NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 9, 1999

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): Colleagues, we have one member of the opposition here. We have sufficient members to hear witnesses. I think out of respect for our witnesses we will start. I know members will have some very good questions.

I would like to call to order this Tuesday, March 9 meeting of the Standing Committee on Natural Resources and Government Operations. We are continuing our study of some problems some areas of the country are facing with respect to rural telecommunications. We had a very good session on Thursday past with representatives of the CRTC.

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Today we have with us Bob Friesen, president of the Canadian Federation of Agriculture. I think you're the new president, Bob. You took over from Jack Wilkinson.

Mr. Bob Friesen (President, Canadian Federation of Agriculture) Right.

The Chairman: Congratulations on your new office.

We also have, from the Ontario Telephone Association, Keith Stevens and Tim DeWeerd.

Without any further ado, we'll ask the witnesses to make their presentations, starting with the CFA, and then we'll go right to the Ontario Telephone Association. We'll have questions after. I think it would make more sense to hear from both of our witnesses first.

Mr. Friesen, we'd invite you to start. Keep your comments to ten or twelve minutes or so, and then we'll move to the association. Please go ahead.

Mr. Bob Friesen: Thank you very much, Mr. Chairman. And thank you for the congratulations. Most of you probably know Jack Wilkinson very well. You know that he was full of energy and did a very good job. He certainly was a pleasure to work with.

I'm here today, as you already said, representing the Canadian Federation of Agriculture. Just to set the tone of why we are here, we represent upwards of 200,000 farmers across Canada, and a very good cross-section of all commodity groups in the country as well. We have a keen interest in the communication subject debate. As you well know, agrifood in Canada generates around $85 billion a year, and the potential for that revenue starts at the farm gate. So as our government urges us to be more and more competitive to develop export markets, of course it is very important that all our agriculture producers have access to up-to-date buy-and-sell information. They need that information at their fingertips, and they need the equipment to be able to access that information.

The success of the farmer and the success of the people living in the rural areas is contingent on having up-to-date equipment and being able to avail themselves of that information to make sure they do not lose out when it comes to international marketing and agricultural production. So it goes without saying that it is not acceptable as we move into the new century that Canadians do not have access to the links that ensure their ability to operate in the modern world. More and more information, as you well know, is available on the Internet, and of course much of the government information that is dispersed is on the Internet as well.

CFA understands that member of Parliament Ben Serré has a proposal for a millennium project that would aim to ensure coast to coast to coast availability of private telecommunications lines. We certainly support this initiative and urge the committee to adopt this goal and to vigorously push for its achievement using whatever means are necessary. Of course these include pursuing regulatory changes through CRTC as well as convincing private sector providers to do the right thing.

This highlights a related issue: that of maintenance and continued development of all rural telecommunication services. It isn't enough that we simply provide private lines to people in the rural areas. It is also imperative that the telecommunications equipment is updated on a very prompt basis so that our producers have instant access to whatever equipment they need to ensure their success and the success of the agricultural economy in Canada.

As technology moves forward, telecommunication companies will be eager to provide, for a cost, the latest in equipment and services to centres with large populations. However, there is a real need to ensure, through regulation if necessary, that rural and remote areas will continue to have access to new technologies over time and prompt access to whatever equipment is developed and whatever equipment they need to ensure their success.

We believe that the 21st century belongs to rural and remote Canada. The government focus on new technologies must include the geography and the people who will make Canada great in the next millennium.

Very quickly, a few goals of our rural telecommunications policy are as follows.

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The Canadian Federation of Agriculture has adopted a policy for rural telecommunications that includes the following points: make voice telephone service available to everyone; make single-party access to the public-switch telephone network available to everyone; improve the quality of telephone service sufficiently to allow rapid and reliable transmission of facsimile documents and data; provide rural telephone users with equal access to competitive long-distance carriers; provide rural telephone users with local access to value-added data networks; provide 911 emergency service with automatic number identification in rural areas; expand mobile or cellular telephone service; and lastly, make available to everyone touch-tone and custom-calling services—that is, services such as three-way calling, call forwarding, and call waiting.

Again, I cannot stress enough the importance of providing the equipment to our producers so they can avail themselves of fax machines, private telephone lines, computer services, and access to the Internet to ensure their success. So we have in our books a resolution that says we need to lobby the Canadian Radio-television and Telecommunications Commission, the CRTC, and other appropriate authorities to ensure that telephone companies be required to provide access to private lines at a reasonable rate to all customers.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Friesen.

I would like to invite the Ontario Telephone Association, either Mr. Stevens or Mr. DeWeerd.... Mr. Stevens, if you'll make a presentation, then we'll proceed to questions. Thank you.

Mr. Keith Stevens (Past President, Ontario Telephone Association): Thank you, Mr. Chairman.

I think you will find as we go forward through our presentation that we don't disagree with anything Mr. Friesen has said.

My name is Keith Stevens, and I'm the past-president of the Ontario Telephone Association. I currently serve as president and general manager of Hurontario Telephones Limited, an independent telephone company.

With me today is Tim DeWeerd. Mr. DeWeerd serves on the OTA board of directors, as both treasurer and chair of the regulatory committee. As well, Mr. DeWeerd is general manager of Quadro Communications Co-operative Inc.

To begin, I would ask Mr. DeWeerd to provide some background on the Ontario Telephone Association and the nature of its member companies.

Mr. Tim DeWeerd (Treasurer and Chair, Regulatory Committee, Ontario Telephone Association): Good afternoon, Mr. Chairman, committee members.

The Ontario Telephone Association is a non-profit corporation representing 21 of the Ontario independent local exchange carriers. The association has its office in Ottawa, and acts as a members' liaison with the CRTC, Industry Canada, and industry associates on matters of common interest and concern to its members. In addition, it manages the OTA carrier access tariff fund. This fund consists of moneys collected by toll carriers for long-distance access that are then distributed to the OTA member companies and used by them to keep local rates affordable.

The 21 independent local exchange carriers that make up the OTA have various business structures, including thirteen investor-owned companies, seven cooperative corporations, and one public utility commission. The members vary in size from one serving approximately 600 network access lines to one serving over 19,000 network access lines. A typical member, however, would serve between 2,000 and 5,000 subscribers, and would employ between five and thirteen people.

OTA members are providers of local exchange service to both business and residential customers. OTA members offer a full range of local telecommunication services, including the optional local services such as call and name display and call answer or voice mail. In so doing, OTA members are meeting the expectations of customers for modern, world-class telecommunications service in the small communities they serve.

For instance, 100% of OTA member switches are digital, allowing OTA members to provide a full menu of state-of-the-art call-management services. All OTA members, either themselves or through an affiliate, offer Internet service. Thus, in all OTA-member territory there is toll-free access to the Internet.

Telephone penetration in OTA member territory is 99.2%, quite an accomplishment when one considers that OTA members serve territory that is exclusively rural and high-cost. Only 5% of OTA member access lines are multiparty.

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OTA members have served rural Ontario since the early years of the century. During those 90-odd years, they have been the cornerstones of their small communities. The OTA members are high-technology companies, keeping up with advancing technology and offering high-tech employment in their service areas. OTA members have invested over $100 million in Ontario and employ more than 250 people.

Mr. Chairman, the remainder of our comments will be provided under these broad headings: first, the requirement for affordable, high-quality service in rural areas; second, the relative cost of providing services in rural areas; third, the need for a system of support for rural rates; and fourth, the OTA's strategic vision.

The requirement for affordable telecommunication service in rural areas is increasing as telecommunications become more important in the everyday lives of all Canadians. For rural Canadians in particular, affordable service of high quality levels the economic and social playing fields and enables regional economic development. In describing the importance of telecommunications in rural Ontario, I would like to quote the Organization for the Promotion and Advancement of Small Telephone Companies, known as OPASTCO. In its study, Keeping Rural America Connected, OPASTCO states:

Telecommunications technology offers a wealth of opportunity for rural America, alleviating many of its economic, social, and educational challenges. Rural communities often face geographic isolation, sparse population, and high unemployment. Many have experienced an out-migration of their young adults, particularly those who are better educated, to urban areas with greater job opportunities. Rural schools struggle with the lack of both funding and teachers, while rural hospitals often cannot afford expensive new equipment and have too few doctors to staff their facilities.

Telecommunication provides the tools for rural areas to combat these challenges. It makes rural areas true competitors worldwide, and heightens the quality of life in rural America by improving communities' economies, health care, and education. Telecommunication makes rural development happen.

Mr. Chairman, committee members, telecommunication is no less important in Canada's rural areas. The difficulty is that serving rural areas is very costly. Indeed, the cost of providing telecommunications service in rural areas is much higher than the cost of providing service to urban areas. This is the case both with respect to the cost of local loops and for switching. The factors that contribute to the higher cost of providing rural service include smaller and more geographically dispersed populations; the higher proportion of residential versus business subscribers; the higher unit costs for usage-sensitive equipment, since rural local exchange carriers cannot take advantage of economies of scale; and higher local loop-related investment due to the longer loops and the remoteness of the areas they serve.

If no system of support, such as the existing contribution from long distance, were in place to support local rates, residents' cost-based rates would be as high as $65. The business cost-based rates would be as high as $78. Business and home-office subscribers are quite appropriately demanding affordable, modern, high-speed communication services to foster business growth in the rural areas. To meet those demands, a sustainable system of support for rural rates is necessary.

I would now like to call on Mr. Stevens to speak on the matter of support for local rates and the OTA's strategic vision.

Mr. Keith Stevens: Mr. Chairman, telecommunications technology can address many concerns of rural Canadians; however, rural communities will not be able to take advantage of beneficial telecommunications services if such services are not affordable. To sustain affordable rates in rural areas, not only in those rural areas in Ontario served by OTA members, but in all rural areas in Canada, a system of support is needed so that the subscribers are not required to bear the very high cost-based rates we have just identified.

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Without such a system of support there would be reductions in telephone penetration, reductions in purchase of other telecommunications services, and further indirect negative effects on the economy of rural communities.

Charging cost-based rates in OTA territory would require local rate increases of $19 to $49 per month. Cost-based rates, if applied to rural Stentor-served territories, would require similar local rate increases. OTA submits that cost-based rates in rural Canada would not be perceived by Canadians to be affordable. Consequently, rates of this magnitude would be contrary to the policy objective of the Telecommunications Act, which says telecommunications services are to be affordable.

The inability to charge cost-based rates in rural areas of the country means a system of support is required. The determination of the level of support required ultimately is a matter of judgment. For its part, the Ontario Telephone Association believes it is appropriate to maintain rural rates at levels that are not greater than the rates paid by urban customers.

We characterize this principle as the rate equity principle. This principle measures the level of overall support required for rural rates. That amount is the difference between the cost of providing rural service and the revenue that would be recovered by charging urban rates.

We ask that this committee consider the merits of the rate equity principle in reviewing the issues of telecommunications in rural Canada.

As OTA followed the development of the record of the commission's proceedings on high-cost serving areas, it became a concern that the focus was primarily on how support should be established for under-served and unserved areas. However, as this committee understands, territories with unserved and under-served areas are not the only high-cost serving areas in Canada. In our view, all rural areas are high-cost. We say this because cost-based rates in those areas would exceed urban rates, and consequently would violate the principle of rate equity between urban and rural rates.

In the view of the OTA and its member companies, the real question the commission should be considering is how support for all rural rates should be sustained. To date, the support for rural local service rates has come in large measure from contribution from long distance. This is the support mechanism Mr. Colville referred to last week as the CAT. CAT stands for “carrier access tariff”, and has a number of components. The important component for this discussion is a contribution component. That component is the amount of support long-distance carriers contribute to the shortfall between the cost of providing a local service and the revenue local telephone companies provide.

Mr. Colville suggested the CAT rates in the territories of the independents are high. I ask the question, high in relation to what? Nothing can be characterized as high or low in absolute terms. Something can only be high or low in relation to some measure or standard. Where a party suggests independent contribution rates are high, they do so in comparison to the rates in place for telephone companies that were the former Stentor member companies.

OTA members acknowledge that our contribution rates are higher than those in place for a company like Bell Canada. Is this surprising or alarming? No. Companies like Bell Canada serve a subscriber base that is primarily urban. Thus Bell's average cost to serve is relatively low. That means the support Bell needs to keep its local rates affordable is low on a per subscriber basis. OTA members serve territory that is exclusively rural and high-cost. As a result, the support our subscribers need on a per subscriber basis is higher than that required on average by a Bell Canada subscriber.

The matters of support for high-cost serving areas and contribution in independent serving territory are currently before the CRTC in two separate proceedings. OTA participated actively in both these proceedings. The positions taken by the OTA in the proceedings were consistent with the strategic vision OTA developed for itself in the fall of 1997.

In developing its strategic vision, OTA analysed the needs of the customers of the OTA member companies. With those needs in mind, a series of strategic objectives was formulated. Foremost among those objectives were to facilitate the introduction of meaningful competition within the OTA member territory; to maintain affordable universal service in rural and remote serving territories; and to ensure that customer expectations regarding service access, quality, and innovation are met in a manner and at rates that correspond to customer service offerings available in urban areas.

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In the time available today, it would be difficult to explain in detail the means by which OTA proposes to achieve these objectives. In a nutshell, however, those means include an integrated approach to toll contribution; basic local service improvements; and local rate restructuring to achieve parody with Bell Canada's local rates.

Under an integrated contribution approach, the current level of OTA member contribution rates would drop dramatically. This would remove the single largest impediment to the establishment of meaningful toll competition within the OTA member territory.

The OTA basic service improvement program calls for OTA members to apply for the elimination of mileage charges, the expansion of local calling by virtue of the designation of natural calling centres and calling corridors, and the introduction of individual line service on demand.

Mr. Chairman, that concludes our comments. Mr. DeWeerd and I thank the committee for the opportunity to appear. If there are any questions, we will be happy to answer them. Thank you.

The Chairman: Thank you, Mr. Stevens and Mr. DeWeerd.

We'll start questions with Mr. Anders.

Mr. Rob Anders (Calgary West, Ref.): Thank you very much.

We've heard a lot about rate restructuring and relative costs and what not. I'm wondering what the actual costs are. You talked about covering shortfalls in the carrier access tariff and cost-based rules versus subsidies. What are the subsidies? What are we looking at in terms of cost? Can you give them just in terms of the province of Ontario?

Mr. Tim DeWeerd: Between the companies, it would force local rates up to $65 for residential or $78 for business. Because of the wide variety of companies, that would amount to increases of between $19 and $49, depending on which company we were talking about.

Mr. Keith Stevens: The subsidy would vary between companies, obviously. Even some of our rural companies are more rural or remote than others, and the cost would be higher. For all rural rates, it would go up significantly. Even in Bell Canada territory, when you look at their unbundling for their local competition, their charge for the local loop in the rate group D is $32, where the cost of their service in rural areas is around $17. There is a huge subsidy there that would vary across the country from $20 to $40 per month per customer.

Mr. Rob Anders: Okay. How many lines would this affect?

Mr. Tim DeWeerd: Just for the independent telephone companies it would be about 100,000 lines.

Mr. Rob Anders: Out of curiosity, are you or any of your clients involved in selling phones as well?

Mr. Tim DeWeerd: On the competitive terminals, all of our companies sell the phones. It's a small component. The margins are quite small on that.

Mr. Rob Anders: Are you familiar with what they charge for phones, for example?

Mr. Tim DeWeerd: Are you talking about the rental?

Mr. Rob Anders: You say the margin is small, and I'm just wondering how much they would go for.

Mr. Tim DeWeerd: Do you mean the rental rates or the actual price of the phone?

Mr. Rob Anders: Both.

Mr. Tim DeWeerd: If you want to build in models, I guess I'm free to say that about 30% above cost would be probably a good ballpark figure.

Mr. Keith Stevens: The cost of our sets starts around $40 and goes up. It depends upon the various bells and whistles you want on the phone. They're very competitive with the rates at Radio Shack or any other place you buy phones.

Mr. Rob Anders: If I wanted something with the most bells and whistles I could get, what would I pay for that?

Mr. Tim DeWeerd: With a digital voice machine built into the phone, I believe it would be about $240.

Mr. Rob Anders: So you've never known of anybody selling a $5,000 phone?

Mr. Tim DeWeerd: That would be quite a phone. One phone?

Mr. Rob Anders: Yes.

Mr. Tim DeWeerd: No.

Mr. Rob Anders: I didn't think so. I couldn't help hearing in question period that our government has purchased a whole whack of $5,000 phones. I guess one of the reasons they're doing that is for millennium compliance.

How do you feel you're matching up with millennium compliance?

Mr. Tim DeWeerd: The year 2000 thing has been a burden on us. As companies that try to lead in technology, we're confident everything is well in check, but it's definitely been a financial burden. A company, for example—and I can only speak for our own—of net assets of about $10 million required a $500,000 upgrade in order to make it compliant. And that $500,000 includes not just switching equipment, but invested cable plant, everything—which obviously doesn't have to be upgraded.

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Mr. Rob Anders: Do you feel you've fully gone through all the testing with that, so you're not going to be in the precarious situation our government has found itself in, where it has to make special amends with regard to compliance and purchase expensive phones?

Mr. Tim DeWeerd: We're pretty good. One of the staff of OTA sits on a Y2000 committee along with Industry Canada, the other telephone companies, Stentor members, and she's been circulating information to us for the past year and a half approximately. Most of the companies have undergone the tests of their switches already or are in the process. All the software upgrades have been purchased and mostly installed.

Mr. Rob Anders: Thank you.

Mr. Tim DeWeerd: We anticipate no surprises.

The Chairman: Ben Serré, please.

Mr. Benoît Serré (Timiskaming—Cochrane, Lib.): Thank you very much, Mr. Chairman.

First of all, welcome to our witnesses, and congratulations to Mr. Friesen on his election as president of the CFA. And welcome to the OTA; we last met about a year and a half ago at the OTA conference in Aylmer. It's nice to see you again. I'd like maybe to carry on my line of questioning on what happened since our last meeting.

Before I ask my specific question I would just like to take you to task on a statement you made, that 100% of your customers are on digital. I think that unless they've done it in the last two months, quite a substantial portion of Northern Telephone customers are still on analog. I know they've made application and they are working on it quite a bit in the last couple of years, but I think quite a large part of their customers are still on analog. And they still have 5,000 customers without private lines.

I don't think I need to go back to all the details in this situation with that company in that part of Ontario, or other parts of Ontario for that matter. I think we are all aware of the seriousness of the problem. I think that to your credit, the OTA has been trying to solve the problem.

I have a couple of questions for you. First of all, I'd like you to bring us up to date on what your association has done in terms of the high-cost servicing area hearings and in terms of your presentation to the CRTC, since we last met about a year and a half ago at your annual meeting. Also, as you well know, I have made recommendations to the CRTC to build up this so-called universal fund being financed by a contribution—to not call it a tax—on all telephone invoices in the country of maybe 1% or 2%, whatever is needed, and to use that fund to subsidize smaller telephone companies to provide the services mentioned by the CFA in rural areas.

I'm glad they did mention more than party lines. There's a lot more to it than party lines. A lot of people think the only problem is that you need a private line and it's over, and it's far from that. We need the latest technology. It's no use to perpetrate a dinosaur and just give up the party line and not have all the other services.

So my question is this. Do you agree with my recommendation to the CRTC? Have you made similar representations to the CRTC? If so, how do you prevent some of your members or other companies, smaller companies across Canada, from not profiting from this fund? In other words, how do you prevent your members from asking for funding where it's not needed?

I don't know if I make myself clear, but I get the impression in the last year and a half that your member has basically just sat back, telling himself that the CRTC is conducting hearings and there's pressure being put by Ben Serré and the natural resources committee and all kinds of people to create this fund, so eventually we'll be subsidized, so why should we go ahead and spend some money, 100% our money, if we can wait a year or two and be subsidized to the tune of 40%, 50%, whatever?

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Do you feel that's the case? I think I've asked enough questions for once. I'll come back again.

The Chairman: Thank you, Ben.

Mr. Tim DeWeerd: If I can start first with the northern issue, Northern Telephone unfortunately is no longer a member of the Ontario Telephone Association.

Mr. Benoît Serré: Why?

Mr. Tim DeWeerd: They chose to seek an alternative route from the association at this time.

I believe they're in communication with the Cochrane-Temiskaming committee.

Mr. Benoît Serré: Is the CPU still a member?

The Chairman: Ben, what's the CPU?

Mr. Benoît Serré: Cochrane Public Utilities. Is Abitibi still a member?

A voice: Yes, Abitibi is.

Mr. Benoît Serré: Well, when I was listening to your stats, it didn't make sense. Now I understand why. Quite frankly, if you remove Northern Telephone, which is quite a big chunk of northern Ontario, all your stats go over the board.

If you include the stats of Northern Telephone, which is probably the worst area in northeastern Ontario or of all of Ontario, if not all of Canada, everything in your stats doesn't make sense, as far as I'm concerned, in terms of the real problems in Ontario.

Mr. Tim DeWeerd: Right, but one thing with Northern Telephone is it's in the process—and I don't want to debate their situation too much, because I'm not aware of it 100%—of doing a service improvement program that will upgrade their switching, that will provide individual line service, initiatives the rest of the independents in other parts of Ontario have undertaken. We're now at the final stages of our undertakings, where they're largely at the beginning. The geography they serve creates a very difficult challenge for—

Mr. Benoît Serré: I'm quite aware of what they've been doing. I've been part of the process from day one, and the rate increase they're asking, and everything else, which I oppose at the CRTC. We'll leave that question on the sideline, but I think it was important that it was discussed, because I didn't know that, and all you said prior to this was to me not logical. Now I understand.

We'll go now to the next question. Do you agree with my recommendation to the CRTC? Have you done anything to support that, or to oppose that? How do you see that fund being implemented?

Mr. Tim DeWeerd: You also mentioned the high-cost service hearing that's going on. First I'll speak to what we've done on that. The high-cost has been one of the big hearings we've been a part of over the winter and over all of last summer, and it's just finally coming to the final stages.

What we've presented is the OTA vision that we talked about in our presentation—the requirement for ILS, individual line service, the requirement for affordable rates in rural areas, defined as not exceeding urbans. We continue to bring that plan forward.

The contribution side of that, then, as to where the money comes from, is another proceeding, I believe, that's just been launched. It may have been launched as a result of your proposal or your initiative. That's a contribution mechanism on how it should be collected in the future, whether it should be a telecom tax, or continue to be based on long-distance minutes.

Although the association has not made a submission to that one yet, our feeling is that, yes, it would be nicer if the base were not tied to minutes, that it was a telecom tax or even a nation tax. We're not sure which would be better.

Mr. Réginald Bélair (Timmins—James Bay, Lib.): What do you mean by a nation tax?

Mr. Tim DeWeerd: It would be a national tax, just a general income tax. I don't know if you're taxing a specific sector or just taking it from the overall budget. That's the government's choice. We perceive those two probably very, very closely.

Mr. Benoît Serré: What would you favour? Would it be a tax to the industry or directly from the general revenues of any government?

Mr. Tim DeWeerd: There are probably arguments for both, but one from the industry, I think.

Mr. Keith Stevens: One from the industry. When we say industry, we mean the broader industry—not just telephone, but telecommunications. This would include cellular and the whole industry.

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Mr. Benoît Serré: My contention on that one, my opinion, is that it should be industry. The reason is that we have given Bell Canada and the other companies a monopoly in this country for a long time, but they have not lived up to their commitment to deliver in rural areas. They have neglected rural areas. You guys have come in and spent a lot more money than Bell, because your costs were a lot higher. I think it's about time that urban Canada contributes to the rest of the country. They've used our resources, they've become rich because of the resources in rural Canada, including agriculture, forestry, and mining, and I think that's the Canadian way to do it. I suspect there will be opposition from companies like Bell, but I agree with that.

Mr. Keith Stevens: I share your concerns, sir, that if we don't do something rural rates will go to $40, $50, or $60 a month, and urban rates will still be at $20. The people who suffer then are those residents of rural Canada.

Mr. Benoît Serré: It's like putting a big sign in rural Canada saying “Please move to Toronto, because this is where business can be done, because we don't have the telecommunications here, and if we do, it's going to be cost-prohibitive”. And then we say that we lose our young educated people in rural Canada and they are going to Toronto. We know why. It's because we don't provide them with the right infrastructure. I think the government and industry, each of us, has a role to play, and it's about time we get together and do it.

Mr. Keith Stevens: The Telecommunications Act says rates must be affordable. No one has defined what affordable is. That could be done by the Minister of Industry. He could do that as a directive to the CRTC as well. That could be done so they have a definition of what “affordable” is, because until they do, it can keep changing and they can be persuaded to keep rural rates going higher and higher. You've seen this from the application for Northern Telephone already to have higher rural rates than Bell's rates.

The Chairman: Thank you. We'll come back to you, Ben, later if you'd like.

Pierre de Savoye, then I have Carolyn Parrish. Pierre, please.

[Translation]

Mr. Pierre de Savoye (Portneuf, BQ): Here is my first question, Mr. DeWeerd. What is the percentage of subscribers in the countryside as compared to the percentage of subscribers in cities?

[English]

Mr. Tim DeWeerd: Subscriptions to additional features?

[Translation]

Mr. Pierre de Savoye: How does the percentage of subscribers in the countryside compare with the percentage in the cities?

[English]

Mr. Tim DeWeerd: It's 100% rural. We serve no urban territory.

[Translation]

Mr. Pierre de Savoye: I do not necessarily mean only your association, but rather Ontario as a whole.

[English]

Mr. Tim DeWeerd: I'll have to get back to you on that one. I'm not sure what the split would be.

Mr. Pierre de Savoye: Could you provide a rough number? Is it 20% rural?

Mr. Tim DeWeerd: If that. When you look at the populations of urban centres such as Toronto and you recognize even from your constituent base the size this contributes, the rural area becomes very small. I would say 20% would probably be high.

[Translation]

Mr. Pierre de Savoye: This should mean, Mr. DeWeerd, that for each dollar of subsidy for a rural subscriber, an urban subscriber would have to pay 25 cents, because there are nearly four times more urban subscribers than rural subscribers.

[English]

Mr. Tim DeWeerd: If that's the correct percentage, it would be correct.

[Translation]

Mr. Pierre de Savoye: I will make a few comments and then I would like to hear your comments, Mr. Friesen, Mr. DeWeerd, and Mr. Stevens.

The highway system is far more costly to build and maintain in the countryside. Nonetheless, my driver's licence and my licence plate cost the same, whether I live in the city or in the country.

The electric grid is much more expensive to build and maintain in the countryside than in the cities. Nonetheless, what I pay per kilowatt/hour and for services in Quebec, with Hydro-Québec—I imagine that in Ontario, things are more or less similar—is the same; I get the same bill.

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How come there are such extremely large differences in the telephone industry? How come public interest is not as well protected for telecommunications infrastructures as it is for electric grid infrastructures or highway systems?

Mr. Friesen, would you like to respond to that?

[English]

Mr. Bob Friesen: Thank you, Mr. Chairman.

Just as a matter of interest, about 3% of the population in Canada are farmers. That certainly is not the extent of rural residences, of course, but we represent 3% of the population as farmers.

The CFA does not have a policy on how to allocate the cost, but I believe the comments you make have a lot of merit. It has to do with some of the examples you use, and it also has to do with the contribution the people we represent make to the Canadian economy, which is very significant. It's close to 9% of the GDP, and I already mentioned some other figures before. I believe there's a fair bit of merit in the comments you made.

[Translation]

Mr. Pierre de Savoye: Thank you, Mr. Friesen.

[English]

Mr. Tim DeWeerd: I believe your comments are shared equally by us. When dealing with infrastructure, it is a concern to see that telecommunications is treated differently. I believe it is largely a case of interpretation. The CRTC has been established to interpret the law as laid down by the legislature, and at this point they have two guiding principles. One is to maintain affordable service for all Canadians to a high-quality telecommunications network. The second is to let competition rule in these markets in the telecommunications industry. These two ideals or principles do not support each other when dealing with a geography such as Canada's. They are mutually exclusive.

What will result is a Canada where urban areas receive competition, urban areas receive low-cost services, and rural areas will pay a high cost for an equal amount of service. You're right, it's not consistent with what the other infrastructures would dictate.

[Translation]

Mr. Pierre de Savoye: I would like to make another comment. The cost of service is one thing and the quality of service is another thing. I do not mean to compare private lines with party lines, but I mean my own personal line, because I live in the country.

For some reason or other—and I know what that reason is—when I send something over the Internet through a modem, it takes me ten times longer to download a file from home than from the city. This is a matter of line quality, of "parasites" on the line.

What do you think of the situation and how much would it cost to offer quality service in the countryside?

[English]

Mr. Keith Stevens: I could comment on that, sir. I agree it does happen. The reason for it is the infrastructure, the moneys we've invested. It shouldn't be; quality of service should be the same. We claim that very vehemently. We live in rural areas as well, and the quality of service the rural residents, the farmers of Canada, get should be as good as those who live down the street here.

How much would it cost? The more rural and remote, the more expensive it is. Part of our strategic vision is to provide a high-quality service so that you don't have this difference. I can't put a number on what it costs because it varies dramatically so much across the country. Obviously, in an area like the Northwest Territories it would be extremely high, and much lower in say rural Ontario or even rural Quebec. It is expensive. But still the CRTC can set standards. They should have those standards to provide everybody the same service.

[Translation]

Mr. Pierre de Savoye: Thank you for being frank. Thank you very much.

[English]

The Chairman: Yes, Mr. Friesen.

• 1620

Mr. Bob Friesen: I wanted to comment on the quality of service, and that is a very important point. You'll recall that earlier I mentioned that it is important that the quality of service offered to the rural areas is prompt. I'll give you an example. When I was approximately 12 years old in the area where I live in Manitoba, we still had the old-fashioned ringer phone with the crank.

The Chairman: We still have that in Temiskaming.

Mr. Bob Friesen: The problem is my area was designated to receive the dial phone at a certain date because they argued they couldn't afford the cost all at once. So we were ten years behind in getting the dial phone.

Then when Manitoba went to private lines, we were ten or fifteen years behind in getting private lines. And you can imagine what will happen to the agricultural industry in the remote areas if they're always ten to fifteen years behind in the equipment they have.

This is about more than it having to be affordable. It has to be available; it's imperative that it is available. If the rest of society in Canada appreciates the contribution that is made by the people who live outside of Toronto and live outside of Winnipeg, then it is very important that they recognize the contribution that is made and then help with making that equipment available so that our farmers can continue to have access to that prompt information, to the good equipment that will allow them to be the world-class producers our country wants them to be.

The Chairman: Thank you.

Carolyn Parrish, please.

Ms. Carolyn Parrish (Mississauga Centre, Lib.): I want to follow up on Mr. Anders' question. I was glad he asked about the cost of the phones. It came up in question period today.

If you were advising a government the size of ours with remote regions like we have all over the country, and I know you say you're ready for the year 2000, would it be cautious of us to have enough satellite phones available to the government for defence and for remote regions just in case everybody else isn't quite as ready?

Mr. Tim DeWeerd: My feeling is the wire line system is probably more reliable and more prepared for this than the satellite—

Ms. Carolyn Parrish: Really.

Mr. Tim DeWeerd: —not knowing the satellite. But in terms of the wire line infrastructures developed by the independents, by the Stentor members, all of us have taken our role in the year 2000 compliance very seriously. I don't think there's a problem there.

Ms. Carolyn Parrish: Do you anticipate a problem with everybody testing their phones one minute after midnight?

Mr. Keith Stevens: Absolutely, there will be a problem one minute after midnight with phones and Internet and everything else. Everybody's going to try it.

Ms. Carolyn Parrish: Following on that, do you think having an overload on the wire lines for a couple of days or so after would be a possibility?

Mr. Tim DeWeerd: I think maybe between the trunks between centres, but we have measures in place whereby if that were to happen, an entire emergency.... I'm not even sure what the name for it is, but there is a—

Ms. Carolyn Parrish: Panic.

Mr. Tim DeWeerd: No, it's the response to panic. I can't remember what the tactical name of it is, but it is an approach where the trunks are reserved for only emergency use.

Keith, maybe you can help.

Mr. Keith Stevens: For those who have digital switching—not the analog switching that Ben was referring to earlier, but digital switching—we can set priorities on various persons' phones. For police, ambulance, doctors, members of Parliament, etc., there's a priority put on their phones, and if the system gets overloaded they get a priority access to it. And that's set up, run through the government; we actually get the contact list and we set those names up for those people.

So the overloading is pretty well easily taken of. Obviously we all have to be prudent with year 2000. We're going to have extra fuel on standby for our generator in case hydro doesn't work. We're all going to do those areas. The real question is how much do you spend? I don't know.

Ms. Carolyn Parrish: Thank you.

The Chairman: Thank you, Carolyn.

Reg next, then Marlene. Reg, please.

Mr. Réginald Bélair: Thank you, Mr. Chairman, and thank you to the witnesses also.

First, OTA, has it ever been a policy of yours to spur economic development through your members? Do you have a specific policy on that?

• 1625

Mr. Keith Stevens: There's not a specific policy, but we live and work in rural, small-town communities, and a number of the members work very closely with their community itself to try to spur economic development.

In the presentation we mentioned OPASTCO, which is an American organization. We do work closely with them, and they have a very detailed program to spur rural development in the communities. It's obviously good for the telephone companies if we have growth as well. But it's done on an individual basis, not through the OTA.

Mr. Réginald Bélair: Have you ever come across a situation where someone missed an economic opportunity to open a business, or do business, period? How did you address the situation?

Mr. Keith Stevens: People have told us, “Well, we didn't come to your community because it's a rural telephone company”, and so on. Only sometimes after the fact we try to explain that our quality of service is as good as or better than Bell, or whoever, in the neighbourhood. But there's that perception from business that there won't be enough telephone lines there, that there won't be enough capacity. There's that perception, and we have to work hard to try to overcome it.

Mr. Tim DeWeerd: The larger fear in the future—Bell has already done this in Ontario, and I'm not sure about the other provinces—is that the business rate in a centre such as Toronto, and right down to the size of London and Stratford, is $5 or $6 a month cheaper than the areas immediately surrounding it.

If you can familiarize yourself with an area like Stratford, right near it is a place called St. Marys, the Stonetown. If you had your business five miles away, you'd be paying $6 a month more because you decided to locate there.

We anticipate that Bell, as a response to competitive pressures in the urban areas, will continue to decrease the business rates in the urban areas and increase them in the rural areas, even widening that gap, which will attract businesses more because of a cost nature, not quality. You can demonstrate the quality, and they will still move to the urban centres simply because of the cost there. Especially if they're multi-line businesses, that makes a significant impact.

Mr. Réginald Bélair: Have you ever discussed within the association the possibility of creating a partnership with government, yourself, and users?

Mr. Tim DeWeerd: We've tried initiatives, not with the government but in response to government programs that have been issued, such as the TAP programs, the technology advancement programs.

The problem with those programs is that they are grant-structured. They're one-time. The typical telecommunications companies like ourselves, the independents, are not used to a lump sum and then walk away; we're used to sustainable work with groups. So with any programs or partnerships that we're trying to enter into now, we're having difficulty, because they all seem to be geared toward this grant process instead of a sustainable service, as a result.

They're in for a three-year period. They say “Here's your equipment”. Consultants typically win the largest portion of those contracts, those grants, and then they walk away. So when we try to partner with health services in rural areas, or with education, we find ourselves continually not able to strike those partnerships, because our nature is long-term commitment, not short-term, in and out, give them a solution that will eat up the dollars and last for four years and then wait for the next grant to pick up from there.

That becomes a barrier to such partnerships at this time, so we'd be very eager to look into the partnerships that could be developed for sustainable telecommunications services.

Mr. Réginald Bélair: So then you've never lobbied government for subsidies—

Mr. Tim DeWeerd: No.

Mr. Réginald Bélair: —especially to offer basic service like a private line?

Mr. Tim DeWeerd: No. We've always been able to do it through our settlement. We've been able to convince the long-distance carriers that it's their responsibility to support the rural areas, because they take the cream of the crop, so to say, and it's their obligation to help out the rural areas. It has largely been through negotiations, not through regulator intervention, that this has been maintained.

• 1630

Mr. Keith Stevens: But as toll rates decrease dramatically—and that's good for consumers who—

A voice: What has decreased?

Mr. Keith Stevens: Toll rates. As the long-distance charges have decreased, they're less free with the money to help out, so it's becoming more and more difficult.

We're seeing the results even in Bell Canada territory, where they're charging more, as Tim mentioned, for business in rural areas than they are in urban areas. It's a concern that this is happening, because it's a trend that, if continued, is not going to be good for rural Canada.

Mr. Réginald Bélair: I can see that we're not moving ahead much. I'm from northern Ontario also, and I'm in much the same situation as Ben. I have many constituents who are still on four-party lines. Two is not bad, but four is terrible. When you talk about emergencies, or economic development, or about anything, as a matter of fact...the Internet, you're not able to connect to the Internet. So I see that your association would not be of much use to us.

Mr. Keith Stevens: Our strategic plan that we filed with the commission said we want to go to a private line for everyone on demand; anyone who wanted a private line can have one. We feel very strongly about that as an association.

Just as an aside, both Tim's company and ours are totally private line right now. Every one of our companies is private line.

The Chairman: Reg, thank you.

Next we'll go to Marlene Jennings, please, and then we'll go back to Ben.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you.

I have just a couple of questions, one of which is for you, Mr. Friesen. You were talking about how difficult it is for farmers, the agricultural industry, to be competitive if they don't have access to high-quality telephone services, the Internet, and so on. What percentage of your members right now are on-line? Do you know?

Mr. Bob Friesen: Sorry, I don't have the answer.

Ms. Marlene Jennings: Would you be able to get that information?

Mr. Bob Friesen: Yes, I think we could.

Ms. Marlene Jennings: Okay.

Could you also get the information as to what percentage of your members could be on-line, notwithstanding what it would cost them, but they actually operate in a geographical area where there is in fact an offer of service to be on-line? That's also important—the issue of whether or not it's available is one, and then, if it's available, whether or not it's affordable.

I would assume that to be able to draw conclusions you must have done some kind of survey of your membership, to know if it is available, and if it is, are they on-line, and if they're not on-line, why are they not on-line? I'd appreciate that.

Mr. Bob Friesen: Okay.

Ms. Marlene Jennings: My other question is for Mr. DeWeerd and Mr. Stevens, and it touches on the same issue. I understood at the beginning of your presentation that within your membership, 5% are party lines. But then, when you were talking with Mr. Serré and with Reg, it seemed as though that's not the case. Am I confused about that?

Mr. Tim DeWeerd: Prior to Northern Telephone's departure from the association, it would probably have been higher than that 5%.

Ms. Marlene Jennings: Okay.

Mr. Tim DeWeerd: Since their departure, it's definitely down to 5%. I believe those are 1997 numbers. It's quite possible that's even lower than 5%.

Ms. Marlene Jennings: That was going to be my next question. What does that represent in numerical terms? How many households, how many clients comprise that 5%?

Mr. Tim DeWeerd: I would say fewer than 5,000 are on multi-party systems.

Ms. Marlene Jennings: Okay.

Within your membership, what percentage are able to provide on-line services, or the quality of your infrastructure is such that computer or on-line services, Internet providers, whatever, are able to offer their service through your infrastructure?

Mr. Tim DeWeerd: I could safely say, other than that 5%, for the remaining 95%, the infrastructure is of a quality.... My background is more financial than technical, but I believe with all the companies remaining, the full 95% is possible.

Ms. Marlene Jennings: They are capable of offering on-line services.

Mr. Tim DeWeerd: Yes.

Ms. Marlene Jennings: Okay. What percentage of your members actually have customers who are on-line?

• 1635

For instance, of the total of your members, your independent local exchange carriers, you have 21 who are members. If they service say 100,000 clients, whether it's business or commercial, if only 5,000 are on-line—and you're telling me that your infrastructure is of sufficient quality to permit all of them to be on-line except for that 5%—then the issue is why aren't they on-line? Is it because it would cost too much, it's prohibitive? Is there another reason?

Mr. Tim DeWeerd: That one is a very difficult one to answer as far as the association as a whole is concerned, because you're dealing now with the demographics of the households, whether they have enough disposable income for the computer even, let alone the monthly services.

Ms. Marlene Jennings: Sure, but that's important. When you come before a committee and you're asking us.... I think every single household should have the opportunity to be on-line, every single household. And every business in Canada, whether it be in the agricultural sector or in high technology, should have the opportunity to be on-line. And that cost should not be so prohibitive that it virtually excludes them from that basic service.

On the other hand, there are people who may simply not want to know anything about it. I've read articles in the papers from reporters or editorialists saying they don't want to go near it. They know what it's all about; they've been on-line, and they don't want to be near that.

So the issues are that it has to be accessible; it has to be accessible in an equitable fashion, which means the cost should not be a barrier; and for those who are not, it should be a personal choice. I'd like to know if you're able to cull, from the information from your members, hard data on that.

Mr. Keith Stevens: One thing I could say about the affordability is that all of the OTA members, or affiliates of theirs, offer Internet. And in many of their territories there are a number of competitors as well.

The rates of all those services they're offering are very competitive with what you'd pay here in Ottawa or Toronto, so that's not a barrier in that area.

In most of the independent territories there are multiple Internet providers now, more than one. It's interesting, when the first one comes in, that's often when the telephone company's competitors come in after. So in that area we're serving our areas well.

One thing we've tried in the OTA is the rural independent telephone companies. That's because that's where we live and work, and we're part of the community. We've tried to give that extra bit of service.

I would like to say, and I think it's true, that our customers are better served than those in other parts of Canada where they haven't had quite that personal touch. But I'm still very concerned. I'm concerned for them, my neighbours, my friends, as well as all the rural Canadians, that we keep rural rates affordable, as you mentioned. It's so important that they be kept down so they don't have to pay twice what they do in Toronto. It's not inherently fair.

Ms. Marlene Jennings: Sure. This government has the policy—Mr. Manley has mentioned it over and over again—that we want to make sure Canada is the most connected country by the year 2000.

Well connected doesn't mean just urban areas. I was born and raised in an urban area, but I used to spend my summers in Manitoba on my grandmother's farm, so I do know a little bit about rural Canada. I think the mentality has to shift, so that when we talk about Canada being connected, when we talk about SchoolNet—where we're going to hook up all of the 9,000-something schools that will have computers—it means we also have to make sure our rural and remote areas are connected.

Now that connection may have to be made through a variety of sources. It might not be just a land line. It may have to be, in some cases, satellites or whatever, as long as it's there. And if the cost to connect is going to be so high as to be prohibitive, then I like Mr. de Savoye's and Ben Serré's idea—and Ben is the originator of it—which is that there is some kind of equity that we, the utilizers in the urban areas where it costs less, help subsidize.

Mr. Keith Stevens: We support you 100% on that and urge you to convey that to the CRTC.

Ms. Marlene Jennings: I would still like the hard data, okay? I really would like to have the hard data, because if we're to make the arguments, we have to be able to show the cost if it's available. Is that one of the factors, for instance, in the farmers not being connected, if they're not connected? Is it that it may only be accessible to those big multinationals that we hear about that own hundreds of thousands of acres and literally control a significant segment of the market share, but for the independent farmer it's not accessible?

Thank you.

• 1640

The Chairman: Thank you, Marlene.

We'll give a short question to Carolyn Bennett, and then we'll finish with the last word to Ben.

Carolyn.

Ms. Carolyn Bennett: Last summer there were a number of members of Parliament who went to Nunavut. We had a concern that even in the places that were technically connected, whether it was the nursing station, the RCMP, or the library, because the only server was in Iqaluit, the costs of long distance were prohibitive to actually using it. I want to know whose responsibility it is to have servers well placed so that long-distance charges don't apply.

Mr. Tim DeWeerd: With the independents, we took it upon ourselves at the early stages of the Internet to locate those servers in our own territories immediately, or as soon as possible, on an ongoing basis. The Internet has been driven by competition, not by any direction. It's not regulated currently by the commission. It's an anomaly on its own, has grown on its own, with no regulation, nor with any push to have it located everywhere. Not until the information highway hearings was it addressed. And since those hearings, to be honest, there still is no obligation for anybody to locate in an area where they're not going to make their return.

Mr. Keith Stevens: One way to ensure it does happen though is to make sure all Canadians have free calling to a major centre. I'm not sure what a “major centre” is in the Northwest Territories. But I think it's one way, again, to level the playing field for the rural people. If you can't call your Internet provider or your tractor manufacturer without paying long distance, it's a disadvantage. So one way is to make sure everybody has free calling to at least a major centre.

Ms. Carolyn Bennett: Could the banks help us with this?

Mr. Bob Friesen: They've got the money.

Mr. Keith Stevens: Yes, they have the money.

Ms. Carolyn Bennett: If they're forced to by law?

The Chairman: Is that it, Carolyn?

Ms. Carolyn Bennett: Yes.

The Chairman: Thank you, Carolyn.

The last word goes to Ben.

Mr. Benoît Serré: Thank you, Mr. Chairman. I'll try to be brief.

I know it may be a hard word, but what I'm hearing from the OTA.... I know the OTA wants to promote a good image for your association and what not, and that's perfectly normal. I know for a fact you've done a tremendous job, probably lived up more to your responsibilities than big corporations like Bell did, although some of your members are wholly owned by Bell.

But when you asked a question about business development opportunities and what not, you say you want to convince them it's “as good as”. It's not as good as, I'm sorry. And I can tell you, somebody was asking, do you know what the problem is with not being connected on-line in some parts of rural Canada? For the farmer, he cannot get hooked up to the commodity prices and he doesn't know if he should sell his beef or his hogs tomorrow or the next day. There's an awful lot of missed economic opportunities.

I have a company from Sweden who came to see me. They wanted to start a call centre in Kirkland Lake. They were just in the process of switching from analog to digital, and even with doing that, like Pierre said, the rapidity of transmitting the information on-line is probably 25 times slower than it would be in Toronto. So it's just not economically feasible for those companies to set up in rural Canada.

With having Northern Telephone excluded from your membership.... Your picture is a lot better than it was a year ago, in terms of your association members, but the fact remains that there are probably—and the guy from CRTC just left—some 60,000 customers in Ontario who are still on party lines. It means no 911 service. It means that the lady in hospital in Kirkland Lake—it's costing us about $500 a day to have this woman in hospital—could go home if she could be connected with a monitor. But she's on a party line, so she can't. She has to remain in the hospital at a cost of hundreds of thousands of dollars to Canadian taxpayers. I can go on and on and on. For example, there's no privacy.

I saw an occasion where a kid dropped a phone and nobody noticed. A fire broke out, and when they tried to call, the line was busy. Somebody left it off the hook for two hours. The nearest neighbour is two miles away. There are all kinds of situations like that.

I don't want to get into that, because I could talk for two hours on the consequences of not being hooked up with the latest modern technology. The problem remains.

• 1645

We all know there's a problem there. It's been going on for many years. We're hearing a lot of stuff from Bell and this and that, and the Minister of Industry. You'll remember my intervention when Industry Canada presented us with this nice new technology, with colour and sound effects and the whole bit. I threw my speech away and I got up and said “I'm sorry, Industry Canada, but I'm going to rain on your parade”—it was raining outside—“because it's all good stuff for Toronto...” I don't care, I'm going to say it. I think the Minister of Industry and the Government of Canada, and especially the Government of Ontario, have not lived up to their responsibilities on that issue.

Up to 1994 the telephone companies, as you know, in Ontario were regulated by the Ontario Telephone Services Commission, so the CRTC, to be fair, took over only in 1994. But I believe it's about time we face up to the reality of rural Canada and work together. I think your association, as serving rural Ontario, has a large role to play with the CRTC. I'm asking you today to send a brief to the CRTC, to make additional interventions to the CRTC to make sure that we in rural Canada go into the 21st century like the rest of the country.

So it's more comments than questions, Mr. Chairman.

The Chairman: Thank you.

I'll ask for some concluding comments from our witnesses.

Mr. Tim DeWeerd: I have just one. Mr. Serré was kind enough to say that the OTA members at this time are providing a good service, and he commended us for that. We thank him for that. But also we want to remind everybody that at this time we've been able to do that because our companies have reinvested in the rural areas, where we're part of the communities.

The future does not look as bright. If the sustainable form of contribution is not maintained, that service will not be maintained in the future and we will end up going back to the roll-out of technologies five or ten years later than urban areas get them. So it is very important that some kind of support continue.

The Chairman: Thank you.

I'll just take a moment to say it didn't come up with cell service. A lot of the third world countries have 100% cell service. If you go to many parts of Ben's riding and most of my riding, there's no cell service, and that certainly needs to be addressed some day too.

With that, we will thank our witnesses on behalf of all members. You've added to our study, added to the debate, and we appreciate that.

Colleagues, I'll just tell you that Mel Cappe, the Clerk of the Privy Council, will be here a week Thursday, March 18, on the main estimates. It will be our first chance to visit with him. This Thursday coming we will have officials from Industry Canada on the same issue of rural telecommunications.

With that, we're adjourned. Thank you.