INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, February 26, 2003

¹

1530

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

Ms. Janet Yale (President and Chief Executive Officer, Canadian Cable Television Association)

The Chair

Ms. Janet Yale

Mr. Jim Shaw (Chief Executive Officer, Shaw Communications Inc., Canadian Cable Television Association)

¹

1535

Mr. Louis Audet (President and Chief Executive Officer, COGECO Inc., Canadian Cable Television Association)

¹

1540

Mr. John Tory (President and Chief Executive Officer, Rogers Cable Inc., Canadian Cable Television Association)

Ms. Janet Yale

¹

1545

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

The Chair

Mr. James Rajotte

Mr. John Tory

¹

1550

Mr. James Rajotte

Mr. Jim Shaw

Mr. James Rajotte

Mr. Jim Shaw

¹

1555

Mr. Louis Audet

Mr. John Tory

The Chair

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

Mr. Jim Shaw

º

1600

Mr. Louis Audet

Mr. John Tory

Mr. Andy Savoy

Mr. Louis Audet

Mr. Andy Savoy

The Chair

º

1605

Ms. Michèle Rioux (Professor, Research Director to CEIM, "Départment de science politique", "Université du Québec à Montréal")

º

1610

º

1615

The Chair

Ms. Jocelyne Girard-Bujold (Jonquière, BQ)

Ms. Michèle Rioux

Mr. Mathieu Arès (Senior Researcher, Latin America, Economic and Security Researcher Group, Raoul Dandurand Chair of Strategic and Diplomatic Studies, "Université du Québec à Montréal")

Ms. Jocelyne Girard-Bujold

º

1620

Ms. Michèle Rioux

Mr. Louis Audet

Ms. Jocelyne Girard-Bujold

º

1625

Mr. Louis Audet

The Chair

Mr. John Tory

The Chair

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

Ms. Janet Yale

Mr. Joseph Volpe

Ms. Janet Yale

Mr. John Tory

Mr. Joseph Volpe

Mr. John Tory

º

1630

Mr. Joseph Volpe

Mr. John Tory

Mr. Joseph Volpe

Mr. Jim Shaw

Ms. Janet Yale

º

1635

Mr. Louis Audet

Mr. John Tory

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. John Tory

º

1640

Ms. Janet Yale

Mr. Brian Masse

The Chair

Mr. Mathieu Arès

The Chair

Mr. Brian Masse

Mr. John Tory

Mr. Brian Masse

The Chair

Mr. Jim Shaw

Mr. Brian Masse

º

1645

Mr. Mathieu Arès

Mr. Brian Masse

Mr. Jim Shaw

Mr. Louis Audet

º

1650

The Chair

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

Mr. Louis Audet

º

1655

Mr. Serge Marcil

Ms. Michèle Rioux

»

1700

Mr. Serge Marcil

Ms. Michèle Rioux

The Chair

Mr. Louis Audet

The Chair

Mr. James Rajotte

Mr. Jim Shaw

Mr. John Tory

»

1705

Mr. Louis Audet

Mr. James Rajotte

Ms. Michèle Rioux

Mr. James Rajotte

»

1710

Mr. Mathieu Arès

The Chair

Mr. Andy Savoy

»

1715

Ms. Janet Yale

Mr. Jim Shaw

»

1720

Mr. John Tory

Mr. Louis Audet

Mr. Andy Savoy

The Chair

Ms. Jocelyne Girard-Bujold

Mr. Jim Shaw

»

1725

Ms. Jocelyne Girard-Bujold

Mr. Jim Shaw

Ms. Jocelyne Girard-Bujold

Mr. Louis Audet

The Chair

Mr. Serge Marcil

The Chair

Mr. James Rajotte

»

1730

Ms. Michèle Rioux

Mr. James Rajotte

Ms. Michèle Rioux

The Chair

Mr. Louis Audet

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

---

NUMBER 025

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Wednesday, February 26, 2003

[Recorded by Electronic Apparatus]

¹  (1530)  

[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I'd like to call this meeting to order.

    Pursuant to Standing Order 108(2), we are engaged in a consideration of foreign investment restrictions applicable to telecommunications common carriers.

    I know that some of our witnesses are not here yet, but I hope they arrive soon. We do have people from the Canadian Cable Television Association, Janet Yale,Louis Audet,Jim Shaw,and John Tory.

    I take it, Ms. Yale, you're going to begin.

    Ms. Janet Yale (President and Chief Executive Officer, Canadian Cable Television Association): Yes.

    The Chair: Thank you very much. Please begin.

[Translation]

    Ms. Janet Yale: Thank you, Mr. Chairman, and thank you as well to the members of the Committee. My name is Janet Yale and I am the President and CEO of the CCTA.

[English]

With me today are Jim Shaw,CEO of Shaw Communications, Monsieur Louis Audet,président et chef de la direction de COGECO inc., and John Tory,president and chairman of Rogers Cable Inc. We're going to share responsibility for this presentation, and I would encourage you to follow along.

    I'm going to start by giving you a brief overview of Canada's cable industry. We are an industry with 7.9 million cable subscribers, 2 million broadband Internet subscribers, 9.4 million homes that can connect to our broadband Internet network, and we have laid more than 210,000 kilometres of network infrastructure.

    I'd like to briefly highlight our recommendations in front of you today. Most importantly, the cable industry supports liberalization of foreign ownership rules for broadcast distribution undertakings and telecom companies. We believe there are significant benefits that would flow from these changes in access to larger pools of capital at lower cost. It would increase incentives to expand our integrated broadband networks, and it would increase competition and innovation in these industries. I would note that foreign ownership of cable companies is permitted in all developed countries except Canada. Canada is now an exception in the context of our major trading partners. I'll have more to say on that later.

    I'd like to now turn the floor over to Jim Shaw, who will talk to you about the benefits of our recommendations.

    Mr. Jim Shaw (Chief Executive Officer, Shaw Communications Inc., Canadian Cable Television Association): Thank you, Janet, and thank you for having us here today.

    Most people think, when you get a cable licence, it's a licence to print money. In fact, when you think about it, it's a licence to spend money. The fact is that I and our CFO spend more than 50% of our time roaming around North American and Europe raising money to keep these developments going in Canada. Capital in Canada is shrinking. Today's banks are reducing segment exposure across all industries, especially cable and telecom. I can't tell you how many times I've gone to a large financial institution or insurance company only to be told, we have enough Shaw paper, we've seen enough of that, you'll have to look elsewhere for your money.

    Currently, when we go to investment communities around the world, and in North America especially, they go through a check list: I could make an investment in Canada, what are the rules? Would my investment be stranded there? Will I have the ability to get it out over the long term? Is it a safe haven for me to develop my institutional profit on a go-forward basis? When they go down the check list, if we have to put an X in a box, it puts us behind to some degree. These are not insurmountable problems, but I'd like to have it here today where we didn't need to have the check list and Canada was always checked first and not X-ed off the list.

    While we have made large gains in digital high-speed Internet, in which we are the leader in the world, and cable TV delivery, where I think we're one of the most wired countries in the world and have one of the best systems in the world, we serve more than major centres. We serve small communities across Canada. As you guys know more than anyone, these small communities need more and more services as they go on. It's capital that will help the further development of products into these markets. It is our view that we could continue to expand jobs by expanding our networks and providing competitive facility-based competition.

    To expand on our points further, I'd like to turn it over to Mr. Louis Audet from COGECO.

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    Mr. Louis Audet (President and Chief Executive Officer, COGECO Inc., Canadian Cable Television Association): Thank you, Jim. Good afternoon.

    This next section is on convergence and competitive equity. The word convergence here is used in its physical meaning, the convergence of services on the same wire.

¹  (1540)  

[Translation]

    This section is entitled “Convergence and competitive equity”.

    Since 1996, the CRTC, in its decision 96-1, created a competition regime that encouraged broadcast signal distribution companies to compete with telecommunications companies, and it also invited the latter to get involved in the distribution of television signals. So today all the competitors are essentially doing the same work, that is, distributing video, Internet and telephone signals on just one cable.

    We do that in the cable industry, and our competitors, the telephone companies, do the same thing. That is the point of the illustration on page 12, which shows two separate wire networks that often share the same infrastructure to distribute all the services.

    On the telephone side, there is obviously telephony, which is what these companies started from, the Internet at first, broadcasting signal distribution—note that some players in the telephone industry have also decided to use the satellite—, high definition television and interactive television.

    On the cable industry side, we started with broadcasting signal distribution. We added very high definition video on demand. We are moving to interactive television. As Jim already pointed out, we are already a world leader in the area of high speed Internet, and some regions of Canada already have cable telephone services. The cable industry will no doubt eventually be the only alternative for offering telephony in this country from separate and competitive facilities.

    So we need to ensure that the rules governing access to capital are competitive so that there can be fair competition among the various industry players.

    In reality, as I hope that I have demonstrated, you are dealing with two types of businesses, and each one, whether we are talking about telephone companies or cable companies, is a a hybrid carrier. Telecommunications companies are governed by the Telecommunications Act, whereas distribution companies come under the Broadcasting Act. Right now, both activities are very closely connected on each network and can no longer be distinguished because these networks are fully integrated. That is why we are suggesting that competitive equity will require that cable companies and telephone companies be treated the same way under liberalized foreign ownership rules.

[English]

Anything short of equal treatment would be dangerous, unfair, and contrary to the public interest.

    I'll pass it over to John Tory.

    Mr. John Tory (President and Chief Executive Officer, Rogers Cable Inc., Canadian Cable Television Association): Thank you, Louis, Mr. Chair and members, ladies and gentlemen.

    As my colleagues have noted, cable networks already reach 93% of Canadian homes, including more than 1.3 million homes in more rural and remote communities. We have been able to achieve this penetration and serve Canadians through the upgrading of existing cable networks, and this, together with the substantial capital outlay that goes with the upgrading of our networks, has allowed us to be world leaders in the launch and accelerated roll-out of advanced services. We believe the roll-out of these advanced services is the thing that has been best to promote competition, to make sure we sustain competition with others in these businesses, and to foster innovation in Canada. Examples include how broadband Internet services are today enhancing Canada's position and the ability of Canadians to take advantage of e-commerce, e-health, and e-learning opportunities. Our digital cable offering over these advanced networks delivers products such as high definition television, video on demand, and other interactive services of this kind. I think it allows you to see, when you look at the range of services and take the points just make by my colleague Louis, that cable companies may well be the only viable facilities-based competitors in the residential market.

    Louis made the point a moment ago that it is not possible to separate the carriage of telecom and cable television services that are delivered over the same wire. Integrated networks cannot be separated. But we do believe, and I think the existing rules and regulations back us up, it is possible for content and carriage, which we assert are distinct activities, to be separated. Ownership separation will ensure that liberalized ownership rules for telecom and cable carriage do not affect content providers. It will be relatively easy, as a matter of policy or legislation, to separate ownership of carriage from ownership of content assets. I think, as you go about your work, it will be necessary for you to address this issue in any event, since the telecom companies you're looking at in particular in a number of cases are already in the content business. So they themselves, if they were to be subject to liberalized ownership rules, would need to have some provision made to separate those assets on the distribution or carriage side from those assets on the content side.

    So we would respectfully submit, and indeed assert quite forcefully, that liberalization of the foreign ownership rules for distribution undertakings will not affect the Canadian broadcasting system. A change in the ownership of the carriage business does not mean a change in the content delivered by those businesses. To be clear, we are not here or anywhere else asking for or recommending any changes with respect to the ownership rules for content providers. Nor are we here or anywhere else asking for changes to the other rules that apply to distribution undertakings and the packaging. Other kinds of obligations must carry rules and linkage rules that really create a special place for Canadian-owned services in the Canadian broadcasting system and are there to ensure a strengthened Canadian broadcasting system. We would argue that our distribution industry, in relation to the question of carriage and how things are sold, is already quite highly regulated in global terms. That is not a complaint, it is simply a statement of fact. We are not here asking for any changes to those rules, and in fact, we believe those rules could give you comfort with our assertion that you could change the ownership rules in respect of distribution undertakings without affecting, negatively or otherwise, the status of content businesses and the rules related to them.

    Janet.

    Ms. Janet Yale: Thank you.

    I'd just like to briefly mention our position on this issue relative to our major trading partners and a study that was conducted for the cable association by Paul Corriveau, who examined the regulation of foreign ownership of broadcast distribution undertakings in a large number of countries. We've tabled that full report with this committee. It's clear that Canada is out of step with its major trading partners, because these countries have really recognized that investment in cable networks results in more competition and innovation.

¹  (1545)  

[Translation]

    In conclusion, I would like to emphasize two very important facts.

    First of all, foeign investment in cable distribution systems is unrestricted and widespread everywhere, except Canada.

    Second, we can achieve cultural objectives by focussing on content and carriage separately.

[English]

    So in conclusion, Mr. Chairman, we really believe there are significant benefits from removing investment restrictions. They will lower the cost in capital, increase investment in facilities, increase competition, and result in more innovation. That's why we have recommended the liberalization of foreign ownership rules for BDUs and telecom companies.

    We thank you for your attention, and we'd be pleased to answer your questions.

    The Chair: Thank you very much.

    We'll begin questioning with Mr. Rajotte.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): How much time do I have, Mr. Chair?

    The Chair: You have eight minutes.

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

    Thank you very much for coming in today and for your presentation.

    First of all, your statement on page 12 about convergence and your description I think are very helpful. I think it's helpful for us on this committee to realize that you're not just looking at silo competition, you're looking at competition not only between cable and telephony, but increasingly between satellite and even mobile, which will be almost another category unto itself. If I look at my own personal habits, I have a Bell cellphone, Telus hardline in Edmonton, Shaw Cable Internet service, Rogers TV, and a Rogers Blackberry. So obviously, you're seeing increasing convergence in all these areas. I think that's certainly true.

    One concern, which you've certainly touched on, that's been stated by many witnesses is that there will not, in fact, be a real distinction between carriage and content. I know on pages 16 and 17 you state that this structural separation can occur, and you say “it will be relatively easy to separate carriage and content assets”, but a number of witnesses have raised concern about that. So I'd like you to expand on how this structural separation would occur, just to address those concerns that are out there.

    Mr. John Tory: None of these companies are here, certainly I representing Ted Rogers and the Rogers organization--my friends here can speak for themselves--with an agenda to sell their businesses. We're really here talking in particular about greater access to a broader range of sources for capital. But in the event that we decided we wanted to issue equity to a foreigner and perhaps have somebody come in as a strategic partner in one of these businesses, it is not a complicated task to take the media assets, if they were contained inside the same company, or the content assets and put them in a different ownership arrangement such that they would be insulated from the change in ownership, even if it were a majority position. That's really what we're talking about here: people are concerned that if there were majority ownership of cable assets, for example, it would in some way affect the ownership or even the management of the content assets. It's not a complicated matter.

    Even beyond that, the point I was trying to make earlier is that while we believe ownership separation could be achieved quite easily in a number of different ways, the rules on how broadcast distribution undertakings, cable companies, carry content services would remain unchanged. We're not asking for those rules to be changed. We live by those rules. Those rules already put Canadian broadcasting services in a place of prominence, a special place, in order to ensure a strong Canadian broadcasting system.

    I'll just tell a story my colleagues have heard, so they will probably roll their eyes, but I've always felt it was a good analogy. I was once the commissioner of the Canadian Football League, and the Montreal football team needed to find a new owner. We had a gentleman come from New York, the owner of the team today, and we eventually sold the team to him. So we recapitalized the Montreal football team, had access to foreign capital, and that team is now technically 100% American-owned, but he did not suggest at any time that when he bought the team, because he was American and we allowed him to own the team, we should accompany that with a change in the rules to make the football four downs or to make the field 10 yards shorter. He understood, when he came to make an investment in the Montreal football team, that he had to play by the Canadian rules.

    So we're saying those two points can provide you with comfort, first that you can separate the content assets from the distribution assets through different ownership, and second that in any event, the rules related to how these Canadian services are carried and put in a position of prominence will remain. And we're not asking for changes.

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    Mr. James Rajotte: Thank you very much for that answer.

    My second question relates to something you mentioned in your statement. You said you weren't coming here to sell your companies, but because you want to have more access to foreign capital. Again to raise something voiced by a previous witness, I believe it was Ian Morrison who raised the concern of foreigners coming in and buying a majority from, as an example, the Shaw family, and they would sell out just to make a profit and walk away from a business they built up. It struck me as odd that this would be a concern, but obviously, it is a concern with groups like the Friends of Canadian Broadcasting. Would Mr. Shaw or any of you like to address that issue?

    Mr. Jim Shaw: When you look at it overall, we have no intent to sell. Canada has a strong history of family companies that all have had access to foreign sale opportunities. They could have sold over a long time, and in fact, the Canadian history is not that. Canadians are proud of their businesses and do develop them for the long term. While you might say Shaw is the controlling shareholder, many Canadians own Shaw Communications, like Rogers and others. It's a very widely held company across Canada. Really, what we're saying is that we need to have the money to develop the assets. We're not saying we need the money to liquidate. I could just as easily go and phone Ted Rogers and sell and get all the money I want. That's not why we need it. We need the money to develop the communities of Canada and to be the leader in the broadband industry.

    So I think it's really a moot argument to say we need to have the Americans to sell and make money for the Shaw family. That's not true at all. We can do that anytime. We choose not to do that because that's who we are; we developed these companies, and we're a strong western-based family. But I think we can do so much more with access to greater flexibility to improve the system overall, and it would be a great move.

    Mr. James Rajotte: To follow up on that, many witnesses have argued before the committee, particularly with regard to the telecommunications providers, that they have access to more than enough capital, that there's more than enough currently available in the Canadian market. In fact, while it may even be desirable to do this, it's not necessary from an access to capital point of view. So following up on your statement, can you be specific as to what your access to capital needs are now and what you project they will be based on the growth in this industry?

    Mr. Jim Shaw: Let me start with one example, and then we can go from there. Currently--this is mostly public and anybody can find out this information, so I'm not leaking out any secrets--Shaw has a seven-year banking deal. I think we're near three, so we've got four more to go. We went to all the big banks and said, we have $1.3 billion in facilities on a go-forward basis, so why don't we renew it now for an extra seven or ten years? They said, we don't do that any more. I said, really, what do you do? They said, well, you know, we like our banking ranges to be three, four, lower if we can. So they said, you'll never get that facility again, and we said, okay. Also, they said, we went to the banking committee the other day, our governance committee, and they said we have too much money in the cable industry segment. We're lending to Ted and to Louis and to Jim and a few other guys. We've got 20% of our assets there. Well, we have to take that to 10%. I asked where that money would come from.

    In Canada we don't have the pools of capital that are available around the world. We can get people to come with their pools of capital, as long as they don't get stranded investments or they're not worried about something happening--what if the government doesn't open things up? So any ability to open up for capital will be good. Look at the TD Bank, or the Royal, or any of these banks. They're all closing these avenues of money by their own company decision, but we still need greater access to capital. I've gone to Canada Life and they said, we hold $100 million worth of your debt. I said, that's nice, but we have $4.2 billion in debt, but they say, no more. I'm stranded to some degree, unless I say, let's not develop Prince Albert, for example, or let's put Saskatoon on hold and only do Calgary, or let's do Vancouver and not Kelowna. Those aren't decisions we would like to make.

    So when you look at the pool of capital and the consolidation in the market in just the last two years, these pools of capital have shrunk. You just try to get a loan now. It's a very different environment now from what it was two to three years ago.

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    Mr. Louis Audet: If I may, I would like to support that argument. We had to go to the United States to get Canadian dollar loans for about $400 million in November 2001. The Canadian market simply could not provide that money.

    With regard to the comments this committee has received that you were echoing, I do wish to point out that a lot of the people who have held the view you are questioning us about are either competitors many times larger than we are with a vested interest in ensuring that we don't gain access to appropriate capital or, on the opposite side, people who don't need capital in such large quantities to ensure their growth. I would respectfully submit that their point of view is suspect in the circumstances.

    Mr. John Tory: I think in that regard it's important to look at the numbers too, to further the point Louis just made. Rogers will have spent over the last three years just under $2 billion in capital investment in our plants to provide these new, advanced, innovative services to Canadians. If you look at any broadcasting business, for example, on the content side, and these are some of those who would question whether or not we need access to this capital, if you added them all together, you wouldn't get a total that would approach our total alone, when we're spending $2 billion dollars, and those numbers could be replicated by my friends,. These are very capital-intensive businesses, and what is the money being used for? It's being used to delivery innovative services over broadband to Canadians.

    One other point that hasn't been made is that beyond just going to get money, in some cases we're also looking for the opportunity to go and attract what I'll call strategic partners, who may well not want to purchase a majority interest in any Canadian distribution undertaking, and in fact, there may not be a majority interest for sale. It's not to say that if we want to innovate on a global scale and continue to be world leaders, we won't have to partner with people from other countries, not just the United States, who may bring to the party some unique asset that can help us to continue to innovate for Canadians and to be world leaders in this area. At the moment many of them would shy away from investing, because of the rules that are in place.

    The Chair: Thank you very much.

    I'm going to switch now to Mr. Savoy, and then I'll go back to our two witnesses who have just arrived.

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

    Thank you for the presentation.

    Some of your detractors, I would say, have put forth the argument that in fact, capital can be raised quite readily, in the U.S. market primarily, but in other foreign markets too, if you look at non-voting shares. Their claim is that voting versus non-voting shares is not really an issue with pension funds or some of the larger investors. What are your comments on that? That has been a strong argument by people who claim that ownership is not an issue.

    Mr. Jim Shaw: Just the other day I was reading that Canada's largest pension fund, CPP, came out with rules not supporting dual-class citizenship, and in fact, it's because of the broadcasting rules that we end up having it in Canada. You'll have a lot of people throughout Canada and in the U.S. who won't invest in dual-class citizenship shares, some voting, some non-voting. You can always raise capital, but if I have to go and raise capital to compete at 20%, and that's my cost of capital, versus a person who has the ability to do more and have more flexibility, with their cost of capital at 10%, I'm at a pretty severe disadvantage. So you can raise capital, but it has to be a fair amount of capital to raise across the board, and we want access to market-rate capital, not where we have to go to a vulture fund that would like to put it in, and of course, they want an equity kicker at the end and there are all sorts of terms to it.

    I know it sounds really easy, a very simple solution, to just issue more Bs and not issue any As and everything will be fine, but it doesn't really work that way, because now you have the A component controlling 5% of the equity of the total unit and the Bs controlling a lot more, wanting more control too. So you have a lot of limiting factors right in that capital structure.

º  (1600)  

    Mr. Louis Audet: The fact of the matter is that the valuation of the equities of our companies is much reduced in Canada as compared to the rest of North America. We contend that if this equity could be sold to citizens of the United States, the prices would be higher and Canadian shares would be less diluted for the shareholders. As we said earlier, it's not about selling the business, it's about selling equity at fair prices, so that you can keep a healthy balance between debt and equity. Indeed, the markets are too narrow in Canada. That's one of the reasons why the multiples are lower and why we're here.

    Mr. John Tory: I want to underline that point. It isn't about A shares or B shares, voting shares or non-voting shares. Whichever ones you're talking about, they are devalued to a certain extent, a measurable extent, by the fact that these ownership restrictions exist. As a result, whatever kind of shares we issue in the marketplace, they will be devalued by virtue of those rules, and therefore the cost to us to go out and raise money we need to spend the billions of dollars to build these networks is higher. We're either paying more to borrow money or we're paying more indirectly to issue equity because we're selling that equity at a substantial discount compared to our American compatriots in the same business. So the issue isn't really whether it's voting or non-voting shares, the issue is that the ownership rules result in the discounting of cable shares in the United States market in particular.

    Mr. Andy Savoy: On a second issue, you mentioned the size discrepancy in respect of the support for lifting foreign ownership restrictions; the large and the small may not support it, but the medium-sized would have a tendency to support it. Can you explain that discrepancy again?

    Mr. Louis Audet: There are two very large telephone companies--not to name them--that enjoy a monopoly position in local telephony today, and of course, they're doing fine. Their capital needs relative to their size and compared to ours are lower. Hence, they have what they want, so they'll come and tell you everything's fine. But everything is not fine, because we're investing, proportionately to our size, a lot more. Conversely, at the other end of the spectrum, broadcasters are free cashflow generators and have been for decades. We know because we have a--structurally separate, by the way--broadcasting subsidiary in another company. Therefore, they have very little need to borrow capital, except when they acquire a property or start a new one, and very little need to issue equity, because they are self-sufficient. This was the contrast I was trying to bring out.

    Mr. Andy Savoy: Thank you, Mr. Chair.

    The Chair: Thank you very much.

    I'd like to welcome another set of witnesses, from the University of Quebec in Montreal. Ms. Michèle Rioux is going to make some remarks, and then we'll go back to questioning. I welcome you here, and we're sorry about the mix-up with the rooms.

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    Ms. Michèle Rioux (Professor, Research Director to CEIM, "Départment de science politique", "Université du Québec à Montréal"): Thank you very much, Mr. Chair, and members of the committee.

    We are glad to be here with you. We are sorry that we are late; we were waiting in the other room. We did not get the message that the room was changed.

    I am the director of a research project on the new political economy of telecommunications at the Université du Québec à Montréal. We study the telecommunications sector in Canada, but also in North America, and with a view to the integration process in the Americas. We're here to tell you today that we think it's not in the best interest of Canada to change the rules on foreign ownership. We are against any removal or softening of the foreign investment restrictions, and in the ten minutes made available to me I will try to explain why. We think the removal or softening of these restrictions carries many risks, not only for the economic independence of Canada, but also for its political autonomy. I will just read a summary of our conclusions, and then I'll take a few minutes to go into details on three main arguments.

    While it is true that Canada must find ways to ensure investments in the new infrastructure and services, we consider that it is not in the best interest of Canadians to open the telecommunications sector to foreign capital. Such reform would lead, in our view, to the erosion of Canadian values, identity, and sovereignty. It is important to preserve them, and they depend greatly on these restrictions at the moment. It would lead to a loss of competitiveness for Canada and Canadian enterprises, notably with the problem of possible and probable delocalization of R and D activities. We believe Canada is a leader in this sector, and that is in spite of, and probably rather because of, these restrictions on foreign investment.

    We also think it would lead to a reduction of our regulatory capabilities in this sector. Reaching our national goals would become more difficult with increasing pressures possibly being exerted by foreign enterprises and states following the elimination of these restrictions. We also believe it would lead to greater instability in the telecommunications sector. Until now, we believe, these restrictions have had the positive effect of protecting Canada from the turmoil that exists in foreign markets, most notably in the United States. It would also lead to a greater dependence on the United States and U.S. firms and a greater concentration in the industry, which is a threat to employment levels and to the industrial and cultural diversity of Canada.

    Let me take a few minutes to go back to the different types of arguments we have developed.

    Maybe our approach seems a bit outdated or dépassé, as we say in French, in the context of the globalization that is going on, but we believe it is not. It's true that the economic policies of Canada have shifted to promoting, rather than limiting, internationalization and liberalization of the economy. We try to take advantage of foreign investment, and in some cases it might be good. We also believe these restrictions belong to a model we abandoned, and of course, we may think they're a kind of an

[Translation]

    anachronism in the present model, which is based on competition and market self-regulation rather than on the existence of monopolies and regulations.

    That said, we believe that these restrictions are still valid and appropriate in Canada's case, especially with respect to our national objectives.

[English]

    We have three main arguments. First, on innovation, we believe it's true that we....

[Translation]

    I will continue in French, if I may. Significant investment will definitely be necessary, and investment is difficult to attract, particularly in the current economic situation. In the removal of these restrictions, some see an effective means of revitalizing investment, putting the companies' funding on a sounder footing, and creating an economic environment that is conducive to innovation by bringing in foreign capital. However, we doubt that this would happen.

    In our view, the telecommunications industry is one sector in which Canada has best shown its technological leadership, in spite of or even because of restrictions on foreign ownership.

    As Canada's performance attests, we have a very large capacity network, as well as a penetration rate for broadband networks that is much greater than other countries'. Paradoxically, eliminating foreign ownership restrictions would very likely cause a decline in Canada's economic performance in the areas of innovation, and in the dissemination of such innovation to all Canadians.

    Moreover, we should not under-estimate the risk that research and development activities will be moved, nor that we could also lose many competitive advantages because greater participation by foreign companies would certainly result in more broadcasting outside Canada.

    Lastly, the economic decisions that guide Canadian economic development might increasingly be taken outside Canada. Canada's situation would then be much more worrisome than it is at present, because it would no longer be able to exercise leadership in the new economy and would be far more dependent on the United States.

    Foreign investment is not the right way to revitalize innovation in Canada. In our view, supporting and improving Canadians' innovation capacity would be a better and more effective way of going about this, because it would have more benefits as well as a greater impact on the prosperity of Canada and Canadians.

    Now, let's look at the competitiveness argument. We believe that eliminating or loosening foreign ownership restrictions could lead to the disappearance of a number of Canadian companies, which would be acquired by U.S. companies. We all know that there are U.S. players far more powerful than the Canadian companies.

    How likely is it that Canadian companies would be able to resist and compete, particularly with the U.S. companies? Some would say that Canadian companies are indeed competitive, and can increase their market share. But isn't that confidence rooted in the fact that Canadian companies have been protected on the Canadian market? In real terms, in an increasingly North-American market, the imbalances between Canada and the U.S. will not benefit Canada or Canadian companies.

º  (1610)  

    In the past 20 years, and in the past 10 years here in Canada, the telecommunications sector has been somewhat paradoxical. When governments introduced competition, this has surprisingly translated into a phenomenal market concentration, as evidenced by the greater number of mergers and acquisitions.

    The concept that a competitive market structure in Canada requires foreign competition is not based on any empirical observations. In fact, everything goes to show that we are on the verge of a new wave of unprecedented concentration on the U.S. market. This applies to the telecommunications industry, as well as the media industry. It brings with it the additional problem posed by the regulations we have here to promote and protect Canadian content.

    Moreover, greater openness in the telecommunications industry to foreign competition in the media and telecommunications will also engender a trend among Canadian companies, a trend that will support concentration on their part. That concentration could be justified by the need to guarantee a stronger voice, stronger Canadian content on the international scene. At the same time the companies would want to promote innovation, even if they had to sacrifice the industrial and cultural diversity of Canada.

[English]

    The last point is perhaps the most important.

[Translation]

    Openness to international competition raises significant debates on a country's real capacity to promote public interest. The removal of foreign ownership restrictions would make it more difficult to regulate telecommunications and broadcasting activities, and would provide Canadians with fewer opportunities to influence telecommunications companies' decisions. That loss of influence would certainly be to Canada's detriment, the detriment of the general public, and particularly to the detriment of Canadians in rural areas.

    Foreign investment might cause a shift in Canada's regulatory approach, to the detriment of public interest. Here again, we should bear in mind the significance of our very special relationship with the U.S. The U.S. is clearly opposed to regulation. So there is a concern that Canada might set its regulatory framework to the lowest common denominator in order to accommodate the U.S. environment.

    As our two economies are now integrating more and more, it is by defending our values that we can express our Canadian identity most strongly. Eliminating foreign ownership restrictions would jeopardize those values.

    We believe that the main issue in this debate is our ability to preserve Canadian identity and sovereignty, which are both essential in building an information-based society that meets our aspirations. All decisions on foreign participation in telecommunications and broadcasting should be based on an assurance that we do have national tools, as well as international tools, to prevent some major corporations in those industries from growing uncontrollably in economic power.

    As we know, the problem in North America is the U.S.'s fierce aversion to almost any form of market regulations, particularly in the industries where they perform best. However, increasing instances of disfunction, and ineffective competition in this area, have shown that market mechanisms are not always enough to bring us into the information age.

    For all the above reasons, we believe that we must oppose any change and any reform to the legislation on foreign ownership rules. Thank you.

º  (1615)  

[English]

    The Chair: Thank you very much.

    We'll continuing now with questioning.

    Ms. Girard-Bujold.

[Translation]

    Ms. Jocelyne Girard-Bujold (Jonquière, BQ): Thank you, Mr. Chairman.

    Ladies and gentlemen, I fully endorse everything Madame Rioux has said. The Bloc Québécois is also opposed to the removal of current foreign ownership restrictions in telecommunications.

    I would like to come back to a section of the gentleman's remarks, in which he stated that separating carriage and content would not affect the broadcasting industry. Did you examine this view as part of the study you submitted to the committee? They make a real distinction between carriage and broadcasting.

    Ms. Michèle Rioux: In an environment of industrial convergence, that distinction is more and more difficult to make. There seems to be a great deal of uncertainty. We can argue that we have the tools, but in my view there is great uncertainty, particularly in the area of regulations.

    I believe that by not regulating the Internet we open the door to many problems, since eventually it is the channel used for content. I believe we should therefore be conservative and cautious.

    I don't know whether you wanted to add something here.

    Mr. Mathieu Arès (Senior Researcher, Latin America, Economic and Security Researcher Group, Raoul Dandurand Chair of Strategic and Diplomatic Studies, "Université du Québec à Montréal"): Perhaps. The major problem has nothing to do with content. We heard a good example of this yesterday, when Mr. Pierre Karl Péladeau said that it was now possible to have an integrated company combining both carriage and content, and that this would become the norm.

    As for convergence, that was a huge failure. I have the impression that people will refer to this experience in the coming months and years and that it will be the model for the future. So there are inherent risks and it is difficult to clearly distinguish between the carrier and the content.

    Ms. Jocelyne Girard-Bujold: We met with representatives of the carriers and the producers. They said that, as it now stands, the benchmarks created under the law weaken their position in terms of carriage and production. Even with regard to the French language, we still have to fight to produce programs in French.

    As far as you are concerned, does the CRTC have the authority to impose standards with respect to the broadcasting of Canadian and Quebec programs, or should the CRTC receive additional powers?

º  (1620)  

    Ms. Michèle Rioux: Indeed, I feel that our ability to create and preserve Canadian content is weak, especially because of broadband. When people talk about broadband services, they are referring to broadcast tv; after all, we are in North America and everyone knows what will happen. There is a risk that the Americans will dump their culture on us, something which we must not underestimate or forget.

    However, the CRTC has done a fairly excellent job until now, especially given the trend towards deregulation. The council tried to weigh and balance out various sometimes contradictory objectives. In my opinion, the openness to foreign competition will make its work even more delicate or complicated.

    I don't think we can come up with the tools it will need overnight. These tools will have to take into account not only the national dimension of this issue, but also the international one, because you can always find a way to bypass a situation. It will not be easy for a national regulatory body to easily address these problems.

    Mr. Louis Audet: I think you put your finger on an important issue. In our presentation, we dealt with content and distribution as separate items. But based on what I have just heard, content and distribution are two sides of the same coin.

    Of course, some companies, such as ours, are involved in several parallel activities. The question is not whether we want to do such and such a thing, but whether the government has the power to decree that distribution and content will be structurally distinct. The government has that power. It has all the mechanisms at is disposal to make such a decision, which would enable the distribution sector to find the capital it needs to do its job.

    Therefore, the issue is not whether or not there is confusion; Parliament must take a stand, as it has done in the past, through the CRTC, with respect to distribution and assembly regulations, the degree of priority given to Canadian signals and on whether a company, which is involved in both distribution and content, may treat each sector equally. These rules already exist. Parliament must lead and business will follow; business has no other choice but to follow the law, be it in the area of broadcasting, mining or in any other.

    Furthermore, there's been a lot of talk on this committee about foreign competition and things which may threaten Canadian values. Canadian values are spread through Canadian content and, as we said earlier, we feel that Canadian programming companies should retain Canadian content. As far as we are concerned, this is simply a non issue.

    Ms. Jocelyne Girard-Bujold: Allow me to have my doubts, sir. When you open a Pandora's box, it's chaos. If the Americans take control of our businesses, they will control the content. I do not agree with your position because, in my view, you cannot distinguish between the two. If I understood correctly, we have not yet reached the foreign investment threshold.

    Again, I have my doubts and allow me to say that culture cannot be negotiated. If you want to broadcast your culture, you have to do everything you can to protect it. If you opened the door just a crack... If you were a legislator, would you open the door knowing full well that if the Americans came in, we could not prevent them from doing so?

    I have a lot of trouble endorsing your position.

º  (1625)  

    Mr. Louis Audet: It's a pleasure to answer your question, Ms. Girard-Bujold.

    The family I represent has been in television since 1957 and in radio since 1985. It has been involved in the cable business since 1972. Our company has been at many meetings like this one and has helped shape our regulations. Therefore, we are completely comfortable with the positions we have put forward today. Why? Because the content we produce—in terms of what can and cannot be done—for radio and television are regulated by the CRTC. In addition, the means by which these products or others must be distributed, in terms of priority, by cable are prescribed and respected by all the players in the distribution sector.

    Respecting these obligations has nothing to do with the distribution company's ownership.

[English]

    The Chair: Thank you, Madame Girard-Bujold.

    Mr. Tory had a remark, and then I have to go to another questioner.

    Mr. John Tory: I was only going to add, to underline again the point we've tried to make, that we're not asking for, we're not advocating, and we're not concerning ourselves with changes to the rules as they relate to the ownership of content businesses and with regard to how we distribute Canadian and other services.

    To go back to something Janet touched on earlier, we are one of the few countries that has these kinds of restrictions left as they relate to either telecom or cable. I suspect, when it comes to my friends from the Université du Québec, that the fact that in Japan the largest cable television company is owned by Americans has not ended up posing any threat to Japanese culture or affecting whatever rules the Japanese choose to have in place with respect to content businesses in Japan. In Spain the second largest cable company is controlled by foreign investors, including Caisse de Dépôt from Quebec, and I suspect again that Spanish culture and identity has not been affected through ownership of that cable company by investors from outside Spain. I'm sure that's because of whatever they've chosen to do in Spain with regard to how they regulate what is distributed, as opposed to the distribution company itself. I think they have recognized in those countries that they need foreign capital to help them innovate and make sure these companies are strong and are in a position to distribute a lot of services.

    The Chair: Thank you very much.

    Mr. Volpe.

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

    Mr. Tory, I wonder whether this proposed amendment I see on page 26 has been put to the department. The deputy minister came before us and indicated that he was perplexed as to what to do and what the department ought to do, so he was looking to this committee for guidance. I wonder whether you gave him the same guidance you're giving us.

    Ms. Janet Yale: We certainly made it clear how our proposed change could be implemented, through a change in the direction to the CRTC. We have, for your convenience, indicated in that annex how that could be done for both the telecommunication sector and the cable sector. They're different, because we're under two different pieces of legislation. We have provided both here, but we have also shared it broadly.

    Mr. Joseph Volpe: When you say broadly, you shared that also with the Department of Heritage?

    Ms. Janet Yale: Yes.

    Mr. John Tory: And with the heritage committee of the House of Commons, Mr. Volpe. We were there and went through the same suggestion to them as well.

    Mr. Joseph Volpe: Did you have a greater measure of success than I dare say you are having now with Professor Rioux and other witnesses who have come before this committee in advancing this position?

    Mr. John Tory: I speak only as one, but my colleagues can speak up. I think the reception we received at the heritage committee of the House of Commons was very good. While certainly we were questioned just as closely as we are being here, I think there was an understanding of what we were trying to say. What we are advocating here is measures that would assist us, through the liberalization of ownership rules, to raise capital to build our businesses and provide more innovative services to Canadians. We are not here advocating a change that would have anything to do with the content businesses, their ownership, the way we treat them, how we distribute, all the different things Louis talked about that I think put us in one of the most highly regulated industries of our kind in the world. We are not here complaining, commenting about that; we live happily by those rules and will continue to do so. We are only asking for changes with respect to ownership, and I was pleasantly surprised at the very balanced reception we received from a group that has as its mandate, I suppose, to be particularly concerned about some of the matters your colleague was raising just a moment ago. I think it was because they recognized the distinction we made between ownership of distribution undertakings and regulation of content businesses.

º  (1630)  

    Mr. Joseph Volpe: You sound very convincing, except that your pedigree is going to take a little bit of tarnishing if you keep using that word “liberalizing” there.

    Mr. John Tory: I try not to attract that pedigree these days, Mr. Volpe. I'm in local politics now, and it's non-partisan.

    Mr. Joseph Volpe: I'm wondering whether your assessment of the level of your success is accurate. My colleague opposite and others around this table have continually referred to the need to protect the culture. Professor Rioux is but the latest example of that particular position, and it's a valuable position, one shouldn't denigrate it at all. But this is the first time this committee has had such a finely tuned amendment. There have been others who have made some excellent presentations, but it would appear that those who are carriers want a liberalized system, while those who are on the programming side or on the creative content side don't share your level of optimism and your assurance, notwithstanding the fact that the CRTC is perceived to be your tool.

    Mr. Jim Shaw: When we deal with the commission, the broadcasters, especially service people, the new diginets, and everybody, everybody is continually asking us, as carrier providers, to provide more space in the store--would you have another 50 channels for me Jim and Louis and John? If I could just get a few more products in your store, I could really increase my thing. We see CHUM move from 12 channels to 20 to 25 to more, and we continually have to provide the infrastructure for these services across Canada. There's very little appreciation from that side of the business of what it entails to offer Internet to some 2 million subscribers across Canada, cable service to this many, to run a 100-channel cable system, to have to upgrade all the time. It's all basically technical and wire-based stuff. All they really say is, we'd like to have some room in the store, and could you make sure you have that? We say, all we need is access to capital, and we can build the infrastructure and move ahead. Continually they say, that's great, go ahead and do it, yet they say, don't have any tools to do it. When you're digging, you have to dig with a shovel, and we're here asking for just some basic tools to expand the thing. Will Canada move ahead if nothing happens in the committee? It will. Will it move ahead at the rate it should? It won't. They are totally insulated by all the rules that are in place in Canada, Canada has a great set of rules for those companies, and we don't see any correlation between what I'm trying to do in running the cable company and developing cable infrastructure in Canada for broadband networks and what they're trying to do in developing Canadian content for Canadians.

    Ms. Janet Yale: Much of that conversation seems to be based on the idea that there is no downside to not moving forward, there is nothing at risk. All they point out are the risks and concerns of change. I understand that people are afraid of change, and we really did think it important to identify that there is a downside. Our businesses are certainly looked at in Ottawa as facilities-based providers expected to be the state of the art with respect to all kinds of innovations, video on demand, interactive services, telephony, in competition with the telephone companies. These are very infrastructure-intensive investments we're being turned to for in these businesses. For those who favour innovation and competition in these markets, I think there really is a downside to not proceeding.

    As far as the cultural issue is concerned, we did think it would be helpful to point out that there are many countries that are very concerned about cultural policy issues. France is certainly known for that. All of those countries have recognized--and we've documented every single one--that the benefits of greater access to capital have caused them to liberalize their markets. They have maintained ownership restrictions on their content businesses and have successfully protected their cultures. We're just trying to stay in step with what has been done in almost every other jurisdiction in the world.

º  (1635)  

    Mr. Louis Audet: To build on what Janet has said, you had a very objective presentation by representatives from the United Kingdom. Here's an example of a country that has made very astute use of foreign capital, non-British capital, to build a parallel cable infrastructure, which has led to very successful competition between the cable industry and British Telecom for the good of the British citizens. Yet I think all of us would readily agree that the British have not sacrificed one ounce of their cultural sovereignty in the process.

    Mr. John Tory: The cable industry is one in which Canada has been throughout its short history a world leader. Things have happened in this country first. As an example, the introduction of cable Internet service happened first in Canada. We have the highest broadband penetration in the world in Canada. I don't think this came about as a result of ownership restrictions placed on our companies. I think it has happened more because of brains, geography, and climate, which caused us to look at ways we could be advanced in telecommunications. What we're now saying is that we don't want to sacrifice anything Canadian, but we need access to foreign capital to remain in that position of world leadership, so when we go to the conventions in North America, any of the four of us, we don't have to play second fiddle to anybody in respect of what we've accomplished, the status of our networks, and so on. It has been fuelled by a lot of money as well as brains, and we need more money to keep that position of global leadership. As Jim said very well at the beginning, we just can't find all that money on competitive or acceptable terms in this country, so we need access to money and equity from other places.

    The Chair: Thank you, Mr. Volpe.

    Mr. Masse.

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

    On page 27 you have the comparative charts on Canada and the U.S. and investment per subscriber. Given your comments with regard to the position we're in right now and the history and the infrastructure we've already built, the United States obviously had a lot more capital investment in their situation. There have been witnesses before this panel who have described it as over-investment in many respects, going beyond their means for that. Could there not be an argument that capitalization isn't the answer to healthy industry? If we have a better product, service, broadband, all those things you've noted in your presentation and your comments, access to capital isn't necessarily the most important feature for creating a good solid infrastructure for this industry in your nation.

    Mr. John Tory: I think, with respect, you may be confused here. This talks about a differential that exists in per subscriber investment in Canada and the U.S. in Canadian dollars. It would appear that we have spent less money on a per subscriber basis and actually achieved the position I refer to of global leadership in some areas, but we're not here talking about whether we should be spending more money per subscriber. I'd be proud of the fact that we've spent the money we have on a per subscriber basis and achieved the position of global leadership. To take Roger's as an example, we will have spent over a three-year period ending this year $2 billion upgrading our networks. Whatever that works out to be on a per subscriber basis, it is becoming harder and harder to find the money to continue to make those investments to keep us ahead in Canada, and we increasingly have the need to look elsewhere to find that investment and to find, in some cases, strategic partners who will help us to keep the edge we have as a company and as an industry in this country.

º  (1640)  

    Ms. Janet Yale: One of the key points we've been trying to make is the premium we pay for access to capital. We've submitted a study to this committee that looked at the penalty that's imposed on Canadian telephone companies and cable companies and translates into a real cost per subscriber, because of our increased cost of capital, which, in turn, causes us to spend less than we otherwise could. That study suggests--and I encourage you to read it--that for Canadian cable companies the premium is $2.61 a month per subscriber. That is a result of the differential relative to our U.S. counterparts in the cost of capital. I think that's the fundamental point of the differential we're pointing out.

    Mr. Brian Masse: Okay.

    The Chair: Professor, you had a comment.

[Translation]

    Mr. Mathieu Arès: I would like to partly respond to the argument made earlier with respect to the fact that Great Britain has opened its industry to foreign ownership. Generally speaking, Great Britain has more real investments than Canada; I have here OECD's statistics to prove it. However, generally speaking, the level of investment in this sector is almost identical, whether you have a regulated or open system. There's almost no impact.

    Thank you.

[English]

    The Chair: Mr. Masse, please continue.

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

    With regard to your current foreign investment, are you capped out right now? Are all your companies at the threshold, or do you still have room?

    Mr. John Tory: I think probably all of us, to some degree, would have some room, because you have to stay under the threshold, but I think that raises an interesting question. Sure, there could be somebody in New York or Chicago who would buy 1,000 shares, or even 100,000 shares, and still have us within the limits, but if you want to bring in someone, often now the kind of investment you're looking for is not somebody buying 50,000 shares, but somebody buying a million shares or somebody who wants to be a strategic partner with an investment of tens and tens of millions of dollars to have a stake in your business. In many cases, if they see a situation where you're up even close to the limit, and as long as there are limits in place, they may shy away from making those investments, because they don't want to find themselves in a situation later where their investment is stranded because they really can't dispose of it. So that, in and of itself, is an issue. Of course we're under the limit, because those are the rules we live by, but it does restrict our ability to go to people in the United States and offer them the opportunity and ask them to give us equity to fuel these businesses.

    Mr. Brian Masse: So you're close to the limit, then.

    The Chair: Mr. Shaw.

    Mr. Jim Shaw: Over the past few years you've seen our company in a fairly expansive mode. Through an acquisition, we ended up with a large cable company in the Great Britain area. We invested a lot of money in there and ended up having to move on because we couldn't afford the capital and redeploy the money at home for better use. I think it was bought by a Netherlands company. The model they had in Great Britain was successful because they barred other entrants from coming in and it really attracted a lot of capital, and in the early days a lot of that was Canadian capital. Recently, you've seen our company sell our U.S. properties, of which we only had a few, and try to repatriate that $300 million to continue to help our balance sheet at home and to continue further expansion at home. That was deemed to be a better use of our funds and capital on a go-forward basis.

    I think you're seeing a lot of the companies start to retrench around Canada with the shrinking of the global capitalized market, and it's just showing that we need to use our capital at home. That's why we're here today, to get greater access.

    Mr. Brian Masse: To either of the professors, you noted loss of competition and delocalization of R and D. Is there a theory behind that, or do you have any practical examples of that situation developing in other nations that have moved for lesser restrictions?

º  (1645)  

    Mr. Mathieu Arès: It's a more theoretical analysis, but why do you search abroad when all your facilities are in your home market? There's the danger of becoming subsidiaries of the United States. In most sectors, except in telecommunications, that's a fact. This industry is one of three or four we have with a national innovation base that protects leadership and creates jobs. The basic point of our argument today is, if it's not broken, why fix it? It works. That's it. That's the point.

    Mr. Brian Masse: To the companies, in the presentation, on page 19, you note that there'll be new types of innovation. Can you specify what types of innovation the capital investment will create and what that means to consumers? What type of innovation would come by opening us up?

    Mr. Jim Shaw: Right now we're looking at video on demand through Internet trials, which is a combination of direct broadband delivery and streaming video through to your home, which would be controlled through your computer and your home device, with full functionality and full streaming--pause, replay your products 48 hours, that type of thing. We're looking at a lot of HD TV, which is the new front, with the drive for quality. We like to say at Shaw, no one ever phoned for less. If we don't develop these now, they'll certainly phone and complain that they're not getting as much, but no one phones for less. It's like driving down the street and saying, don't give me that new car, I want that old car. As we drive these networks forward, we've got HD, we've got telephony at the forefront. Even though that's some way away, these networks take a long time to bring up to the level for any kind of competitive facility in Canada.

    So I think we're seeing a lot of innovation. I know some of the other companies are working on other aspirations, and Canada, even in VOD and some of these other things, is a leader is North America and round the world.

    Mr. Louis Audet: With VOD, we're advancing the deployment, but where we're just barely beginning is telephony, offering competitive local telephony on cable. That's going to be a huge effort. I grant you, most of these products for telephony will have been developed in the United States, because that's where the critical mass exists to establish standards and produce in high volume. So typically, the equipment will be conceived of, if not in the United States, perhaps in Canada, but with a view to standardization in the U.S. market. That being said, you mustn't underestimate the challenge in respect of capital, imaginativeness, deployment of that service, and becoming, with the help of more capital, as you could expect, meaningful competitors for the established local exchange carriers. I think that's the next big challenge.

    Interactive television is another one. We are all involved in it to some degree, but the fact of the matter is that the true potential of interactive television remains unfathomed as of this date. The potential is so large and so diverse that it's been very difficult for any company to pin down the economic model and the various aspects of it that would appeal to consumers. We have a general idea, but there's still a lot of work to be done.

    So I would say these are the two major activities that will require lots of creativity, but we must admit that the drive in developing the equipment and making it available to Canadians comes from the United States. As a country, we may not like to admit that, but it's a fact.

º  (1650)  

    The Chair: Thank you.

    Mr. Marcil.

[Translation]

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

    If I understood your brief, you support measures which would enable Canadian companies to have greater access to foreign capital. As it now stands, the lack of capital is an obstacle to the growth of your business.

    You also say that your association does not propose any changes to the regulations dealing with companies which broadcast content, nor to the regulatory framework dealing with distribution, broadcasting and telecommunication.

    Further, Mr. Corriveau's study, which was presented, concludes thus:

In the 18 countries surveyed in this study, nowhere could we find evidence that a regulatory body became less efficient because certain BDUs were in foreign hands; further, cultural objectives, such as the promotion of domestic programs, were not affected by foreign ownership.

    This study involved 18 countries. As my colleagues said earlier, we heard from representatives from the United Kingdom. The British government decided to privatize this sector and opened it up to foreign capital. However, they created a regulatory framework to protect their cultural sovereignty.

    I have the impression that cultural sovereignty is also a major concern for Canadians—well, at least for members of Parliament. How can we protect cultural sovereignty? It seems almost impossible to distinguish between content and carriage. However, Mr. Audet, your company is divided into parts, which also seems to be the case with Shaw and Rogers. Your companies are clearly at arm's length from each other.

    As my friend Mr. Volpe said a little earlier, you think that the CRTC should make certain changes, such as:

We recommend that the Canadian Radio-television and Telecommunications Commission not issue licences for the purpose of operating a network or a programming enterprise, nor that it amend or renew such licences to non-Canadian applicants.

    Of course, you are not in business out of the goodness of your heart, but to make money. If a business wants to grow, it needs capital to increase its value.

    As it now stands, you fall under regulations which force you to provide service for all Canadians, irrespective of where they live in Canada or which language they use.

    I would like Ms. Yale, Mr. Audet and all of you to imagine the following scenario. You need capital and a foreign business—not necessarily American, it may be Japanese, German or French, it doesn't matter—is interested, but wants to hold a strategic position in the business and have a say in its development. Over time, you lose control and your business gradually becomes taken over by foreigners. If—professors work with theories, I will describe a hypothetical situation—a company such as Rogers or Cogeco should end up being owned by mostly foreign interests, would the same rule apply and would the owners lose their licence?

    Mr. Louis Audet: There's no question about it. In fact, that's the essence of the proposal we made to your committee. If, over time, a foreign owner suddenly and inadvertently—this is the type of scenario you have painted—acquired a content undertaking, he would automatically have to divest himself of it. The regulations would provide for this, which is basically what we have proposed to the committee.

º  (1655)  

    Mr. Serge Marcil: I have a question for Ms. Rioux. The CRTC implements legislation which was passed by Parliament and the Competition Bureau investigates any potential case of collusion, for instance, or whether there really is competition.

    If this sector were deregulated and Canadian companies were allowed to vie for foreign capital, would the CRTC and the Competition Bureau still have a hand in protecting cultural sovereignty to prevent our telecommunications and broadcasting companies to be bought by a single undertaking entity?

    In your experience, if Parliament passed this type of legislation—that is, if it changed the regulatory framework and implemented the changes proposed by the association,would the law have enough teeth o so that the purchaser, whoever he may be, of two existing companies be forced to maintain Canadian content and broadcast it to Canadians throughout the country?

    Ms. Michèle Rioux: There are several parts to your question.

»  (1700)  

    Mr. Serge Marcil: We don't have a lot of time to ask our questions.

    Ms. Michèle Rioux: Thank you; that's a very good question. I have studied competition policy at length, including how to prevent market dominance.

    There is legislation, and there are even cooperation agreements between the United States and Canada with respect to competition in order to coordinate both countries' efforts in preventing anti-competitive behaviour. NAFTA even contains provisions against anti-competitive behaviour, which forces the CRTC to adopt measures to discipline Canadian companies which engage in anti-competitive behaviour.

    However, in that regard, you have to take several factors into account. I am particularly interested in the legislation of both these countries—after all, we are in North American, which makes the situation very particular, and I'll come back to this later—and you could say that in both cases, competition policy is very flexible, and certain practices are justified on the basis of technological change and international competition. As well, innovation is another argument invoked to justify the relative flexibility of Canadian and American competition laws.

    Nationally, we have focused less on concentration and more on innovation, competition and efficiency. There is a certain amount of tolerance in this area which leads me to think that this is not an instrument the public can count on. If you're only interested in the private sector, that's another matter. But if you feel that concentration is not in the public interest, you have to ask yourself some serious questions.

    In addition, there are anti-trust laws. You have to take into consideration the fact that the United States, through all types of instruments, including their powerful anti-trust legislation, will be able to prevent Canadian mergers. I don't see how Canada will be able to prevent the merger of two American media, telecommunications or broadcasting corporations. One country is more powerful than the other. Everyone knows that there are huge strategic stakes and considerations at play, so I don't think we can count on that. As for competition, I think we should have serious doubts about the instruments at our disposal.

    As for content, I just want to mention that I recently reread a book by Kari Levitt called Silent Surrender. The book was written in the 1970s and showed how Canada lost a measure of its economic and political independence, as well as a measure of its Canadian values, by opening itself up to foreign capital. The 1970s are long gone, but the book was re-edited two or three weeks ago. Don't forget that Canada is in North America, which makes our geographic and cultural situation rather particular.

    I have to laugh when people talk about Japan, which is not immediately threatened by foreign ownership. People have also talked about Spain and England, but the fact is that cultural diversity is a reality in Europe; as a result, the situation there is completely different. Throughout the world, in Europe as in Canada, people feel their culture is threatened by the Americans. Since we are so close to them, we have to be extremely cautious.

    I will conclude by recommending that you read this book before making any decision. It may make you think.

[English]

    The Chair: Mr. Audet.

[Translation]

    Mr. Louis Audet: I think that we must draw a few distinctions.

    Our representations before this committee today are meant to make it easier for distribution undertakings to have access to capital. If, on the other hand, this committee is not satisfied with the work done by the CRTC, it must then give its new directives, amend the act to give it more power or simply tell it what to do. The same applies to the director of the Competition Bureau. If you deem that he is not doing his job, then it is up to you to tell him what he must do and do better; if he does not do it, you must tell him that he will be replaced. This is quite straightforward.

    On the other hand, if someone is not satisfied with the current work done by the CRTC or by the Competition Bureau, it is not a reason to decree that distribution undertakings cannot obtain capital through the mechanism we are proposing today. These are two very different matters.

[English]

    The Chair: Thank you, Mr. Marcil.

    Mr. Rajotte.

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

    I want to ask the representative of the companies--I know you've touched on it during your presentations--what would be the impact if this does not go forward, first if in general we do not lower foreign investment restrictions for both the telcos and the cable companies, and second if this committee recommends to lower restrictions for the telcos, but not for the cable companies.

    Mr. Jim Shaw: When you look at the development of facilities-based competition, you boil it down to roads and highways and bridges. That's how we often have to look at our infrastructure going forward, building these roads and bridges. They just happen to carry data, broadcasting, and all sorts of other components. If you look at the development of the nation, we would be really remiss in not taking both forward or leaving both behind, if we, in fact, are going to do it. I tend to believe it would be best to take both forward, lead with our chin, and get out there and build our networks and have strong telcos and the cablecos. To have one guy with his hand tied behind his back and the other guy moving ahead and having access to everything is not a very good situation in Canada, nor would it help develop any of the broadcasting tools we need or the distribution levels they need in what they do.

    Mr. John Tory: I think what you accomplish by that is a perpetuation of one disadvantage, namely, the one we're operating under that allows us less access to as broad sources of capital as we require, and the creation of a new disadvantage, which is that we then don't have the access the people we compete with, and will continue to compete with on an even broader basis, will have going forward. The ultimate losers in that will be the consumers, because the ability we have to emerge as even more formidable, properly financed, properly capitalized competitors, especially for the telephone companies, is going to be in the best interest of innovation in Canada and competition, and that ultimately is in the best interests of consumers. So they will pay for the creation of the new disadvantage if you do one and not the other, when essentially, as Louis said during the presentation, we're both wires coming out of the home delivering similar services, and in fact, the two services are coming together, each delivering the services the other delivers.

»  (1705)  

    Mr. Louis Audet: I will not add to what has been said, but I will appeal to you with all my heart, do not do that to us. That would be absolutely devastating. You should know that.

    Mr. James Rajotte: Thank you.

    I want to ask Professor Rioux about broadband penetration. You said this would be less likely if you allowed these foreign ownership restrictions to be reduced. As a comparative example, I come from western Canada, so I deal mainly with Telus and Shaw, and access to high-speed Internet in British Columbia and Alberta only really happened after Shaw provided the service, because that spurred Telus also to provide the service, because they wanted to compete. So competition drove greater access to high-speed Internet in western Canada. I think Mr. Shaw would agree, and I think even Telus would agree, that they were not as quick as they should have been in providing that, but because Shaw got into that market, Telus saw it as a challenge and they got into the market. So I'm really puzzled as to why broadband penetration would be harmed if we allowed these companies more competition, between cable companies and between telephony companies, even with the mobile and the satellite companies getting into this. I really just don't see the argument, and I'd like to get an explanation.

    Ms. Michèle Rioux: Competition is a very weird thing. It's a very fragile process. So you may have competition at first, but as companies react to one another with strategic moves, you may end up with one or two companies, and then you end up with concentration. I find it really interesting. I followed this question myself of how competition leads to concentration, which leads to more competition. You open up more sectors, and opening up these sectors brings new investors, but after you open up foreign investment, what are you going to open up after that? You have to count on the “creative destruction” of the great economist Schumpeter: competition always comes from the future, that is, from innovation itself, so monopolies compete with themselves. But this is really a far stretch. I just wanted to say that competition is a fragile process, and sometimes it might have worked in Canada for a while, but I think what is really characteristic of the telecom industry is oligopolistic behaviour more than competition. We have to be careful when we talk about competition; it's a very loose word.

    Mr. James Rajotte: I think we should clarify, then, that the people who have come before us and argued most strongly for opening up the foreign ownership restrictions of the telcos are the smaller telcos in Canada. That is absolutely true. The bigger telcos have been open to it, but not as much. So if we're looking at competition, that point should certainly be made.

    You said sacrificing the diversity of our cultural and industrial framework and allowing U.S. and foreign investment would result in the lowest common denominator, but I'd like you to address the point. Mr. Tory raised the examples of Japan and Spain, Mr. Audet raised the example of Britain, and the U.K. industry people here were very convincing in saying that the BBC's producing an excellent program like Jane Austen's Pride and Prejudice was not threatened by allowing more foreign ownership in their telecommunications industries. And if you look at the study here presented to us by the CCTA, there are no cable restrictions in the major countries listed here, and the teleco restrictions are far lower than in Canada. Is it just a result of fear of the big bad U.S. that we have higher restrictions than anyone else in the world?

»  (1710)  

    Mr. Mathieu Arès: I'll try to answer both your questions.

[Translation]

    With your permission, I will speak in French, it is easier for me.

    I understand the position of the people present here. I would say that the ones asking for this are the smallest players who are face to face with two big players, whose names I will not mention. Personally, rather than on behalf of the group, let me say that I am much less uncomfortable with having a bit of foreign aid, but then, if they are permitted to... Obviously, there would be restrictions. However, if this right is granted to the small players, how can we not grant it to the big players? But if we grant it to them, we will lose control.

    Currently, in Montreal, the Fido company is having problems, and an injection of foreign capital could help it get through a difficult time. This may be so. But it will be difficult to help small companies while refusing the same help to large companies like Bell Canada. What are we going to do? That is the problem. We cannot create a double standard.

    We believe that leadership arises from competition, but what kind of competition is this? There are a few small players who, of course, tell Mr. Bell that he should better do his work properly because he is being watched. In the telephone and broadcast sectors, among others, this is essentially what the regulation has meant for the past 10 or 20 years in Canada.

    Rather than having the CRTC directly regulate the cost of telephone or other services and the conditions in which they must be delivered, the market is the driving horse, especially through increased competition with other Canadian companies. This situation has prevailed in Canada for the past 20 years or so. This has worked to a certain extent; prices are reasonable, there is a good level of penetration, technology is at an acceptable level and all this provides us with a bit of cultural sovereignty, although imperfect.

    Of course, as a francophone I feel less threatened. Francophones are large consumers of products from Quebec. However, as far as I know, in the rest of Canada, people mostly watch American television. Within this context, we may say that the protection or promotion of culture has not succeeded in English Canada; at least as far as I know. Excuse me.

[English]

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

    Mr. Savoy.

    Mr. Andy Savoy: Thank you very much, Mr. Chair.

    I'd like to talk to a larger issue for a moment, the agenda of the Liberal Government of Canada. We would like to be among the most innovative countries by 2010, we've stated that; we want to be in the top five. We know there's a productivity gap with the U.S., and we have to address that. We have to look at our patent efficacy, our patent applications; the success is way down. I think one of the critical parts of this direction is communications infrastructure. There are two sides to the argument on foreign ownership. One side says, if you limit foreign involvement to non-controlling status, for example, you will see research and development facilities move away from Canada into, presumably, the foreign countries where is the majority ownership, you will see headquarters move, you will see a lot of the unnecessary operations move. The other side says, with this increased capital, we'll be able to roll out more broadband, we'll be able to perform more R and D, because Canada has an excellent climate for R and D now, with a 35% tax credit, we'll be able to pursue more innovation, we'll be able to see increased patents. So there's a variety of arguments on each side. I'd like to get each of your perspectives on those arguments and how you see it unfolding, specifically with your own operations in the case of the cablecos, what you would see as potentially being affected in a positive way with innovation, productivity, R and D, broadband, and so on.

»  (1715)  

    Ms. Janet Yale: Maybe I'll kick it off from a perspective I think we haven't talked about so far. When we talk about the concern of R and D and headquarters and jobs flowing out, I think we're looking more at manufacturing, where there's nothing that's actually located in a particular country, so you can think about the whole operation moving somewhere. But we serve customers in their homes--the homes aren't moving. We're talking about wires that connect to these homes, to every region in this country, to every customer in their home. That infrastructure is what we're talking about, expanding, upgrading, making it state-of-the-art. Those dollars have to come into this country, and that's the investment piece we're talking about. So I have a hard time understanding how you can talk about major outflows. What we're talking about and what our studies have demonstrated with what these other countries have done is the tremendous inflow of dollars that takes place when you open it up. It will allow that infrastructure serving Canadian consumers in their homes to be upgraded and made state-of-the-art. I think that's an important perspective to keep in mind.

    Mr. Jim Shaw: I really understand the hauling out of Canada's executive. I'm based in Calgary, I live in Calgary, and the oil and gas segment is pretty well deregulated and goes through Americans coming in, Europeans coming in, Europeans leaving, Americans leaving, Canadians buying them back. It's currently in a state of tremendous acquisition merger, all forms of corporate things. Though around town you might see this little company go here and it's run out of Dallas now, you'll see two or three others started by Canadians that fill the space and expand in that mode. We saw EnCana created a little while ago, so we have a nice superpower in Canada in the oil segment, which we really haven't had for a long time. But I think that's a very different issue from what we're talking about here today. We really serve residential Canada. If something happened, maybe the CEO wouldn't be here, but everybody else is here. You have to run these operations on a day-to-day basis, and the closer you are to your consumers, the better your company will work. I don't think it's any different from you here in Parliament. You have to be close to your people and your constituents, and the closer you are, the better it works. And probably, the more time you're here and the less time you're there, the worse it works. That's how it works for me. So whether the CEO lives in Houston rather than Calgary is really a non-issue. We have 6,500 employees in our group, and we're going to be $2 billion in sales next year or something. We need all our forces on the ground just to keep it running. We're hiring people at the rate of two or three a day and just trying to manage that, and you have to do that locally.

    As far as the R and D goes, a lot of the products we've developed ourselves, though we support groups all round the world. If you're innovative in Europe and you have a new cable gadget, we'd love to see it. We're partners in Internet companies that do all their R and D in Ottawa and are actually California Silicon Valley companies. They like the Ottawa scene for R and D, they like the Canadian university scene. I don't think we should undersell ourselves on R and D. It's not that we'll automatically move to Bell labs down in New York or cable labs down in Denver. We have a lot of good stuff. I think Rogers is a real innovator in R and D in Canada.

»  (1720)  

    Mr. John Tory: That is one of the challenges I referred to earlier. We want to maintain this position of global leadership in innovation and cable television. Innovation is going to be fuelled by competition and competition fuelled by innovation. It seems in areas where we have achieved positions of global leadership we're often the most fearful of our position. We have no reason to be fearful. We are the people others look to. All we're saying is that we need to have access to the broadest possible sources of money to continue to fuel that innovation, so we can do it here.

    Long past are the days when you could do a lot of innovation all by yourself. You have to work with Americans, French, Japanese, and so on. If you look at the technology of our business now, it's coming from all over the world. But some of it is coming from Canada, and we want to be able to continue with that and find new ways to take in communities, for example, that don't get broadband service today because it's economically difficult for us to justify making the investment, as opposed to just saying, someone else will pay, or they will never just get the service. Those are the kinds of things we want to be able to continue to work on, but frankly, we won't be able to afford them if we don't properly capitalize our businesses.

    Mr. Louis Audet: For all the creativity we deploy in our businesses every day and for all the pride we take in their accomplishments, the fact of the matter is that our company doesn't have one patent application, and I don't know how many of my cable confrères here have. Cable companies do not do patent applications. They are busy serving their customers. They innovate, they are creative, and whoever has to run this business will have to innovate and will have to be creative. Cables contract by two feet per pole span in the winter and they expand by two feet per pole span, and it creates all sorts of challenges. People will have to continue to be creative, but I'm sorry, we don't create patents. Equipment manufacturers create patents, create new products. Typically, they create them for the U.S. market and get them standardized in the U.S. market, and then we use them. We're pretty fast on our skates, so we use them first. That's not going to go away, so you should be aware of it.

    Mr. Andy Savoy: Increased capital will create patent opportunities, I don't care if it's the cablecos or who it is. That was my point.

    The Chair: Thank you.

    We always have these longer questions as we get close to the end.

    Ms. Bujold.

[Translation]

    Ms. Jocelyne Girard-Bujold: Like Professor Arès, I understand your position, but despite this, I know that there are other problems. There are big players and you are one of the small ones.

    This also involves protecting our cultural identity. To me, this is the most important factor. The professor just said that he felt less threatened because he is a Quebecer. In fact, we have excellent productions that we mmanaged to produce within certain parameters. However, I think that lifting the restrictions on foreign capital would make us vulnerable, as some witnesses told us yesterday. I think that this is where the problem really lies and that it is more than an issue of needs.

    Mr. Shaw said that this would allow him to increase the number of channels. Which channels were you talking about? Earlier, you mentioned foreign channels or more American channels to help broadcasting in Canada. What is this about?

    It is true that currently the broadcasting sector in the rest of Canada is becoming more and more americanized; on the other hand, Quebec is fortunate to have excellent producers.

    I personally think that an opening at large would be a threat to us. We cannot allow that.

[English]

    Mr. Jim Shaw: I'm not sure how many channels are on in Montreal, because we don't service that area, but in Edmonton, Calgary, or somewhere like that we are into 110 to 120 channels on television right now. That's pretty consistent across at least every major area. If I asked you how many American channels were on, what would your answer be?

»  (1725)  

[Translation]

    Ms. Jocelyne Girard-Bujold: I am asking you this. Let me tell you frankly that I am not a television fan.

[English]

    Mr. Jim Shaw: There are 25. It's hard to look at the Canadian system and say it's overwhelmed by that. If Canadians choose to watch that programming, that is a different issue. They are Canadian because they want to be, not because they have to be. They choose to watch it. It's not the Americans taking Canadians and turning them into Americans. It's Canadians saying they're going to select that show over another one. The products we put out there are in majority Canadian, by rule and by design, and the shelf space I was talking about on the network relates to the commission licensing tier 1 category digitals, tier 2--there are still 20 channels waiting to get on. I'm just saying I need the capital to make the shelf space on the network so we can offer those Canadian channels also.

[Translation]

    Ms. Jocelyne Girard-Bujold: Yesterday, Mr. Paradis came before us and informed us about the results of a poll. He said that about 72% of Canadians were against lifting the restrictions. What do you have to say about this, sir?

    Mr. Louis Audet: History has shown that many times, great injustice would have been committed by settling issues through a referendum. I think that this committee should use its own sound judgment to find the right solution.

    Now, with all due respect, madame, today we looked in detail at the way you should proceed so as not to jeopardize Canadian cultural interests in any way. We clearly said that we consider that ownership of programming undertakings would remain Canadian. We brought forward international studies demonstrating that in other countries where ownership rules for distribution undertakings were relaxed, cultural objectives were nonetheless attained. Those countries attained both their objectives with regard to capital and their cultural objectives. So, frankly, what are we afraid of? With all due respect, I think that the demonstration is crystal clear.

[English]

    The Chair: Thank you very much.

    Mr. Marcil, you have a short question.

[Translation]

    Mr. Serge Marcil: Let me finish with a few words about the forum on democratic institutions held in Quebec last weekend. I heard Professor Henri Brun say that he was fed up with admitting to the Law Faculty, students who do not even know the difference between both levels of government. This shows that Canadian values are transmitted, or should be transmitted more through the family and the school than through television. This is all I wanted to say.

[English]

    The Chair: Is that a question? I don't think so.

    Mr. Rajotte, last short question.

    Mr. James Rajotte: I certainly agree with that.

    I think this it has been very valuable, particularly now I know I can phone Jim Shaw directly to talk about my cable service.

    I want to follow up on a question I asked the two professors. The cable companies have made a presentation, they've shown that the restrictions for both cable and the telcos are less in other nations. These are comparative examples from today, and their cultures have not threatened, as far as I know. Given these present-day examples and given the historical examples of Periclean Athens, Elizabethan England, Renaissance Italy, nations that engaged others in a very global sense and had great explosions of cultural creativity, I'd still like to address the question of how Canada's culture is threatened somehow by opening up restrictions that basically involve, as Ms. Yale has said, just the infrastructure.

»  (1730)  

    Ms. Michèle Rioux: I will repeat that I don't think it is clear that we can structurally separate these things. I think the telecommunications liberalization over 20 years has demonstrated that. The structural separation we tried to maintain was blown away, so that's my fear. We may think it's possible, but there's no great historical example to show that we can maintain such separation, not with content, but with value-added services.

    Mr. James Rajotte: What about the examples of the U.K., Australia, Spain, Italy, Germany, France, Japan?

    Ms. Michèle Rioux: To repeat, I think the geographical aspect of the question has to be taken into consideration. Also, I give a lot of importance to the process that exists in the European Union to define des services d'intérêt général, to define une politique culturelle also.

[Translation]

I think that this has not happened in North America, and that they can feel more confident in developing more efficient instruments because they may have a much broader base of understanding with regard to these issues than the one we can have with the United States.

[English]

    The Chair: Mr. Audet.

    Mr. Louis Audet: Basically, I want to reiterate that the Canadian government has every power to dictate the rules, and these rules will be followed. The most recent example we've had is a CRTC order asking Craig Broadcasting Systems to rescind the rights it had granted its U.S. partner, MTV, because the CRTC judged them contrary to the public interest. In this particular case either they obey the instruction or they will lose their licence, and that is very simple. This government has every power to enforce its rules and make sure the recommendations we have tabled today are enforced in the public interest.

    The Chair: Thank you very much.

    I want to thank the witnesses for a lively discussion today.

    I just want to remind the members that your e-mail that went out on Friday had some changes. Tomorrow's meeting is in room 371 West. Please come on time. The first hour and a half we will have witnesses, and then we'll have two and a half hours of dialogue among the members.

    The meeting is adjourned.