mr. Linton, you seem to be presenting us a chicken-and-egg scenario. We would like to find out which is more important. We obviously understand and appreciate the importance of capital and the free movement of capital. From the various other interventions, we also understand the concern about the restriction in terms of trade resulting from the nature of the Canadian market.

    But is it your belief that capitalization, or the ability to access foreign investment, is a step along the way to improving competition? Or is it necessary in and of itself here today for you to remain viable to have just that? Or should we be discussing, as Mr. Linton has pointed out, a range of options? Among other things, given the history, these would include the ability of us to find opportunities allowing you to flourish in this kind of rather restricted, regulated, and rarefied environment.

º  (1645)  

    Mr. William Linton: In my presentation I tried to say that our answer was “yes, but”. Yes, foreign ownership is a tool that is necessary for our company to flourish, but before we do it we have to have a competitive, larger, more profitable company. The only way we can do this is to adjust the domestic rules.

    If you look out a couple of years, would I like Sprint to invest $50 million in our company so that we could better serve multinationals and launch DSL and video over DSL? Absolutely. But they won't do this, or even consider it, until such time as I have proven to them it's a profitable place to do business.

    Mr. John McLennan: I've just gone through, for the last several months, meeting after meeting with our bond holders. These institutions invested $5 billion in our company. The people who invested all the equity in our company took a writedown to zero; they got zero value for their investment. So we had to meet with our bond holders and convince them there was at least some value in them taking the equity in the company in lieu of just breaking it up and selling the assets.

    We were successful in doing that because they actually believe the way we've restructured the company, the way we've removed our costs, and building on the assets we have, we do have a chance to be successful. Therefore, they were willing to take ownership equity--not voting, mind you, but at least an economic interest--in lieu of just breaking up, selling the assets, and taking it and moving on, which was a very serious consideration.

    I will say that I don't see the regulatory structure, as we've been talking about it, as the long-term solution to sustainable competition. I do see it as critically important to sustaining competition in the short term, because I really believe over time there will be different technologies and different ways where competition will be able to flourish against the incumbent. But it is not going to happen in the next four years, and the next four years are absolutely fundamental to both of our companies. So I would say that the ownership is part of a bigger puzzle.

    The Chair: Mr. Masse.

    Mr. Vic Allen: Mr. Chairman, may I make just an observation?

    The Chair: You sure can.

    Mr. Vic Allen: It is my understanding that the issue before this committee today is essentially the investment restrictions, foreign investment restrictions. With what limited knowledge I have about the functioning of the telecommunications sector, which I sometimes refer to as dysfunctional, I would like to suggest that Industry Canada, the federal government, really is trying to push this whole business of community networks and bringing connectivity to 25% to 30% or 40% of the population that don't have it now, so that they can function effectively in the 21st century. I think it's important that Canada be moving forward in the 21st century on all cylinders and not have 25% to 30% of the country and the rural economy not functioning.

    So from our point of view, and I think from the point of view of other evolving community networks, we'd like to see a break in the log-jam. We'd like to see the removal of the foreign restrictions, not that it solves all the problems that Mr. Linton has identified and that Mr. McLennan is aware of, and most of the industry, but characteristic in the industry, it seems to me, is that once you broaden the discussion, there are 65 reasons why we must study a little more and we can't get there from here.

    I'm an old guy, and I don't have as much time to live in this world as Mr. Linton does, so I'd like to see something happen today. I'd like to see this committee recommend the removal of the foreign review restrictions, and let's see what happens. At least it's one step on what is apparently a tough and long journey, but it would be a strategic step.

º  (1650)  

    The Chair: Mr. Masse.

    Mr. Brian Masse (Windsor West, NDP): Thank you, Mr. Chair.

    It has become apparent, after even the first couple of presentations by the witnesses--and they were very good today as well--that there has been too much debt incurred in this industry, it's not profitable because of the environment that has been created, and there has been a lack of direction overall. We've heard it again here today.

    I want to go to Mr. Linton, on one of his submissions with regard to a conclusion--page 17, paragraph 57. I have two questions stemming from this. I'm going to read it and ask for commentary from Mr. Linton and Mr. McLennan.

    You identify fundamental problems if we don't have a policy framework overall.

Absent such an initiative, opening the Canadian market to unlimited foreign investment will not have the desired benefits and might merely serve to permit a foreign buy-out of existing carriers at bargain basement prices. This would not be in the public interest for Canada.

    That gets to the heart of making a decision about opening up the whole process.

    My first question is with regard to your comments about the public interest. How will this affect Canadian consumers if this situation develops, specific things that might happen, as well as the type of employment, jobs and whatnot, that might be potentially changed in that whole scenario?

    We heard that foreign investment will lead to further research and development in the country. My second question would be whether you believe in that argument and whether or not that's going to be the case.

    Mr. William Linton: To your first point, you could create a scenario, if there were absolutely no restrictions put on the transfer of shares, where a Canadian telco could be acquired by a foreign interest, and that foreign interest would have no requirements to make decisions that would impact that Canadian region. It might be in that foreign telco's interest to not do any sort of initiatives in Canada, but milk it and put the money in—pick a place—Puerto Rico.

    If you do have a scenario where the foreign ownership rules are relaxed and there are no licensing requirements or any sorts of rules, you could have a situation where Canadian consumers and Canadian businesses are disenfranchised or not served in the future, as far as keeping up with technology is concerned.

    As to your second point—and again, this is from our standpoint—because we have a relationship with Sprint and they own 5% of us, we contribute to a lot of their research and development. So we are getting a huge amount of R and D done for our company at about five cents on the dollar.

    Just to give you an example, Sprint developed its own software, which it runs on all of its switches. It has different feature sets and different sets of security and all that sort of stuff. For our 5% of the total development we get the benefit of all of it.

    We can only barely compete technically with the Bells and the TELUSes because we have a relationship with somebody like Sprint. We are actually, and I suspect John's the same way, getting a huge R and D benefit that is being given to Canadian consumers—probably more to business than to consumers right now—as a result of the relationship we have. I don't think that would change much if the ownership rules were changed. I think we get the benefit of R and D now.

    I don't know whether that answers your question on R and D or not.

    Mr. Brian Masse: It does, actually.

    Mr. John McLennan: Let me take a shot at the first question, which is whether or not if the restrictions were removed, companies like Bell and TELUS would go at bargain basement prices. I disagree with that. I don't think that would happen. Bell Canada certainly is one of the best, most profitable, telcos in the world. It would go at a very high price.

    However, I think the government can control whatever happens to Bell and TELUS by incorporating a licensing process whereby anybody who was to acquire those companies would have to meet very strict, very aggressive, requirements on network rollout and very strong commitments to research and development. You may very well see very large corporations around the world make that commitment to Canada.

    So I don't see it as all gloom and doom. You have to understand what is really strategically important. Part of what I said was we are not going to have a global facilities-based carrier leading the world out of Canada. Bell is not going to go and become a leading facilities-based carrier because it doesn't have the scale. But we can become global leaders in creating services and applications, and a lot of other things, that can come as the result of research and development.

    So to answer your very first question, number one, I don't think they would go at bargain prices. Number two, I think if they do go they would go at very high prices because they are very profitable, secure companies.

    Secondly, I think the government could control what happens to those assets and could stimulate a lot of productive investment in Canada, which would benefit Canadians a lot more than a company just sitting there not investing in research and development.

    Your other question is on the whole concept of stimulating research and development. I was the CEO of Cantel the year we launched it in 1985, and we were going to try to use Canadian technology at first to compete with the telephone companies. It turns out that there was no Canadian technology that could compete with Nortel at the time, so we had to use a company called Ericsson.

    I believe Mr. Hurtubise appeared before you last week and told you the story. We were very involved in all of that, and we said if we are going to use your equipment and build it out across Canada, you must commit to put 50 software development jobs in Montreal. I hope he told you the same number, because we were both directly involved. Anyway, those 50 software development jobs, as a result of that condition of the order, have grown into close to 2,000 software development jobs, which have been retained even through all this downturn.

    So again, there's huge research and development. I still contend there is the real benefit besides the Canadian consumer having really the world's leading infrastructure. That should be a number one priority of this government, and it is. Another priority should be to start developing a lot of research and development, and any way we can do that will benefit Canada.

    I know what I would negotiate if I was negotiating the terms of selling TELUS or Bell to an outside behemoth, and it would really benefit Canada, I can tell you that. Secondly, if somebody came in...and even to acquire a company like ours I would have terms attached to that as well, which would benefit Canada from the point of view of research and development, aggressive rollout, etc.

    So the important thing is that we bring money to Canada and aggressively invest it and make the Canadian consumers the best served in the world. I think all that can happen.

º  (1655)  

    Mr. Brian Masse: If there is a potential for some capital expansion, but only some companies benefit from that foreign investment, and there is only a certain amount that can be attracted in there, does that lead to a potential danger to wipe out a series of companies right away if they cannot get that type of investment right away?

    What would be the impact on those companies that wouldn't be able to attract? Everybody goes out there to seek that investment, and some get it and some don't. Would they still be able to hang in there until other changes happen, or would it basically eliminate them? I will ask the panel that.

    Mr. William Linton: There is all sorts of capital to invest in profitable companies, so there is no shortage of the amount of money there. The difficulty is it's not available to the competitive wireline industry right now because we don't have the domestic policies to make us profitable or to compete and grow. If those rules change there is enough capital for me, and for John, and for anybody else. We will get it based on the quality of our business plans as opposed to whether we are in Canada or the United States.

»  (1700)  

    Mr. John McLennan: I would add that most of the companies have been wiped out already. You should know that. There are only two of us basically here, two facilities-based carriers. So if you liberalize and open up foreign ownership, it can only help. It can't be any worse than it's been. There are basically two of us left, and I told you that both of us can survive, but we are going to have to really fundamentally enhance our business strategy a lot to aggressively secure the investment we need to go forward.

    The Chair: Thank you very much.

    Ms. Torsney.

    Ms. Paddy Torsney (Burlington, Lib.): Mr. Linton, you talked about it being an unprofitable area right now for companies to bring in more foreign capital to invest, and I think you suggested that if the restriction was lifted, right now that money would be attracted to Bell and TELUS and they would just get bigger and bigger because they are the ones who are profitable in the current regulatory environment. Is that correct?

    What I don't understand is if there are all these communities that Mr. Allen has identified as not being serviced right now, why aren't you guys going into those communities and setting up things and actually delivering services where apparently Bell and TELUS aren't delivering services, and why isn't that profitable? It would be my impression that if we were to remove the restrictions and change some of the regulatory framework, the investment is not going to occur in Saskatchewan and Nunavut. The investment is going to occur in downtown Toronto, Montreal, and Vancouver, because that's where the money is to be made.

    So how do we achieve both, or am I completely wrong and you're really not actually looking to invest in downtown Toronto, it's really about Nunavut and Saskatchewan?

    Mr. William Linton: You invest where the people and where the businesses are. One of the great places that's getting a ton of telecom investment right now is Nova Scotia and New Brunswick. Why? Because there are call centres going in all over there and they are huge telecom users.

    Ms. Paddy Torsney: And who is making the money? You guys?

    Mr. William Linton: Yes, we are making some of it. If you phone up because your Dell computer doesn't work, you might be talking to somebody in New Brunswick or somebody in Nashville. Chatham has a whole bunch of fibre in it, but it only does because it has a couple of call centre businesses, and we service a couple of those. So you spend your money where your people are and where the businesses are.

    Ms. Paddy Torsney: But couldn't you also end up making a lot of money by maybe working with partners but creating opportunities in those places that Bell and TELUS have left out of the market?

    Mr. William Linton: Bell covers 100% of the market, and the fact is that for us the smaller communities that don't have people and don't have the number of people to cover our fixed costs are just a non-starter.

    Ms. Paddy Torsney: Are they going to continue to be a non-starter even if we change this foreign investment rule?

    Mr. William Linton: It's not whether you change the foreign investment rules, but whether you change our access to certain of the access rules to Bell. Right now, as I said to somebody, we rent the piece of copper that goes into your house. Everything else behind that is us. So you can be a Sprint local customer. If you change that rule, then I can move from 130 areas that I'm in to maybe 350 areas, and then maybe I can afford to offer them a competitive DSL service and other types of services. So I'm restricted by only being in the large urban areas because that's all I can afford with the amount of money I have to pay Bell and TELUS. So if you change the amount of money I have to pay them for access to their colocations, or colos, and for the renting of that piece of copper, then I could just expand my footprint farther and farther out.

    Ms. Paddy Torsney: And would you need the change in the foreign investment rules?

    Mr. William Linton: The change in the foreign investment rules would help because I need capital to do it, yes.

    Ms. Paddy Torsney: And in your request--

    Mr. William Linton: It's just how they're prioritized.

    Mr. John McLennan: Can I just add one quick thought?

»  (1705)  

    Ms. Paddy Torsney: Sure.

    Mr. John McLennan: The telephone infrastructure and system were brilliantly conceived and set up over the first 125 years, I might add. All of the profits and additional cash were generated in the large urban areas, and very elaborate systems were set up to roll that excess capital out into the rural and unpopulated areas to create basic ubiquitous telephone service at a very low cost. Who paid for that? Downtown Toronto. That's the way it has been set up all over the world. It was simple but brilliant. Now, as you bring competition into the whole scenario, you're certainly not going to have competitors all rushing out into these areas that needed help in the first place in order to be sustained.

    Vic's area is a perfect example. We've been working very diligently with him to provide support. You asked why we don't go out into these areas. We did go out into these areas with Mr. Allen. As wonderful and appealing as Mr. Allen is, he's not one of our greatest business customers.

    Ms. Paddy Torsney: So far.

    Mr. John McLennan: And if he could pay his bills just a little more adroitly, we would even be that much better off.

    Some hon. members: Oh, oh!

    Ms. Paddy Torsney: I'm smelling some dirty laundry here.

    Mr. John McLennan: But he is a strategic customer, who we do want to cultivate, but you can only cultivate so many.

    Mr. Vic Allen: Since I'm one of the few, I'd like to comment on the whole community network movement. The reason it is there is precisely because there is no business case or rationale in the world for TELUS, Bell, or anybody else to go into those markets. There just isn't a business case. However, communities can get together, and through a lot of in-kind work from people in the community, support from organizations such as AT&T, and we have a couple of wireless people who are supporting us as well, with engineering to get going.... We're like any fledgling corporation. We need initial investment and a little time to become self-sustaining and profitable. That will be the characteristic of hundreds of new community networks that will be funded by Industry Canada in the next couple of years so that we can get connected.

    However, our experience is that if we had known three years ago what we know now, we could have built our network for probably a third of what we paid, and that was because we were well-meaning amateurs.

    When we had a couple of chats with the incumbent before we got started, we tried to make the point that a community that creates its own network with funding from various sources, both internal and external, is in a sense creating incremental revenue for the telcos, because as our community expands and people move in because they can get connectivity, people earn a little more money, the community is enriched, and they buy phones and all the other services the telcos provide. They get that as a benefit, because they didn't pay anything for the creation of the initial infrastructure.

    So with a combination of hard work and local investment at most community levels, community networks can evolve and be self-sustaining in a reasonable period of time. There are many communities in Canada in the far north and truly distance areas where they will probably never be self-sustaining with current technology. However, that's an issue for public policy. But the majority of them can be.

    My colleague Blake Cram and I have a commitment to these gentlemen that we'll be paying our bills very shortly.

    Some hon. members: Oh, oh!

    The Chair: Thank you, Ms. Torsney. Your time is up.

    Ms. Paddy Torsney: Put me down for another round.

    The Chair: Yes.

    Mr. Fitzpatrick.

    Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): On point 57, I just want to raise an observation too. It seems too often in this country the observation is we can't compete; that as soon as you open something up, we are going to be taken over. I can't help but think of CNR, which has become a major player in the North American network industry. Magna International is another one. Nortel, even though it has temporary problems, is a major supplier of telecom equipment throughout the world and still retains its Canadian culture.

    So I'm not about to say that as soon as we remove restrictions, somehow somebody else is just going to walk in here, and that we can't face the competition. If we can't face the competition, we have problems as a nation anyway. We should look at it as an opportunity.

    The other point I want to raise is about the entry problem. My observation in Saskatchewan—where it isn't Bell Canada, it's a government monopoly—is that when competition did come there I never saw a government move so fast in all my life. In terms of efficiency, waste, and so on, they improved dramatically in a big hurry, and they were right on their customers faster than any government bureaucracy I have ever seen, competing with the new entries. Basically, what it boiled down to in Saskatchewan is that people would say, “Well, I like the competition, but there is really no reason to change, because they have matched the competition.” So you stuck with the one you had. I assume there is that same sort of problem with Bell Canada, too; it's hard to get your foot in the door. It seems to me—

»  (1710)  

    Mr. John McLennan: I would not agree with that.

    Mr. Brian Fitzpatrick: Okay. But that was an observation about Saskatchewan anyway. Maybe it's an overgeneralization to say it.

    It seems to me that to remove the foreign ownership requirements isn't going to necessarily bring about all the capital investment and competition we would like. I think that's a fair observation from everyone I have heard here.

    I know the U.S. has double our capital investment, and if we are going to be leaders in something.... I mean, you are going to have to have the capital investment to be a leader, and if we are at only half of the U.S. level, it doesn't make a good story for the future. So it seems to me we have to look at some pretty dramatic changes in public policy in the way we deal with telecommunications. I know what the U.S. did in the early eighties, and I think everybody has benefited from that. The baby Bells split long distance and local stuff that created a revolution.

    With the two incumbents we have in Canada, are you gentlemen proposing something fairly major and dramatic in terms of our policy approach to create competition in Canada?

    Mr. William Linton: No. The best example in Canada is to look at long distance, or even to look at SaskTel, which has really become much more competitive. Long distance must be 10% of the cost it was. It's available by probably four or five suppliers to every household in Canada. It's been a wonderful example of what competition can do in an area. We just want to extend that to local services for residential and to business services, and to do that we need a few changes to the current policies set in place. If we get those changes, John and I are going to create an environment where Canadians are going to be better served not only by us but also by the Bells and the TELUSes and the Manitoba Tels, etc. Competition is fantastic to make people more customer-service-oriented, more competitive. The government just has to give John and me an opportunity to compete in some of these areas other than long distance. If not, we will stay in neutral—which is where we are now.

    Mr. John McLennan: As far as more far-reaching policy considerations such as structural separation of long distance and local, that horse left the barn in 1994 or 1995. There was a long debate. There was a decision made by the regulator that the incumbents would stay integrated and that the long distance competitors that came in would be given an advantage in the marketplace for a period of time, which they were.

    The long distance market share of the incumbents went down dramatically. For a while, the elasticity of the price going down increased volume. So even though they were losing market share quite dramatically, the revenues of the incumbents were holding pretty flat for a while. Then as prices really went down, of course revenue from long distance...as minutes continued to rise, revenues continued to decline. But the whole issue of structural separation is not something we're proposing. We're not talking about revisiting that.

    You always have to go from where you are. We are a company with hundreds of thousands of very happy business customers. It simply costs us too much money to serve them and generate the kind of return we can reinvest aggressively. We're in much better financial shape now that all the equity holders have taken a total loss and the bond holders have taken a complete haircut. We have ended up with no debt on our balance sheet.

    Obviously we're a brand-new company, but we need a few more structural changes that we've proposed. Going from where we are, that would dramatically impact on competitiveness in the country, and that's really where I am. They're not major changes we're proposing, but it's an interim way of getting to where the regulator wants to get four or five years from now. I think they're going to have to depend on one of us making it in the next four or five years, and that's the challenge.

»  (1715)  

    Mr. William Linton: John McLennan and I are Bell's number one and number two customers, and we don't like the price or the service any more.

    Mr. John McLennan: I am the number one customer at Bell, he's number two, and the federal government is number three. We pay hundreds of millions of dollars to them every year, and we pay full retail rate on most services.

    Mr. Brian Fitzpatrick: How does Manitoba Telephone and SaskTel fit into this thing? Are they kind of dependent on these dominant people?

    Mr. John McLennan: They have their own local dominant territory. I'll be very honest with you. It's very uneconomical for a company like mine to go in and deploy a billion dollars worth of assets to compete with that available marketplace, for the same reason that was brought out earlier. If you're going to catch fish you go to the lake where the fish are, and the fish are in the large metropolitan centres. That's where we have to be successful, so we can be part of the solution in the smaller areas.

    Mr. Brian Fitzpatrick: Manitoba Telephone financials are pretty good.

    Mr. John McLennan: Yes. They're a very well-run company, but they do not have nearly the intensity of competition that you see in Toronto, Montreal, Vancouver, or Alberta. That's where the intense competition takes place.

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

    Mr. Normand.

[Translation]

    Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): If many other countries had applied the same restrictions as Canada, I believe many Canadian companies would have been unable to sell anything to countries such as China, Poland, the Czech Republic and Russia. I headed several Canadian trade missions. At that time, Canadians were always welcome and had an opportunity to sell their telecom products in those countries.

    In your opinion, do you think what we call wireless communications will get the upper hand over the wirenet? We are presently faced with two different issues. In the wired sector, companies mainly just rent the infrastructure already in place. In our area, we saw TELUS take over Québec-Téléphone and we were worried about potential job losses.

    However, there seems to be some ambivalence at work at the present time. Bell and TELUS invested prodigious amounts of money in optic fibre at the same time most other countries were looking at broadband and wireless.

    Early January I was 2,000 kilometres away from here, at James Bay, hunting caribou. Sitting on my skidoo, with my GPS and my satellite phone, I could talk to my wife and my secretary. At night, in camp, I watched CNN or the CBC transmitted via satellite.

    Which of the two technologies is going to develop the fastest in the coming years? Today, with a Pocket PC, I can send e-mails, make phone calls, organize my schedule and in a few months, I am sure, I will also be able to watch satellite TV.

    How come people who, like Paul and myself, live in a rural area, cannot get high-speed Internet access? I have satellite TV at home but I am looking forward to being able to get access to everything in the same way and not to be limited to the wirenet.

    In your view, is the development of new technologies, especially in the wireless area, being impeded by the present regulations? This is my first question.

    Now my second question. Since we are moving toward a telecommunications mode one could call global or universal, will countries still be able to regulate wireless communications? Is it worth trying to implement regulations that can easily be circumvented? As far as I am concerned, I could hit the road tomorrow in an RV equipped with a satellite dish like I have at home and be able to watch the same television channels I get at home, at Trois-Saumons Lake, under the same subscription.

    It seems to me the telecommunications sector is un able to make up its mind between the wirenet and the wireless. Is one technology going to win out over the other in the near future or will both keep moving ahead at the same speed? Thank you.

»  (1720)  

[English]

    The Chair: Can I ask you to be as short as possible on the question?

    Mr. John McLennan: That's a good summary of the industry.

    Mr. William Linton: I believe wireless is an access technology. If you pick up your cell phone now and call somebody in Vancouver, the part that's wireless is from here to the cell site, and everything else is on wires. We supply those wires, so whether we are the wire into your home or the wireless that backs up the cell phone, the wired community will always be there. It offers higher speeds, greater security, etc. There's no doubt that wireless will continue to grow over time, but it will not replace the wireline industry.

    On the regulation of global companies, I still think there is a very strong national position for Canadians, Americans, or whomever to protect the infrastructure. For the foreseeable future you and I will come to a place to work, and that work environment and all the systems around it will be dependent on a perfect telecommunications infrastructure to offer us e-mail, access to the Internet, documents, and that sort of stuff. It's in Canada's interest to regulate this environment to a certain extent, so all the underlying infrastructure for the knowledge-based economy will be continually upgraded and investments will continue to go into it.

    Mr. John McLennan: I will try to do this very quickly. This may be a little different from Bill's approach, but I believe wireless communications will replace some wired communications. It will certainly replace a lot of voice communications. Many, many people today who are living in apartments and homes do not have a wired phone in their house. They may have high-speed Internet access, but they don't have a separate telephone line. They simply have their wireless phone.

    A lot of local line connections or wired lines are beginning to decline right now in the U.S., and at an escalating rate. I think a lot of this is a result of wireless. However, what is escalating is high-speed broadband or wired broadband.

    So I agree with Bill that the infrastructure that will carry all of this data, video, and voice, will be a wired infrastructure connecting to various wireless networks, to different wired networks, and certainly to satellites. If you are using a satellite on a skidoo in James Bay, boy, I'll tell you, you don't care much about what it costs on a per-minute basis. You must be paying at least $3 a minute for connections. There is not a whole lot....

    When Iridium, a great big satellite or 66 satellites orbiting in low-earth orbit, was originally conceived by Motorola about ten years ago, each one had a telephone switch on it. They were going to pass calls between satellites in the sky. They only needed one million global subscribers to make it economically viable. They flamed out after about $6 billion of investment. Somebody else has now picked up the assets for a penny on the dollar, but the demand simply wasn't there. You talked about having satellite phones. There is a real market for satellite phones, but not in any kind of volume for it to really begin replacing either the terrestrial wireless phones or the wireline phones.

    But all of these technologies are going to continue to move forward. We will be accessing the Internet, and we already are, over our handheld devices. Largely on the Blackberries and everything else, we are sending e-mails right now, all the time, over the air.

    So the big result of the transition you referred to is a serious and accelerating reduction in the number of local wired lines in the U.S. We are beginning to see a reduction in lines in Canada as well, which compounds the problem a little bit. But it also shows that you have a structured environment that takes you through the next four years. Beyond that, a lot of what you have talked about will have a much bigger impact.

»  (1725)  

    The Chair: We have an understanding that we will leave here at 5:30. So we are getting close to the end.

    I am going to allow Mr. St. Denis to ask at least one question.

    Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): I will be very brief.

    I would like to thank the witnesses for being here and for providing a very stimulating demonstration of what is a very exciting and challenging industry.

    We have seen hydro lines separated from hydro generation in Ontario. But when you think of hydro lines, philosophically there is a notion that you will eventually have in North America what they call wheeling rights. You will be able to buy your hydro for your house from a company in Washington State. With the roads, obviously everybody can use them; they are publicly owned. With rail lines, it's the same thing. There is talk that the rail lines will eventually be separated from the rail companies, and there will be open access, given the rules.

    Is it the case that we are seeing the same thing happen with the wired telecommunications industry, that in 10 or 20 years from now we will see that I could theoretically buy my telephone service from a California company—if indeed what happens is open access to the line right into one's house? Is it possible that if we don't deal with questions of policy now, this is really going to get out of our hands in the long run? All of this is by way of saying that I agree that we have to look past just the foreign ownership rules.

    So in a nutshell, what is the long term if we open up the transmission to open access?

    Mr. John McLennan: I have seen some very exciting business plans of companies that I would call virtual telephone companies. They do not own any of the infrastructure themselves but actually offer a full range of telecommunications services, full billing, and full back-office support. What they are doing is basically consolidating and reselling people's networks.

    I'm not saying that's a bad way to go over time. You're only going to have a finite number of facilities-based carriers, which is why we have to transition to this new world of communications, described in part by the wireless revolution and by what I would call, eventually, virtual telephone companies, who don't own the networks but who buy facilities at wholesale prices and resell them. The facilities-based carriers are making very good money or a good return on their investment in their assets. Then these virtual telephone companies, who can be from anywhere in the world, can in fact offer great value to the consumer and customer and create a very, very competitive environment right at the customer's desk, which is where the competition takes place.

    So, yes, I don't think there's anything wrong with this. I think this could definitely happen. It is happening.

    The Chair: I apologize to Mr. St. Denis and to Ms. Torsney, who wanted to ask more questions, but time has run out.

    I would like to thank the witnesses for a really great two hours of discussion, helping us to understand the telecom business even better. Thank you very much.

    The meeting is adjourned.