INST Committee Meeting

Notices of Meeting include information about the subject matter to be examined by the committee and date, time and place of the meeting, as well as a list of any witnesses scheduled to appear. The Evidence is the edited and revised transcript of what is said before a committee. The Minutes of Proceedings are the official record of the business conducted by the committee at a sitting.

For an advanced search, use Publication Search tool.

If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.

Previous day publication Next day publication

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Tuesday, February 18, 2003

0905

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

Mr. Michael Sabia (President, Bell Canada Enterprises)

The Chair

Mr. Michael Sabia

The Chair

Mr. Michael Sabia

0910

0915

0920

0925

The Chair

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

0930

Mr. Michael Sabia

Mr. Paul Crête

Mr. Michael Sabia

0935

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Michael Sabia

Mr. Larry Bagnell

Mr. Michael Sabia

0940

0945

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. Michael Sabia

Mr. Brian Masse

Mr. Michael Sabia

0950

Mr. Brian Masse

Mr. Michael Sabia

The Chair

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

Mr. Michael Sabia

0955

Mr. Gilbert Normand

Mr. Michael Sabia

The Chair

Mr. Gilbert Normand

Mr. Michael Sabia

1000

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Michael Sabia

Mr. James Rajotte

1005

Mr. Michael Sabia

Mr. James Rajotte

M. Michael Sabia

The Chair

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

1010

M. Michael Sabia

Mr. Serge Marcil

Mr. Michael Sabia

Mr. Serge Marcil

Mr. Michael Sabia

1015

Mr. Serge Marcil

The Chair

Mr. Serge Marcil

Mr. Michael Sabia

The Chair

Mr. Paul Crête

Mr. Michael Sabia

1020

The Chair

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

1025

Mr. Michael Sabia

Mr. Brent St. Denis

1030

Mr. Michael Sabia

The Chair

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

1035

Mr. Michael Sabia

The Chair

Mr. Michael Sabia

The Chair

Mr. Michael Sabia

The Chair

1045

The Chair

Mr. Anthony H. A. Keenleyside (Barrister, McCarthy Tétrault, Dominion Telecom Inc.)

1050

1055

The Chair

Mr. Ian Morrison (Spokesperson, Friends of Canadian Broadcasting)

1100

1105

The Chair

Mr. James Rajotte

The Chair

Mr. James Rajotte

1110

Mr. Ian Morrison

Mr. James Rajotte

Mr. Ian Morrison

Mr. James Rajotte

Mr. Ian Morrison

Mr. James Rajotte

1115

Mr. Ian Morrison

The Chair

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)

Mr. Anthony Keenleyside

1120

Mr. Joseph Volpe

Mr. Anthony Keenleyside

Mr. Joseph Volpe

Mr. Anthony Keenleyside

Mr. Joseph Volpe

Mr. Anthony Keenleyside

Mr. Joseph Volpe

Mr. Anthony Keenleyside

Mr. Joseph Volpe

Mr. Anthony Keenleyside

Mr. Joseph Volpe

1125

Mr. Ian Morrison

The Chair

Mr. Ian Morrison

The Chair

Mr. Ian Morrison

Mr. Joseph Volpe

Mr. Ian Morrison

1130

The Chair

Mr. Brian Masse

Mr. Anthony Keenleyside

Mr. Brian Masse

Mr. Anthony Keenleyside

Mr. Brian Masse

Mr. Anthony Keenleyside

Mr. Brian Masse

1135

Mr. Ian Morrison

Mr. Brian Masse

Mr. Ian Morrison

The Chair

Mr. Brent St. Denis

Mr. Anthony Keenleyside

1140

Mr. Brent St. Denis

Mr. Anthony Keenleyside

Mr. Brent St. Denis

Mr. Anthony Keenleyside

Mr. Brent St. Denis

Mr. Anthony Keenleyside

Mr. Brent St. Denis

Mr. Ian Morrison

1145

Mr. Brent St. Denis

The Chair

Mr. Larry Bagnell

Mr. Ian Morrison

1150

Mr. Larry Bagnell

Mr. Ian Morrison

Mr. Larry Bagnell

Mr. Ian Morrison

The Chair

Mr. Gilbert Normand

1155

Mr. Anthony Keenleyside

Mr. Gilbert Normand

Mr. Anthony Keenleyside

Mr. Gilbert Normand

Mr. Ian Morrison

Mr. Gilbert Normand

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 020

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, February 18, 2003

[Recorded by Electronic Apparatus]

¿ (0905)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Ladies and gentlemen, we will begin, pursuant to Standing Order 108(2), consideration of foreign investment restrictions applicable to telecommunications common carriers. Today we will have two sessions: one from 9 a.m. to 10:30 a.m., and one from 10:30 a.m. to 12 noon. From 9 a.m. to 10:30 a.m. we'll hear from Mr. Michael Sabia, president of Bell Canada Enterprises.

Welcome, Mr. Sabia, to the industry committee.

Mr. Michael Sabia (President, Bell Canada Enterprises): Thank you, Mr. Chairman. It's a pleasure for me to be here today to have the opportunity to talk with you and your colleagues.

If you're agreeable, I'd like to just make a few introductory comments and then turn it over to you. Are you comfortable with that approach?

The Chair: Yes, I am.

Mr. Michael Sabia: Would you like me to begin now?

The Chair: Please begin. We still have a few members coming in, but we start as soon as we have enough to hear witnesses. So I would ask you to begin and then we'll get into questions.

Mr. Michael Sabia: Mr. Chairman, it's a pleasure for me to be here. It gives me an opportunity, and through me our whole company, to talk to you today about the telecommunications industry in Canada. We and many people think it is an industry that is vital to Canada and Canadians.

There's no doubt this industry has seen a wild ride over the last few years. You've all read the headlines. You're as familiar with this as I am--the dot-com implosion, all the bankruptcies, and billions of dollars lost in the equity markets. But in our view this perfect storm that the telecommunications industry has been living through has in no way diminished the absolutely vital importance of this sector.

Communications, communications systems, communications networks--what are they? They're the glue that binds knowledge economies and a knowledge society together. That's what makes all of this work, and we think it's tremendously important.

[Translation]

Advanced communications networks are the underpinnings of the knowledge economy. They are the nervous system that enables virtually universal and immediate sharing of information. They enable better decision-making. They remove inefficiency—drive productivity and growth. This industry is critical to our economy and it is against this backdrop that you must consider the specific issue of foreign ownership rules.

[English]

That's the central question in front of you. Should this country collectively contemplate changes to the current rules governing foreign ownership of communications companies? Our answer is quite simple: yes.

I think our position may have been misunderstood on this point in the past, so I want to make this crystal clear. Bell Canada Enterprises supports the relaxation of foreign ownership rules for the telecommunications sector. How could we do otherwise? Allowing for the greater flow of capital is always a positive move. Indeed, we believe the complete removal of ownership restrictions is likely inevitable, given the globalization of the world's economies.

¿ (0910)

Knowing where we have to go at the end of the day is the easy part. The harder part is figuring out how we get there. As you navigate that challenge, there are five basic points I want to address this morning. Hopefully they will provide the basis for our subsequent discussion.

First, Canada today is a global leader in telecommunications. Some people have come before your committee claiming this industry is somehow falling short of expectations, that it somehow and for some reason needs to be overhauled. I say let's look at the facts on competition.

Canadian customers today have choice in data, private line, long distance, Internet, and local access. Canada has five national wireline networks. We have four national wireless networks. Significant market share in many of these areas has gone to new competitors at the expense of incumbent telephone companies like ours, and so be it. That's the way it should be. Real competition is coming to the local residential market with the continued development of cable telephony and wireless substitution. These are two vitally important trends.

What are the benefits of competition? They are low prices, easy access, innovation, innovative products, and capital investment. On each one of those score, let's check the records, the facts, not people's biases.

What are the facts on price? Canada enjoys some of the lowest telecom prices in the OECD. Our residential rates are 25% less than those in the United States, and our business rates are almost half those in the United States.

Let's check the facts on access. Of the Canadian population, 98%--virtually the highest in the world--have access to phone service, and 85% of Canadian communities are served by high-speed Internet access. Canada has the second-highest broadband penetration in the world, twice the rate of the United States.

Let's check some more facts. Let's check the facts on innovation. As you all know and as we learn in school from the time we're small children, Canadians have always been innovators in this industry. We've been innovators in this industry for the last 120 years. I'll just give you a few examples, and there are lots more: the world's first domestic communications satellite in geostationary orbit; the first cellular phone service in North America; the first OECD country to launch residential high-speed Internet access; the first wireless Internet browser in North America; the development and the first deployment by Canadians of optical Ethernet technology, with all of the potential it has to make our industries more productive.

Others have come before this committee and suggested that Canada lags behind other nations in capital expenditures. Again, let's check the facts. Capital investment figures from 1999 to 2001 are wildly distorted by a $50-billion binge of capital investment in the United States that today has no value. It was a complete waste and blew up in the bubble. If you exclude that, as you should because it has no value, Canada's investment is above the OECD average. What's interesting is that our level of capital investment in this industry is above the OECD average, while our pricing is among the lowest in the OECD.

Our capital formation in Canada is more stable. From 2000 to 2001, per capita capital investment grew by 22%. Let's look at what other countries did over that period. The U.S. and Japan were down 21%, Germany was down 17%, and Korea was down 38%.

¿ (0915)

Now, I understand that a gentleman from the OECD was here yesterday and described the kind of performance I just talked about as a “blip”. Let me talk about that. Our company makes those decisions. We decide what we invest. I'm sitting here today telling you that from the perspective of how we run our business, it is not a blip. While the RBOCs in the United States have slashed capital investment, we're maintaining ours at a reasonable level. We intend to do so because we think it's important both for the growth of our business and for the quality of services available to Canadians, so we do it.

Overall, Mr. Chairman, my view is that this system works. This system works on many levels. It works for customers because they benefit from low prices, from some of the highest service levels in the world, from innovation, and from choice. And as customers benefit, so do our economy and our country.

The bottom line here, Mr. Chairman, is clear. Canada has got it right, and we should be proud of this. Your challenge is to take this good system and to make it even better. What you must do is to strengthen this industry in Canada and to continue Canada's global leadership in telecommunications.

Point number two, the regulatory framework in which our industry operates today is right. How have we achieved all of the things I've just talked about, and why is telecom such a global success story for Canada? It's so for many reasons, but certainly one of them is the quality of the regulatory framework in which this industry operates and has operated over the last 10 years. Legislators like you and regulators in Canada have maintained a regulatory framework based on sound economic principles, summarized basically in the phrase, “facilities-based competition”. And it's the only basis for real competition.

Competitive forces resulting from competing infrastructures have delivered innovative services, high-quality services, and competitive prices for Canadians. The focus on facilities-based competition has been instrumental in enabling Canada to be one of the very few countries in the world successfully navigating this difficult transition from regulated monopolies to a competitive industry. We're doing it.

Let's look to the south. The United States has chosen a different track, attempting to artificially create competition through the resale of existing facilities at deeply discounted prices. Let's look at the state of U.S. telecom today. Over the last couple of years, 70,000 jobs were lost in the sector; capital expenditures were slashed 21%; and fed by irrational expectations, the 300 competitive local exchange carriers that were created are now virtually all bankrupt.

Now, is all of this due to the regulatory framework in the United States? No, clearly it's not, as many factors were involved. But that framework was a vital factor contributing to this sorry tale. That's why we see the chairman of the FCC in the United States, Michael Powell, now talking about changing that regulatory regime to sounder economic fundamentals. What's this about? It's about returning the United States regulatory system back to the sound principles that are the underpinning of the Canadian regulatory system.

Mr. Chairman, I think the challenge facing this committee and all of us in this industry is to find ways of expanding investment in this sector. In our view, any move from our current system of facilities-based competition, based on real economic fundamentals, would send a chill through investment in Canada. I believe that if we move away from our current system of facilities-based competition, the issue we're all facing is going to shift away from finding ways of encouraging more investment to finding ways of preventing the flight of existing capital. This is a problem I don't think any of us want to face.

As we move forward, we need to sustain policies that build strength and real competition among strong competitors. Frankly, more than changes in foreign ownership rules, this is going to encourage continued investment in our country, and this is what's going to put Canada at the forefront of global economic growth and competitiveness, where we belong.

¿ (0920)

Point number three, Mr. Chairman, is that our industry continues to be very much in the midst of change. This is a familiar story to you. Advances in technology have changed a lot of things. Digitization and the Internet have created a common platform, a universal medium, allowing any kind of information to be delivered anytime, anywhere, over any device. This is an important set of changes in our industry. The barriers that once separated the different silos in this industry, frankly, are being trashed by the technology itself.

Today, telcos compete not just with other telcos, but with cable companies; cable companies compete with satellite companies; and wireless companies compete with other wireless companies, and also wireline companies. So in this complicated, changing, turbulent environment, how do you draw the lines? How do you define what a pure telecom is, and how do you separate it, for instance, from what a broadcast distributor does? The answer to that is not easy to find.

Technology and customer demands are driving us to provide our connectivity customers with more than access, with more than simple pipes. We provide the services, the specialized applications, the management tools--in a sense, the content that our customers want.

Today, wireless service providers are able to transmit music, pictures, even video, over a wireless phone over their networks. If they sell a video or they sell a music clip through their browser on a wireless phone, what is that? Is that carriage, or is that shading into the content business?

These are complex issues, and they need to be addressed. Given all of that, developing the right foreign ownership regime for this country for the future is all the more challenging, because on the one hand, any policy of this committee and the government on the basis of this committee's advice, any policy, must encompass, we believe, traditional telcos and broadcast distributors. Why? Simply to serve the basic interests of competitive equity. But on the other hand, we recognize that the more we move to incorporate satellite and cable television companies, the closer we move to Canada's vital cultural interests, a delicate balance, the delicate balance that you're facing, the centrepiece of the challenge that you're facing, as you go through your work.

Point number four, facing the complex task that you are facing, I want to suggest two basic principles that I hope you'll agree should guide the work you're going to do.

First, any framework that's developed to change the foreign ownership regime must be predictable, with discretion kept to a minimum. What do capital markets hate most? They hate uncertainty, and any change in the foreign ownership regime that expands uncertainty, enhances discretion, will again chill investment.

Secondly, just in the plain interests of fairness, whatever system is put in place must be non-discriminatory. A couple of proposals have been put in front of you: licensing and tiering. We believe both of those fail these two tests.

Licensing, frankly, is about uncertainty. By its nature, it creates discretion. It adds burdens. All of that, we believe, rather than being a positive move in enhancing investment, can become a negative move.

Tiering, by its nature, is arbitrary and discriminatory. It discriminates against the shareholders of the firms selected to be put in some special tier, and I believe it reduces a firm's incentive to invest. How do you fairly divide who's in what tier, who's a new entrant, and who's an incumbent? Today, we operate in western Canada. Our company in western Canada is a new entrant. Today, TELUS, based in western Canada, operates in our core market. In our core market, they're a new entrant.

Well, how do they get placed? How do we resolve that from a tiering point of view? What happens if a large, well-financed U.S. telecom company were in the future to buy a small Canadian telecom company but run it purely as an adjunct of their U.S. operations, but the Canadian incumbents are in a different tier? Is that competitive equity? I don't think so.

My fifth and final point is that I think we need a timetable for change. To get that going, first, let me propose what I believe is a viable and--I underscore this word--first, initial step, a kind of intermediate option that you may find attractive in the event that you and members of the government wish to signal quickly Canada's intent and direction on foreign ownership.

¿ (0925)

As an idea, Canada could increase foreign ownership rules at the holding company level from the current 33% to 49% for both telecom companies and cable distributors. The 20% threshold that exists on the books today would remain unchanged at the operating company level, and for the time being, the current Canadian control mechanisms could remain in place. None of that would require any legislative changes. It's relatively straightforward; and it's not the destination, it's just the beginning of a journey, but it embarks us on the right path.

Now, beyond this, in terms of the broader changes that we believe are inevitable, the issues that are involved here and broader changes are very complex. It's critical for the future health of this industry--this global leading industry--that you come to the right conclusions.

The hard reality, though, today is that if you change the ownership rules tomorrow, it will not trigger an immediate inflow of capital investment in our country. Why? Because the global industry is in a state of turmoil. Capital spending has been seriously trimmed. Large operators are focusing on their domestic operations, and believe me, Mr. Chairman, I speak from experience. The first month that I was in this job I spent a lot of my time finding ways to generate $6.3 billion that we owed to SBC as they took their capital south. So I speak from personal experience when I say that the capital flows in the telecom industry today are not in but out.

In the U.S. alone, merger and acquisition activity has been significantly decreased from over $200 billion three years ago to about $50 billion last year. Now, what does all that mean? It means we have the time to get it right.

If the government wishes to take some early action, I've made a proposal to do so. But in terms of the longer-term solution--solutions that will be vital to the continued health of this industry, which is so important to Canada's future--we have a responsibility, I on my part and you on yours, to do this right.

As for a timetable for these broader changes, I think it could coincide with the current schedule for the WTO talks, which are scheduled to be concluded by January 2005. Now, that's a challenging agenda, given the amount of work that needs to be done in resolving these longer-term issues and getting the necessary legislative work done. It's challenging, but it could be appropriate, and indeed it might even enhance Canada's negotiating position in the upcoming WTO round.

In summary, we're open to change. We believe that this process--the work you're doing--is important. We commend the Minister of Industry for having established this process. It's the right process. We're committed to working with this committee, committed to working with the government to find the right answers.

Everyone involved in this debate has a responsibility to share a common challenge. And that common challenge is to build on Canada's strength and on our country's record of success, so that we can keep this industry strong, not just today but for the future generations of Canadians, who are going to need a world-class telecommunication system.

Mr. Chairman, that concludes my remarks. I'd be happy to answer any of your questions.

The Chair: Monsieur Crête, you have six minutes. We'll go a round and we'll try to go into a second round.

[Translation]

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

Thank you for your very dynamic presentation, Mr. Sabia. I understood you to say that you definitely prefer that we allow the current system to evolve, while retaining some reservations, rather than negotiate national agreements. In other words, you prefer that we not give away everything that we have immediately so that we are not required to give away even more in the end. We could support that position, except for the fact that you described a Canada in which things are going very well. Personally, I can tell you about another Canada in which things are not going so well in the telecommunications sector.

In my riding, over a distance of 20 kilometres on either side of Highway 20, the Trans Canada Highway, people cannot use cell phones. They also have to pay long distance charges for calls between certain villages. A project has been established with a view to abolishing these charges for an area that is roughly the same as that covered by my riding.

If we were to buy into the model you suggest, would Bell be prepared to make specific commitments to meet the needs of these people who live in an area that represents 15% of the total area, and who have inadequate access to technological services at the moment? I'm not talking here about a lack of good will, but rather about past experiences.

¿ (0930)

Mr. Michael Sabia: That is a good question, but, if may, I'll reply in English in order to be more precise.

[English]

In terms of your first point, I think you've very correctly diagnosed our position. What we think needs to be done here is to take some near-term action, to take the time to get longer-term actions right, to put those in the context of our trade negotiations, and to get the maximum benefit, both in a trading context for Canada and from a strengthened telecommunications infrastructure. I agree with that.

With respect to your second point, we do today, as you know, have an extensive program of expanding our network coverage across the country, particularly in our core areas of operations, both in cities and in less dense non-urban areas. We have spent over the last couple of years about $400 million on exactly that kind of expansion. We will in the next couple of years spend another $80 million to $100 million doing exactly that kind of thing. In our wireless network over the last couple of years we have invested more than $1.8 billion to expand that network coverage. Certainly, Mr. Chairman, this is an area of our business that we continue to take very seriously.

I would also say that, as the incumbent service provider, we take seriously our responsibilities to expand coverage and to provide service to all Canadians. That is one of the reasons that today telephony penetration in our country is at 98%. We've done that on wireless. We've done it on DSL so that Canadians in more remote areas can have high-speed Internet access. We've done it in working with government to connect libraries in universities and schools to the Internet. Those social responsibilities that we have we take seriously. We're certainly going to continue to do that, and I very much agree with your observation.

[Translation]

Mr. Paul Crête: I looked through your brief quite quickly, but I did notice that on page 38 of the English version, you say:

Changes to ownership rules are irreversible and the industry is performing excellently for Canadians now—we cannot risk getting these changes wrong.

What do think is meant by "getting these changes wrong"? In the recommendations we will be making in a few weeks, do you think we should state that complete liberalization of the market would be the wrong thing to do?

Mr. Michael Sabia: That is a good question.

[English]

We believe the complete liberalization of the foreign ownership regime in Canada is inevitable and Canada cannot act like the mythological King Canute trying to roll back the wave here. That doesn't work. We believe these changes are coming, they are highly complex because of changes in technology, and they're a given. Like King Canute, we can't roll those back either.

As the technology changes it will blur more and more the traditional distinctions in this industry. It is inevitable. This is going to happen with the same degree of certainty as the sun will rise tomorrow. Your challenge is to be certain, in an economically vital industry, that we take the time to get that right.

So I believe we have the time. Because of international market conditions today, there is frankly no great immediacy to just leaping to that conclusion. We have to get to that destination, but we have to get to it the right way. So my advice to this committee, for what it's worth, is to take an interim step, move, establish a process to make sure we get this right, and then get to the right kind of regime for the full liberalization of ownership in Canada.

I'm not being critical here, but there's no one--certainly not me--who is wise enough to have all the answers in a week and to resolve all these complex issues that are so much influenced by the forces of technology today. There's no one wise enough in the world to be able to figure that out in a week. Take the time. We have the time, so let's get it right.

We're dealing with one of Canada's great global success stories in telecommunications. That's a heavy responsibility in the job I have and a heavy responsibility you all have. You're dealing with a success story here, so let's make it better. Let's take the time we need to get it better and move in the near term to do the things that can signal direction, improve flexibility, and improve access to capital. We fully support all of that.

¿ (0935)

The Chair: Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you, monsieur le président.

Thank you for coming and thank you for your enthusiasm for foreign investment.

My first question is related to broadband penetration, which you mentioned in your address. Can you tell me where Canada falls in the world?

Mr. Michael Sabia: We're second to Korea. We are double the rate of the United States, and Korea has somewhat higher broadband penetration than we do. On a household basis, we have 30% penetration of households with high-speed broadband, and the United States has about 16%.

Mr. Larry Bagnell: Okay.

You also talked about competition and said how well it was working with the various new modalities, etc. That may be true in southern Canada, but in my area of Yukon it's not yet true. In fact there is a mobile wireless system, but your company owns that as well. So we have some work to do there.

The other problem we have is that as long distance has been opened up, which is great, and there's been more competition, unfortunately the telephone companies have transferred their costs to local access, where there's still a monopoly and people can least afford it.

I understand there is some progress in the States on making local access more competitive. Do you see Canada being able to make local access more competitive?

Mr. Michael Sabia: I have two separate points to make. I'll first address the broader point and then the specific point of the northerly issues, where your riding is.

On the broader point, there are a number of factors affecting competition in the local residential market. We all need to bear in mind that a very legitimate public policy choice has been made—which we support—that it's important to keep prices low in the local access market in general in Canada. They're significantly lower here than in the United States, certainly, and in most countries around the world. This is very legitimate choice, and we have no argument with it.

Another very legitimate choice is that we also have to meet the high service levels in the CRTC standards. This is a legitimate choice that we support.

Of course, this has resulted in the local market being somewhat less attractive as a place for new investment than it would otherwise have been. Again, we support the fact that those pricing decisions have been made, but they do have economic consequences in terms of the attractiveness of that market to the entry of brand new competitors.

Point number two, because of that legitimate public policy choice, we believe the path we will first go down in creating local residential competition—and we will create it—is the expansion of cable telephony. This is inevitable. I know there are members of the cable industry who, for whatever reason, want us to believe this is not going to happen for awhile. But this is inevitable; it's happening in EastLink in Halifax, and it's happening in Comcast and Cox in the United States. Comcast and Cox, where they've been in the market for a period of two years, have on average taken market share in excess of 20% to 25%. EastLink today has a 25% share in the greater Halifax market. This is going to happen if for no other reason than, as we participate in the video business through our satellite company, they will come into the telephone business. This is inevitable, and it's the right thing. I support it because it will create real facilities-based competition in the local markets.

More and more, Canadians don't care whether the voice they hear or the data they get comes over a wire or comes over a radio wave. This is becoming increasingly irrelevant, particularly as wireless quality improves. So more and more, wireless telephone calls will substitute for wireline telephone calls. We're already seeing this in terms of the second-line erosion we are seeing. About 55% of it is due to wireless substitution, and about 35% or 40% of it is due to DSL, or our high-speed Internet access. So these trends are happening, and they're going to continue to happen. They're beginning now, and they're going to accelerate.

And bear something else in mind. As an industry, we have gone through perhaps one of the greatest capital market adjustments that's happened in the last 150 to 200 years. All of it was the result of this crazy, la-la land world we drifted into through 1999 and 2000. It was crazy, but what goes up comes down. Today we're living with the carnage of coming back down to earth. This environment has probably slowed things up, but is it going to continue? Absolutely, it's going to continue. So I believe there are real, true, and imminent prospects for substantial competition in the local residential market.

In the north, there are clearly difficult commercial issues. We have a responsibility to serve that area through NorthwestTel. We're going to continue to serve that area, which is an important part of what we do. It's an important part of our obligations as a social institution in Canada, which is part of what we are as a company. So we're going to continue to do that.

¿ (0940)

I think there are additional difficulties faced in areas of the country that are remote from highly dense urban areas. It's harder to encourage new entrants and new competitors to serve those areas, just as a function of cost and density, which is why we have a responsibility to do it.

In that world, we need to be regulated, and rightly so. What matters here, from my perspective, is that we offer low price, high service, innovation, and the capital we need to provide high-quality services in those areas of the country. That's what we're trying to do, and that's what we're going to continue to do.

The other thing I'd say is, to the extent of my point about urban markets and cable companies, again the presence of cable companies in many of these markets, over time, creates the prospect for strengthening residential competition.

My final point--and my answer is too long; I apologize--is look at what has happened, for instance, in business local access where, depending upon what market you look at, we've lost--and yet again, rightly so--something in the order of 15% or 16% share over the last few years. We'll probably lose more; such is life. We get paid to deal with those problems. I mention the number only to say it's happening. It may not be happening as fast as everybody likes because of what we call the “tele-chasm” that we've all gone through, but it's happening. Those trends are in place. It's working.

¿ (0945)

The Chair: Thank you.

Thank you, Mr. Bagnell.

Mr. Masse.

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

You've painted a different picture in regard to opening up the foreign ownership, the access to capital, than some other witnesses. They've expressed that if this is going to happen, then they'll be able to get more investment, more R and D, a number of different infrastructure issues. But at the same time, you've noted a specific suggestion about opening it to 49%--from 33% to 49%. Is this essentially so that we can still maintain control during the process of change?

Mr. Michael Sabia: In our minds, this is designed to simplify, to try to avoid some of the most thorny issues having to do with trading telcos, cablecos, and so on, on an equivalent basis, which we believe is important, but to do that by maintaining some of the Canadian control provisions that would allow the government, should it wish, to move to take some early action. In a sense, it's a proposal that comes in under the radar screen of some of those more complex issues.

To address those more complex issues is going to take time. That's why we're proposing that if the government wishes to move, then take a step, get the work done, get the right solution, then go on to the broader solution, and hopefully, perhaps be able to use that to Canada's benefit in the WTO round.

That's basically our thinking, if the government wishes to take some early action. If not, then our proposal would be for the government to take the time to get it right; let's get it right, and then let's do it.

Mr. Brian Masse: So with regard to the timing of the WTO, that's what you would suggest we do in the interim. We have heard from other witnesses. They've suggested that this is something like fourth on the priority list with regard to the whole industry. There is a whole other series of issues that need to be addressed.

Would you agree that there would have to be a broader scope of even this committee's work with regard to the whole telecom industry, to prepare for the future and to mobilize the industry in a new direction?

Mr. Michael Sabia: In our perspective, I'm not sure whether I agree or disagree with you. I find that often in life I'm not sure whether I agree or disagree with people, so what the hell.

I think a lot of people have a view that the Canadian regulatory system needs to be moved in the direction of the U.S. regulatory system. They believe we need to move to a world of uneconomic, counterproductive, destructive pricing that will substantially retard investment. I don't agree that we should do that.

But I have to tell you, if you'll allow me a minute, just as a Canadian--and if I can be permitted this, as someone who's proud to be a Canadian--I'm kind of tired of hearing people say, well, let's just do what they do in the United States. I'm getting sick of this. Let's recognize where we lead the world. We lead the world here. How many industries are there in Canada today--and I say this with sadness--where we can say we lead the world? I think not many.

So to those who say, well, let's do what they do, let's go to some resale model, that will be better for the industry, I say look at what has happened in the United States, and if that's the future, I don't want to go to the movie.

¿ (0950)

Mr. Brian Masse: Given your spirited defence of the Canadian industry, if foreign ownership is opened up entirely right now, is it likely we could have American investment buying the products and services we have here and there being a worsening of the consumer's options because of what has happened over there and what we have now? Does that potentially threaten the consumer? You've identified lower prices, greater access to service, a number of different things that are clearly an advocacy position of our handling of this situation during very turbulent times. Is that a potential threat with regard to unfettered ownership? I don't see much investment coming from Europe. I see more potentially coming from North America.

Mr. Michael Sabia: But look at the pattern of U.S. investment, SBC vis-à-vis Bell Canada, AT&T Corporate versus AT&T Canada. The pattern is clear. This is not something I'm making up. Writing a $6.3 billion cheque to SBC is a memorable event. It's not everyday that you write a cheque with that many zeros. Frankly, I don't want to write too many of those. So this is happening.

It's not for me to talk about public policy, although I spent 10 years of my life in this city and I maintain an interest in it. But let me do so, anyway. I think that at a public policy level the challenge facing the government, which is not a simple one, is to balance two things: on the one hand, the economic benefits of greater access to capital, because that's always a good thing, and as a person in business, we're always going to support that; and on the other--I'm not sure how to describe it---the societal benefits of having a Canadian presence in a sector that is vital to the Canadian economy. I think that's where the art of governing comes in. That's where the art of public policy is. That's something for you to assess more than it is for me to assess.

With regard to Bell Canada, for instance, my job is simple: to make Bell Canada the best communications company in North America. Every morning I go into work that's my job, and that's the job of the 43,000 men and women who work at Bell Canada. We've done well through hard work in the past, and we're going to do well through hard work in any ownership regime that gets established, because our goal is that we're going to be the best. If we're the best, I like our prospects regardless of the foreign ownership rules.

The Chair: Thank you very much.

Mr. Normand.

Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): Mr. Sabia, I will speak to you in French, and you can answer in English.

[Translation]

You say that we can start up the train slowly and that we should not load it too quickly. Do you think that in the telecommunications sector we could experience a situation similar to the one that happened in the case of Air Canada—where there was deregulation, which resulted in a drastic increase in costs and a reduction in services, particularly in the rural regions of Canada?

[English]

Mr. Michael Sabia: I don't think so. I think your question is--just let me double-check--whether or not what's happened in aviation, where we've seen a lot of deregulation, is an indicator of what the future of telecommunications could look like, particularly with respect to how it applies in rural areas, etc., of the country.

I don't think that's as big a concern here, because I think we can separate changes in the foreign ownership regime from the obligations that we will continue to have as a regulated incumbent to provide high-quality services really across our service area and certainly in more rural parts of the country. I think we can find a path here that allows, should the government wish, to move to some form of liberalization of the ownership regime but also to maintain the rightful obligations that we have as an incumbent to provide services to those areas.

That being said, I think one of the things that has to be assessed carefully is that to the extent that.... And this is one of the reasons I believe that tiering, where for instance you have incumbents up here and everybody else down there, is not a good answer, because I say to myself, well, as a social institution, we have a responsibility--a rightful responsibility--to provide services in those areas. But if we're in one tier and somebody else is in another, the impact it has is that it increases our cost of capital, our cost of production. Then for us to then additionally face regulatory requirements to deal with things that we do today in a world where we're now competing with people with different costs of capital, this is something I'm not sure is a fair deal.

¿ (0955)

[Translation]

Mr. Gilbert Normand: You say that Canadian companies are currently world leaders in telecommunications. Having led a number of missions abroad, I cannot but agree with you on that.

Does Bell Canada or BCE have any investments in foreign countries? If so what is the percentage? What rules are in place these countries?

[English]

Mr. Michael Sabia: The answer is, by and large, no, we don't have investments outside of Canada. We did. We had a very large investment outside of Canada called Teleglobe, a long-haul data company that worked on a global basis. And just so that we're clear, some people look at our company and look at this impenetrable fortress of financial strength. Well, we lost $10 billion on Teleglobe, so we pulled back from that. It was very painful. We've been hurt by everything that's gone on in the telecom markets. So as for Teleglobe, we're out of that business.

We have also had a series of investments in other countries, many of which we had exited before.... We had investments in Korea, Taiwan, India, China, and Latin America. We had by and large pulled back on many of those in advance of all the difficulties in telecom. We still have some very small investments in Mexico and in Brazil, but they're very, very small.

The Chair: A short question with a short answer.

[Translation]

Mr. Gilbert Normand: What negative effects do you fear the most if the current rules are changed too quickly?

[English]

Mr. Michael Sabia: There are two things.

First, it will be impossible to get fair treatment across this rapidly changing industry, because the lines that used to separate many of these different types of companies are blurring and going away. If we don't get that right, it could be a very large mistake.

Number two, the proposals I've heard on the mechanics of how to do this are either for licensing or tiering. I believe licensing would be a major step backward for a Canadian regulatory system that is regarded by the OECD, by any number of telecom consultancies, as one of the leaders in the world. I think it would be seen as a major step backward and I don't think we should do it. Any move there would greatly worry us and we would oppose it.

Similarly, if the government went to some kind of tiering structure where we did not believe there was equal treatment among real competitors, we would oppose that also, and we would oppose it vigorously.

À (1000)

The Chair: Thank you very much.

Mr. Rajotte.

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

Good morning, gentlemen.

I want to pick up on what you just said. You were talking about the licensing approach and how that's something we should not adopt here in Canada. You said it's a major step backward. But it is something the department seems to be favouring or proposing at this point. Maybe you could expand and clarify exactly why you feel licensing would be a step backward.

Mr. Michael Sabia: I've read the position that the officials at Industry Canada brought to you on that proposal. I think the fundamental issue here is that it's almost impossible to establish a licensing regime that doesn't have a relatively high level of discretion for the licensor. I think discretion creates uncertainty, and uncertainty and unpredictability of results are the things capital markets and investors dislike the most.

I think we also have to be cognizant that a global investor...and let's be honest, I spend a lot of time talking to investors from around the world, and by and large--you can't criticize them for this; they're not really in the business of doing favours for people--they're looking to make money. So they look on a global basis, across the world, and decide where they will invest whatever money they have available for telecommunications investments.

Canada is a relatively small country--a great country, but relatively small. If they're facing an uncertain and unpredictable licensing regime on the way into a relatively small market with relatively low pricing, the question I would have is whether we've really made Canada a more attractive place for foreign investment. Or have we--with the best of intentions, because I believe that the Department of Industry is absolutely well intentioned here--actually taken a step backward by imposing a higher level of discretion and a greater level of uncertainty on the path into a relatively small market? Investors of that scale can invest anywhere in the world.

That's the second reason. If you want me to shut up, I'll shut up. If you want me to keep going, I'll keep going.

The United States has a licensing regime, and look at some of the issues there. Look at some of the difficulties that have been imposed by that licensing regime. It didn't work that well on the Vodafone investment with Horizon, the Deutsche Telekom investment with VoiceStream, even in our world, the TMI investment satellite into the United States. It's an opaque process, a difficult-to-understand process, with various different interests playing in the background as to whether something will be approved or not. I just don't think that's the kind of clear, progressive, predictable regulatory framework that Canada has always been very good at.

Mr. James Rajotte: The second point I want to touch on is the issue of definitions. It's raised on pages seven and eight of your brief. You talk about the difficulty of structural separation. I think you're absolutely right on that.

Then you pose some questions. On page seven, the third paragraph down, you ask whether a telecom provider that distributes video over a DSL line is a carriage company or a content provider. This is one of the toughest questions the committee will have to face. Can we make that distinction, and if so, where? I'd just like to know your opinion on that.

À (1005)

Mr. Michael Sabia: I think it's pretty clear, because I've said it about 50 times this morning. I think it's hard to do that, but that's not a news flash, because I've said it before.

I think you have to take a pretty broad definition. This is what we see today, but tomorrow, four, five, or six years down the line, whether it's over a DSL line, which is what we use for high-speed data Internet into the home, or whether as we push fibre further out into our network we will be more able to deliver high-quality video directly over that line, more and more you're going to see these distinctions just falling apart.

So while today you might still see the shadows of the old, now out-of-date industry structure, tomorrow it will be completely gone. Given that the challenge you have is not just to make policy for today but to try to set a framework that will last for five or ten years down the road, I think you have to assume that a lot of these boundaries and barriers are going to go away.

It will probably be possible to find a line to draw between--let's use their old names--a telco, a cableco, and a satellite company, on the one hand, and the pure creators of content, or programmers. I don't think it's easy, but it's probably possible. If not, you'll be four-square into the issue of Canada's cultural policy. My guess is it will be possible to draw something there, but among that other group of players I think it will be very difficult.

Mr. James Rajotte: Just following up on that, on page eight you talk about the definition of telecommunications carrier, broadcast distributor, and programmer. Are these definitions still valid?

M. Michael Sabia: They are less and less valid. Think about it. What did a telco used to do? A telco was a transport company. We took a wire and put people's voices over it. Then we started putting data over it. What did a cable company do? They were a distributor of video signals over a coaxial cable.

Today we're as much a distributor as they are. We distribute all kinds of content and video over the Internet through our DSL connections, so that distinction's gone. Similarly, as a cable company gets into the telephony business they're going to be doing what we do. So it's just hard for me to see how you can draw crisp differentiation across these lines.

I know you had some testimony from André Bureau, and he's a wise man. I know you've had testimony from Astral that the act of being a cable distributor, in and of itself, has some influence on content. I think that's probably true because you decide what the content is and where the stations are positioned on the dial. There's a lot of influence and connection there. I'm sympathetic to the position he's taken, and it just further confirms the complexity of the task you and the government face in drawing distinctions that are inherently difficult in a period of technological change.

The Chair: Thank you, Mr. Rajotte.

Mr. Marcil.

[Translation]

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman. You highlighted the fact that it would be very difficult to distinguish between transportation and the content. You say that perhaps something could be done. But how can we achieve this? That is another matter.

This leads me to ask you what the difference is between cable television, cable telephone and high-speed cable modems.

À (1010)

M. Michael Sabia: They're exactly the same.

Mr. Serge Marcil: If they are the same, how do companies such as Vidéotron, Rogers or BCE distinguish among transmissions travelling on the same highway? How can we separate them structurally? Is that really possible?

Mr. Michael Sabia: Personally, I am not convinced that it is possible to make such a distinction because of the fact, as you said...

[English]

It's all on the same technology. It's all on the same network. It all uses the same back offices, etc. This structural separation argument is a bit like whistling past the cemetery at night. It might make you feel good and it sounds okay if you say it fast, but the minute you start to think about it, then it doesn't sound so good.

That's like telling us we should separate our telephone business from our Internet business. How do I do that? I deliver it to the home over exactly the same technology, over the same wire that goes into the home, so how can I separate these things? These things are dependent on the same networks. They're dependent on the same customer care, customer support. They're dependent on the same billing systems. These things are very difficult to do. This whole notion about structural separation I find very problematic.

You could say to take all of the cable assets and put them with whatever content assets Rogers, Shaw or someone might have, and that might help solve the problem. I don't think it really would. I don't think it would solve the fundamental problem you have.

I don't mean any disrespect to my colleagues in the cable business. They run great businesses, they're going to be our competitors in the future, and they're doing the right things here. I'm not proposing we do this, but if you don't separate the ownership and you just set them up in separate entities, I still don't see how that would solve the problem. You'd still have an organization, individual, or whatever who owned the entity and could therefore continue to exert influence. I still don't see how that would solve the problem.

I want to be very clear. I'm in no way suggesting that any of my colleagues in the cable business don't have the best motives. They do. These are just complicated problems.

[Translation]

Mr. Serge Marcil: You also said, Mr. Sabia—and this is part of Bell Canada's mission—that you have a social responsibility that somewhat requires you to serve almost the entire population of Canada.

If your sector were completely deregulated over night, would you be subject to the same mission requirements? Would you have the same social and moral responsibility?

You could be faced with new competitors. At the moment, we say that we are the best because our regulatory framework allows Canadian companies to develop without too many concerns. However, if you were facing total deregulation—and as you said earlier, your role is not to preach, but rather to do business—would you apply the same regulation in the same way? Would Bell Canada have the same reach across the country?

[English]

Mr. Michael Sabia: My answer to that is that we do have obligations and responsibilities, which we take seriously. Today, I believe we are delivering on them.... I'm about to make a strong statement, which I'm not 100% sure I can back up, but what the hell. I think we may perhaps be delivering on those things better than any incumbent carrier in the world. I don't know; as I say, I'm not sure I can back that up, but I think it's probably true.

The issue is that if this isn't handled right and companies like ours, TELUS, or, for that matter, the incumbent cable companies are put at some kind of disadvantage as a result, then our ability to continue to meet the social responsibilities we have could be affected. I think that would be a serious mistake for the country.

À (1015)

[Translation]

Mr. Serge Marcil: With respect to your competitors...

[English]

The Chair: Serge, you must be short, and the answer must be very short.

[Translation]

Mr. Serge Marcil: This is my final question, Mr. Chairman.

Are you required to provide services in this country that your competitors do not offer?

[English]

Mr. Michael Sabia: Oui. As the incumbent carrier, we have responsibilities to provide universal services as best we can and to extend service into rural areas. We're subject to tariff regulations our competitors are not subject to and we're not able to engage in the normal competitive process. If a customer leaves, many different types of companies, not just in telecom, have the ability to then try to phone that customer and say, we want you back, and we'll do this and that for you if you come back. But we have a series of restrictions on our ability to do this. So we certainly face differences in the regulatory landscape in which we have to operate.

The Chair: Thank you very much.

Mr. Crête, you have four and a half minutes.

[Translation]

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

I have two questions.

Yesterday we heard a presentation from an OECD representative. From what I understood, Canada's current situation is similar to that of a number of other countries. In addition, we are apparently one of a number of countries that theoretically have liberalized their trade, but that in fact have almost all retained some type of control.

In light of the initial comments made by the Department of Industry and what we hear from the OECD representative, is it accurate to say that while Canada and the European countries have adopted different approaches, their models are quite similar, in that they involve special regulations? I would like to hear what you think about that.

I'm going to ask my second question right away to ensure you have time to answer it.

In the case of brand name drugs, the pharmaceutical industry has entered into a sort of social contract. Without having to sign a contract as such, would you be prepared to adopt such an approach. When a decision was made in Canada to regulate intellectual property intelligently, the question was what could be done in terms of job creation or results over the next 10 years.

Might we get somewhere if we were to make the same type of proposal to Bell regarding coverage outside the major centres?

Initially, we could keep the current model, and then gradually liberalize it in keeping with international negotiations. At the same time, we could try to serve those people who do not have access to these services at the moment. Would you be open to an approach of this type? I'm not talking about a contract with the government here.

[English]

Mr. Michael Sabia: First, with respect to other ownership regimes, I know that some observations have been made to your committee with respect to foreign ownership. I think the observation was that the only country with similar kinds of restrictions was Turkey.

I've known Peter Harder for 30 years. I remember that we used to play violin competitions against each other, if the truth be known. He's the deputy minister of Industry Canada, so I know him well. But, yes, I was a little puzzled by that observation, because if you look a little deeper, it's just not that simple. Take Germany, France, or Norway, where you still have substantial government ownership of the incumbent. It's a completely different issue in a world where you have substantial government ownership of the largest telco. So I'm not sure that making the comparison with Turkey is a fair one.

Second, never mind that where governments have privatized their once-government-owned telephone companies, in many cases they continue to own what are called golden shares in those privatized companies. This is true in Italy, the Netherlands, and Spain. These golden shares entitle the government to do a variety of different things.

So again, I'm not really sure that looking at foreign ownership restrictions in isolation and saying, well, Turkey is the only equivalent counterpart, is a fair set of comparisons. I say this just for analytical purposes, to get the facts on the table. Please don't misinterpret me; we are in no way suggesting that the right answer is to just leave the ownership regime as it is. This is not what we're advocating. But I do think that having a broader view and getting all the facts on the table is the right way to get to any decision. So this is point number one.

Point number two, with respect to your question about some kind of social contract, I'd make a couple points on this. First, I think we already do this in many ways. This year I think we'll spend about $280 million, or almost $300 million, on R and D on things enabling us to bring continually leading-edge telecommunication services to our Canadian consumers and business customers. As we have talked a lot about, we continue to have responsibilities with respect to the expansion of services in rural areas, and we're just embarking now on a new program to expand and enhance service levels in rural areas.

With respect to employment, like everyone else, we have faced some very, very difficult market conditions. But if you look at what we've done with respect to employment relative to virtually any other large telecom operator, certainly in the United States, I think our record in maintaining employment is really very strong. Beyond that, we're now starting a new program in our company. Rather than trying to lay people off, we're trying to retrain people, to keep them, and to give them new opportunities. This too is all part of our social responsibilities and social obligations to try to be a responsible corporate citizen, which I think we are. So we're going to continue to do these things.

As they should and will, our competitors will grow and strengthen, which is good, because competition is good.... Sometimes I think people think BCE and Bell Canada do not like competition. I think it's good because it keeps companies on edge, and companies on edge are better companies. So I'm a big advocate of this and I think competition is exactly the right thing.

But what I think everybody has to think about is that, as competition grows and expands, then some of our competitors also have obligations to act at the same level of high-quality social citizenship that we have done in terms of our commitments to R and D, the work we've done with employment, and in terms of work in rural areas. This is all part of a level playing field.

À (1020)

So I'm all in favour of those things, and we're always willing to step up to our obligations, which has been the history of our company. This is why we're a social institution, a national institution, in this country. But as the competitive landscape changes, I say other people have those obligations too, because they should be good corporate citizens also.

The Chair: Thank you very much.

I will now go to Mr. St. Denis, and then Mr. McTeague.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chairman, and thank you, gentlemen, for being here.

First of all, I appreciated your comment on the OECD graph that was used yesterday by another witness, where the suggestion was that Canada lags behind in terms of investment per capita. It was curious to me, too, why we'd be comparing countries and vast regions of the world at a time when the investments seem to be crazy. In fact, Australia, which shows higher on this graph, has foreign investment rules. So I just appreciated your comment on that.

But allow me to play devil's advocate a little bit, if you would, Mr. Sabia. If I were working for you, I could maybe take your presentation and use it as a basis for leaving things the same, leaving it the status quo. I know you mentioned to Mr. Crête that you're not in favour of the status quo. I think the general philosophy or thesis we're operating under is, let's look at change and argue why we should make that change. You said in your remarks that it was inevitable.

So are you saying we should open up foreign ownership rules, either on a partial basis initially or eventually completely, only because it's inevitable, only because philosophically it's better to have open ownership planetwide, or only because there is some benefit--which would be fair--to your company by opening up the ownership rules? I'd like you to expand on that.

À (1025)

Mr. Michael Sabia: No, the reason we're in favour of this is that we believe opening up access to capital is always a good idea. It's really a strong belief in that principle that causes us to believe that the right place to be, particularly in a globalizing economy, is for Canada to step up to the bar and liberalize its foreign ownership regime. That's the fundamental motivation. Other than the general issue that I've just touched on, there's no particular benefit to our company.

We talk to investors in the United States all the time. We try to encourage their interest in investment in our company because we think that's good. We have lots of room in terms of the current rules or the new rules that I've proposed here. We'd have lots of room to continue to encourage further U.S. investment in our company, and we'd like to continue to do that. But there's no particular dramatic upside to us in proposing this. We just think it's something that, done the right way, can strengthen the industry.

Let me just come back to something else you said, something I don't agree with. To say that we have a great success on our hands in Canadian telecommunications is not the same thing as saying let's maintain the status quo.

Let me use an example. Every time I meet with our employees--and I try to meet with thousands of them--I always say our job is to take a good company and make it a great company. I believe your job and the government's job is to take a very good telecommunications industry and make it an even greater one. So I don't want to be misread here. What I do think is wrong--and as a Canadian, I'm sick and tired of it--is listening to a bunch of naysayers and hand-wringers argue that this is anything less than one of Canada's great industrial success stories. I'm sick of it, and it's about time Canadians stood up and were proud of the things they've accomplished--and damn it, telecommunications in Canada is one of the things Canadians ought to be proud of.

So those arguments in favour of why it's good in Canada should not be interpreted as the status quo. In business today, in the world today, if you stand still, you're dead.

Mr. Brent St. Denis: Thank you for that. That was the purpose of my playing devil's advocate there, to get at that nuance.

In conclusion, in your position you've dealt with numerous investors, big investors, domestically and worldwide. Could you characterize this, for our benefit? Ultimately the folks you are dealing with represent shareholders somewhere else who are looking for a return on their investment and couldn't care less really where the money comes from eventually.

Some argue that it's about control, that somebody from outside wanting to buy into a Canadian company might want control. I might say, well, at the end of it all, it's really just an investment, if you could boil it down to something. Could you characterize this for us: generally in your dealings, is control an issue or is it strictly an investment?

À (1030)

Mr. Michael Sabia: I think there are two categories here, if I can draw a distinction.

There are portfolio investors, people who represent very large mutual funds, huge pension funds, private equity, and so on. Those people, whether they're Fidelity, Capital Research, Wellington, Putnam, or the pension funds in the state of California or whatever, or here in Ontario, teachers, Ulmer, and so on, those are all pension funds or the large mutual funds in Canada. Those are portfolio investors, and what they're looking for, by and large, is not control, but to invest a reasonable sum of money and hope that the company performs well, to provide that company with access to capital and then, with the performance of the company, hope they can make a dollar and go on to the next thing. There's that set of investors, and those are massive pools of capital that we and others can tap into, and we try to do that all the time.

With the second set of investors, I think control is more of an issue. For instance, take SBC, a company with whom we have a very good relationship. SBC wanted to have 20% of Bell Canada. That deal was done, and then they decided that they didn't, and we dealt with that and I think we dealt with it well. So they're now gone, but that was a little bit more akin to a portfolio investor. But they were interested as well in strategic relationships between us and them, and I think that went reasonably well.

On the issue of control, there may be investors outside of Canada who have an interest in taking control of Canadian companies, and that's kind of the issue. I can't imagine anyone would argue that encouraging more broadly based investment in Canadian companies is a bad idea. That's transparently a good idea, so that ought to happen.

I think the issue for you and for the government is, again, how do you balance this issue of the economic benefits of greater investment against the societal issues associated with those control issue? I think that's where the rubber meets the road, and that's where the judgment needs to be made.

One of the reasons we've advanced the kind of first-step, initial interim proposal that we did was that we were trying to say, look, let's encourage investment, but let's keep it below, at least for now, some of these control issues, because we need time to think through them. But let's do something, let's move, let's indicate a direction that the country is taking, but do this in a way that doesn't immediately raise all those very difficult control issues. Let's think those through.

I believe eventually we will have to confront those issues, and we should. To be honest, I don't want to sound too... I don't know what the word is here, but we ought to address those issues also with some confidence. There are great companies in Canada, and I'm biased, so I think we're one of them.

I know a lot of people in the telecommunications business in a lot of different countries, and I know how we stack up. We're damn good by anybody's standards.

The Chair: Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Sabia, thank you for your time here. We're running over a little bit here.

We in this committee are not necessarily going to be able to control the nature of the beast of both content considerations and carrier considerations. Your company has played a very important role, as has many others, in terms of probably making the argument for one superministry to look after these kinds of issues as we head towards the model that you propose down the road with respect to the inevitability of full liberalization.

On the road to full liberalization, you've indicated an interest in putting 49% on holding shares, perhaps an increase from 33% to 49%. As committee members, we've had some discussion about that. I'm wondering if I could get an assessment from you as to whether that would enhance competition or if that's perhaps just a simple offering that might sound nice but is practically impossible.

I note your company, as you suggested earlier, has bought back many of its shares. I trust many of those shares were holding shares.

Also, could I ask you on the subject, on the road to full liberalization, whether in fact convergence would also play a very important role in making Canada more attractive to foreign investment?

À (1035)

Mr. Michael Sabia: On the first one, sir, I'm just going to beg to differ with you. It's a good question you've asked. I don't believe that foreign ownership has a whole lot to do with enhancing competition. I think one's an apple and the other is a pomegranate. They're both red outside, but they're really different inside. I just don't buy it.

Separate a couple of things. Separate the impact of this massive downturn that has existed in our industry over the last two or three years now. I think that has had an impact. God knows, it has had a huge impact on us. It certainly has had an impact on the people we compete with in the marketplace today. This is true in every country, with all the bankruptcies that have occurred. This is a shame. It's a terrible thing that has happened. There have been a lot of wasted capital and hurt people.

But it's not about foreign ownership. They are different issues. There may be very good reasons to open up Canada's foreign ownership regime, and we support it, but I don't believe it's going to cause a substantial step up in the level of competition, certainly not in the near term in the current capital market. So I think these are separate things.

I can't let you get away without making this comment. I reiterate, for all of us who suffered through those economics classes, what does competition give you? It gives you price, service, innovation, and capital investment. On all those scores we're second to none in the world. So somebody help me understand the problem, because on all those scores telecom in Canada is damn good. Now, that's not a reason to maintain the status quo. It's not a reason to not change and to not make it better. I want to make it better. I'm in this business to make it better. There's the argument that we're going to open up foreign ownership and all of a sudden we're going to get an explosion of competition in the Canadian market. It's not going to happen. I think we need to think in an analytically sound way as we address these important issues.

As I say, the level of competition in Canada is growing. We see it in virtually every segment of our business. It's starting to happen in local residential, where it needs to happen. We are going to have a competitive telecommunications market in Canada. But it's going to happen because of the right focus we have in the broader regulatory regime, facilities-based competition. I separate that from the foreign ownership issue. That's why it's going to happen, because we have got that right.

The Chair: Mr. Sabia, I want to thank you very much for being with us today and for being so frank and answering so many questions. It has been a pleasure to be with you today, and I thank you very much.

Mr. Michael Sabia: Mr. Chair, it has been a pleasure for me. If there's anything else I can do, just let me know.

The Chair: I'm sure there will be other questions asked.

Mr. Michael Sabia: If there are any follow-up questions, we would be happy to answer them and to do anything else we can to be helpful.

The Chair: Thank you very much.

We'll take a two-minute break as we change witnesses.

À (1036)

À (1044)

À (1045)

The Chair: Okay, gentlemen, ladies.

Today in our second part we have Dominion Telecom, which will be represented by Mr. Keenleyside, who is replacing the other members who are snowed in--and we're used to that. We also have Mr. Ian Morrison, with Friends of Canadian Broadcasting.

Mr. Keenleyside, I would ask you to begin. Then we'll go to Mr. Morrison, and then to open questions.

Mr. Anthony H. A. Keenleyside (Barrister, McCarthy Tétrault, Dominion Telecom Inc.): Thank you, Mr. Chairman.

My name is Tony Keenleyside. I'm a partner with McCarthy Tétrault law firm in Canada.

Mr. John Sharer and Mr. Alan Dole, who were to be here from Dominion Telecom Inc., send their regrets. One was detained on personal family matters and the other is still digging out from a metre of snow in his Virginia driveway, and all the flights were cancelled. So they send their regrets. They have asked me to impress upon you that if you have any questions of a business nature that I'm not able to answer, I'll be happy to get the answers from them and provide them to you in writing.

I'm representing Dominion Telecom Inc., which is a small, non-Canadian, facilities-based carrier. The company is grateful for this offer to hear its suggestions on the issue of ownership and control restrictions in the Telecommunications Act and regulations. We understand--and I stand to be corrected--that Dominion is the only one of the very few non-Canadian entities to have appeared before you so far.

You should by now have a copy of our full written submission and a copy of these speaking notes, so I won't use our 10 minutes to get into the corporate relationships and how Dominion came to be interested in these proceedings. The important thing, from Dominion's perspective, is that it has acquired 108 optical fibres in a duct that runs from Montreal to Albany as part of a much larger transaction involving the acquisition of telecom assets from Telergy Inc., from that company's estate in bankruptcy in the United States.

Dominion is in the awkward situation in that under the current legislative regime it cannot use any of those fibres to provide telecom services to the public in Canada. To make matters worse, it cannot even allow Canadian entities such as Bell Canada to do so. And I'll explain why later in this presentation.

Just to put in context the size of the duct that Dominion has acquired, of those 108 fibres, each pair of fibres has enough transmission capacity, using today's technology, to carry over 10 million simultaneous telephone calls at any one time. That of course translates into plenty of capacity to carry several sophisticated business, educational, and governmental applications.

Dominion thinks this situation of not being able to use the fibre is not good for Canada. It doesn't support any apparent Canadian policy objective, and it's certainly not good for Dominion itself.

Dominion personnel, in response to the invitation, thought long and hard about a constructive way to respond to the issue before you. Frankly, the proposal the company has come up with is so simple it's almost embarrassing.

The Telecommunications Act contains a policy statement that says in part that “telecommunications performs an essential role in the maintenance of Canada's identity and sovereignty”. Now, there are two main sections in the act that respond to this statement. The first is “Eligibility to Operate”, part II of your act, where the Canadian ownership and control restrictions are located. The second is called “Rates, Facilities and Services”, in part III of the act, and that's the part that's administered by the CRTC.

The way the act is structured now, all facilities-based carriers must comply with part II ownership restrictions and all of those carriers are also automatically subject to actual or possible regulation under part III by the CRTC. As you've heard from people before us, the degree of regulation depends on who the company is, but they're all subject to the jurisdiction of the CRTC.

Dominion's embarrassingly simple proposal is to sever the link between the two parts of the act. In a nutshell, what Dominion proposes, and what is described in much more detail in our submission, is that the Telecommunications Act be amended to provide that compliance with part II, the ownership restrictions, would apply only to what Dominion has called “designated” facilities-based carriers.

We think that a principled starting point would be to agree that all non-dominant facilities-based carriers should not be designated and, as a result, they should not have to comply with the ownership restrictions. After all, if the CRTC has ruled, as it has, that the market should decide the fate of these companies, how can it be argued that they play, to use the words of the act, an essential role in the maintenance of Canada's identity and sovereignty?

À (1050)

Dominion takes no position, and wants to be understood as taking no position, on the issue of whether any facilities-based carriers should be designated at all. The company thinks this is an issue that Canadians should decide on their own. This committee may decide at the end of its deliberations to recommend that the ownership restrictions should simply be abolished. However, if you make the decision to retain the restrictions for some carriers, Dominion also takes no position on the actual mechanics of how facilities carriers would be designated.

Our written submission sets out in detail some options that are before you. There are basically three different levels you could adopt. You could move through Parliament, through a schedule that would be attached to the Telecommunications Act; you could do it by regulation made by the federal cabinet, through an order in council; or you could do it by the CRTC, by amending section 9 of the act, which gives the CRTC an exemption authority now. Each of these different approaches has its advantages and its disadvantages, most of which relate to the need to balance flexibility offered by an approach established by the CRTC, or regulation, versus the certainty that may be offered by incorporating a schedule into the actual act.

As I said, Dominion takes no position on which approach might be best for Canada. However, Dominion does strongly recommend that if you see merit in this proposal, whatever method of implementation is adopted should be done within a fairly short time so that Canadians can benefit from a revitalized competitive sector sooner rather than later.

We would like to stress that this proposal of severing the two parts of the act will have absolutely no impact on the regulatory regime in Canada. The CRTC will still have all the authority that it has today and every facilities-based carrier will still be subject to CRTC jurisdiction whether or not they have to comply with the ownership rules. The decision as to whether actually to regulate any company and the extent, if any, to which it should be regulated will remain with the CRTC, as it is now.

Finally, we can foresee that if some carriers are designated as being subject to the ownership restrictions while others are not, they might object that this is a perceived competitive disadvantage for them. To respond to that, Dominion suggests this committee also recommend that the Telecommunications Act be amended to include an automatic review of the need for the ownership restrictions three years from the date on which our proposal is proclaimed into law. That will give everybody a chance to make new arguments within a reasonably short period of time as to whether restrictions should be lifted for some, or all, of the remaining designated carriers.

I said at the outset that Dominion had 108 fibres that were stranded in Canada and I undertook to explain why they are stranded. The Montreal to Albany route duct is a 250-mile spur of which 200 miles is in the U.S. and approximately 80 kilometres is in Canada. This facility is part of a much larger asset acquisition, and it's important because it provides a vital telecom link between Canada and the United States.

Dominion has been given legal advice, by me, that in Canada optical fibre is defined as a “transmission facility” under the Telecommunications Act. I have also advised the company that the law currently requires that anybody who operates a transmission facility used by that person or another person to provide telecom services to the public for compensation must qualify as Canadian under the current law. There's no controversy with that, and Dominion itself has no problem with that.

However, the act goes on to provide that anybody who merely owns the facility that's used in that manner must also qualify. Dominion clearly does not qualify as Canadian. However, even if Dominion leases the fibre to a qualified Canadian, the wording of the act arguably still captures the company if the lessee uses the fibre to provide a telecom service. The result is that Dominion's options today are to sell the fibre absolutely and leave Canada or to await a change in the ownership restrictions. Because of this very timely review that your committee has been asked to consider, for the moment Dominion is waiting.

Mr. Chairman, Dominion has set all of this out in much greater detail in the written submission, and the company has also responded in that submission to the 13 specific questions that you were asked to look at by the minister. So I won't go into that in any further detail.

À (1055)

In the absence of Messrs. Sharer and Dole, I'd be happy to try to answer any questions you may have, bearing in mind that I'm a Canadian telecom regulatory lawyer and not an employee of the company. I'll be pretty strongly restricted in what I can answer in a business sense, but I'd be happy to deal with regulatory issues.

Thank you, sir.

The Chair: Thank you very much. We understand the situation you're under.

Mr. Morrison.

[Translation]

Mr. Ian Morrison (Spokesperson, Friends of Canadian Broadcasting): Mr. Chairman and members of the committee, Friends of Canadian Broadcasting appreciate this opportunity to appear today on the question of ownership rules and control regulations applicable to telecommunications common carriers in Canada.

[English]

Someone might ask why a group that is supported by 60,000 households, whose mission is to defend and to enhance the quality and quantity of Canadian programming in the audiovisual system, would be concerned with restricting foreign investment in telcos.

You've heard from a number of witnesses that the same foreign investment rules should apply to Canadian cable companies as apply to telcos. This argument derives from the fact that cable competes very successfully with the telcos in the delivery of high-speed Internet service into Canadian homes.

Cable companies are an integral part of Canada's audiovisual system. The CRTC calls them “broadcast distribution undertakings”, or BDUs, and licenses them under the Broadcasting Act. As you may know, all the largest cable companies are affiliated with broadcasters. For example, Vidéotron owns TVA, Rogers owns Sportsnet, Shaw is affiliated with Corus, which owns YTV, etc.

Friends has reviewed the arguments for increasing telcos' foreign ownership, up to and including foreign effective control. A key argument is that--and I find myself here echoing comments of Mr. Sabia--increased access to foreign capital is needed to encourage greater competition in the provision of telecom services.

We don't believe this argument holds water. We agree with Call-Net Enterprises' president and CEO, William Linton, who told you, and I'm quoting:

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…. More foreign capital won’t get competition moving. It won’t level the playing field. It won’t reduce the inflated rates that we pay to the incumbents for access to their networks that they inherited from a 100-year monopoly.

Cast your mind back just a few months to June of last year. BCE had to come up with billions of dollars to buy back the 20% of Bell Canada that was owned by Texas-based SBC Communications. There was hardly a blip on Bay Street when that transaction went through.

The failure of competition in telecom services is a regulatory issue, in our view, not an investment issue. This failure is an indictment of the CRTC's telecom policies over the past decade. I know they're coming here in the coming week or so. If you share our concern that 96% of business local service and 99% of residential local service is controlled by incumbents, Friends recommends that you call the CRTC to account.

The commission should be mandated to help competitors get started and to prevent the incumbent telcos from dragging their feet on interconnect. It should be called to account for saddling new players with huge spending on unnecessary infrastructure. But that's another story.

We're here to respond to the cable lobby's call for elimination of restrictions on foreign investment in their business. Listen to Janet Yale, president of the Canadian Cable Television Association, respond to a question from your colleague John Harvard before the heritage committee on November 28. Mr. Harvard asked her what the cable industry was advocating. The hansard reads:

Ms. Janet Yale: What we're recommending is the complete elimination of the rules.

Mr. John Harvard: So you're talking about 100%, direct, indirect, you name it. Am I right?

Ms. Janet Yale: Yes. We're saying, once you get over 50%, what's the difference between 51% and 100%? At the end of the day, the issue is whether or not they should be liberalized.

We agree with Janet Yale. There is no difference between 51% and 100%. Once effective control passes into foreign hands, high-end jobs will migrate south. Cable bills will come from a Denver address. Restrictions will apply to RRSP investments in Shaw, Rogers, Vidéotron, and Cogeco.

In fact, we endorse the comments last week from Alliance Atlantis, Astral, and CHUM, who appeared before you and said, and I'm quoting:

BDUs make programming decisions every day. They play a fundamental role in the success or failure of Canadian programming services.

They also said:

If there are foreign companies who wish to invest in Canadian BDUs but are not satisfied with owning non-voting shares, it is presumably the strategic operating control they seek.

Á (1100)

And the conclusion of William Linton applies in spades to Canada's broadcasting industry. I'm quoting:

The question we will have to ask ourselves is where do we want these decisions to be made? Do we 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.

The Broadcasting Act states that the Canadian broadcasting system shall be effectively owned and controlled by Canadians. Since 1991, when Parliament passed the current bill into law, restrictions on foreign ownership have already been watered down in response to arguments by broadcasters and cable monopolies that they should enjoy a level playing field with telcos. Now, following Minister Rock's announcement, we see the second act of this drama unfolding. And we're here to urge you not to suspend your disbelief.

According to CRTC data, between them, Cogeco, Rogers, Shaw, and Vidéotron have 87% of Canada's basic cable subscribers. Unlike most industries actively lobbying on Parliament Hill, each of these big cable companies began and remains family controlled. The essence of their original business model developed as a result of Parliament's determination that foreign, that is to say American, television broadcasters should not be allowed to own and operate transmitters in this country. Cable's business niche, under territorial monopoly licences from the federal government, has been to bring high-quality American signals into Canadian homes. Even today, cable's only legal competition comes from two Canadian-owned satellite distributors, one of them controlled by Shaw, and a handful of small wireless cable systems.

The larger cable companies do a pretty good job on the technical side, but when it comes to public trust and Canadian identity, the public gives them low marks. I've given you some evidence of that in a footnote. Now they are arguing that their Canadian ownership requirements should mirror those of the telcos. They argue that allowing more foreign investment in Canadian cable will close the gap between the market's valuation of a Canadian cable subscriber and that of an American subscriber.

I have a few comments. First, why do we need to close that gap? How will that benefit the average Canadian? Second, how do Bay Street financial analysts view the cable industry?

The market's evaluation is “below investment grade”. Recently Rogers and Shaw debt has been downgraded to junk bond status. Why? The reasons include excess debt, some of it acquired through highly ambitious, overpriced acquisitions. Québecor recently acquired Vidéotron, for example, for $5.6 billion. Even Ted Rogers wouldn't match that price. Rogers chose to buy the Toronto Blue Jays, talking of synergies with Sportsnet. Unfortunately, the Blue Jays lose $50 million a year. And of course both Rogers and Shaw have each seen major investments in the Internet go sour.

If Parliament were to accede to the cable industry's demands and permit foreign takeovers to maintain a level playing field with the telcos, perhaps the valuation of Canadian subscribers would indeed rise. But how does that benefit Canadians? Not at all. But it does benefit those who control the companies. Remember that the controlling shareholders are members of four families: the Audets, the Péladeaus, the Rogers, and the Shaws.

Clearly a change in broadcasting ownership restrictions benefits this small group of Canadians, that handful of families, who control cable television. Here's how. There aren't that many potential buyers in Canada. A change in foreign ownership restrictions means that there will be more potential bidders for the shares. That drives up share values. If you raise foreign ownership levels, it ultimately will mean a major payday for those families. It's just that simple.

I'm not saying there's something inherently wrong with that, but let's acknowledge what this really is all about. It isn't about doing anything to benefit most Canadians.

Á (1105)

Here's what Gordon Pitts, the author of the recently published Kings of Convergence: the Fight for Control of Canada's Media, has to say about Ted Rogers' failed $5.4 billion takeover bid for Vidéotron. He said:

Industry watchers suggest that...Rogers simply wanted to bulk up on (Vidéotron's) cable assets. Some suggest that when foreign ownership rules are relaxed, it could offer any buyer a huge volume of subscribers in a concentrated area. The possibility of foreign ownership is always a factor in the cable guys' estate planning, and Ted Rogers is not entirely immune to it.

Pitts offered a parallel comment on the Shaws:

Industry speculation is that if the rules are changed to allow higher foreign ownership of cable companies, an opportunistic U.S. player, perhaps John Malone, would take a much bigger stake in Shaw Communications, and possibly buy out the Shaws entirely. That suspicion is reinforced by the sense that JR, Jim and Heather Shaw are above all pragmatists. They love the business, but they aren't married to it. In the long run, the Shaws will likely be sellers, and they will do very well for themselves.

The point is that one result of a relaxation of foreign ownership rules in the cable industry would be to put billions of dollars into the pockets of the members of four families, all at the stroke of a Her Majesty's pen.

Thank you, Mr. Chair.

The Chair: Thank you very much.

We'll now begin questioning.

Mr. Rajotte.

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

How much time do I have?

The Chair: You have six minutes.

Mr. James Rajotte: Thank you, gentlemen, for your presentation today.

Mr. Morrison, I have a few questions on your presentation. On page 2 you say that you do not agree that foreign capital is needed to encourage greater competition in the provision of telecom services. Then you quote William Linton saying: “It won't level the playing field. It won't reduce the inflated rates that we pay to the incumbents for access to their networks...”.

Do you have a suggestion on what these rates should be? You obviously feel they're inflated. So what should they be?

Á (1110)

Mr. Ian Morrison: If I were you, I would not pay a great deal of attention to my opinion on this. I would pay a great deal of attention to the opinions of the non-incumbent telcos. They face a lot of barriers when they go into competition, and these barriers, including the matter of rates, are such that they cannot develop business plans that show enough return on investment to attract those investors. That's the case they are making.

The policy suggestion I would make to you, rather than quoting any opinion from the Friends of Canadian Broadcasting about the level of some rate, is to go after the CRTC when they come here. They have botched the introduction of competition in the telco industry in this country, and they should be called to account. It is a regulatory mess. The result is that it's very difficult for anybody to take on the giants.

Mr. James Rajotte: I think that if you're going to say that, you should give some specifics. If they face inflated rates, I would hope you would say, this is how much they are inflated by. Those are very strong statements, and I know that others have made them. I think we should have some specifics to back them up.

Mr. Ian Morrison: I stick by my answer. I think if I came up with a trite response, a percentage or something of that nature, you would not be justified in paying a lot of attention to it. To quote Jean-Jacques Rousseau, he said once “I'm here to discuss principles. I will not dispute the facts.”

Mr. James Rajotte: I'll move on, then, to the issue of the cable companies. Do you agree with what Michael Sabia said this morning when he said that the old lines between the cable companies and the telcos being distributors are blurring and in fact disappearing? Now you can distribute signals over the Internet and through cable companies. Cable companies will be moving into the telephone business. Telephony is moving into broadcast distribution. Do you agree that these changes are causing the old lines to blur or to disappear entirely?

Mr. Ian Morrison: A short answer would be yes. We have not witnessed in the past decade any substantial movement of cable into telephony. There have been barriers to that. There were predictions back seven or eight years ago. Again, by the way, your question is a great question for the CRTC, because they predicted that type of competition would come much faster than it has. But in a general sense, there has been and will continue to be technological convergence, and that's just a fact of life.

The concern that brings us to the table is the concern of the listener and viewer and the special role that the cable industry has as a gatekeeper for what your constituents and those of every other member of Parliament here get to see on their television sets, at least the vast majority of them for whom cable is a major player. That means the cable industry has a broadcasting responsibility. We do not want to see a circumstance arise where, based on the wish to ensure a level competitive playing field in the delivery, for example, of high speed Internet services, they are able to get out of appropriate restrictions on foreign ownership that should apply to broadcasters. I've quoted the act and you've heard my arguments.

Mr. James Rajotte: In looking at where the industry is going, I think the argument for Canadian content is really about two types of protection. It's about ensuring Canadian creativity so that it can develop and flourish. It's also about sustaining and ensuring a strong Canadian industry. So I think there are two sides to the Canadian content argument.

But if we accept where the industry is going in terms of competition among cable, telephony, satellite, wireless, and if we accept that Canadians more and more, as consumers, are themselves making the choice to step outside the Canadian content regulations.... Look at the up to one million households completely stepping outside the regulations that we're establishing here in Canada and saying they're choosing black or grey market satellite systems. The cable companies and others have these pressures in providing Canadian content and trying to protect that, but at the same time, they realize they're losing huge market share because Canadian consumers themselves--Canadians--are choosing to completely step outside the system.

My concern here is that the Canadian industry and the Canadian creativity will be left behind because more and more Canadians simply choose to step outside the system. How do you address those Canadians who are simply choosing services that completely bypass any sort of protection of Canadian content in any form?

Á (1115)

Mr. Ian Morrison: Just to expand your argument a little, you did not actually mention the impending capacity of the Internet to deliver high-quality audiovisual signals, which means that it's distance free. It's not just an American satellite; you could watch Australian television, so to speak, when there is enough bandwidth. So there's a very big argument there.

I'm also conscious that the chair has told me to keep on topic, so there's a danger that I'm going away, and I always try to obey the chair. But the position we have taken is that rather than restricting Canadians' access to foreign signals, the approach to take is to provide a certain amount of shelf space for the kind of quality Canadian product that will ensure a share for Canada in our audiovisual system.

Now, somebody in your constituency who has a DIRECTV dish is breaking some laws. One of them is called the Copyright Act. But they are enjoying television in their own home, and I say more power to them. However, I would also tell you that the CRTC, which has much to answer for, actively discouraged competition in the delivery of satellite signals as much as seven years ago, preventing General Motors and Hughes Aircraft from doing a deal with the Power Corp. that would have Canadianized that technology and provided really strong competition for the cable industry.

So it's a complicated issue, and I would just like to put before you that there is a slippery slope here, which is that your committee, persuaded on the merits, let us say, that there should be a change in telecom foreign ownership restrictions, makes that decision. That doesn't, under current law, affect the cable industry, but then they have an argument that they should also have something parallel to that.

But as I have pointed out--and there are many more examples than the ones I've used--these cable companies are also owners of actual Canadian broadcasters, so the owners of other broadcasting institutions that are not controlled by the cable industry have to ask, why should their access to capital be different from ours? And gradually what you get is a watering down of the capacity through Parliament to ensure, as the Broadcasting Act says, that the broadcasting system is effectively owned and controlled by Canadians. That is the watchdog role, the signal that I'm trying to alert you to today.

The Chair: Thank you very much.

Mr. Volpe.

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.): Thank you, Mr. Chairman.

Mr. Keenleyside and Mr. Morrison, thank you for your presentations.

I want to compliment you, Mr. Keenleyside, on your presentation. I've only had a moment or two to peruse it, but it seems to me that in its minutae, in its detail, it's obviously a lot more complex than the typical presentation the committee gets. I realize you have a specific reason for it, and I hope I don't prejudge it negatively, but I'm wondering if you've made this presentation (a) to the CRTC, and (b) to Industry Canada on behalf of your client.

Mr. Anthony Keenleyside: No, I haven't, sir. The CRTC has no legal ability to change the ownership restrictions, because it's an act of Parliament and a regulation passed by cabinet, not by the CRTC. Quite frankly, at the time this first invitation came out, my client was more concerned about what they would do with these fibres than with anything else, and the review was just so timely that we decided to go this way.

Á (1120)

Mr. Joseph Volpe: As I peruse this, I see your client essentially happened onto this--I'm sorry if that's too harsh a word. But it just kind of happened on a Canadian asset and it's looking for a way out, not in.

Mr. Anthony Keenleyside: The analogy I used, sir, was that the fibre running from Montreal to the border is the hair of the tail of the dog that they purchased. It's that small.

I don't mean to denigrate the asset, because it's very important to them, but it's that--

Mr. Joseph Volpe: I realize that, and when I look at the figures here, I can see that analogy is quite accurate. Yet on the basis of that analogy, you have quite a complex presentation. As you've indicated for the committee, it's an act of Parliament that would salvage that hair, not a discretionary decision by either the department or the CRTC. And in that process, I thought the research that must have gone into making this presentation would certainly be worthy of review.

Mr. Anthony Keenleyside: Thank you, sir. I'll pass that on to my client when I send them my invoice.

Mr. Joseph Volpe: The committee always aims to be helpful, especially, as you've pointed out, for all those who operate in the Canadian market--more importantly, if they are Canadian.

You've taken great pains to answer all the questions for us. But except for the first couple of questions that the committee is supposed to be deliberating, you refer back to the one or two points that would be of specific interest to your client. Without prejudicing the case, it appears to me again that this is one of those situations where we're not talking about investment in Canada, because I don't think your client is really interested in investing in Canada--that is, expanding that hair to cover the rest of the animal--but really to get out of a situation that it would like to extricate itself from with minimal damage.

Mr. Anthony Keenleyside: If I've left that impression, sir, I'm sorry, because that's not the intent. This is not an attempt to say, change the law to save Dominion Telecom.

Mr. Joseph Volpe: Or any other such company.

Mr. Anthony Keenleyside: No, it's by accident in Canada.

Dominion would like to use the service. It would prefer not to sell and not to exit, and it believes there are possibilities for other similar sorts of Canada-U.S. arrangements--we're talking about a fairly niche area here--but international or certainly Canada-U.S. traffic.

There are a number of possibilities for other unions between UTelcos, the hydro telecom entities, that just aren't contemplated under the current legislation. And they could be broader than that. They could be just innovative financial deals in which lawyers like me say, “on the one hand” and “on the other hand”, and the investor just says, “Well, I can't invest on that basis, but if you can give me some assurance I won't run afoul of the law, I will invest”.

I should add, this is far short of taking a run at buying BCE or Bell Canada. We're not talking about that.

Mr. Joseph Volpe: I understand that. I just found it interesting that after the presentation we've heard this morning, and others before that, the whole complex strategy of accessing investment capital would, in this case, chance upon an accident. So perhaps there's hope for those of us who are blind to investment strategies so far--and you needn't comment on that.

Mr. Anthony Keenleyside: The capital in our case, sir, is stranded.

Mr. Joseph Volpe: Okay, and I thank you for that.

I wonder if I could just turn now for a moment to Mr. Morrison, whose friends obviously have my phone number, because they call me a lot, and it's never a concerted, planned effort. I realize they do all of this spontaneously.

I'm glad you're adopting the same sort of strategy in reverse that Mr. Keenleyside is asking us to do for him. You're complimenting those who are hoping to get an invoice, but unfortunately I can't invoice the Prime Minister. I accept the compliment, nonetheless.

Mr. Morrison, how does an organization like that get funded?

Á (1125)

Mr. Ian Morrison: Now the chair is definitely going to cut me off.

The Chair: It's an interesting question. We'll let that question go before we go to the next questioner.

Mr. Ian Morrison: If I could respond--

The Chair: Please do.

Mr. Ian Morrison: --last year we raised from the public $1.8 million. The largest contribution was $1,080 from an individual. We do not accept any gifts from anybody who holds or controls any licence from the CRTC. The vast majority of those gifts are from individual Canadians; indeed, the average gift is something in the range of $40. So there were something in the range of 45,000 contributions last year that--

Mr. Joseph Volpe: Mr. Morrison, I wasn't trying to be mischievous, but over the weekend I was perusing the newspapers and happened upon a rather extensive article on the woes of the CBC. Then I looked at your steering committee and advisory council and they appeared to fit, lock, stock, and barrel, into the stereotype that was highlighted by that article.

As a committee, one of the issues we have before us is this question of content and distribution. In terms of content, if you're a friend of the CBC or of Canadian broadcasting--because sometimes I get confused; they're the same--if niche content has that kind of influence and this committee has to consider a broader definition of Canadian content, where would we fit your presentation in the committee's mandate if the key word in your presentation refers to the CRTC, the villain in the piece, as having essentially botched the whole concept of carriage and broadcasting?

Mr. Ian Morrison: I'll try to be brief. What you heard is not what I said. If you heard me say that the CRTC has botched broadcasting in this country, I believe I did not say that. Hansard will have to bear me out. I did criticize the CRTC for its failure to introduce effective competition regulation in the telco industry, but I admit that is not my area of expertise.

The steering committee and advisory council are pretty diverse. There are people on that steering committee who are currently completing their PhDs at the University of Alberta and are a couple decades younger than you may be, sir.

With respect to site, which you could visit, would show we are among the most active critics of the CBC. We have called the CBC into account for failing to do a number of things Parliament has asked it to do, such as reflect regional values and regional points of view in this country. We also criticize its board of directors on the manner of its appointment.

So we are not a cheering group for the CBC, but we care deeply about the role of public broadcasting in the audiovisual system. We take quite an active look at the private broadcasters, the cable industry, and how well the CRTC does its job, primarily on the broadcasting side. Our mission is to enhance and defend the quality and the quantity of Canadian programming. That is why your constituents who support our cause identify with it and give after-tax dollars. We're not a charity; we engage in non-partisan political action all the time. Your constituents identify with it because they care about that mission and those values.

Á (1130)

The Chair: Thank you very much.

I will proceed now to Mr. Masse.

Mr. Brian Masse: Thank you, Mr. Chair.

Mr. Keenleyside, I had a chance to briefly to go through your document here. It's very extensive.

The company was founded in 1997, and shortly after that you acquired the asset you have right now. Is that correct?

Mr. Anthony Keenleyside: It was more recent than that. About a year ago it acquired the Telergy asset. It already had an extensive network.

Mr. Brian Masse: Okay. Minister Volpe was getting into the intentions of the asset. Have you actually brought it out to the market, in terms of selling that part of it yet? What has been the response?

Mr. Anthony Keenleyside: Some commercial contracts were inherited when they bought the physical duct that contained the fibres. The fibres were under IRU leases--indefeasible right of use, dark fibre leases--to a number of entities in Canada. The company, quite frankly, is struggling with that, because I've advised them it's arguably illegal to let that continue. As I mentioned earlier, we're in this awkward situation now of either selling and leaving or awaiting some change.

The company is definitely not looking to expand at all right now to take on any new lessees of the capacity. A fairly small piece of the overall capacity is under current contracts, and they're in a situation where if they simply terminated them they could be arguably sued for breach of contract.

Mr. Brian Masse: You are in an awkward spot.

You may not be able to answer this. Bell suggested this morning as a first step to go to 49% and then deal with the issues. It is about control, and it was identified even by them. Would that be enough in the interim?

They were arguing about predictability being the best thing to get at the end of the day as part of the whole process. How important is that for your clients?

Mr. Anthony Keenleyside: Dealing with the 49%, whenever the Department of Industry talks about foreign ownership in this area, it always makes the point, which I think is a bit misleading, that non-Canadians could own 46.7% of telcos in Canada. The reason I say it's misleading is that when you divide the ownership on the optical level, it's not really the same thing. But if you accept as a legitimate premise that it is 46.7%, moving to 49%--this is my personal view, but I think Dominion would agree--it's tinkering at the edge of the edges. It's so small as to be inconsequential. In Dominion's particular case it does absolutely nothing, because they still have to sell their controlling interest in this small piece of fibre.

With regard to the question on predictability, more predictability is better. I'm sure Dominion would agree with that. That's not much of an answer, because it's so self-evident.

I'd like to answer this question because I'm terribly afraid I'm not going to get asked it. You've been given a certain mandate to deal with ownership restrictions. A number of people have come before you and said that you shouldn't do anything here until something else happens. My personal view--and I'm sure Dominion shares it--is that communications reform at the highest level is like a ladder. It's a series of rungs. You've been asked to take a step up one rung. Some people are saying, don't take the step up that rung until four, five, or six other things happen, and then you'll take seven or eight steps up the rung. Those other things may never happen, you may never agree that they've all happened, or they may take 10 years to happen. It's our view that it's much better to seize the opportunity to take that one step up one rung toward better reform.

In my view, you will never have communications reform as a finished product, because the ladder has no end, and somebody will always come up with something that will make the system better. You've been given an opportunity to make the system a bit better by at least one rung.

Mr. Brian Masse: Mr. Morrison, I come from an area of southern Ontario, Windsor, and we have an interesting situation with regard to broadcasting in our community. We have the RCMP right now going after satellite dish owners, and at the same time they're involved in investigating trucks with potential threats that are not being allowed into the United States. So it really is about money. Otherwise, we would also block the signals we can pick up with our rabbit ears, as we have for generations, or not be allowed to hear radio signals. Locally, you're inundated with that type of option for free. I guess the counterbalance is that I think there is still incredibly strong support for the CBC in my community, because it's an option there.

How do we ensure that through some of these changes, especially some of the inevitability that has been presented before the committee, we have strong representation and options available? Maybe you could give me a question on that to give to the CRTC. Canadians will choose, but that option has to be there, and there has to be a balance. I see the inundation on a daily basis. It's the strong CBC that has carried a lot of Canadian content for us.

Á (1135)

Mr. Ian Morrison: Yes, your community and, indeed, some of your predecessors as members of Parliament from your constituency have expressed the same view to me in the past. You look north at the United States of America and it is all around you.

I remember once when I was on the board of a foundation called the Trillium Foundation, which met at the Columbus Centre in Windsor, and the chairman of Chrysler Canada was on the board beside me. The Mulroney government had just made some terrible cuts that affected Windsor. This man had been pretty well banging everyone on the chest and saying that we simply have to get government off our backs, that we can't bear this level of taxation. I asked him what he thought about what had happened to the CBC in Windsor and he said, it's terrible, the government just doesn't understand that the Americans are all around us.

So to try to answer your question in a way that relates to the mandate of this committee, the audiovisual system in Windsor derives a lot of benefit from the importation of distant Canadian signals as well. Both through satellite transmission and through the cable television industry, you are in a sense connected to Canada through these wires, these pipes. You have a special reason to understand the point that I think Phyllis Yaffe, the president of Alliance Atlantis Broadcasting, made last week when she said these people are making programming decisions every day about what your constituents get to see and at what cost. It's very important that this point of view prevails.

I could trespass on the chair's goodwill by talking about the CBC, but I won't do that.

Mr. Brian Masse: We have an interesting situation, and we see the reverse end of it. In my market, because of the situation, I can't listen to the Blue Jays on the radio and I can't listen to the Maple Leafs on the radio because of the actual agreements with American broadcasters. We have seen the exact opposite happening. We're locked out of choices and options by agreements.

Mr. Ian Morrison: I sound like a promoter for satellite broadcasting, but either ExpressVu or Star Choice could solve your problem, Mr. Masse.

The Chair: Thank you very much.

We'll now go to Mr. St. Denis and then Mr. Bagnell.

Mr. Brent St. Denis: Thank you, Mr. Chairman, and thank you, gentlemen, for being here.

First, to Mr. Keenleyside, it's an interesting dilemma indeed. Is this a unique problem across the long, shared border that we have with the U.S. or are there other situations that you're aware of like that where you have a piece of a U.S. company's assets on the Canadian side of the border?

Mr. Anthony Keenleyside: I can't give you a hard answer to that, sir, but if you ask any telecom lawyer in Canada if they have advised on a deal like that, the answer would be yes. It would not necessarily be like the Dominion one, but maybe a joint venture where a Canadian owns to the border and an American owns from the border. Or maybe it's a complex IRU arrangement between the two sharing a space.

The difficulty is that the situation results in issues like, how many angels can dance on the head of a pin? When do you tip over the line of ownership control in fact? It's very easy to meet the other restrictions about the 80% and the two-thirds at the two different levels, but the control in fact is always where the lawyers are asked to make the hard decision. What we're saying is why not just sever that link? There doesn't seem to be a logical link between the two. It's hard to believe that if severance happened there would not be a flood of interested parties willing to participate in some arrangement for increased Canada-U.S. traffic, or within Canada itself.

Á (1140)

Mr. Brent St. Denis: You suggest that even an arrangement whereby that stranded section, the 77 kilometres, is leased to another entity that satisfied the ownership rules doesn't work, which seems unfortunate. If you were leasing it to somebody else, where they had full control over what the daily use of that infrastructure was, one would presume that would normally solve the problem. But you're saying it does not solve the problem in this case.

Mr. Anthony Keenleyside: It does not, sir, and the problem is the way the act is worded. I think it was deliberate, and that's why I'm suggesting it may be time to review it.

If you look at the definitions in the Telecommunications Act, the definition of a telecommunications common carrier is a “person who owns or operates”--either/or--“a transmission facility”, which is a fibre, “used by that person or another person to provide telecommunications services to the public for compensation”.

So Bell Canada, clearly a Canadian company, wants to use Dominion's fibre to provide telecom services to the Canadian public for compensation. Dominion is captured because it's the owner. It goes back to the owner, not the operator, so there's a double level of regulation.

In our paper we've actually pointed out that there could be five or six levels of regulation, depending on how the thing is structured. We frankly don't see how that advances Canada's identity or sovereignty.

Mr. Brent St. Denis: That's a fair point.

So, ultimately, if the ownership rules were opened up, presumably it would have to be 100%. To solve this problem for your firm, the ownership restrictions would have to be lifted entirely. There would be no going halfway, such as in the BCE president's suggestion, because there's no solution in this case, other than a complete lifting of the ownership restrictions, right?

Mr. Anthony Keenleyside: I understood the BCE's suggestion to be 49%, which is not going halfway.

Mr. Brent St. Denis: Right.

Mr. Anthony Keenleyside: Going halfway is interesting; it's 50-50--and again this is my personal opinion--but the difficulty with 50-50 is that it's negative control. That's all it is. Each side can say to the other side, no, you can't do what you want to do unless I get X and Y, and the two parties are always at loggerheads.

The moment you go to 51%, while there are some corporate things you can't do until you get to 67%, by and large it means fundamental changes to the organization, so it doesn't make that much of a difference from a corporate control perspective. If you were of a mind to recommend changing it to 51%, in Dominion's case, if they could find a buyer in Canada interested in 49%, they would presumably sell that. That's the reverse situation to where Dominion is right now, where they can retain no more than 46.7%.

Mr. Brent St. Denis: Thank you.

This is, in the big scheme of things, a small situation, although important to your client for sure. But that situation has raised a couple of interesting questions.

Mr. Morrison, you've been following the proceedings today and on previous days. One of the dilemmas we face as a committee, even though as the industry committee we normally wouldn't be interested in content issues, is that as Canadians on the committee we are interested in that subject, however we may fall down at the end of the day. Some of the cable companies, the cablecos, when we hear from them will argue that it would be possible to...maybe not they so much, but some will argue that you can split the content issue from the infrastructure or the pipe issue. I take it from what you've said that you don't agree with that, that you can't separate, for ownership purposes, the pipe from the content.

Mr. Ian Morrison: There are a number of interesting models. I think it's a dangerous and slippery slope, and these companies are capable of hiring people of the talent and capacity of Mr. Keenleyside to give them advice about how they can take full advantage of whatever rule you come up with. You're fully aware of that.

To give you one model that is current with the very large company that I was talking about, Shaw, Mr. J.R. Shaw owns 80% of Shaw Communications. He also owns 80% or so of a company called Corus Entertainment, into which they have placed all of their broadcasting assets. Therefore they say it's at arm's length from their decision-making, and yet it isn't, because one person controls both companies.

So there are all kinds of models that they would no doubt like to bring forward, but all of them will depreciate their very important responsibilities under the Broadcasting Act, this gatekeeper, this making decisions, although the decisions are not always visible, about what you and I get to see on our television sets. So I would turn around it as advice to say you should not suspend your disbelief, as I said in the presentation, and you should be very skeptical of some convenient arrangement that might somehow resolve this question.

Á (1145)

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

The Chair: Mr. Bagnell.

Mr. Larry Bagnell: Merci, monsieur le président.

Thank you both for coming. It's very helpful.

We haven't heard very much opposition to increasing foreign ownership, but as Mr. Morrison said, we have heard some other problems, that people are even more serious than that in increasing competition.

I'm wondering, Mr. Morrison, on cable companies, how are prices for cable access, compared to other areas? Do you think increasing foreign ownership would make it more competitive or would reduce prices at all for the local consumer, the household consumer?

Mr. Ian Morrison: That's a very good question, Mr. Bagnell, and it requires a little bit of speculation in the answer. However, I did mention in my presentation that one of the arguments when the cable industry lets its hair down, for example, at its annual convention, when speakers come in from the United States and they are talking among themselves, is that the unit of measurement in their business is the value of a given subscriber.

There was a transaction a few years ago that I think involved Mr. McTeague's constituency, among others, where the price of the acquisition was something in the range of $2,500 to $3,000 per subscriber. So there is a gap, and it is not explained by foreign currency issues. There is a gap in the value, as they would put it, of the typical American subscriber and the typical Canadian subscriber.

I have some background in economics, as I imagine you do, and you can imagine that if the goal is to bring the value of the Canadian subscriber higher, that involves the Canadian subscriber at some point paying more money. We actually get a rather good deal in this country compared with cable services in other countries, and that is something that is worth maintaining. Our position is that the cable industry....

Maybe I should just back up and tell you one other thing.

The CRTC regulates the rates that cable companies charge only for the basic service and only for cable companies that are above a certain size, major cable companies. The top four cable companies represent seven-eights of the market in this country, but cable rates at the moment are unregulated for many of the services they provide, and as you know, you only get one bill. So there's only one part of the bill that is actually regulated.

So market forces are addressing that issue, and competition between cable and satellite is addressing that issue and bringing down the price, but American acquisition and the abandonment of the regulatory regime that now exists would cause all of that to fall apart. I'm sure you would hear about it from your constituents before too long, because it would be more of their available funds going to purchase that essential service.

Á (1150)

Mr. Larry Bagnell: You mentioned some worry about assets going south or American control of our good companies. We asked this question of a lot of the witnesses, and although most admitted it was a possibility, most of them were not concerned. They didn't think it would happen. They used the examples of many great companies in Canada where there are no foreign ownership requirements, and they haven't all drifted south, or the management or investment or research hasn't drifted south, as with examples like the British and in other countries; when foreign investment was opened up, that didn't occur. So why do you worry that might occur in this situation?

Mr. Ian Morrison: As I think I mentioned in the presentation, the cable industry grew up, of course, as an entirely unregulated industry. The Government of Canada, through an agency, was carving up territory and giving it out to people. It got started as a kind of family business, a mom-and-pop kind of business, not that large.

Now it has grown through consolidation. Most of those people have sold. That is the nature of the family business. You get a lot more tax planning, generational change, people converting control positions into liquidity. So what you have now is four families that I mentioned: Shaw, Rogers, Peladeau, and Audet. They would have incentives to sell out in that market.

You say not many people are saying that to you. I did quote someone who I think is fairly highly regarded, a Globe and Mail reporter and columnist who made that comment in a recent book based on his research on those families. The book was published just last October or November. I quoted extensively from it. He has had hours and hours of interviews with Mr. Shaw and Mr. Rogers, and so on, and that was his conclusion.

So I think you should err on the side of taking the danger of American control of this part of our audiovisual industry very seriously.

Mr. Larry Bagnell: I wasn't saying the purchases wouldn't take place; I was saying they wouldn't result in a problem.

I was also referring to the telcos. But related to the telcos, you suggested that the CRTC wasn't ensuring sufficient competition.

We asked Mr. Sabia that question, or I did, or in his opening remarks he said he felt that, especially because of the different modalities, competition was proceeding quite nicely in Canada. Because you could use all different wireless and cable and everything, it wasn't a problem, and there was lots of competition.

Mr. Ian Morrison: Mr. Sabia is the CEO of the controlling shareholder of the largest telecom in this country, which was given a monopoly by this Parliament 100 years ago. So he has a point of view, and if he says things are going quite nicely, I think they are for him and for his company.

Indeed, that's important for the people of Canada, because, as you know, 500,000 people and pension plans, and so on, are shareholders in Mr. Sabia's company. It's a widely held Canadian company. It's not all bad.

But if we want competition, the essence of my message is that I wouldn't get Mr. Sabia to design a competitive regulatory environment in this country. That is the job of the CRTC.

I think I quoted Mr. Linton, with whom we agree that the problem, as we see it, for competitive telco services is a regulatory problem, not a problem of access to capital. That was put very well by Mr. Linton, because essentially he was saying that until we can have the tools to compete effectively with the big boys, we have a problem attracting investment. It doesn't matter whether that investment is coming from New York, or Johannesburg, or wherever.

The Chair: Thank you very much.

Mr. Normand, you will be the cleanup batter here.

Mr. Gilbert Normand: Mr. Keenleyside, everybody seems to be very afraid of the American investors. I know your investment was, in large part, an accident here in Canada. But what is the philosophy of your company and what are your priorities here in Canada?

Á (1155)

Mr. Anthony Keenleyside: Well, sir, I'll rapidly get into a business area in which I'm not competent to speak, but I can tell you that in the order of 99% of the physical assets owned by this company are in the United States. A tiny portion is in Canada.

The company is related to a hydro company in the United States. It has done what many hydro companies have done in the U.S. and in Canada, which is to set up a telecom subsidiary or affiliate to take advantage of their existing infrastructure for hydro service, to provide telecom services. That's the genesis of it. So it was nothing unique to that company. In fact, it's a model that's being duplicated here.

Having said that, wherever the company can take advantage of its existing infrastructure to get a return on capital that's reasonable and justifies the expansion, it will, just like any other company. That's not something that is covered by nationality at all. I don't know if that answers your question.

Mr. Gilbert Normand: What are the priorities of your company at the moment?

Mr. Anthony Keenleyside: At the moment, they are what I think the trade would refer to as a carriers' carrier, largely. They are a wholesaler of capacity that's used by other people to provide services. In other words, you wouldn't likely expect to see Dominion Telecom Inc. providing a telephone service to your door, but you might see them providing the underlying capacity, obviously, from the border to Montreal for Bell Canada to provide that service to your door.

Mr. Gilbert Normand: Thank you.

Mr. Morrison, I have just a short question.

The only way I have at home to see television is by satellite. During the past two or three years, I've needed an American satellite to have TV. At this moment, I have about 40 Canadian channels in 200 channels, or about 20% or 25%. Do you think we'll have fewer channels if ever some foreign investor takes over ExpressVu?

Mr. Ian Morrison: The ratio of 40 to 200 you refer to is about 20% Canadian channels. Of course I'd point out to you that many of the Canadian channels carry American programs, so if those Canadian channels are typical of the Canadian channels you get on the island of Montreal, for example, in the English language, then typically two-thirds of the programming on them is American. I imagine it's preponderantly American content on the other 160 channels you receive. So you are describing a situation where your access to Canadian programming is maybe around 7% or 8% of the total. That's lower than other people are facing.

As to a takeover of Bell ExpressVu by an American company, that would require a change in an act of Parliament at the moment. If it did happen, it seems to me that company would have an incentive to provide you and other customers with a range of choice.

As satellite capacity expands, there will be more and more channels. The problem is not so much that you would not have access to Canadian channels; it is rather that more of the channels would be allocated to higher-profit activities like selling you movies that started every 10 minutes on every channel. You would have to pay extra for that. So I think the changes that will come will be geared more to your pocketbook than to what your eyes can see.

Mr. Gilbert Normand: Thank you.

The Chair: Thank you, Mr. Normand.

I'd like to thank the witnesses for being with us today and for providing an insight, another perspective, to help us in our study. Thank you for your answers to the questions.

The meeting is adjourned until our next meeting.