INST Committee Meeting

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

For an advanced search, use Publication Search tool.

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

Previous day publication Next day publication

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, January 29, 2003

1535

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

The Hon. Francis Fox (President, Strategic Relations, Rogers AT & T Wireless)

The Chair

The Hon. Francis Fox

1540

The Chair

Mr. Lionel Hurtubise (Chairman, Ericsson Canada Inc.)

1545

1550

The Chair

1555

Mr. André Tremblay (President and Chief Executive Officer, Microcell Telecommunications Inc.)

1600

1605

1610

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. André Tremblay

1615

Mr. James Rajotte

Mr. André Tremblay

Mr. James Rajotte

Mr. André Tremblay

1620

Mr. Lionel Hurtubise

The Hon. Francis Fox

Mr. James Rajotte

The Chair

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

The Hon. Francis Fox

Ms. Dawn Hunt (Vice-President, Government and Intercarrier Relations, Rogers AT&T Wireless)

1625

Mr. Andy Savoy

Mr. Lionel Hurtubise

Mr. Andy Savoy

Mr. André Tremblay

The Chair

Mr. Andy Savoy

1630

The Hon. Francis Fox

Mr. Andy Savoy

The Hon. Francis Fox

Mr. Andy Savoy

The Hon. Francis Fox

Mr. Andy Savoy

The Hon. Francis Fox

The Chair

Mr. Lionel Hurtubise

The Chair

Mr. André Tremblay

1635

The Chair

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

Mr. André Tremblay

Mr. Paul Crête

Mr. André Tremblay

Mr. Paul Crête

Mr. André Tremblay

1640

Mr. Lionel Hurtubise

The Hon. Francis Fox

Mr. Paul Crête

1645

Mr. André Tremblay

Mr. Paul Crête

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. André Tremblay

1655

The Chair

Mr. Lionel Hurtubise

The Hon. Francis Fox

1700

The Chair

Mr. Ed Giacomelli (Managing Director, Rothschild (Toronto), Microcell Telecommunications Inc.)

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. André Tremblay

1705

Mr. Lionel Hurtubise

The Hon. Francis Fox

Mr. Brian Masse

The Hon. Francis Fox

Mr. Lionel Hurtubise

Mr. André Tremblay

1710

The Chair

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

The Hon. Francis Fox

1715

Mr. Brent St. Denis

The Hon. Francis Fox

The Chair

Mr. Lionel Hurtubise

The Chair

Mr. André Tremblay

1720

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Lionel Hurtubise

The Chair

The Hon. Francis Fox

1725

The Chair

Mr. André Tremblay

The Chair

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

The Hon. Francis Fox

The Chair

Mr. James Rajotte

The Hon. Francis Fox

1730

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 013

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, January 29, 2003

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

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

Pursuant to Standing Order 108(2), we will undertake consideration of foreign investment restrictions applicable to telecommunications common carriers.

We welcome today people from Rogers AT&T, Microcell Telecommunications, and Ericsson Canada. I want to remind the witnesses that there's simultaneous translation. Feel free to speak in English or French.

I understand that each of you has about 10 minutes to get started, and then we will get into questions, so if there are things that you don't cover at the beginning, we'll try to cover it all during the question period.

With that, I'd like to introduce, from Rogers AT&T, Mr. Francis Fox and Ms. Dawn Hunt. I take it Mr. Fox will be speaking first.

Mr. Fox, welcome back.

The Hon. Francis Fox (President, Strategic Relations, Rogers AT & T Wireless): Thank you, Mr. Chairman.

[Translation]

Mr. Chairman, members of the committee, I am delighted to speak here today regarding your inquiry into the foreign investment restrictions applicable to the telecommunications industry.

I am speaking today on behalf of Rogers Wireless Inc., a leading provider of mobile wireless telecommunications services in Canada.

[English]

Wireless services are an important enabler of the new economy. When our company began providing service 17 years ago cellular telephones were regarded as a niche service. Today, I'm sure you'll agree they are part of everyday life.

Starting from scratch in 1984, Rogers Wireless Network now extends to every province and provides service to 93% of the Canadian population.

When we started our business, cellphones used analog radio technology. Our network still supports analog service.

Beginning in 1992, we began to provide digital service using a technology called TDMA. Last year we upgraded our entire network so that it could support a different digital technology called GSM. This is the fastest-growing wireless technology in the world, already used in more than 100 countries by some 787 million customers. By using GSM, we can now provide our customers with the latest phones and all the newest features.

Many of you who have travelled to the U.S. know the quality of our network is superior to that provide by American carriers. We currently have roaming agreements with 35 countries, allowing our customers to use their GSM phone seamlessly in these countries, and we are adding new countries to this list each month.

In addition to providing state-of-the-art, high-quality digital and analog networks and the latest mobile phones, Rogers also provides connectivity to a range of wireless data services. While the BlackBerry has become an increasingly important tool for business, Canadians can use their BlackBerrys to check their e-mails, surf the Internet, and exchange messages wherever they are.

The BlackBerry, as you know, was invented in Waterloo, Ontario, and launched on the Rogers Mobitex wireless network, thanks to cooperation with Ericsson.

I should say that Ericsson has been with Rogers since the very beginning, coming to Canada as a result of the contract given to them to build a network between Quebec City and Windsor, Ontario, which at the time was the longest cellular corridor in the world.

As far as the BlackBerry is concerned, the Department of Industry was indeed pre-signed in supporting it through its technology partnership program. And today we have tens of thousands of customers for these two-way pagers, and their use is spreading beyond the corporate world to consumers at a rapid pace.

We also provide data connections for a wide range of personal computers, personal digital assistance, and other devices such as municipal parking meters and fleet management terminals.

[Translation]

In fact, mobile phones themselves are mobile data devices. Many mobile phone users use SMS or short message service to send short text messages from one phone to another.

In 2001, Canada led the world by announcing that we would establish a platform to enable SMS interoperability across our respective networks. As a result, our customers can send and receive SMS messages across the networks of all Canadian wireless companies. Last week, Canadian and US wireless carriers announced that SMS interoperability would be extended across North America.

[English]

The Chair: Excuse me, Mr. Fox. I think we have some difficulty on translation.

When we changed translators it seems to have been lost.

The Hon. Francis Fox: Mr. Chairman, I believe all members have a copy of my remarks in English and French. I will not depart from my text very much.

[Translation]

This year we will begin upgrading our network by adding EDGE, or Enhanced Data for GSM Evolution, to our GSM-GPRS network, primarily through software upgrades to our existing network equipment. EDGE capability will triple the data speed and increase the capacity of our network.

Rates for cell phones and for mobile data are very attractive in Canada compared to other countries. Furthermore, customers can choose between Rogers Wireless and three competitors when they want to buy a mobile phone. This competition is what keeps us all responsive to our customers and investing in our networks.

¹ (1540)

[English]

The Chair: Thank you very much.

I'm think I'm going to go across the table to Mr. Hurtubise.

Mr. Lionel Hurtubise (Chairman, Ericsson Canada Inc.): Thank you, Mr. Chairman, gentlemen. I'm very pleased to be here today.

[Translation]

I can answer your questions in French. It's my mother tongue, but it happens to be my second language. It would be a pleasure for me to accommodate you. All of the documents we have brought with us are in both official languages. So please feel free to ask us any questions you like.

[English]

Ericsson in Canada is a wholly-owned subsidiary of L.M. Ericsson of Stockholm, Sweden, by far and away the leader in wireless infrastructure worldwide. We're the leaders in establishing new standards. We're certainly the leaders in sales, even in these very difficult days. So Ericsson is by far the leader, and we pride ourselves that, working with our customers, we are building the most advanced networks in the world.

The subsidiary in Canada started in 1953, so we're celebrating our 50 years this year in this country. I joined in 1986, shortly after we received a major contract from then Cantel. Part of the understanding we had with both the Canadian government and Cantel at the time was that we would establish a small R and D division in Canada.

¹ (1545)

[Translation]

It's a small group. I'm not sure of the exact number, but we're talking maybe about one hundred or so engineers.

[English]

Today we are 1,600 engineers in our research and development centre in Montreal. We are the largest research centre outside of Sweden. We are rated number one outside of Sweden, and I'd like to believe we are number one including Sweden. We have a little over 200 people in Canada now in marketing operations.

We are a private company. We don't publish our sales, but in 2001--and I'm only quoting 2001 numbers because the 2002 numbers are coming out on February 3 and I'm in a blackout period right now--we did about $700 million worth of business in Canada, split roughly fifty-fifty between the research centre and sales to our major customers, two of whom are here, and many more smaller ones.

I'd like to point out that everything we do in Montreal is exported to our parent company in Stockholm. So it's $392 million worth of exports in 2001, and the software that we develop in Montreal is incorporated in those networks that I mentioned earlier that are sold around the world, including the ones that are sold here in Canada.

We've invested over $2 billion to date, to the end of 2001, in R and D in Canada, and today our engineers create software for wireless telecommunications systems used by people across the world. As I said earlier, virtually all our R and D is exported to the Swedish company.

You can see that we've had rather a dramatic growth of people. It was very exciting for me as a Canadian to be able to play a role in that and to watch and to have the various discussions with our people in Stockholm who kept saying, Lionel, once you get to 500 people, that's an optimum size for a design centre. We went through 500 to 1,000, to 1,500 people, and it's working extremely well. I won't quote the investment numbers; you can read them for yourselves.

As to the reasons for Ericsson's commercial and R and D success, certainly initially it was the availability of investment money for our customers to build nationwide networks, providing innovative services....

There's no question that at the time--and I'm going back now several years--money was more readily available than it is today. I think the issue we're facing and discussing today has become rather critical to the Canadian industry. The investments, as Francis has mentioned, and as I'm sure André will tell us in a few minutes, are not inconsequential, which of course pleases me. But these carriers must continue to make these investments to maintain the Canadian network at the cutting edge of technology, which is of significant national importance for our industry.

I must stress that even though we talk often about a very excellent fiscal climate in Canada, the number one thing in importance is the availability of highly competent technical staff.

[Translation]

We were drawn by the expertise here in Canada. That expertise is responsible for our success.

[English]

The government incentives are very important and that certainly allowed me to put together a very powerful presentation to Stockholm to get these mandates initially, and then once we had the mandates we were able to prove our ability. As they say, the rest is history.

The relatively low cost of living and high quality of life in Canada is very important, and the proximity of Montreal and Toronto to the North American marketplace is also important.

I'm a strong believer--and this is one of the points I want to leave with you today--that if more multinational companies had the opportunity to experience the Canadian business climate there would be more Ericsson success stories in this country. We have the capability, I'm absolutely convinced, to replicate what Ericsson has done in other industries and even in our industry.

The indirect benefits to Canada are very significant. We talked about the investments we made and the number of people we're employing, but those 1,600 people, most of whom are Canadian residents, have the opportunity to acquire an extremely broad and high-level knowledge of our wireless technologies.

The other point as well is we're a great half-way house between Europe and the U.S.A. We joke about it internally that Montreal is a great halfway house between Stockholm and Dallas, where they're pretty far apart in the spectrum of living standards. I was going to say quality of living, but I thought that would be a little more diplomatic.

Ericsson global training programs are also very important. One of the reasons we were able to hire people and maintain these people working for us in the crazy days of a couple years ago is that we spent a significant amount of money, several millions of dollars a year, on continuing education, continually training people, because in our industry, if you stop learning you're obsolete within a very few years. And the young people who are working for us know that and they really appreciate the fact that we have been investing in their future and of course in our future.

And the spinoff benefits are not insignificant as well. As you can imagine, with 1,600 people working in Montreal, relatively highly paid, the McDonalds and some of the better restaurants and other people are doing very well, so there's a significant spinoff.

We've focused a lot on Canadian universities. I personally have been involved, and many others of us in Ericsson have been involved, with the universities. We believe a tremendous amount of knowledge within the universities is yet to be mined. So in many of the things I've done, both with my Ericsson hat on and other hats, we've had a strong focus on what is available at the universities; we've been encouraging them and also trying to commercialize what we have found in universities.

The first GPRS communications in 3G wideband, which is a third-generation standards demonstration lab, for the Americas, was actually set up here in Montreal some three years ago.

Ericsson recently was ranked 29th in the Report on Business Magazine's ranking of the 50 best companies to work for in Canada, and that's up from 44 the year before. Most of the input to that ranking incidentally comes from our employees themselves, who were interviewed independently of Ericsson, and many of the things that I just mentioned to you such as continuing education and so on were cited as some of the reasons why it's a great place to work in.

We focused a lot on employee satisfaction, right from my joining the company in 1986, and that's not spoiling people but it's making sure that these people can develop with Ericsson and stay with us.

We are very creative in Montreal, which is another one of the reasons we have maintained our employment. We have been granted 217 patents, we have a hallway that started off with just a few little plaques on the wall and now as far as you can see are plaques with patents on them and we have 465 pending patents. We are the most fertile design centre in the Ericsson's world in terms of patents per engineer.

We touched upon how the current financial challenges in Canada and elsewhere in the world are making the need for investment, foreign investment, in my opinion greater and greater. This business is no longer a Canadian or North American business, it's a worldwide business. We have several worldwide customers. In fact, we have set up our whole worldwide marketing operation now around what we call KAMs, or key account managers; so we lose our nationalities because of the need to be competitive on a worldwide basis.

To do all of that we need some significant investment. People today are less and less looking at the confines of their own country but rather looking at their markets worldwide.

¹ (1550)

I'll very briefly quote just a couple of things I think are important in our briefing, copies of which you have there.

Contrary to popular belief that with foreign presence comes a loss of knowledge workers, intellectual capacity, and security, the opposite has happened. Our engineers now provide Canadian-designed cost-effective telecommunication solutions and expertise to the rest of the world, not just to our two Canadian customers. The products we sell in 140 countries around the world are to a large extent developed by the centre in Montreal.

So thank you. I'll take any questions you have a little later.

Merci beaucoup.

The Chair: Thank you very much.

We'll now go to our third witness from Microcell Telecommunications, Mr. André Tremblay, president and chief executive officer.

¹ (1555)

Mr. André Tremblay (President and Chief Executive Officer, Microcell Telecommunications Inc.): Thank you.

Good afternoon, Mr. Chairman and members of the committee.

My name is André Tremblay. I am the president and chief executive officer of Microcell Telecommunications. With me today are Dean Proctor, who is representing Microcell and Inukshuk, our broadband Internet arm; and Mr. Ed Giacomelli, the managing director of Rothschild Canada in Toronto. We asked Mr. Giacomelli to join us, given the broad experience both he and Rothschild bring to telecommunications financing.

We felt we could best contribute to your review on the foreign investment restrictions by speaking from our own experience as an industry player. Based on this experience, we urge the committee to recommend the removal of these restrictions.

Restrictions on foreign investment, far from contributing to Canada's telecom policy, are in fact limiting our industry. The rules may apply equally to all, in theory, but in practice, a two-tier system of access to capital has been established.

Restricting foreign investments has a particularly negative effect on new entrants, the very players who are driving innovation. In addition, the effect of the rules is not only to limit what competitors can do in Canada; they also constrain the ability of Canadian companies to expand beyond our borders.

[Translation]

We know this in our experience as the only remaining new entrant in Canada's personal communications services industry. Microcell entered the wireless industry six years ago, convinced of the benefits that competition, innovation and a savvy marketing approach could bring Canadians.

In late 1996, we launched our PCS service, better known to most of you as “fido”, with an approach meant to deliver consumers clear, consistent and measurable value.

Our goal was to make fido the preferred means of communications. And consumers responded: we were successful in capturing market share, and over one million Canadians had become fido customers within five years of our initial launch. No other Canadian carrier has achieved such growth, so quickly.

As a newcomer, we had to be innovative, with vision and determination to succeed. We also had to be very close to the financial markets. Since 1996, we have raised over three billion dollars, all of this invested in Canada, and we have created thousands of good jobs in the process.

[English]

A question asked by the committee was whether changes to Canada's foreign investment rules could materially affect the financial stability of competitors, and thereby improve the health of the competitive Canadian telecom industry. To this question we must reply with a very strong yes. In fact, no single factor would have a greater positive impact for the prospects of telecom growth and competition than eliminating the restrictions as quickly as possible, at least as they apply to new entrants.

I speak to you today from personal experience, not from hearsay or theoretical assumptions. As Microcell's CEO, I've been involved in every step of every round of financing since the company was formed. We have raised over $3 billion from the financial market, in the form of both debt and equity, but as I'll explain, we have tried to raise much more than that.

I can tell you frankly and with no hesitation that the current restrictions have not only increased our cost of financing, they have also caused interested foreign investors to turn away from us.

[Translation]

Some well-established Canadian companies may tell you they can meet their financing needs from existing sources, from Canadian capital markets or even from their own revenue streams. This is simply not the case for newer players.

Like other competitors, Microcell has had some success in attracting foreign investment. But our experience is that the legal limits on permissible foreign holdings, especially for equity, are reached quickly, often well before financing needs are met. After the limits are hit, foreign investment must be restricted to non-voting equity.

º (1600)

[English]

For many, investment without representation is an extremely unattractive option. From the point of view of corporate governance, we all understand why this would be so. Limitations on the type and amount of allowable foreign investment have the serious consequence of driving up the cost of financing. The document we have provided to you today explains in detail how that comes out.

Let's translate this to a real-world example. Late in 2001, BCE's average cost of capital was around 6.3%, while the cost of capital for a Canadian wireline entrant, GT Group Telecom, was about 20%. If each BCE and GT wanted to raise and invest $1 billion, the nearly 14% differential in cost of capital between the two companies would require GT to bear nearly $150 million in additional financing costs each year.

You look at those figures and you ask yourself, how is that sustainable? Of course, with hindsight, the answer is clear. It was not sustainable. In mid-2002, GT sought court protection from its creditors.

I also want to stress to this committee an additional reality. The foreign investment restrictions place a brake on Canadian companies participating in a meaningful way outside our borders. We know this because we have lived it.

By 1998 Microcell was seeing substantial success with Fido and our approach to the wireless market, so much so that we began receiving offers for new investment opportunities abroad.

At that time a very attractive opportunity had become available to us. There was then a company called Omnipoint, which was licensed to offer PCS in much of the northeastern United States, including New York City, representing close to 40 million people in terms of total licences. Like Microcell, Omnipoint was new in the business. We knew the management team well, and with a network footprint contiguous to much of our own, there was a tremendous potential if we could bring the two companies together.

We were encouraged in our desire to expand not only because of the success we were seeing in our own operations, but also because of the success other wireless companies like ours were having by growing beyond their own markets.

Perhaps the best example is Vodafone. Fifteen years ago, Vodafone could most accurately be described as the Rogers AT&T of the United Kingdom, each company having started operations at the same time, in similar market conditions. Today, Vodafone is the largest wireless company in the world, serving over 100 million customers in 28 countries, a true national champion. Of course, Vodafone had no restriction on the amount of foreign investment it could attract.

Now back to us. To buy Omnipoint and infuse enough cash in its operations, Microcell needed to assemble at least $1 billion. I was able to secure soft commitments from within Canada for some $400 million, meaning the rest would have to come from non-Canadian sources.

Do you know how much we were able to secure from non-Canadian sources? Nothing.

The reason foreigners refused to invest in us was consistently the same. Whether we were talking to telecom operators from other countries--and we had a lot of those meetings--or to private investors, we had to propose that an investment be made in Microcell's non-voting equity. The acquisition was not one that could be supported by debt, given Omnipoint's very high debt levels. And we could not offer voting equity to non-Canadians, as that would throw us outside the Canadian ownership rules--clearly not a possible situation.

In the end, VoiceStream, now T-Mobile, one of the parties we had discussions with about the acquisition, ended up merging directly with Omnipoint. And even there, we had an opportunity to be part of that merger but we had to decline because of Canada's ownership restrictions.

I can only lament this as a wonderful opportunity missed by us. Certainly, had it been completed, it would have significantly changed the destiny of our company. I also believe, if you allow me a little lack of modesty, it would have changed the competitive landscape of Canadian telecommunications. We probably would have today a customer base very close to the total Canadian market for wireless right now. T-Mobile right now is serving 14 million to 15 million users.

The Canadian telecom industry needs to move forward, and changes to the investment rules are essential for this to happen. To be blunt, the playing field is not level. In theory, it is supposed to be level, as the investment restrictions apply to all carriers equally. In practice, however, the rules have a particularly negative impact on new entrants. If I may be permitted to borrow a phrase from George Orwell's Animal Farm, “All animals are equal, but some animals are more equal than others.”

º (1605)

The reality is that we have established a two-tier system in Canada. Incumbents have access to large sources of capital at reasonable cost; new entrants don't. Large incumbents enjoy free cashflow, a wonderful inheritance from their long-time monopoly or duopoly status. This free cashflow, combined with their overwhelming dominance in the domestic market, gives them access to sources of financing simply not accessible to new entrants. This is why the rest of the world encourages outside investment in competitive entrants. It is also why the Canadian legislative framework must be adjusted.

In principle, we believe the restrictions should be removed for all players—wireline and wireless new entrants, incumbent telcos, and cable companies in their role as telecom carriers. But there is also a clear and pressing need for changes to the investment rules as they apply to new entrants.

There may be debates as to whether the incumbent telephone companies and the cable companies operating as telecom carriers should benefit from open rules, and if so, on what terms. But let's be clear: there can be no debate and no hesitation that the new entrants require immediate solutions to allow them to access greater sources of financing on more reasonable terms. If this problem is not resolved, we will always perpetuate the current two-tier system of access to capital.

Given this reality, we suggest it would be more than appropriate for your committee to recommend immediate removal of these restrictions for new entrants, even if it is deemed appropriate that the restrictions stay in place for incumbent players for a period of time, or upon the achievement of certain competitive milestones. Alternatively, a licensing regime could be put in place for certain telecom operators. Microcell is certainly familiar and comfortable with licensing, as we currently operate under radio authorizations issued by the Minister of Industry.

I would like to conclude on an issue that reveals much about why things must change in our country. Noises have been heard in recent months that there may not be enough room for four national wireless carriers in Canada. Microcell's competitors have openly encouraged this noise. In the material we have distributed to you today, you will find backgrounders that easily debunk this nonsense.

Many industrialized countries have licensed four or more wireless carriers in their home markets. Canada's wireless penetration rate currently stands at about 39%, far below that in most other industrialized countries. Our average minutes of use per subscriber currently stand at approximately two-thirds of that in the United States. Wireless data services remain largely in a state of infancy.

In short, growth opportunities abound. Any arguments to the contrary simply don't hold water.

Yet what is worse than the weakness of our competitors' arguments is what their positioning reveals about their own competitive mindset. The fact is that the incumbent wireless companies in Canada and their respective parent companies have not yet evolved to the stage where they would evaluate their competitive position on a basis other than how well they are able to carve out the captive Canadian market. This is perhaps the most devastating legacy of Canada's foreign ownership restrictions.

I ask you, when was the last time that a true champion like the U.K.'s Vodafone equated its corporate success with its ability to exclude competition from its domestic market? When was the last time Scandinavia's TeliaSonera or Singapore Telecom showed a lack of willingness to expand outside their home base? Do we have any Canadian telecom companies that have successfully grown beyond our borders and achieved a level of scope and scaled economies to truly benefit Canadian consumers?

º (1610)

Why don't we have champions like U.K.'s Vodafone, after all the years of favourable policy treatment allowed to Canadian incumbent carriers who have operated within protected monopoly or duopoly markets? By lifting Canada's foreign ownership restrictions, you will give us a fighting chance to show what we can become. You might also encourage our competitors to open their eyes to the opportunities that await them beyond our borders.

[Translation]

We hope that you, like us, will look upon Microcell's experience as proof positive of the need for change, and that you will recommend the immediate removal of foreign ownership restrictions on Canadian telecommunications companies.

Mr. Chairman, ladies and gentlemen and members of your committee, we thank you for your attention and we would be pleased to answer your questions.

[English]

The Chair: Thank you.

Mr. Rajotte will begin the questioning. We'll start off with the eight-minute rule for everybody, and then go from there. I will ask you to be clear in your questions, and I'm sure the answers will be clear too.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman, and thank you, gentlemen, for coming in today and for your presentations.

Mr. Tremblay, I want to start with you. I found your presentation very interesting. I have to say you're the first witness to ever quote George Orwell to us, so I commend you on that.

You talked about the two-tier system of access to capital, on pages 9 and 10 of your presentation. You say Canada has established a two-tier system. I want you to expand on that.

On page six you say let's translate this to a real-world example, and you talk about the 14% differential in cost of capital. Could you just detail how that 14% differential would be different if you moved toward either eliminating or lowering the restrictions on foreign investment?

Mr. André Tremblay: When I describe what I call the two-tier system, I'm talking in practical terms. The fact that we have restricted access to capital has the impact that we are not able to raise enough equity. If we go out to raise equity, we hit those rules early in the process.

The fact that we don't have enough equity is an impediment for us to raise that at an affordable price. So it increases the risks and the leverage on the company. It creates a situation where the total structure of capital will be very costly.

Another impediment is that if you look at the markets the way they are, there is a pool of capital accessible to different types of companies. Blue chips will have larger pools of capital accessible to them than new entrants. If you really want to hit markets that are supportive of new entrants, it dramatically reduces the pool of capital accessible to you. You will find a huge fund here in Canada and elsewhere in Europe and the States. They may define a large proportion of their funds for access to large corporations because it's less risky, and they will carve out of this a smaller portion for new entrants that have higher chances of participation in the growth.

This pool is naturally smaller than the huge pool available for the large companies. So if you want to have a big pool made of those small parts, you must be very wide in your approach to capital markets. It has be here, in the United States, and in Europe. You go where it is. You will find in that environment enough capital to support your growth. Then you become a bigger company and gain access to those larger pools of capital. So it's really a matter of how markets are defined, in terms of opportunity to invest.

º (1615)

Mr. James Rajotte: Thank you for that.

I just want to be clear on this. Even if you expanded the pool greatly from $1 million to $1 billion, just to use figures, wouldn't Bell Mobility and Telus still be at an advantage because of their size compared to Microcell? Wouldn't the differential still exist, even though Microcell had access to more capital, as you said, at the bottom because the pool was bigger? How would the differential itself be decreased, if the relative size of the companies were still the same?

Mr. André Tremblay: I'm not trying to suggest that it's the only impediment we will have with a Bell Mobility or a Rogers or somebody else. If we want to enter into that debate, I can tell you that we do have impediments but we have great pluses as well. We have the impediments of the new commerce but we don't have the weight of the legacy that sometimes carries its own restrictions.

A company like normally will be faster to market, come with new approaches, and have a very clean approach to the market. For example, who will introduce competition to local access in Canada? Will it be Bell? They already have all those lines installed across Canada, so it probably won't be they who will be the most competitive against themselves. It's been more the Microcells that have been bringing to Canada prices that Canadians have never seen.

When we entered the race in 1997, the first pricing we had was $40 for 400 minutes. The best price point you had in Canada at that time was $120 for 400 minutes. That Rogers price was the best price for 400 minutes, and we came in at $40. It was a very good price point, and it was adopted after that. It was a price point that would give people certainty in their cost of communication. They could use it and use it and pay not $40 but $50 to $55. It was a marketing approach that separated us from the other incumbents at that point in time.

So you're going to have new entrants pushing for competition, coming in with new ideas, being more nimble. Yes, you have a deficit in terms of size, and other deficits here and there, but you can't afford a cost of capital that is two to four times more than the rest of the crowd, because it requires capital every year. You need to grow the network, you need to invest in product development, you need to invest in customer growth. So if you don't have a cost of capital--a huge expense--that brings you into the league, you're not going to be there.

As well, in terms of external funds, if you look for long-term funds in an industry like wireless, you will very often hit strategic investors, not strictly financial investors but strategic investors, who will go for the long term. That is a huge benefit. I talked about our history with Omnipoint. Omnipoint was a strategic fit with us, and we would have had access to more funds because of it. We would have been part of that trend because of the strategic fit of those two entities.

So we cannot afford to have those limitations, those constraints, when trying to establish competition.

Mr. James Rajotte: Just to follow up on that, the Department of Industry has given us a summary of the foreign investment restrictions in other OECD countries. The summary lists the ones that have no foreign ownership restrictions and then details the ones that do.

I'll start with you, Mr. Tremblay, and I'd like each witness to answer. I haven't had a chance to go through all your papers here. Is it your recommendation to the committee here to have no foreign investment restrictions, or are there some that you think we should keep in place?

Mr. André Tremblay: I clearly believe that in all those telecommunications fields you should certainly not have any restrictions for new entrants. New entrants cannot be a threat to any other national point of view or interest, and we believe this should be removed across the board.

If something must be preserved in terms of a protection of assets, such as a national treasure, or culture--and to be frank, I'm the CEO of a wireless company, not the guy to assess those circumstances--it should be dealt with through licence allocation or through two tiers, such as we have with banks in Canada. It should be dealt with in a manner that does not preclude new entrants from being able to compete in the market.

º (1620)

Mr. Lionel Hurtubise: I guess from Ericsson's point of view, as I mentioned earlier, we operate in 140 countries, so we have a pretty good view of what is happening in the world. In those jurisdictions that are most open, whether it be on the financial side or the licensing side, we have found a very significant increase in activities.

I'll give you just one little anecdote. I was in this business before cellular, and I clearly remember the Japanese being ready to go on the market well before the Americans. Those of you who are as old as I am will remember there were a lot of discussions going on in the U.S., so the market was really held back by administrative issues. But Japan started a full five years before anyone else in the world. I said, “Oh, here we go again, the Japanese are going to whip us”, but it turned out to be quite the opposite. They didn't free up the market in Japan. Only NTT was offering the service, and they went nowhere for the first 10 to 12 years. They went nowhere at all until they opened up Japan, and then all of a sudden Japan just blossomed.

That story has been repeated. I could give you dozens of other examples.

The Hon. Francis Fox: Thank you, Mr. Chairman and Mr. Rajotte.

Our position is very, very clear as stated in our brief. We believe the rules should be changed for all carriers, large and small. We recommend a complete elimination of the rules, rather than a partial reduction. We find that the fundamental flaw in Mr. Tremblay's argument about new entrants is, if you allow a special category of regulation for a new entrant, then a foreign company could buy that new entrant, and all of a sudden you have a foreign company with access to large pools of capital. That new entrant, which may have been small, which may have been fledgling, develops into a competitor under a privileged set of rules. Basically we think that new entrant argument is fundamentally flawed for those reasons.

The second point is that it is the market--not Industry Canada and not us--that has to decide how many competitors there will be in Canada. The market will decide how many there will be. As for incumbents, well, in the Industry Canada paper, “incumbent” is defined as the telcos who have quasi-monopoly, local telephone wireline operations. There we're all at a disadvantage towards the telcos. The telcos get better rates in the marketplace; they get somewhere between 300 and 400 basis points better than we do.

Notwithstanding that, we think those should be eliminated for everybody, large and small. We think the incumbents will come in here and tell you they're in favour of liberalization in principle, but not right now. I would suggest that if I were an incumbent, that's what I would be arguing also, but hopefully it's not the incumbents that are going to dictate the type of regulatory model that we're going to have. We believe in a level playing field; the level playing field should be the same regulatory model for everybody in the marketplace and the elimination of the rules rather than a partial reduction.

Mr. James Rajotte: Thank you very much.

The Chair: Mr. Savoy.

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

Thank you for your very thorough presentations.

I'd like to come at it from a little bit of a different perspective. I feel that Canada, in trying to reach our innovation goal by going from 14th to top five by 2010, has to become a country of innovators. In fact, if you look at our product life cycle, we have to be at the front end of that product life cycle.

To encourage that approach or that philosophy, that mindset, I think we have to do all we can for R and D in this country, be very aggressive on the R and D front--in fact, establish Canada as, I wouldn't say a haven, but certainly a focal point in this global community for R and D efforts. I think that fits very well in supporting our high standard of living.

We know the productivity situation with the U.S. We know about our patent applications and the patents granted in Canada. In terms of DFI, and specifically telecom, what do you feel would be the impact on industry, on the R and D climate in Canada, and in fact, on your specific operations in terms of R and D and moving this general philosophy forward?

I guess we can start at each end.

The Hon. Francis Fox: I can ask Dawn Hunt, our vice-president of government and intercarrier relations, to respond to the question.

Ms. Dawn Hunt (Vice-President, Government and Intercarrier Relations, Rogers AT&T Wireless): From the company perspective, the Rogers Wireless perspective, certainly we have had R and D commitments that we have continually met or exceeded each of the 17 years that we've been in business. It's a condition of our radio spectrum licence that we invest 2% of our adjusted gross revenue in R and D functions.

Certainly I wouldn't see any direct impact on the R and D. In the goal that you state for additional R and D and making Canada a haven for R and D, I think Ericsson is a perfect example of how that can come to pass, and our example as well. As I indicated, we invest a full 2%. In the case of more direct foreign investment, certainly there's no reason those commitments wouldn't stay with the existing companies, and certainly if it were felt that this was required to be a condition of licence for new entrants, 2% is reasonable and would continue.

º (1625)

Mr. Andy Savoy: Mr. Hurtubise.

Mr. Lionel Hurtubise: I might sound as though I'm speaking out of both sides of my head, but as an industry representative, of course, I resist being regulated in any way. I totally believe in a fully deregulated industry. But if we look at the example of Ericsson in Canada, it was that small commitment that we were highly encouraged to make at the time by the then Minister of Communications to set up a small R and D centre in Canada. We tried it, and we loved it, and I'm absolutely convinced, as I said in my presentation earlier, that if more multinationals come to Canada and are encouraged to do a little bit of R and D in Canada, we'll soon find other Ericsson stories. I'm absolutely convinced of it.

It didn't happen within Ericsson because of what I did exclusively; I did my share, but it happened because it was good business for Ericsson. We had good business to start off with, and when we set up the R and D centre, it proved to be highly successful.

Mr. Andy Savoy: Thank you.

Mr. Tremblay.

Mr. André Tremblay: I believe there is a clear link between access to capital and R and D spending. I'd like to relate two experiences we had at Microcell at this level.

When we created Microcell--in fact, it was part of the licence application we provided to Industry Canada--we knew we would not have the size, given the number of years, to do R and D to support our products. Basically, we need to compete, so we need to innovate, and innovation comes from R and D. So we created funds where we would have different people investing with us in R and D that we could export and use.

The idea was to create products that could turn on our networks, but also turn on other networks. It gave more mass, more scale, to create more R and D dollars. We created the first fund of $100 million U.S., administered from here. We created a second fund of $250 million U.S.

So in fact we raised, outside, $500 million, let's say, to invest first in GSM-related technology, and second, in Internet wireless-related technology, to help us create something.

We're pretty confident we can make it. One thing we did was to create a company that bridged the Internet content and wireless. The name of this company is Saraide. In fact, it's been forever trying to establish itself. It's gone a long way.

Just to give you an indication of what we were able to do with that, we were the first company to do e-mail on this technology, through the Internet to the mobile, with this company. We would never have been able to do it ourselves. We were very happy to have that, because it would not have been possible with our own resources.

So I do believe that R and D comes from scale. The more you can have your products spread across a big network...and a big network can be 3 million people, or 10 million or 15 million.

If you look at the emergence of 3G on the planet, the leader of 3G is going to be Vodafone. They have 100 million customers. Every time they develop something somewhere they can turn their product into a platform that will serve tons of people.

So I think that's the kind of mindset that one should have to drive technology and to drive R and D dollars.

The Chair: Do you have another question to ask?

Mr. Andy Savoy: In terms of sharing this innovation agenda with all regions of Canada and all Canadians, you're probably familiar with the BRAND program. It was the high-speed Internet program for rural and remote and first nations communities. I think that's a very admirable goal, to share this innovation mindset across Canada.

I have some concerns that the federal government is placing substantial dollars into this program, but in terms of sharing this venture with the providers, we have to look at their access to capital, their commitment, and the business case surrounding it.

So in terms of the restrictions and DFI, will this have a significant impact on the program to reach out to Canadians with high-speed Internet?

º (1630)

The Hon. Francis Fox: We're talking basically of broadband services--

Mr. Andy Savoy: Exactly.

The Hon. Francis Fox: As far as the wireless side is concerned, we're not really involved in broadband services. I think our cable side provides Internet access, and so do the telcos, so it's difficult for the wireless side to respond to the question.

We do operate a GSM-GPRS network, which is a narrow band network that is really a data service that we are extending across the country, wherever our network is, but we're not really in the broadband access business.

Mr. Andy Savoy: Just to clarify, in terms of high-speed Internet access, it's not strictly broadband. That was the initial premise it was based on. Now we're looking at satellite, wireless, and various media. So I think there is, in fact, an opportunity for Rogers to participate in this.

The Hon. Francis Fox: Mostly on the cable side, I would suggest.

Mr. Andy Savoy: Okay, but in terms of relating this to DFI and foreign investment issue restrictions, will this be a hindrance to--

The Hon. Francis Fox: Yes, I think you're right.

We believe strongly that the limitations should be eliminated and that both the telcos and the cable companies, which are in the same business in many regards, should have the same regime. So we feel that we should bring the same arguments that we bring in regard to wireless. It would allow us to raise money at a lower cost. It would allow us to get more equity capital. It would allow us to get more debt at a more reasonable cost. It would allow us to continue to improve and extend our networks. In the same way, the same argument would apply to the cable companies.

But at some point there are some places in Canada where the terrestrial approach is not going to work and you're going to have to look at satellite.

So in principle, yes. I think our cable panel, particularly Rogers Cable, will want to respond to that question in greater detail when they're here in a couple of weeks.

The Chair: Mr. Hurtubise.

Mr. Lionel Hurtubise: Maybe I'll put my CANARIE hat on. I was chairman of CANARIE for a few years, and am a strong believer in the potential benefits to Canada of being able to bring broadband, wideband, and high-speed services, or whatever you want to call them, into the more remote communities.

I really believe that's one answer to the perennial problem we've had, that if you're a young person born, brought up, and raised in a part of this country other than Montreal, Toronto, or sometimes Ottawa or Vancouver, you really can't practise your own trade. I believe the little guy down in the Gaspé or somebody on Cape Breton Island should be able to be a real player in this industry. However, I think the reality of business life, as you mentioned, is that it's very difficult for an independent carrier—which is not our business, but certainly is for my two favourite customers—to make a case for bringing some of these expensive services into the small communities. So I think there's always going to be some need of government encouragement and help to do it.

The Chair: André.

Mr. André Tremblay: Two years ago we were awarded 12 out of 13 licences across Canada to launch wireless broadband Internet services. I would say we've been assessing technologies. I think we can now claim that this technology is coming to the point where it could be launched.

I really like the way you've been putting the questions. The first question to answer is whether or not there is a business case to do this. If there is not, you need to find alternate ways. Government dollars may be a way.

We have been developing cases to deploy this kind of technology. The conclusion we're coming to is that one technology is very hard to launch. We need to launch two technologies. It would then be possible for us to launch Inukshuk in a region where we also launch Fido. Then we would have two products in one house. That's one conclusion.

The second conclusion is that we need local partners. Why do we need local partners? We need to understand the local tissu. We need to have somebody who is a credible person in the community to help us to have access to low costs, good market strategy, and to identify the right model to go to market. From there, I find the worst problem we hit is access to capital. We need funds and access to backhaul at affordable prices.

This is where I believe Industry Canada is right at the forefront now, because they are looking at backhaul. Building a system, or selling a system to 100, 200, 500, or 600 homes is possible. Bringing the information over a wideband all of the time at cost, and amortizing over 100, 200, or 300 people, or 100 houses, is the most difficult part. With its program right now, Industry Canada is looking at it in this way. I believe they're right.

So I don't believe access to foreign ownership...removal is going to help directly, because I believe you need to start from a positive business case. But starting from a positive business case, it is obvious; the more access you have to capital, the more likely you will find some.

º (1635)

The Chair: Thank you very much.

Mr. Crête, you have some extra minutes.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you for your presentations. I'll begin by recounting a little anecdote and then I'll ask a question.

Approximately six months ago, residents of my riding came to the realization that within a 30-kilometre zone on either side of highways 20 and 185 leading to New Brunswick, no one could get their cell phones to work. Letters were sent out to five companies asking them to propose possible solutions to the problem. None deemed it cost-effective to provide service within these areas.

My question is as follows: How would you rate your capital requirements? As far as the next five years are concerned, how would divvy up the resources between debt repayment, investment and research and infrastructures?

[English]

Mr. André Tremblay: It's a good details question.

[Translation]

Mr. Paul Crête: The Deputy Minister of Industry asked us to put that question to you, since he didn't have an answer for us. He couldn't give us the figures, and his department had not done a study. He said that the companies would be able to give us an answer.

[English]

Mr. André Tremblay: So, the percentage of capital expenditure...?

[Translation]

Mr. Paul Crête: I'm curious as to overall capital requirements and what proportion should be assigned to debt reimbursement, to investment and research and to infrastructures as such.

[English]

Mr. André Tremblay: I can give you those numbers, but I'm trying to find a way to make sure they will help you.

Our debt situation at Microcell--

[Translation]

May I answer that question in French?

Microcell's debt situation is rather unique. As you may know, our firm is in the process of recapitalizing. If the reorganization goes through, and in practice we expect it will, theoretically, our debt will be reduced from about $2 billion to $350 million, meaning that over the next few years, debt reduction levels will be fairly moderate.

As for interest charges and capital, these will account for a very small portion of our revenues, which will vary anywhere from approximately $600 million to $800 million next year, if we look at a five-year period. The debt will account for a small proportion of that overall amount. Capital investment is projected to be in the order of just under $100 million for next year, and between $125 million and $150 million per year after that.

To answer your last question, during Microcell's first five years in business, we spent 6 per cent of our revenues on R&D projects, whereas our commitment was to 4 per cent. That's excluding all of the R&D using the funds I mentioned earlier.

I'd now like to venture an opinion on the question you raised.

As I see it, the most effective way of providing wireless technology to more remote areas, a problem that no one has ever been willing to take on in Canada, would be to share the same, or comparable, networks. I have here in my pocket a telephone that works on three networks. I wasn't expecting your question, but I'm glad you asked it. The phone works on Microcell's and Rogers' GSM network, with Rogers' TDMA technology, and on analog networks. If, rather than attempting to install four networks across Canada, companies could realize that it is in Canada's best interest to work together to build a network in the most remote areas, from an accessibility standpoint, this approach would enable all providers to compete. Today, access to capital is used as a weapon. Not only is capital denied to companies that want to compete, but invested capital is also used as a weapon with which to compete. Competitors are prevented from setting up facilities on existing towers and roofs and people are prevented from sharing networks.

This is absurd in a country as vast as Canada, and that's the reason some regions like yours are without service.

º (1640)

Mr. Lionel Hurtubise: Naturally, we're interested in providing services to our customers.

The Hon. Francis Fox: It's very difficult to provide a prospective answer to your question, because we cannot speculate as to financial markets and so forth.

However, as I stated in my presentation, our capital expenditures were $400 million in 1999, $500 million in 2000 and $650 million in 2001. Our final tally for 2002 will be announced this coming February 14. However, our spending projections for this past year were in the order of about $550 million. SInce our launch, we have invested $4.9 billion in networks across Canada. Initially, when a licence was issued to Mr. de Gaspé Beaubien, to Mr. Rogers and to the Belzberg family of Vancouver, Mr. de Gaspé Beaubien and his two partners believed that they would be able to extend coverage to all of Canada with an investment of approximately $100 million. This has indeed proven to be a capital intensive industry.

Moreover, take our accumulated debt which totals $2.4 billion at the present time. On page 12 of our submission, we note, in response to Industry Canada questions, that RCI corporate, that is the whole Rogers group including cable, incurred $441 million in interest expenses in 1999, $360 million in 2000, $430 million in 2001 and $500 million in 2002. If you combine interest expenses with yearly expenditures, you can see the difficulty associated with free cash flow, the figure analysts are trying to come up with these days. All companies today are trying to determine their free cash flow. At one point, analysts evaluated our companies on the basis of the net number of new subscribers. Subsequently, a distinction was drawn between prepaid subscribers and those paying after the fact. Analysts then tried to determine a company's free cash flow, or whether that company was moving in the right direction. Today, if a company wants to be seen as having a favourable market position, it must have a sound free cash flow. We spent approximately $500 million on wireless networks in 2002, and as I mentioned, our accumulated debt totals $2.4 billion. Therefore, in all likelihood, $250 million will go to service that debt. Expenses in these two areas will therefore total $750 million per year.

Getting back to Mr. Tremblay, extending coverage to regions like this boils down to a question of cost-effectiveness. Our firm tried to reach an agreement with QuébecTel before it was acquired by Telus. We came within a whisker of finalizing an agreement but ultimately that company bowed out, preferring to keep its competitive advantage. It wasn't cost-effective for us to build an entirely new network in the Gaspé region, given the number of sites that would have been required and the number of new subscribers we could have lured away from QuébecTel. Therefore, QuébecTel decided to keep its monopoly and transferred it over to Telus.

Mr. Paul Crête: Twenty years ago, companies doing pharmaceutical R&D and governments that had promised legislation that would afford them more protection had more or less a gentlemen's agreement. Although it wasn't spelled out in the legislation, these companies pledged to make capital investments. Would companies be willing to make a number of similar commitments, in exchange for the liberalization of restrictions on lending capital? For example, we could say: “if companies agree to the idea of a single network, in exchange, we would give them something in the way of guaranteed investment capital so that remote regions, the 80 per cent of all territory in Canada without high-speed Internet coverage, would now be covered.” Would companies be prepared to accept these terms in order to gain access to investment capital?

º (1645)

Mr. André Tremblay: I think we're trying to solve a problem by...

If we add up the problems, we're not going to solve them all. If you look at how networks are built in this day and age, you'll see that often, two towers are located side by side. Often there is duplication of infrastructures. When we look at the regionalization issue - I'm from the Gaspé region - I think we need to look beyond these boundaries and ask ourselves the following question: if we invest our capital in and around major centres in a more rational and intelligent manner, could we not then set aside some capital for these other regions, or use the available capital more effectively?

In the case of our company Microcell -- and I'm not saying we deserve bouquets -- we realized from the start that it would be impossible for us to have our own critical mass of network users fast enough to make our operations profitable if we limited ourselves. We didn't have a 15-year head start on the field. We decided to launch our network, to open it up to all comers and not to limit access to our network for the sake of competition, with a view to lowering our unit costs. The more players the better. That way, we would be able to compete with the big guys.

We advocated an open environment, whereas others had always favoured a closed approach where the focus was always on a company having its own network, handling its own affairs and competing on that basis. That approach is extremely costly. Some maintain that our operations are not cost-effective, but all of these elements combine to make other ways of operating very costly indeed. Each company in Canada has reinvested several times over in new network technology. Several companies use analog technology, while a number of others use TDMA, and still others, CDMA systems. Today, two companies rely on GSN technology. We could compete within the industry using shared infrastructure, just as banks compete on the retail level by using the same computer systems. I think this is a big part of the industry's profitability problem. Even if restrictions on investment were eased to resolve the problem in remote regions, I don't think this would solve anything, because the company would still have to prove the cost-effectiveness of this approach. That would be possible if four companies sold services using the same telecommunications tower.

Mr. Paul Crête: Basically, are you willing to change?

[English]

The Chair: We have a little technical problem, so for a couple of minutes we're going to allow the technicians to make a change at the back. We'll be right back.

º (1649)

º (1650)

The Chair: Thank you very much. We'll now proceed. We'll ask Mr. Bagnell to begin with questioning.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you all for attending. This is very helpful.

I have a couple of comments and probably one question.

First, when you were talking about the market and not the Department of Industry determining the number of competitors, I hope, Mr. Fox, that you meant as long as there's not a monopoly or a quasi-monopoly.

My riding is the Yukon. We had a bad example a couple of months ago of where the monopoly, the cellular phone company, apparently, from what the consumers told me, one night, overnight, took the tower away because they weren't making enough money. They sent it to another city. So people who were, first of all, somewhat in the wilderness, who depended on it for emergencies, and who also depended on it for business just didn't have any phone service, which I don't think would have occurred in a competitive situation.

Mr. Tremblay was talking about companies leaving places. I was thinking, Mr. Chair, if the Department of Industry doesn't do it already, Canada should have systematic exit interviews for companies, as you do when employees leave a company, to find out exactly why, and to work on the prescriptions. If the Department of Industry doesn't do it, it would make a good media story.

This is a fairly naïve question for me, because I'm not that familiar with this particular industry. I want to delve deeper to find out the reason that more access to capital would help in the sense that in Canada and the United States there's always been more capital than there are good projects, historically. In fact, the Canadian economy is better than the American economy right now

Now, I understand, Mr. Tremblay, you're making the point about having investment without representation. That makes a lot of sense. I could see why people wouldn't want to invest and I can see that improvement.

Are there other reasons that it would help to have a bigger pool of capital available, when there is lots of capital in Canada, if people are convinced that it's a good project?

I put this to all the witnesses.

Mr. André Tremblay: There's a lot of capital in Canada, but there isn't a lot of capital in Canada to support some types of investments. If you look at a very large pension fund--and I've had this discussion many times--of $100 billion, they define their zones of investments in terms of portfolio management--so many risks and so many this and that, strategy of diversification and all that. When you're a new entrant in a telecommunications sector that needs funds for additional financing for five years, etc., only 1% of the total fund is allowed for that kind of venture.

Because the risk of those types of ventures is much greater, you must have access to a very wide range of potential funds if you want that 1% to represent something meaningful that will provide what you need. Also, because of the risk and the fact that you need money year after year, a lot of investors in those fields will come from what we call the strategic investment side--people who understand the business case and are able to help with ideas and in different ways. There are fewer of those strategic investors. A lot of what you call large funds in Canada--and we have large funds in Canada--won't put in a penny because it's not included in the definition of what they would like to do.

So you need those strategic investors. If you look for a strategic investors pool of funds in Canada for Microcell for $2 billion to $4 billion, you'll find it doesn't exist. Those are the cases I wanted to make.

I just want to make another point. We agree 100% that the market will decide the number of competitors, but let's open the market. Otherwise we will be at a terrible disadvantage here. If there is a fear that opening the market to us and not to others will create a disadvantage to some other people, I can tell you that having the market closed is creating a terrible disadvantage for us. We have a two-tier situation right now, in practice. We are not claiming to build one. We agree that the market will decide the number of players; that's the game we're in. But let's make the market a fair level playing field, not the situation we have right now.

º (1655)

The Chair: Mr. Hurtubise.

Mr. Lionel Hurtubise: I'd venture to guess that if you went to the Boston area or the San Francisco area you'd find ten times as many savvy, knowledgeable investors who understand the high-technology area. So although there's lots of money in Canada, one of the problems is we don't have enough tech-savvy investors.

The Hon. Francis Fox: Mr. Chairman, I have just a quick answer as well.

First of all, on a historical note, as I indicated previously, we've been around for 17 years and in business for 17 years. We have a long-term accumulated debt of $2.4 billion, and in those 17 years we've never made a profit because we've reinvested constantly. We've reinvested in technology. We deployed the analog technology at the beginning and then, when the digital technology was available, we became the leader. We were the first to deploy digital technology. Then we went to TDMA technology, and finally, a year and a half ago, we went to GSM technology and we're upgrading that once again with the help of our friends from Ericsson.

Basically, we haven't made money in 17 years. What we'd like to see out there, first of all, is a sustainable competitive model. We think that to have a sustainable competitive model you have to have access to a pool of funds at the best possible price. We think that lifting the foreign ownership restrictions means that we'll have a greater access to funds and it would probably decrease, by at least 100 basis points, the cost of debt funding for us. We think also that the other way to fund oneself is through equity and that it would be easier to issue equity in that type of context.

All of this--reading Industry Canada papers-- allows you a real acknowledgement that the telecom sector is a real motor driving the Canadian economy. If we want to have a Canadian economy that is competitive with other economies in the world we have to be innovative. We have to have access to the best that technology can offer. It's only this way that we can continue to invest in these networks. It's only this way that we can continue to upgrade these networks in the environment that we're in. Basically, our argument is that this type of...I don't want to use the word “liberalization”; opening up, let's say, is the way that we have to go, as a country.

Once again, I'm quite impressed with what the British minister, Stephen Timms, said yesterday, that the end of foreign ownership law brought an investment boom in Great Britain. We're the only country that is really à contre-courant in this area at the moment. We're one of the few countries that is limiting that.

I look back to the reasons Industry Canada gave for introducing these limitations in 1993. It was basically to mirror U.S. legislation at the time, and that U.S. legislation apparently doesn't exist anymore. There's no reason for us to be there anymore.

We don't lose any control over the system if we open up foreign ownership. The CRTC continues to have the same regulatory powers. It can deal with any issue that it deals with at the moment. We're not giving up that regulatory power. All we're saying is that you now have access to a foreign pool of money to do some of the things that perhaps Mr. Tremblay wants to do to expand outside the boundaries of this country, and to create employment, create jobs, have more R and D done here, and all that. It's all plus. There's no downside on this since the CRTC or Industry Canada, through a licensing or regulatory process, will continue to impose a regulatory model they believe to be in the public interest.

» (1700)

The Chair: Mr. Giacomelli, do you want to add to this before I go to the next speaker?

Mr. Ed Giacomelli (Managing Director, Rothschild (Toronto), Microcell Telecommunications Inc.): I just want to add that, in our role as adviser to Microcell in its current restructuring, we were asked by the board of directors of the company to approach investors in Canada, the United States, and internationally. I think you'll be interested to hear that when we went to Canadian investors--and when I say investors, the pool of investors we went to were really private equity investors, because the public markets are not open to the company--we found that they were only interested in participating if a knowledgeable telecom investor came along, or, more important, if a strategic investor came along.

From talking to those knowledgeable investors, certainly we found that the restriction on foreign ownership in Canada is a tremendous impediment to entering the market. It's an impediment because that rule we have restricts access to capital. In particular, it restricts access to capital when a company most needs it, like Microcell needs it today, like AT&T Canada needs it today, when capital markets are not readily available but strategic, or knowledgeable, private equity investors are there. And as a result, this lack of access to capital increases the cost of capital. It causes companies to limit the degree of growth that they are able to pursue, and the level of innovation, and ultimately makes them less attractive financial investments.

Certainly that was the experience we encountered.

The Chair: Thank you very much.

I'll go to Mr. Masse.

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

Mr. Tremblay, in your submission on page 11 you identified the possibility of phasing in and evaluating and looking at milestones. Can you elaborate on that?

And perhaps I'd like to have the other panel members give their input on that.

Mr. André Tremblay: Again, I want to remain extremely humble on those matters. I am not a policy-maker. I can relate my experience and my thoughts.

What are the right milestones? I would suggest that you have a situation where you have dominant carriers and you have no entrants. That's the situation. There is a clear situation of market dominance. There is a clear situation of financial strength. That should be part of it.

I'm glad to hear that if you open the market to us...the foreign ownership rules, we can become a threat. I have not felt like a threat for awhile now, and it's nice to think that it may come back. But the real threat we want to have is access to capital to compete. We want to be an efficient competitor.

You know, I don't see how we can become a threat to anybody. We want to grow, to compete, to bring value to consumers, to get more of them, and to build the business.

I believe you can feel that if you have a dominant player, having an installation in every house since the 1920s, having clear dominance in the market--it may be a licensing situation or perhaps the definition of two-tier.... Maybe timing issues should be considered in terms of making sure that we're not getting rid of national benefits for the citizens of the country by allowing stuff to happen. I'm not suggesting that. I just think it may be an approach to dominance of the market.

» (1705)

Mr. Lionel Hurtubise: I think I'll plead the Fifth on this one. I won't go between my two customers; I'll listen to them attentively, like you.

The Hon. Francis Fox: I think we're on record, in our own brief, in response to the 12 or 13 questions. In paragraph 33 we say that we believe any legislative changes should apply immediately and to all players.

Mr. Brian Masse: I'll follow up, then, with the next question.

Mr. Fox, I know you've identified jobs. With regard to jobs, what type of jobs? Are there going to be better wages? Is there going to be an industry at the end of the day that's going to have a healthier economy, where real Canadian jobs are improved, as opposed to 10 years from now when we look at companies and at having a monopolization or a reduction because of the competitiveness and merging of corporations?

Can you point to any studies that show that opening markets in these things does that?

The Hon. Francis Fox: If you want studies that I can refer to offhand, the answer is no. If you ask me where we see ourselves in five years' time, we see ourselves as a very strong and competitive Canadian company that is able to stay in the marketplace, that is able to continue to invest in our network, that is able to continue to upgrade our network to make sure that we have leading-edge technology--and I think Mr. Hurtubise would say, “Hopefully supplied by Ericsson in Montreal”--and are creating meaningful employment for Canadians in Canada.

We think it's perhaps even more meaningful for those of us who don't have a wireline local telephony component, because I think these companies, which are referred to as the incumbents in the Industry Canada paper, already borrow on behalf of their wireless subsidiaries and they already enjoy a differential delta of about 300 to 400 basis points in whatever they borrow, either in Canada or outside. They will always have a differential because they have a very good, sound, powerful economic base.

We also have a good, sound economic base-- I'm not saying we don't--but there will always be a differential there. We would hope to see that delta reduced somewhat if indeed we are able to have this opening up on foreign ownership restrictions.

Mr. Lionel Hurtubise: As we mentioned in our paper on page 3, I think the Ericsson example is a really good one. We've had exactly the opposite effect. We had a commitment to put a very small group in, 100 people or whatever. We're now up to 1,600. And it's because the Swedish company was able to experience firsthand what it was like to do cutting-edge R and D in Canada.

And I'm absolutely convinced, no matter which one of the many hats I wear, that it's not unique to Ericsson. I think the more activity we have in our industry the more Ericssons we'll see coming to Canada to really take advantage of what we have to offer.

Mr. André Tremblay: I would point out again what Mr. Fox said earlier about the U.K. experience. Vodafone is a clear, very strong champion. It's bringing a lot to the U.K., tons of jobs. If you look at the composition of their shareholders, I'm sure you won't find a majority of U.K. people. You will find all kinds of people, but they have been built from a base in the U.K. They have been growing from that base. I'm sure it's true that they've been carrying to the U.K. a lot of results--creating services and products, billing systems and call centres, and so on.

Another good example is Orange, another U.K. company. It's an example the other way, now. Orange ended up being sold to France Télécom. But instead of destroying the Orange base in the U.K., in fact they have been adopting the Orange brand for their operation outside of France, and probably soon in France. They've been keeping a lot of services--development, product, branding, and so on--in the U.K. They've been taking the experience of those guys, and they're very good at branding. They've been keeping a very strong base in the U.K., and expanding to the rest of the world from the U.K.

So that's the other sense.

Do you know what? I'm wondering, what's the alternative, really? What's the alternative? Do we really believe we can close our markets and in fact reduce innovation and competition in our markets, and expect, then, in years to come, 10 or 15 years, that it's a sustainable situation? I believe it is not a sustainable situation. I believe in the end it would be the ghetto--Is that the right word?--of telecommunication financing.

The way to go, clearly, is believing that from Canada we can expand, create something, and bring the benefit back here, as much as people can and will invest here. It's a two-way street. As Lionel said, we've been extremely good at doing our own stuff here, and in fact exporting our own stuff here. There are many companies and many sectors. Bombardier is not owned by foreigners, and nobody succeeded in buying Irving Oil. In many sectors you don't have it and you still have very strong Canadian champions. It's no different in this field.

» (1710)

The Chair: Thank you very much.

Mr. St. Denis.

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

In an ideal situation, we would have all the players--the incumbents, the new entrants, and I'm not sure what you would call them if there's an in-between; the “emerging incumbents” or “old new entrants”. I don't know, but we would have all the points of view.

So to Mr. Fox, partway down the road of the question, I want to ask--and in due course we will have the incumbents here, and had they been first, I would have put this question to them--what kind of principal arguments will be here from the incumbents, and how would you respond to those arguments?

I'll start with you, Mr. Fox, because you said probably the main comment they will make on a change in the ownership rules would be that it should be later--which might be a proxy for never, I don't know. I wonder if you could expand on that--and I would invite the others, too--to help us understand your view on the arguments the incumbents might make, as part of our education on this.

The Hon. Francis Fox: Well, I hesitate to speak on behalf of the incumbents, and in fact I won't; I suppose I can just tell you what I think they would be saying.

I think the incumbents are probably very happy, very pleased, very satisfied with the present situation. In spite of everything that's been said and done up to now, there's virtually no competition in local telephony. There's very little competition in terms of long distance in Canada. The studies are there. The reports from the CRTC and the studies by Industry Canada indicate quite clearly what the percentage shares are today. We've seen a number of companies go the bankruptcy route, or the refinancing route, at the very least, in terms of long distance. So I think the present situation is a very favourable one for them.

Furthermore, they can use their strength, their market strength, when they go to the financial markets and borrow not only on their own behalf, with that large telco quasi-monopoly in local telephony, but also on behalf of the mobility companies. They have an advantage in the financial market strength that allows them to go and get that lower interest rate when they borrow.

We can give you examples of what we borrowed at last time. I think it was at around 9% or 10%. The telcos at the moment are borrowing at around 6%. That's why I say there's a basis point differential of 300 to 400. And why should they be upset with that? They're quite happy with that, I would assume.

We can talk about changing that, but it's pretty hard. We went through the whole free trade debate in this country and we crossed a number of bridges during that period of time. We said that, as a country, we're in favour of greater movement of capital, of goods, of that type of thing. Today, then, it should really be up to the telcos to say why they want this privileged situation to take place. There are historical reasons, going back to as recently as 1993, that point to why we had some of these restrictions placed on foreign ownership. I think Mr. Harder mentioned some of them. But those historical reasons don't seem to be there anymore.

Basically, I think they'll come in and, not really daring to mention that they're against change, say instead that, you know, we should wait a few more years. But in a few more years, if that's the case, there may be a few less competitors. I think they probably also will say that they don't think it should be extended to the cable companies. Obviously, if you accept the fact that cable companies today are in Internet services, and are major providers of broadband services, one has to accept the fact that the only real competitor to the telcos today are the cable companies. Therefore, the cable companies should be on the same regulatory model as the telcos.

I would venture to say that those are approximately the things they would say. Our position, I suppose, is that we're willing to say that there should be no restrictions across the board, no restrictions for the incumbents, and no restrictions for the people who have been in for a certain period of time. We've been in for 17 years and we haven't made a profit during that period of time. Obviously we should be allowed to try to make ourselves more efficient and have access to capital at lower costs. We don't think there should be a statut particulier for the new entrant, because the new entrant of today can become the major player of tomorrow, and all of a sudden he's entitled to go and get his capital under a different set of circumstances than we're entitled to.

I think those are some of the arguments you'll hear. We've heard them before in other contexts, that we're in favour in principle, but not now, and we don't like the way you're doing it. That's basically what they will say. And if you listen to them, you'll end up having them dictate to you the regulatory model that should prevail in Canada. I personally object to that, and I hope you do too.

» (1715)

Mr. Brent St. Denis: What you're saying, just to comment quickly, is that the burden of proof should be on why we should keep these, not whether we should change these. In other words, we should be looking at it the other way around.

The Hon. Francis Fox: Yes.

Mr. Brent St. Denis: Any other comments?

The Hon. Francis Fox: I would just add that this is not like any other sector. It's not like the agrifood sector, it's not like the energy sector. Well, maybe it's a bit like the energy sector, but you still have regulatory control. Even if you do liberalize or expand, you still have that regulatory control. In most other areas of the economy, entrepreneurs are entitled to go and get their capital where they want, in the amounts they want, and there's absolutely no control. Here there is a control, a regulatory model, that remains in place.

As I said, it really is incumbent on those who would like to maintain the status quo to come up with some very good reasons as to why it should be maintained. On the other hand, that burden of proof seems to have been shifted to us to demonstrate why, of all the industries in Canada, this one should be singled out, even though it's still regulated, and not be given access to foreign capital the way others are.

The Chair: Mr. Hurtubise.

Mr. Lionel Hurtubise: I don't have to plead the Fifth this time, as I can agree with part of what both my customers are saying.

I think Francis' reaction on how the incumbents will be reacting when they come here is probably quite accurate, and I share that view. I think André's comments about the incumbents having really maybe missed the mark in terms of what they could have done, in terms of expanding internationally, like the Vodaphones and so on, is a very valued argument as well. I think it's something for which they should be made accountable in some way. As a Canadian, I feel very strongly about that.

The Chair: Mr. Tremblay.

Mr. André Tremblay: I'd like to remind you that when you speak to the incumbents, you speak to a content provider--cable TVs, channels, newspapers, etc.--you speak to a broadcaster--direct channel--and you speak to a telecommunicator of all the means of communication we have here. So you speak to an integrated group, from content to broadcast content to telecom.

I wouldn't be surprised if they tried to have the process derailed just to save time and to go on longer with the situation, which is good for them as it is right now. It's not too difficult, because content is culture, and if you claim that it should not be a two-tier situation, everybody should be treated the same, etc., the committee maybe will have to overcome constraints in terms of answering what is the situation on cultural identity, and other situations that can be raised from that standpoint.

It is probably something that I would play; you know, “We don't want a two-tier, it's not fair for anybody, we should all be treated the same in Canada, etc.” I don't want to sound like a broken record, but the situation is unfair right now. It's not a situation that is a level playing field right now.

The other thing I would probably suggest is there may be a threat. The situation is good, we're doing fine, and we don't know but there may be a threat to , I would say, la santé économique du Canada, la santé d'une entreprise au Canada if we open it. Why would we risk it? Just leave it.

I would doubt that somebody can take a firm stance saying we should close it to foreign investment or we should keep it because it doesn't make sense. But probably somebody would, I believe, play around and try to make the process derail itself.

» (1720)

The Chair: Thank you very much, Mr. St-Denis.

Mr. Fitzpatrick, you have five minutes.

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

I basically have two areas that I would like a response to. Maybe I'll make my comments overall and then you can respond.

It wasn't very long ago, or I'm old enough that I can remember, that this telecommunications sector was an area for an investor to park his money for safety; it was for widows and orphans. But when I look at the industry globally or nationally, or wherever it is, it's very difficult to find the safe telecommunication company today that returns profits, and dividends, and all that sort of stuff. It looks to me like a pretty troubled industry. Warren Buffet might throw it in with airlines right now if he was talking about the sector.

One concern I have, and it may not pertain to what our enquiry is but I'd like your comments on it, is how do we get the carriers of information on a profitable, sustainable basis over the long haul?

Another area I'm interested in the foreign ownership inquiry. I've scratched my head a lot in this town since I've been here, trying to figure out some logical, coherent understanding of this hodgepodge of foreign ownership rules we have here. We have railroads, we have pipelines, we have truckers, we have energy utilities in this country, and even retailers are carriers of goods. Everybody is in the business of carrying something and selling it to a customer, and you're in no different category. It really defies my logic to try to figure out why they have restrictions on the telecommunication area but they don't have restrictions on trucking, for example; they have it on airlines but they don't have it on maybe shipping and so on. They certainly don't have it on retailers, or Eatons would still be in the business and Wal-Mart wouldn't be here.

The Chair: You might want to be direct on your questions or you won't get answers.

Mr. Brian Fitzpatrick: I guess I'm really wanting to know how we get it on a profitable basis and whether you can see any sound policy reason for this foreign ownership factor in your industry.

As a further question, is there anybody in your industry who really favours these foreign ownership rules from a business standpoint, a business plan strategy where they need this sort of restriction?

The Chair: Does anyone want to answer that?

Mr. Hurtubise.

Mr. Lionel Hurtubise: I can start with part of an answer. I'm sure my co-panellists will be able to do better than I.

On the question of profitability, it's a very good question. Peter will know that within Ericsson it's been something that been preoccupying me for some years. I've had that discussion with both our customers.

I think you can only go so long with companies that are investing and investing and not generating a fair return for their investors.

So I'm concerned about that. Ericsson's concerned about that. We've been putting a lot of effort into providing a lot more new services now. As you can imagine, if we're operating in 140 countries, we can look at best practices right around the world and we can suggest that to our customers. So we are getting much more into that area, and our customers are working with us and we're working with them.

So it is an issue. It's something that has to be dealt with.

We've gone through a ridiculous period. You talk about investors. We were euphoric, and in hindsight, Buffet was right. We were nuts two or three years ago, but the pendulum has gone, in my opinion, far too much the other way right now and we have to wait. Hopefully, it'll settle down.

In terms of regulation of foreign ownership, I know a lot of people in industry in Canada and elsewhere. I don't recall, with the few exceptions of people with a vested interest, anybody supporting highly restrictive foreign ownership rules.

As I said earlier, our experience around the world is where the industry is totally deregulated, whether it be ownership or otherwise, the business moves on very significantly.

The Chair: Would anyone else like to comment?

The Hon. Francis Fox: The mantra within our company is “profitable growth”. We're really looking towards profitable growth. It seems as though we're stating the obvious--and we are--but we think it comes through increasing revenues and decreasing expenditures. I can tell you that on the expenditure side, we basically examine every potential reduction in cost. When we do that we look at the elements on our balance sheet.

You'll see it on page 11 of the discussion paper we've tabled with the committee. We have very high capital expenditures, which is in the nature of the business, and if we want to keep on providing Canadians with that leading-edge network, we're going to have to continue making significant investment in capital expenditures.

We also have the interest payments. If you look at that table we have on page 11, there are very significant interest payments. Obviously, if we can reduce those interest payments, which we think we can if we have access to a larger pool of capital because of a lifting of the ownership regulations, that's certainly one element. The rest of it, in terms of increasing revenues, is basically our business plan and how we attack the market in Canada and how we hopefully outperform our competitors.

» (1725)

The Chair: Mr. Tremblay.

Mr. André Tremblay: I think the only argument I could see years ago for the restriction was the strategic aspect of telecommunication infrastructure. If you don't have a strong and efficient telecommunication infrastructure in a country, your companies cannot compete. To protect that strategic element is probably one of the reasons that it would have been put in place.

I wanted to point out that European wireless companies have been extremely profitable. The reason they've been extremely profitable was that they agreed, 10 to 15 years before us, on technology. We didn't do that in Canada. We have been launching too many brands of technology. And we never did look at profitability as a target. We always looked at growth as the first target in Canada. Even though we can say the contrary, profitabilité, it's been growth, growth, and growth. Otherwise we would have been sharing technologies.

I'm opening Microcell technology to any competitor in Canada, and I would like to have an opening into any other technology in Canada so that I can stop building and still compete.

The Chair: Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Mr. Chair. I apologize to our witnesses for having to leave.

I have a simple question. If the committee does proceed with an open-ended direction to allow unlimited foreign investment, as proposed here, for instance, by yourself, Mr. Fox, and others, would there be the risk in your view of re-monopolization of some of the markets? It is conceivable that we would see, as we've seen, for instance, with CanWest Global, as we've seen with BCE, convergence take on a different form. And, of course, as opposed to creating more opportunities, there would be a bulking up in some respects and only two or three competitors left at the end of the day.

The Hon. Francis Fox: Perhaps I could give a quick answer.

In our view, the answer is definitely no. As a matter of fact, when we had discussions with Industry Canada on foreign ownership and we had the opportunity to talk with officials about our position, as every other carrier has, it was made very clear to us that opening up the limits of foreign ownership for Canadian companies is a two-edged sword. It means that U.S. companies would be able to come in here and compete.

I think opening it up would make this market more competitive, in the long run, than it is now. I think the danger of re-monopolization exists in a market that is protected, not in a market that is open.

The Chair: Thank you.

Mr. Rajotte, one short question for the conclusion.

Mr. James Rajotte: Mr. Fox, I've had a chance to read through your brief. It's very good; I want to compliment you on the specific answers to the questions.

I do want to give you an opportunity to briefly outline why you feel that cable companies should be included in this. You mentioned on page 9 that you favour removing the barriers to foreign capital for cable companies, but you're not recommending that the foreign ownership rules be liberalized for radio, television, and specialty television services. I just want to give you an opportunity, just for the record, to state why it is you take that position.

The Hon. Francis Fox: It's basically because the cable companies are partly in the same business as the telcos. I think the only competition for the telcos at the moment is the cable companies. They are the ones providing broadband service across the country in competition with the telcos. The telcos are providing DSL and the cable companies are providing a different system.

On the whole, they really are in competition with each other, and if they're going to be in competition with each other, you have to have a level playing field. You couldn't have a situation where the telcos have access to capital on different terms and with a different regulatory model than that of the telcos. If you want to maintain that competitive system, it seems quite obvious to me that the cable companies have to have access to that pool of money or debt equity or debt outside of this country in the same way the telcos would have in the event of liberalization.

As far as the content companies are concerned, we're saying that there is no reason to change the present regulatory set-up. We believe the present regulatory set-up has served Canada well and that there is a distinction to be made between the cable company--which is, once again, regulated by the CRTC, and is pretty much told which programming it's going to carry, where, and on what channel it's going to carry it and all that, with very extensive regulatory control--and the content providers. It's with the content providers that you have the cultural concerns that have been raised by people who have appeared in front of the heritage committee.

So we think there really is a way of making a distinction between the cable company--once again, it really is a pipe--and the people who are producing the programming. I don't think anybody in this country is proposing that the present state of regulations should be changed as far as radio broadcasters, television stations, publishing houses, or what have you, are concerned.

» (1730)

The Chair: Anyone else?

I want to thank the witnesses for being so clear in their presentations and answers to the questions of the committee. I really appreciate it. On behalf of the committee, thank you very much for taking time out from your busy day to be with us today.

The meeting is adjourned.