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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, February 19, 2003

1535

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

Mr. Brian Payne (President, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions)

The Chair

Mr. Brian Payne

1540

Mr. Neil Morrison (Vice-President, Telecommunications Workers Union, National Alliance of Communications Unions)

1545

Mr. Peter Murdock (Vice-President, Media, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions)

1550

The Chair

Mr. Ron Carlson (Administrative Vice-President, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions)

The Chair

Mr. Ron Carlson

1555

The Chair

Prof. Richard Schultz (James McGill Professor, Department of Political Science, McGill University)

1600

1605

1610

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

1615

Mr. Brian Payne

Mr. Brian Fitzpatrick

Mr. Brian Payne

The Chair

Mr. Brian Fitzpatrick

Mr. Brian Payne

Mr. Ron Carlson

1620

The Chair

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

Mr. Peter Murdock

Mr. Brent St. Denis

Mr. Peter Murdock

Mr. Brent St. Denis

1625

Prof. Richard Schultz

Mr. Brent St. Denis

Prof. Richard Schultz

Mr. Brent St. Denis

The Chair

Mr. Brent St. Denis

Prof. Richard Schultz

Mr. Brent St. Denis

Prof. Richard Schultz

Mr. Brent St. Denis

The Chair

Ms. Christiane Gagnon (Québec, BQ)

1630

Prof. Richard Schultz

Ms. Christiane Gagnon

1635

Prof. Richard Schultz

The Chair

Mr. Peter Murdock

1640

The Chair

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

1645

The Chair

Prof. Richard Schultz

The Chair

1650

Mr. Brian Payne

Mr. Brian Fitzpatrick

Mr. Brian Payne

The Chair

Mr. Neil Morrison

The Chair

Mr. Brian Masse (Windsor West, NDP)

1655

The Chair

Mr. Ron Carlson

The Chair

Prof. Richard Schultz

1700

The Chair

Prof. Richard Schultz

The Chair

Mr. Peter Murdock

The Chair

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

1705

The Chair

Mr. Ron Carlson

Mr. Brian Payne

The Chair

Prof. Richard Schultz

1710

The Chair

Prof. Richard Schultz

Mr. Peter Murdock

The Chair

Mr. Neil Morrison

1715

The Chair

Prof. Richard Schultz

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Peter Murdock

Mr. James Rajotte

Mr. Peter Murdock

Mr. James Rajotte

Mr. Peter Murdock

Mr. Neil Morrison

Mr. Brian Payne

Mr. James Rajotte

1720

Mr. Ron Carlson

Mr. James Rajotte

Mr. Ron Carlson

Mr. James Rajotte

Mr. Ron Carlson

Prof. Richard Schultz

1725

The Chair

Mr. Neil Morrison

The Chair

Mr. James Rajotte

Mr. Brian Payne

Mr. James Rajotte

Mr. Brian Payne

The Chair

Ms. Jocelyne Girard-Bujold (Jonquière, BQ)

1730

Mr. Brian Payne

Prof. Richard Schultz

Mr. Ron Carlson

The Chair

1735

Mr. Brian Payne

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 021

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, February 19, 2003

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I call to order this meeting of the Standing Committee on Industry, Science and Technology pursuant to Standing Order 108(2), consideration of foreign investment restrictions applicable to the telecommunications common carriers.

Today we have people from the National Alliance of Communications Unions, James Kinkaid, Brian Payne, Neil Morrison, Ron Carlson, and Peter Murdock; and from McGill University, Professor Richard Schultz. Is that correct? Do I have everybody?

Who's going to be speaking on behalf of the National Alliance of Communications Unions? Is it Mr. Payne?

Mr. Brian Payne (President, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions): Mr. Chair, it's my intention to lead off our presentation, but I would be asking my colleagues to join in for part of our presentation.

I would like to start by asking what your timeframe is.

The Chair: You have 10 minutes.

Anyone is welcome to answer a question during the question period. It'll go back and forth. These are the rules we have. If you go just a little bit over 10 minutes, it's fine, but as you stretch it, I have no choice. I have to live with my colleagues who would like to ask questions, which is very important.

So, Mr. Payne, I would ask you to lead.

Mr. Brian Payne: Thank you, Mr. Chairman and committee members.

There's no need to make introductions other than to say my name is Brian Payne. I'm the president of the Communications, Energy and Paperworkers Union. My colleagues here with me are from my union and also from the Telecommunications Workers Union. A couple of colleagues were unable to be here today as a result of the rescheduling of these hearings. They represent other unions that are involved in the National Alliance of Communications Unions in Canada. It's an alliance that regroups about 70,000 members in the telecommunications and media sector of our economy. About 20,000 of those members are directly employed in the media component.

Given the limited amount of time, it's certainly not our intent to go through our brief paragraph by paragraph for you. We believe we have a lot of very important material here to bring to the committee's attention. I'm sure the committee, through questions and in their own deliberations, will seek out the points we make.

Let me say at the outset that we're counting on this committee to listen carefully to the voices of workers we represent through our brief who are all too familiar with what has been going on in the telecommunications and communications sector of our economy through deregulation and other changes. We have very strong and concerned views related to the issues around foreign ownership, those changes, and what they may very well mean for the Canadian economy.

As our brief points out, we're very concerned that foreign ownership and control of this vital industry may be at the top, in another forum, of the government's agenda around the whole GATS process. We hope that's not the case. We're really relying on this committee and the committee's conclusions to ensure that the foreign ownership issue is dealt with in the interests of Canadians, especially in the interests of Canadian workers.

We are very concerned that changes in ownership will lead to chaos in the Canadian industry, which has been somewhat spared from the industry immediately to the south, at least to this point, although we have many challenges.

In our brief we point out that Canadians don't want further foreign ownership. A Decima poll suggests that 72% of Canadians are opposed to the kinds of changes that are potentially being contemplated and advocated by others. We think those are strong voices that you and those who ultimately deal with those kinds of changes in this country listen to. We are very concerned that the points we make on workplaces be listened to.

This sector has seen its employment decimated over time. As far as we can tell--and we work in the industry--this has not been to the benefit of anyone. In fact, quality of service is suffering and accessibility is certainly suffering. We are more concerned than ever that relaxing the ownership of our telecommunications sector and allowing a reborn WorldCom or somebody to enter the fray is certainly not a good thing for the Canadian telecommunications industry.

I'm going to limit my remarks to that and pass it on to others. I believe it is incredibly important that the committee stand up to those who we believe are otherwise pushing hard under the guise of other issues to liberalize--or whatever term you want to use--ownership of this very critical industry, which is vital to Canadians from coast to coast to coast.

With that, I'll turn the floor over to Neil to say a few words.

¹ (1540)

Mr. Neil Morrison (Vice-President, Telecommunications Workers Union, National Alliance of Communications Unions): Thank you, Mr. Chairman.

I just want to give you a very brief rundown of the state of the industry now and what we see as we look at the industry in Canada. We see TELUS carrying a $9 billion debt load, $7 billion of that approximately from the purchase of Clearnet, a wireless company; bonds downgraded to junk status; Shaw cable under a heavy debt load; major write-offs in investments in satellite companies and 360networks; and bonds recently downgraded to junk status. Bell Canada in the last couple of years had an $8 billion writedown on Teleglobe. That caused the departure of the chair and chief executive officer, because I believe Mr. Monty said they had to turn the page completely on the difficulties they had with Teleglobe.

A number of other smaller competitors--you could call them 360networks--Group Telecom, AT&T Canada, and Microcell--have all recently gone through financial restructuring that downgraded their status considerably. In fact, some had to go into bankruptcy protection. None of those problems stemmed from lack of access to capital. In fact, as we say in our brief in paragraph 14, it was irrational over-investment of capital that caused the decline of most of them, and some met with demise. In no case was undercapitalization the problem. It was overcapitalization in the telecom bubble that we all know about.

There is the consolidation we see in the industry happening now. TELUS in the west is having a major consolidation, with the closure of offices and locations where employees work. Bell Canada is going through several consolidations. The four Atlantic telephone companies are being consolidated into Aliant. As you'll see in our brief, the management from Aliant are now direct employees of Bell Canada. We smell more consolidation on the horizon, with Aliant being folded right into Bell Canada. There has been the Rogers Cable and Shaw cable swap of customers in British Columbia for customers in New Brunswick and Ontario. All of those are for critical concentration of mass--greater efficiencies in the industries through further consolidation.

Increased foreign control of Canadian telecommunications companies would bring major job losses for Canada. I negotiate with TELUS, and not that many years ago they were majority-owned by GTE. They were grandparented under the 1996 telecom act. They are 26% or 28% owners in the new TELUS, which was a merger of the Alberta Telephone Company and B.C. Telephone Company. At that time they wished to transfer all the digital switch monitoring and remote maintenance to their major centre in the U.S., Dallas, Texas.

Those are knowledge-type jobs in the telecom industry, and with the transmission capabilities of fibre optic cable, any job that can be done from a keyboard can be done from any location. You don't have to be next door to that switch, hence massive call centres in the U.S. Companies go together. The work of the telephone operator, when you used to dial zero, gets congregated and contracted out. There will be massively consolidated dispatch centres, probably outside Canada's boundaries.

¹ (1545)

We also forwarded information on the New Zealand experience, and it's well worth reading. In New Zealand there was a government-owned telecommunications company. It's a perfect example of unbridled deregulation and the removal of foreign ownership restrictions gone wild.

Two major U.S. corporations, Southern Bell Corporation and Bell Atlantic, which are now SBC and Verizon, went in and jointly purchased Telecom New Zealand. They privatized it. It never worked out to the benefit of the consumers, the workers, or the country of New Zealand. Those two major U.S. corporations stripped the assets of the company. In fact, for a number of years they paid over 100% of the profits in dividends. They basically stripped the assets out of the company, sold the integral parts of the company off, sold out their interests, and departed.

At the end of the day the prices haven't dropped, the quality of service has become worse, and because of the pressure and unhappiness of the citizens, the government is doing a study. They are very close to re-regulating the telecom industry in New Zealand.

With that, I'll turn it over to my colleague, Peter Murdock.

Mr. Peter Murdock (Vice-President, Media, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions): CEP has appeared before the House of Commons Standing Committee on Canadian Heritage on this issue and a variety of others, and we would refer you to some of our comments made there.

First of all, I'd like to reiterate that the need for domestic ownership and control of the media sector, as in the telecommunications sector, is as great now as it was when legislators first drafted those rules. I refer to the Broadcasting Act, which states that “the Canadian broadcasting system shall be effectively owned and controlled by Canadians”.

I find it just interesting, in terms of broadcasting and telecommunications, that at a time when these industries were just beginning, there was no concern or need for foreign capital; these industries were home-grown. And why, many years later, when they are in fact healthy and thriving, we now feel the need to somehow subvert the sovereign imperatives for capital is a bit of a problem, from our point of view.

If we liberalize the rules of governing foreign ownership of telecommunications and cable systems, broadcasters and newspapers will certainly try to piggyback on these changes. This would then leave the CBC as the sole news-gathering or cultural institution of any consequence remaining under domestic control.

It has been noted elsewhere that the relaxation of ownership restrictions would benefit, in terms of the media anyway, only a small handful of cable companies and not the industry nor Canadians themselves. Again, I note that this handful of cable companies is companies that have been and are owned by families. If foreign investment is there for debt relief and to increase shares, in fact, the number of Canadians that this money is actually going to help is a very small number of Canadians--the majority shareholders of a handful of cable companies.

Clearly, media companies--and in some ways we reiterate here for the media what applies to the telecommunications sector--have had no trouble finding finances for their overly ambitious plans. In fact, it can be argued that the problem has been too much readily available capital and not enough common sense.

These companies with creditors at the door seek debt relief, not an infusion of investment for the purposes of expanding products or service. The fact that they have been hit by the downturn in the markets and that they sadly misplaced their investors' money in overly ambitious plans is something that in our view the marketplace will correct. We don't need a lending hand from U.S. investment to do that.

Canadians have time and again voiced their support in having their media and telecommunications owned by Canadians, and our president, Brian Payne, has made reference to that. We do not think that, given the overwhelming view of Canadians, the pleadings of a few self-interested owners should now erase that commitment.

While shakedowns in the telecommunications sector and overly aggressive acquisitions have created some turmoil, the marketplace in fact remains robust in Canada. Our industry is basically healthy, save some debt, which we believe in the long run will sort itself out, and it should be allowed to do so without inviting distant capital with little or no connection to our cultural and national agenda.

I just want to say very quickly that there is something different about the media and telecommunications, that it is tied very deeply and is very deeply rooted into our national identity. It is not the auto industry; it is something that reflects who we are through the media. Allowing foreign ownership and having control of that media from some place in Dallas or Houston is a huge problem for us as Canadians. The cable industry is a Canadian messenger. We don't think we should kill the messenger, nor do we think we should sell him off piecemeal to the highest bidder.

Finally, let me say that our broadcast industry is dependent on regulation and regulatory bodies. If we were to allow foreign investment at higher levels than they are today, regulators would soon find themselves chatting with receptionists in Dallas about the weather rather than CEOs in Montreal, Toronto, Winnipeg, or Vancouver. We would become, we fear, little more than a regional profit centre, a cultural Wal-Mart.

Ron, I'll turn it over to you.

¹ (1550)

The Chair: You'll have to be very short, and I apologize for that.

Mr. Ron Carlson (Administrative Vice-President, Communications, Energy and Paperworkers Union of Canada, National Alliance of Communications Unions): I'm going to try to be as short as I can, I just want to--

The Chair: If you've got some points.... But don't force me to have to cut you off.

Mr. Ron Carlson: Okay, I'll be very quick if I can.

I want to make a couple of points around the question of decisions that have been made in the past that led us to this point where you're now asking, should you eliminate the issue of foreign ownership restrictions on the industry, and if we look back into the past, the effects of deregulation and privatization, the question of the bypass of our networks going south, and the price cap question.

The one major point I want to make in all of this is that when our previous system existed for the consumer, the system focused on the telcos, which had to apply to the CRTC for rate increases. It was based on a fair rate of return on their investment in the industry. In other words, the incentive to the corporations was that the more they invested meant they had the potential for a justifiable rate increase, and ultimately a rate of return was guaranteed and improved for those corporations. The jobs, the skilled workers were retained, were trained by the industry, while the latest of technologies were almost always given.

In the new system today that is already in place--the price cap system--the industry itself was given three dramatic changes. One, the telcos are not required to file investment plans with the CRTC, which of course includes plans of all of their services, including broadband. Two, the telcos do not need to file their accounting changes or their financial forecasts, as these are considered to give the competitors unfair advantages and unfair opportunities. Three, they also do not have to adhere to many of the existing intercorporate transaction policy rules or procedures. This of course means the transfer of money within the corporations.

Any rate increase is determined by a formula today of the basket of services. As many of you know, they are broken down into three categories: the competitive services, which are unrestricted; the semi-competitive services, which are controlled by general rules and the price cap; and regulated services, which are controlled by a formula that is used to determine whether in fact they get the increases just by working out the formula. The formula is the gross domestic product price index, subtracting the productivity factor set by the CRTC. In addition, during the initial transition period into this new procedure, the telcos were allowed some rate rebalancing increases--$5, three times over, to local and business rates--and some rural increases.

The point of all of this is that the incentive in the old system was to increase investment so you would get your rate increases, while the incentive in the new system is to cut costs--that means not to increase investments--and further to consolidate services. Therefore, I think it's easy to contend that the existence of this new system in terms of opening up foreign ownership only adds to the problem, because foreign ownership doesn't mean that foreign owners are going to come in here and invest and start new companies. They would simply amalgamate or buy up the existing companies, cut the services, and consolidate those services. They in fact would not be coming into this country to reinvest more money into the system.

¹ (1555)

The Chair: Thank you. I apologize, but I have to live with these members.

Professor Schultz.

Prof. Richard Schultz (James McGill Professor, Department of Political Science, McGill University): Good afternoon, Mr. Chairman and members of the committee.

I'd like to thank you, Mr. Chairman, and through you the members of the committee, for this opportunity to present my views on the issue of current restrictions.

I should say--and I'm ad-libbing already-- and now for something completely different on the issue of foreign investment in the telecommunications sector. I should note, though, in terms of truth in advertising, that this research was financially supported by Microcell, but it accords with my own personal views, which are solely my responsibility. They are similar to the ones I presented before the Senate committee studying the 1992 Telecommunications Act.

I would like to make three arguments. The first is that the fear of the negative consequences that presumably flow from foreign investment in telecommunications has been grossly exaggerated, unsubstantiated, and contradicted by Canadian telecommunications history.

The second is that the existing restrictions are not only demonstrably harmful for some of the current and potential players, especially new entrants, but, more importantly, may undermine the development of a vibrant, sustainable, and competitive telecommunications system in Canada. If this happens, it is my submission that the government's innovation strategy--or any innovation strategy, I would add--will be hostage to the few telecommunications providers that remain.

My final argument, not surprisingly, is that the current restrictions should be removed, and as expeditiously as possible.

Let me develop these three arguments. In my opinion, the presumed feared consequences that might flow if the current restrictions on foreign investment were to be lifted do not rest on any persuasive evidence and have been exploited by some parties as just another technique to buttress their competitive advantage against new entrants. While I would not claim to have surveyed the complete body of literature on foreign investment, what I have reviewed tends, I suggest, to lead to only one conclusion: the claimed dire consequences are hypothetical and speculative and are not backed up by any empirical evidence.

The arguments are largely that foreign investment might threaten national security, might lead to a loss of jobs, could lead to diminished domestic research, or--to cite a claim made before this committee just two weeks ago--could threaten affordable services. There has not been provided, to my knowledge, any concrete, persuasive evidence that these consequences will indeed follow or will be likely to follow if the restrictions are lifted or removed. The debate over foreign investment, in my opinion, is best characterized, if I may quote, as “a gloomy, undefined foreboding of the unknown”.

It normally is difficult to disprove a negative, especially one based on speculation, fear, and pandering to bogeymen. It is indisputable, however, that the development of important components of the Canadian telecommunications industry has been dependent on the very thing that is said to be so dangerous: foreign investment. Here, I must admit, I'm going to have to disagree with one of the other witnesses, and I think we have the potential for an interesting exchange through the chair.

Contrary to the fears, it is a fact that the high quality of the contemporary Canadian telecommunications system was built in no small part on foreign investment. I would go so far as to argue that Canada has in fact been a laboratory that permits us to make informed judgments about the implications of foreign investment.

Take the case of Bell Canada, whose chief executive just appeared before you. Bell was a product of foreign investment, as it was created by what ultimately became AT&T. It was during Bell's early years as a subsidiary of AT&T that the availability of the telephone grew substantially, such that by 1915 Canada had the second-largest rate of telephone penetration in the world; in other words, when it was controlled by a foreign investor. Moreover, even when AT&T became a minority shareholder in Bell Canada in the years after 1915, it was still the dominant shareholder for several decades. As a result of its linkages with AT&T, especially Bell Labs, Bell was able to benefit enormously from technological transfers. Not only did these provide the basis in subsequent years for Bell Canada becoming Canada's telecommunications leader, it benefited most of the country as well through the various service agreements Bell had with most of the other telephone companies in Canada.

º (1600)

Or take the case of BC TEL. For most of the past century BC TEL, prior to its merger with the privatized AGT to become TELUS, was controlled by an American firm, which ultimately was GTE. In 1990 I had the opportunity to ask the then Minister of Communications, who was drafting the current policy that you are reviewing, what there was in the record of British Columbia Telephone that suggested foreign investment was a problem. Ladies and gentlemen, it's 2003. I am still waiting for a reply. He did not reply then. I have not found a reply since then.

I'm a specialist on regulation and I've also reviewed the regulatory record going back to 1905 in terms of decisions by the Board of Transport Commissioners. And I can only find one instance where it is alleged that the ownership of BC TEL could be linked to a potentially negative consequence.

To the extent there was a problem, the telecommunications regulator at the time believed that it had adequate powers to address the problem and successfully did so. Certainly successive Canadian governments, Liberal and Conservative, appear to believe that foreign ownership poses no threat, because they gave BC TEL a cellular licence in 1983, grandfathered the company from the foreign ownership restriction policy in 1993, and permitted it to seek a broadcasting distribution licence in 1996.

In short, I believe that the case for the restrictions has not been established, while there is clear evidence of the actual benefits that flow from such an investment.

By way of a final comment on this aspect, it seems to me that reliance on such a blunt instrument is a rather sad comment on the effectiveness of the range of alternative government instruments such as regulation, competition policy, taxation, and departmental scrutiny.

In this regard, the claim made to this committee two weeks ago that opening the market to foreigners could threaten affordable services for Canadians who live in isolated areas is a perfect example of the unsubstantiated fear-mongering that is a substitute for informed discussion. Such a claim, which is reminiscent of “the sky will fall” opposition to the introduction of competition in telecommunications more than a decade ago, is, on the face of it, absurd. More importantly, it is insulting to all government agencies charged with advancing telecommunications competition and protecting universal service in Canada, including the CRTC, the Department of Industry, and the competition commissioner.

Have we no confidence that were we to remove the foreign ownership restrictions, Canada could not impose and enforce its own public policies? If that is indeed the argument that you are persuaded by, then concerns over the claimed deleterious effects of foreign investment in the telecommunications carriers are, in my opinion, the least of our problems as a self-governing nation.

It is my second argument that the actual potential costs of the existing restrictions on foreign investment are far greater than the presumed costs of removing them. Let me make three arguments.

In the first place, several witnesses before this committee, particularly Microcell, AT&T, and Rogers Wireless, have stated that the existing restrictions place an enormous and inequitable burden on new entrants seeking to raise necessary capital. I would not claim to be an expert on these issues, but it appears to me that the arguments are persuasive. This means that the competitive process in Canada is unfairly tilted today to advantage the incumbent firms.

I would like to suggest, however, that the issue is more complicated than simply access to a larger pool of capital at more reasonable rates.

The current foreign ownership restrictions undoubtedly act as a barrier to access the resources of non-Canadian corporations that would be possible with investment-related strategic alliances and partnerships, the very thing that gave Bell Canada the strategic advantage between 1880 and 1956, in fact, leading up to 1975. If these were permitted, new entrants would be able to draw on a much wider choice of personnel, ideas, technologies, for example, that could not only strengthen their competitive position but also, I suggest, strengthen the competitive basis of Canadian telecommunications.

This point, the larger handicapping of new entrants that's involved, leads to my second argument. If we undermine the competitive capacity of new entrants, which is what I would argue we are indeed doing today, I believe that we are reducing the potential for a truly competitive marketplace in Canadian telecommunications

º (1605)

Some of you may know that I was an early advocate for the introduction of competition in telecommunications more than a decade ago. It was and still is my belief that Canada's economic prosperity and the move to an information-based and -driven economy required a fundamental shift from monopoly to competitive provision of telecommunication services. The central argument for making that shift was not to please a few capitalists, not to please a few business people, but in fact to give users, especially business users, control over the telecommunications systems through their decisions on the choice of services and suppliers, as opposed to the traditional monopoly determining which services would be offered and when and at what price.

This, I argued, would enhance the productivity of the Canadian economy as well as the traditional monopoly companies. Moreover, the argument I made then--and others did as well--was that consumer choice, consumer-driven telecommunications, could be introduced without any deleterious effects on residential consumers, and especially on the universal availability of telephone service.

I would argue and add parenthetically that there is no evidence whatsoever that there has been deleterious impact on universality in Canada as a result of telecommunications competition. I think the benefits that have flowed from the introduction and spread of competition over the past decade--with, I would argue, no negative consequences for universality--indicate the wisdom of choosing competition over monopoly.

Although we have taken major steps towards competition in telecommunications, much remains to be done if such competition is to be robust and sustainable. I cannot stress strongly enough that we are but in transition to sustainable competition. We have not reached our objective yet. In fact, after a decade of effort, I must admit that personally I am not particularly sanguine about the health of competition in Canadian telecommunications. It may not, for a variety of reasons, be sustainable.

The current restriction on foreign investment is, I contend, a major barrier to sustainable competition. Admittedly, it is not the only one. In part--and here I agree with comments from an earlier witness--the fragile state of competition, as I see it, is due to questionable strategic decisions made by some new entrants. Notwithstanding such decisions, which have weakened their competitive potential, we also need, I think, a far more explicit commitment to competition at the policy level and more vigorous promotion of competition by the CRTC.

But I must emphasize, given my reading of some of the transcripts of previous witnesses, that I think we have to appreciate that reaching the goal of sustainable competition is unavoidably a messy process. It's chaotic. Transforming telecommunications from monopoly to sustainable competition cannot be managed one step at a time. We can't predict who the winners and losers will be. Transition is not a paint-by-number process.

Consequently, I would urge the members of this committee and the government to resist the temptation, attractive as it may initially appear to be, to postpone action on removing this particular barrier to healthy competition, which you're reviewing, by placing a healthy, higher priority, as some have argued, to other barriers to competition. Messy as it may seem, they all must be attacked simultaneously.

It's imperative that Canada complete the transition to competition. The rationale for this is as compelling as the original rationale for introducing competition. Absent robust extensive and intensive competition, the telecommunications system cannot be the enabler of economic activity, productivity, and employment that it must become. A telecommunications system premised on duopoly or oligopoly characterized by the comfortable life for a few service providers of market sharing and competition on the margins can only be a formidable break on our economic growth and prosperity.

A sustainable, robust, competitive telecommunications system is a sine qua non for the pursuit of any strategy for innovation. Without healthy telecommunications competition, Canada will unavoidably be reduced to the status of an innovation laggard, not an innovation leader. Without the powerful, compelling force of competition, our telecommunications providers will inevitably be satisfied with being innovation application purchasers, not creators.

If we aspire to exercise as much control as we possibly can over the transformation of our economy and society, as opposed to simply following the lead of others, then the promotion and safeguarding of competitive telecommunications must be, I contend, our number one priority.

º (1610)

Without healthy competition, we cannot have profound, comprehensive innovation. Without robust competition, we will not have the experimentation that will lead to new services, new applications, new delivery systems. Without sustainable competition, we will not experience the surprises of technological innovation. Without effective competition, we will not have the vibrancy of new entrants and the release of entrepreneurial talents, which will undoubtedly be the drivers of the innovative economy. The current restrictions on foreign investment in telecommunications, I believe, are obviously not the only impediment to completing the transition, but they constitute an unnecessary barrier and a serious obstacle.

So what is to be done? Let me conclude. The logic of my position obviously leads to the conclusion that the existing foreign investment restrictions should be removed. In the words of Macbeth, “If it were done when 'tis done, then 'twere well it were done quickly”. But I have to admit that I have been a professor long enough to know that logic is often hardly persuasive.

So I'd like to make two possible, but not necessarily unrelated, suggestions. The first is to undertake a limited experiment, where those companies below a certain threshold of market share would have the restrictions removed, subject to regulatory monitoring by the CRTC. I realize the committee has heard from witnesses who object to what is called tiering. Frankly, I do not understand the opposition. Such an approach will not give those who are subject to it any advantage. Although I hesitate to disagree with my good friend Hudson Janish, a tiering approach will not and cannot deprive incumbents of the benefits of foreign capital and business know-how, as he had suggested. For its part, it didn't affect Bell. And for his part, James Peters from TELUS said the current restrictions don't hurt them. So I don't know how having two tiers or distinct systems would beneficially affect the new entrants over existing companies.

If we cannot do this--and I fear that the argument for an all or nothing approach is a tactical device to discourage us from doing anything at this stage--then I suggest the only alternative is to introduce a licensing scheme for all industry players. This would have to be a fairly rigorous system based on explicit public policy objectives, presumably based on the fears articulated before you, with meaningful tests and guidance for the licensing authority. It would require monitoring and annual public reporting by the authority.

In this regard, I think it's essential that such licensing be by the CRTC, possibly in competition with the commissioner of competition policy, and not by a departmental body. The latter lacks the transparency essential if we are to comply with our WTO obligations.

With these suggestions, I will indeed stop, Mr. Chair. I want to thank the committee members for their extended time and attention, and I look forward to your questions.

The Chair: Thank you very much.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): Thank you, Professor Schultz.

Quite honestly, I don't have a whole lot of disagreement with what you've said, based on the evidence I've heard. When you put aside the rhetoric and get down to logic, I think your position is very well presented. In regard to your comments on tiering, new information is provided on this matter, but quite honestly, if this committee were to follow your advice and make a recommendation in the report based on what you're seeing, I don't think there would be a whole lot of disagreement from me.

I guess I'll turn my comments over to the National Alliance of Communications Unions.

I tried to summarize your comments and observations. The first conclusion I came to was that privatization was a bad thing and maybe we should have public ownership of the telecommunication system. The second thing I think I heard is that if we're not going to have public ownership, Canadian capitalism is better than global capitalism or American capitalism, and somehow that would be better. If I understood correctly, it might be a good idea if we turned the clock back to the 1980s or 1970s.

I'm going to dispute that argument. I would say that anybody doing business in this country or any homeowner, in terms of service, is getting a lot better product today than they did in the 1970s or 1980s. The choice that people have is a lot wider and better than it was in the 1970s or 1980s. The costs are a lot better. I ran a business when we had a monopoly in the 1980s, and it cost me $14,000 a year for long-distance telephone charges, and so on. The competition came in the 1990s, and that went down to $5,000 and stayed there. That really goes to the bottom line.

Back in those days, I had two TV channels. I have a lot more today. I have things like a cellphone, Internet service, and I have a whole lot of things that have happened in the last 10 years that weren't there before. I would suggest to each and every one of you that this came about as a product of the private system, a technological revolution.

This thing I have is a Samsung, and I don't feel guilty that the people who sell Samsung might have to phone somebody at the head office in Seoul, South Korea, to check this out--or you could use Motorola, or Nokia, or something else.

I'm just really disputing your whole synopsis here, that what has happened in the 1990s in communication has been a bad thing. I think it has been very beneficial and very positive, and I wouldn't want to turn back the clock.

You're free to respond to my comments, but I think I represent a very strong point of view.

As one other point on that, whether it is Samsung or Bell Canada or any of them, these companies are in the business of providing services to customers--that's their business--and hopefully to turn a profit doing it, or they'll go out of business. But that's their job. By and large, a lot of them have been doing a pretty good job, and I like the opportunity to choose the one that's providing the best service to me, as a customer.

º (1615)

Mr. Brian Payne: First of all, we probably could have read our brief through and covered every point, and that might have helped give you a better flavour of our total position on things.

More than businesses in this country rely on telephone service. This is not just about businesses in metropolitan areas; it's about rural Canadians and access. You should ask them whether they think they're getting better service.

Mr. Brian Fitzpatrick: I'm from Saskatchewan, from a rural part of the country.

Mr. Brian Payne: Fair enough.

This is not an issue about privatization but about foreign ownership. I get more TV channels too, but there's a huge difference between CNN and CBC. If anybody's watching the current debate, you can certainly get a flavour there. I'm tempted to debate with you, but I'm trying not to.

Tens of thousands of workers have lost their jobs as we go through this current process. Looking at the U.S. telecom model, if you've been down there with that cellphone, good luck. It is absolute chaos.

There is no problem of investment in Canadian telecommunications. In fact, we've had over-investment. Now we're reeling from it. It's not about investment. It's not about somebody not being able to make a buck putting up cell towers or delivering communications in Canada. What this is about is ensuring that we have good service in this country for Canadians from coast to coast, first and foremost. It's not about public ownership; it's about some control over the fact that others would come here and skim off the cream in metropolitan Toronto and metropolitan Vancouver.

Others may have more to say, and I'm sure there are other questions, but you raise a philosophical point that you and I could debate at length in another forum. But this is not about philosophy in the sense of public or private. You can roll the clock back and we can make all kinds of good arguments, including what was or wasn't right about BC TEL and what they did and didn't do, in the other presentation.

The Chair: Did you want to ask another short question?

Mr. Brian Fitzpatrick: I have a short follow-up question to that on the residential side.

I live in remote rural Canada, too. Quite honestly, back in the 1980s my long-distance costs and the total thing, especially when I had kids away from home in the summer, were running $600 a month. Now I can get a bundled service where I can pretty well do unlimited long distance for $80 a month and I get high-speed Internet thrown in with that. To me, I'm not getting a bad deal. I'm getting a lot better product than I had then. And that's not from a business standpoint; that's just as a residential customer.

Mr. Brian Payne: There's no question that long distance is cheaper, but try to use your TELUS credit card in Ottawa, if you have one. They won't accept it.

Mr. Ron Carlson: Can I make one comment on the question of the investment issue.

Being from Nipawin, obviously I'm from Saskatchewan too. Saskatchewan is one of the last crown corporations in the country, and rural Saskatchewan is subject to cross-subsidization, it happens to be one of the few locations in the entire country where some of that still occurs, because it is a crown corporation in how it functions. So you have some advantages, you're right, and part of your advantages are relative to the fact that you still operate with a publicly owned telephone system, although there may be some amenities around the edges of that.

I do want to make another comment on your issue of capital, though. I find it interesting that the whole issue of this is the investment issue in the industry in Canada. In fact, if you look at the numbers and ask if there has been under-investment in Canada in the last number of years, no, there hasn't. It is absolutely absurd to say that this in fact is happening.

The problem with the system in Canada today is overcapacity. In fact, there has been too much investment. There's too much there, and that's what the bankruptcies are being caused by and how the problems are being caused in the system.

º (1620)

The Chair: Thank you very much.

Mr. St. Denis.

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

I'll be honest. I'm coming to this question of foreign ownership with the idea that philosophically I think it's an idea that we have to look at, we should look at. So show me why we shouldn't, as opposed to the other way around.

In the number of meetings we've had, one of the big reasons why we shouldn't, it is put to us, is that in some cases, for example in the cable industry, it would be very difficult to separate the so-called content away from the pipes. I don't think we've had the cable companies yet, but I'm sure when they do appear they will be arguing--and I don't mean to presuppose, but I'll assume--that they can manage the two, to be in one case the owners of the pipe, and in the second case managers of content.

So I wonder if you, on both sides of the debate that are represented here, could talk a little bit about the issue of how important content is to the question and can it be separated from the infrastructure or the pipes. If I might, I would invite the union to reply first.

Mr. Peter Murdock: There are a couple of things. Clearly one of the things that cable does is access. Let's make it as simple as possible at this point. Where you have access on the channels, if you have access on the channels, and depending on how you bundle them, as we move along the great technological road, that bundling will become more and more specific and probably more and more expensive. But the carrier will in some ways decide on that bundling. That is one way by which they will decide content.

So let us suppose, for instance, that on your cable you might be able to choose the National Post, Law and Order, and Da Vinci's Inquest on one bundle, and you might be able to buy something else on another. Where that bundling is, how expensive it is, all of that, may be decided by the carrier. In this case we now have the carrier in effect having a huge influence on content.

The other question is, other than investing, why is it that they want control? Why would foreign ownership necessarily want control of the cable industry if they weren't interested in content? If it was solely operational, then away they go now, to some degree. They can have, without voting shares, some interest in that as it is now. I don't understand why increased foreign ownership would seek that control. Whether the regulatory agency would be able to prevent it, I doubt very much, because as it is right now, in fact, the CRTC has been a bit toothless even with our domestic content requirements.

But as you can see now on your own television, on your own selections that you have, where you are on the channel--it's a huge argument in front of the CRTC--tells a lot about what kind of audiences you're going to get, what kind of audience share you're going to get, which in turn has a lot to do with the amount of money you have for programming, etc.

Mr. Brent St. Denis: I take it from your comments that you'd argue there's no way to separate the management of the two pieces.

Mr. Peter Murdock: No, clearly they can't. And, indeed, I would imagine that at some point, although they could probably argue both sides of this argument, a converged company such as CanWest would want to say to their investors, that's precisely why we want control of it, because in fact we do want to control carriage and content.

Mr. Brent St. Denis: Obviously my question presupposes the importance of content. So without prejudging that, I wanted to get an initial reaction here.

Professor Schultz, do you have a comment?

º (1625)

Prof. Richard Schultz: I have a lot more confidence, I think, in the ability of the CRTC, although I share some of the views that they could be stronger in their enforcement of Canadian content requirements. But we've had long-standing rules for many years before relating to being able to separate carriage and content, the pipelines from what goes down them. The situation, admittedly, has been allowed to become confused in the last couple of years because of some of the mergers, and we might have to unscramble the egg. But I'm convinced that to a certain extent we can do that.

The CRTC was most emphatic--

Mr. Brent St. Denis: To a certain extent? It might have to be more than to a certain extent.

Prof. Richard Schultz: Let me put it this way, we can successfully do that. They were adamant, when they decided to let the telephone companies apply for video on demand, that they could control the pipeline and that this would not interfere with the content. I think in terms of the committee, in terms of government policy, and in terms of the CRTC, one can give them instructions and say it is imperative that we clarify this policy, but given the record, I do believe that we can separate carriage and content.

Mr. Brent St. Denis: Do I have a bit more time, Mr. Chair?

The Chair: Yes, you do, for one short question.

Mr. Brent St. Denis: Thank you.

In listening to Professor Schultz's arguments, I would take it that most of what you were talking about would apply to newer entrants, to the non-incumbent community of carriers. And while I can agree with the principle that more access to capital, whether it's domestic or foreign, should make that capital cheaper, what changed for them when they went into it in the first place as new entrants? What happened along the way? Because that was the rule when they came in. The ownership rules were the way they are now. What changed along the way to make it hugely critical to them?

Prof. Richard Schultz: I think there are a number of factors and I don't want to--

Mr. Brent St. Denis: I'm sure we've heard it, but I'd like for you to summarize it for us.

Prof. Richard Schultz: I think those of us who advocated competition were less appreciative of the importance of the legacy of monopoly, the incumbent advantages that went to the firms already in. And when Bell can sell 20% of itself for $5 billion and get a war chest and be so successful that they can go back and buy that $5 billion from the foreign investor.... In some respects, given the fact that Bell controlled both the local and the long distance, I think we were far too optimistic about how easy it would be to make the transition.

Second, I think a major factor was that the CRTC decided--in my view now, wrongly, but in my view back then, rightly; and so I was as wrong as they were--that they would be neutral in terms of promoting competition. They would allow entry, but that would be it. I would argue now that they must be much more aggressive, as the U.K. was in the 1980s.

I would also think--and if I may use this to comment on an earlier question--we haven't had cream-skimming. Cream-skimming was the argument used in Canada back in the 1980s to prevent competition, saying the new entrants would only come into the rich markets. The CRTC very effectively kept local rates down. They have increased, but they kept them down and continued to cross-subsidize by making every entrant pay a contribution from the new services to keep local rates down. So we have been able to do that effectively, and I think in fact that we didn't move quickly enough to raise local rates and--so that this isn't misunderstood--target those who definitely need a subsidy, such as is very regularly done in the United States. Give an explicit target.

I happen to believe that poor people in this country should probably get free telephone service and we could do it with a targeted subsidy. But what we wanted to do was to continue the hidden subsidy, and I think this impeded competition.

Mr. Brent St. Denis: Thank you very much.

I wonder if there is any comment on the--

The Chair: No, I'm sorry, Mr. St. Denis. Nice try.

Madame Gagnon.

[Translation]

Ms. Christiane Gagnon (Québec, BQ): You are most generous, Mr. St. Denis, to leave me some time. I will start by identifying where I stand.

As you may well imagine, as a member of the heritage committee, I am sensitive to the concerns expressed about lifting the restrictions on foreign ownership. Despite all my respect for what you have just had to say to us, Mr. Schultz--your argument on behalf of the industry is rather convincing--what I find astonishing is that you appear not to take into consideration the potential for repercussions such as job loss.

You had a lot to say about the need to remain competitive. One wonders, however, how that would be possible if a foreign company were allowed more ownership than at present. How could we be more competitive if foreign investors in a company were in the majority? How could we have any control over employment, or the content transmitted by cable over the Internet?

I have some trouble understanding how our competitiveness can be diminished by a lack of foreign investment. In my opinion, the opposite is true; a company with majority or equal investment by foreign interests would no longer be a Canadian company.

º (1630)

[English]

Prof. Richard Schultz: Let me answer two or three parts of your question.

First of all, we don't have controls on employment now and we do have the companies, and it is a consequence of introducing competition. Companies like Bell Canada have laid off people. Some of those people have gone on to other employment in the industry. There are wider opportunities there. So we don't have regulatory controls on employment now.

The second point, though, is the question of content and how we control that. That gets me a bit confused, and I'm probably going to confuse you, because I just did write a report for your heritage committee on the role and effectiveness of the CRTC. Contrary to an earlier view, which I had when I was asked where the CRTC should be going and I glibly replied, “Away”, I have decided in fact that on the broadcasting side the CRTC must get away from being a cultural regulator, because I don't think it's very strong, and must become an economic regulator of cultural industries.

We're going to develop in terms of content where the cable companies and the satellite companies and the broadcasters are going to be in conflicts over the fact that the cable companies and the satellite companies are going to control bottleneck facilities, just as the telephone companies do today in terms of accessing customers.

So the CRTC is going to have to become a much more effective content regulator. My personal view in terms of broadcasting is I haven't developed a position yet on foreign control of broadcasters, but in terms of delivery systems, I'm firmly of the belief that the CRTC has--and if it does not, Parliament can endow it with--sufficient powers if you are clear and explicit about your objectives so that it can regulate these companies to satisfy those objectives.

If you don't feel that is possible, I revert to an earlier argument I made. I think it's very sad for this country, because what you're saying is that our government instruments are so weak that we have to hide behind a mini-Berlin wall, investment wall, to prevent people from coming across.

Protection: I believe that little that is creative flourishes behind a protective wall, unless it's a so-called “infant” industry and it's then protected until it's dead.

[Translation]

Ms. Christiane Gagnon: If I have understood correctly, you feel that the CRTC ought to move away from its cultural role, yet that is exactly what it has done in recent years. We need only to think about Internet regulation and several other decisions that ought to have been made to improve the overall framework of the television and radio broadcasting system.

Taking the concentration of the press as an example, megacompanies have been formed and nothing is the same. Clearly, there is no longer the same kind of control over employment. A lot of the work is done under poor employment conditions and many people no longer have any hope of permanent jobs. The main thing that characterizes employment in the newspaper field nowadays is its precariousness. They have created monsters and now they have to cope with the damage done.

Many people have expressed concerns about foreign ownership. For instance, I have read Goodbye Canada,the book by English Canadian Paul Hellyer, which addresses sovereignty. According to him, the two most important systems in Canada are telecommunications and the banks. If ownership restrictions on these two were lifted, he feels we would turn into Americans. There would no longer be any point of talking about Canadian institutions.

I do not know whether you feel he too is being overly alarmist about foreign ownership, but this is one English Canadian who seems to have a good handle on the activities of the various Canadian institutions.

There is one other question I would like to ask. It is said that the allowed percentage of foreign ownership in the telecommunications field had not even been reached. That the limit has not been reached. Is this right?

º (1635)

[English]

Prof. Richard Schultz: Let me start with the first part of your comment.

I guess it reflects my background. I'm a miner's son from northern Ontario. I have to say I've never shared this fear that Canada is going to be transformed into the United States. It is a fear that I've unfortunately found too localized to Toronto, Ottawa, and Montreal.

Related to this, if that is a concern for you, madame, who are the largest purveyors of American television programs in Canada? They are the Canadian television broadcasters. While I have some sympathy and some concern about the degree of concentration that may have developed, I quote--as I did from my paper for your committee--John Meisel, who went back and reviewed. He said there's a performance gap in this country. It is a gap between objective and fulfillment.

We have study after study after study, recommendation after recommendation after recommendation, and then we have study after study after study. This was my comment about the CRTC as a cultural regulator: I don't think it's doing an effective job, in part because I'm not sure the job can be done the way we're trying to do it.

The second part, though, in terms of your concern, is that the CRTC today on the broadcasting side does not have control over employment. It seems to me that foreign ownership in that respect is a bit of a red herring; if this is your concern, then in fact what the cultural heritage committee will have to do is issue an injunction and a recommendation that the government adopt a policy that this as one of the things the CRTC should be doing.

I regret to suggest that, as with all of the other recommendations, this will continue to be part of a performance gap. As I say, I'm not the one who has articulated this position; it's John Meisel, the former chairman of the CRTC .

The Chair: Thank you very much.

Mr. Murdock, did you want to make a short comment?

Mr. Peter Murdock: I just wanted to respond to a couple of earlier comments, first of all.

Yes, this is not about the advance of technology. We've done very well with the advance of technology in this country. Some of our telecommunications industries are leaders, global leaders. It's not about competition either. We have such agencies as the Competition Bureau and we have thriving competition in the country. It's only about foreign ownership.

If at this point we want to say there's a problem and the CRTC should answer it, then let's give the CRTC some more teeth. Let's allow the CRTC to operate with some strength in the country. The problem of whether or not it's Canadian programming or whether it has to do with rates...we have an agency now; we need to give it some more teeth, and we need to back it up fully against some very, very weighty employers and corporations in this country.

Yes, to some degree you're absolutely right that, through simulcasting, companies such as CanWest and CTV do carry a large share of U.S. programming. We and various others have gone out of our way to suggest that there should be changes within the CRTC to promote more Canadian programming. But if you think for a minute that once we shift capital--whether in Winnipeg or Toronto--down to Dallas or Los Angeles, we will be able to regulate that any better, I'm afraid you're sadly mistaken.

º (1640)

The Chair: Mr. Marcil.

[Translation]

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

Sir, you are the third academic to speak to us on economic models, I think. In theory you are absolutely right, I believe, to think that we ought to open up our borders completely. We ought to deregulate as much as possible, and in fact no longer have any regulations per se. What should be done simply is to let the best one win.

In actual fact, however, if we look at some of the competition, we are forced to admit that the players are mismatched. One of the professors who spoke to us addressed the European market, which has become one economic entity. If a leading telecommunications company from Germany were to invest in Canada and try to take over a Canadian company, I would have no fears. Because of the distances involved, it would be required to have headquarters, or an R&D centre, here. So Canadian brains would still be needed.

The situation is different when it is Detroit and Windsor, Montreal and New York, Toronto and Boston. The balance between the Canadian and American market has to be maintained. An American company could end up owning BCE, Rogers Communications or Telus; this would be possible in the context of deregulation. In 2001-2002, we saw numerous telecommunications bankruptcies. BCE even bought out Teleglobe--and got a bit of a bad deal moreover--in order to gain market control. Often buy-outs are done for the purpose of doing away with the competition.

The question is that, theoretically, there ought to be deregulation, but in practice we need to ask whether there are risks involved. What would the risk be if an American company were to end up owning BCE, Rogers or Telus, and then the Canadian company had to move, since it would not be necessary to maintain R&D laboratories and administrative offices in two separate places? We have seen this kind of thing happen in our own country. A company in Toronto company buys out a company in Montreal and decides to close down the one in Montreal, transferring all activities to Toronto. Or a Calgary company acquires ownership of a company in Toronto, and then moves it. That is where the problem lies.

At the present time, we have a rather good international reputation as far as telecommunications and technological development are concerned. How can we make sure that development does not rob us of our brains and our manpower? By some other form of regulation? That is my first question.

Canadian companies such as BCE have a responsibility at present to provide phone service to outlying regions. When we speak of rationalization, what we are really talking about is capitalism, are we not? As I always say, we are not out to do charity, but to make money. If I buy shares in BCE, it is because I want them to make a profit for me. If I buy them at $10, then I would like to see them make $20.

If competition were totally deregulated, the new companies formed would carry out rationalization in order to integrate the most viable and cost-effective markets. Could we put regulations in place that would require any new company, whether American or Australian, taking over a Canadian company to provide service to the regions and to small communities? There are far more small communities in Canada than in many other countries. Most of the population is in Toronto, Montreal, Vancouver, Calgary and Edmonton.

Those are my first two questions. I will have more if there is any time left for me later.

º (1645)

[English]

The Chair: You've used more than half your time. I just wanted to warn you.

Mr. Schultz, and then Mr. Payne.

Prof. Richard Schultz: I hope I don't use the other half of his time answering.

I'm not advocating competition strictly from a theoretical point of view. One thing you probably have heard from the other professors is that the strongest advocates of competition are academics who have tenure and don't face any. So I appreciate the theoretical concerns.

My view, first thing, is that it is in that competitive process that you get the entrepreneurial and innovative development.

I can assure you that in the time when we were developing competition or it was going to be introduced in Canada, between 1976 and 1992, Bell spent more time trying to kill competitors than in developing a new approach to competition. It drove a little company that provided a service that Bell didn't provide--a remote telephone service--out of business. In the second half of the 1980s, it tried to drive the predecessor of Call-Net out of business.

I hope I'm not shouting, Mr. Chair. Where I come from votes are weighted, not counted.

But it's the spirit of competition that you want. We have a great technically developed system. But why do we have it? In part it's because of foreign investment, not just because of Canadian things.

Now, your concern is--and it's quite legitimate--do we lose all these jobs? There is a certain amount of fear, but I'm sure you wouldn't want to argue for internal barriers to trade in this country, so we must be careful of providing barriers that do frustrate competition. I get so frustrated in Canada. When we think of foreign ownership--and we usually slur the word “foreigners”--what we really mean is Americans. That's not necessarily the only world. There are other parts of the world that want to come in. I think if we use the American bogeyman as the only object, that's underestimating the potential.

The last part is that we can use regulations to control and satisfy public policy objectives. We have not seen a decrease in service to remote areas because of the CRTC's policies. I personally disagree with the instruments they've used, but the objective is that we must have universal service in Canada maintained. Even with the introduction of competition to the extent that we have it today, especially in long distance, competitors are required to contribute to maintain universal service. I believe the tools are there. I believe tools like that, with explicit policy objectives, are a much more satisfying way of satisfying our nation's interests than crude, restrictive barriers that say don't come in.

It's going to be the new companies, the little companies, not the big companies. I have a lot of respect for Bell, but from the little bit I've studied about innovation and technological development, it's not the incumbent that innovates. It innovates at the edge. It's worried about the system. It's worried about the people it has now and the systems it uses. It wasn't IBM that produced Microsoft. It won't be Microsoft that produces some of the new innovations. It's going to be the little ones at the edge that are going to challenge all.

My views of foreign ownership are very much influenced by my growing up in South Porcupine in northern Ontario, when all of the Canadian mines, Rouyn-Noranda and others, in their backyard.... It took an American firm on its last legs, its last $50 million in the backyard of Timmins, to discover a copper-zinc mine. It came in with the best new form of technology to fly over with helicopters and discover this.

That's the sort of thing I want to see in telecommunications--the new entrants, not the incumbents. They won't do it.

The Chair: Mr. Payne.

º (1650)

Mr. Brian Payne: Mr. Chair, I sit here and try to imagine one company trying to put the other out of business. With our 150,000 members from St. John's to Port Alberni to Whitehorse, we live in the real world out in the forestry industry, and in the energy, oil and gas, telecommunications, and media industries. Imagine one company trying to put the other one out of business—as if we haven't heard that one before.

I, too, grew up in a small community where the exploitation of the forest was carried out by somebody who was not from this country, because it suited them. The same went on in the province of Quebec and in all parts of Canada.

Majority ownership is not about competition and investment, but about control. That's what majority ownership is about, it's about control. It's not about whether you can make good money by having a minority interest, but about controlling the venture and then maximizing the return on that venture. That's what it's about in every other industry in this country. Why would it be different here?

Canada is not behind when it comes to telecom innovation, including in the province of Saskatchewan, where there are people—not in this room, or only some in this room—who would wish some kind of blight, I guess, on the Saskatchewan house because it's a publicly owned telecom that makes money for citizens and provides in the province every bit of technology, the last time I checked, that is available anywhere else in Canada. In fact, they are advancing.

Mr. Brian Fitzpatrick: [Editor's Note: Inaudible]

Mr. Brian Payne: You know, this is about control, as I said. It's not about return on investment. This is just one other example. I'm not a university professor but a president of a large union representing all segments of the economy in this country. As we sit here, a negotiation is going on in another room about sovereignty over public forests in this country. Our union is very much involved in this. And in case anybody wondered as a result of reading the headlines, it is not about duties; it's about public policy change that people want regarding Canadian sovereignty over these issues. That's what it's about, and we should be careful when we play with this. It is not about...if all of a sudden we can have anyone we want, we'll have planes flying regularly to Nunavut. That is absolute nonsense.

A witness: Mr. Chairman, I think one of my colleagues has one point to make here.

The Chair: It has to be very short, because we've taken 11 minutes on this so far.

Mr. Neil Morrison: I just wanted to clear up an earlier misconception that somehow or other I was advocating public ownership. We didn't come here to debate that issue.

The professor mentioned that the CRTC felt that with GTE's 51% ownership of BC TEL they could sufficiently control it, and that it wasn't a problem. But what he didn't go on to state is that with the 51% interest and the grandparenting under the 1996 telecom act, they were restricted to offering services in their existing and traditional operating area. Out of business necessity, this led them to merge with TELUS, the privatized telephone company in the province of Alberta, and reduce their ownership interest in the new TELUS from 51% to 28%. As the gentleman from Nipawin, Saskatchewan, appreciates, this led to great competition under the existing ownership restrictions.

The Chair: Mr. Masse.

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

To start my comments leading to my questions, I want to be clear on one thing. The operational elements that the United States has with regards to access to control and foreign ownership in our companies can't be ignored because of their proximity and also the relationships that we have, with trade agreements and the infrastructures that currently exist in terms of personal relationships.

I live on the border. I have families who are Americans. I have constituents who are married to Americans. I'm very proud of all that, but the reality is that we have to look at our current environment with regards to trade and also the current delicacy with this issue and how it's going to affect Canadian jobs.

Specifically, if we look at the current record, I have concerns at this time. We have softwood lumber, we have wheat, we have auto, where the United States is doing massive subsidies to take away Canadian jobs. We have the border. I am dealing right now with a situation where the Americans don't trust the same subsidiary companies in their trucking industry to get through our community. They've actually shut it down for hours because they don't trust the employees who often drive their own trucks from their own country. As well, they're doing racial profiling of Canadian citizens, be it for one year, ten years or twenty years, whether they're professionals or whether they're not.

All those things have to be looked at, because as we've gone down this road, I've been uncomfortable with the insinuation that has been made that Canada is the one that's obstructionist. I don't think that's true. I think we need to keep this in mind.

I would like the panel to look at this concern. What would be the potential results of collective agreements and the potential results of the job losses that you might have? Also, we should have some empathy with some companies that are struggling over here with regard to equity that they claim they need right now. They might also have some loss of jobs, too. I would like to have some comments about that.

Lastly, Professor, there is foreign investment available to come to the country if the company can accept it right now. It's just not in actual shares that you can vote on. If that opens up, how can you prove to me that that's going to improve employment in this country? Also, how is it going to improve the consumer's price, the consumer's availability, and all those things in the context of opening it up for controlled shares?

Thank you.

º (1655)

The Chair: Mr. Carlson, do you want to begin?

Mr. Ron Carlson: I'm just going to address two parts of this, and perhaps other members of our panel would want to also add to it.

I guess for one of the issues, obviously on the surface you don't have to look very far. You could say that if our telecommunications companies were owned by foreign investment, by an American company--pick AT&T, pick any one of the big Bells that exist down there--is there a possibility that in fact there would be job loss? Our professor here would suggest that's just a bogeyman. I tell you it's not a bogeyman.

Look at operator services. Do we think we would need an operator in Canada, anywhere, answering an operator services call, if we were in fact owned by Bell Canada in the United States, Southern Bell or one of the AT&T groups out of the United States? No, we wouldn't.

Do we think we'd have to have a test centre in Canada testing your line if you had trouble on it? That can be all transferred down to a test centre in Dallas, Texas, or Mexico. In fact, it can even go further than that. It can be transferred out of the country fairly easily. Do we think there would be job losses? Yes.

That's just a small bite of the effects that foreign ownership could have, because as my compatriot Brian said, it's an issue of control and ultimately cutting costs and getting the biggest return. So how do you cut your costs? You centralize where the services get done, you centralize how many people do the services, and then you cut the costs of how that is done and what happens with it, and you get a better return at the end of the day.

We don't have to look far in Canada to see the results of where the industry has gone to this point, when we see what has happened with the amalgamation in Aliant, in eastern Canada. We see that in fact, with Bell Canada, they were all separate companies out there originally and they are now joined together into one company called Aliant. Newfoundland, Prince Edward Island, Nova Scotia, and New Brunswick are all now one company.

What have they done with that? They have amalgamated the services. The services aren't performed in every province any more; they're performed in one location. Operator services is performed in one location. Testing is performed in one location.

In fact, they've even gone further, to transfer some of the management jobs into Bell's major company in central Canada. Management is reporting to a reporting system out of central Canada as opposed to working for the Aliant company in eastern Canada.

So we see jobs being shifted around already in the industry that we have today. Do we think there would be a greater impact in the future? Yes, there would.

I do want to make one other important comment around this, and it is one that's included in our paper.

We put a quote in the paper by Bill Linton from Call-Net. When we talked about this whole issue of investment and jobs and what happens, he made a really good comment that we included in there. He said, “We could liberalize the rules and get financing from Mars. The issue is profitability.”

What will happen? Do you think companies will come in here, invest more money, and create a whole new system? No, they won't. They'll simply take our companies over, they'll eat them up, buy them out, move the major jobs outside of the country, and they'll make more profit where they're going. There's no question on it.

The Chair: Mr. Schultz, did you want to answer?

Prof. Richard Schultz: It's five o'clock; where to start? I can't make your case, Mr. Masse, partly because I refuse to try to do so.

Back in the eighties and nineties when I advocated competition, Bell Canada said, look, we have the second-best system in the world, we have universality, etc. How can you prove something else will be better? My position was that you can't prove it.

Now, we've talked about jobs leaving, and again, I'll revert back to my home. There are call centres for Verizon in northern Ontario. There are call centres for American companies in New Brunswick. Sorry, I don't want to sound like Ross Perot, but there is no great sucking sound here made by everything going out of Canada and down to the other side of the border. We're liberating...we can specialize. We can develop services. We can respond to this.

The arguments I'm hearing, though, suggest that in fact it's not simply foreign ownership; we should cancel competition. We should go back to monopoly to guarantee the jobs.

Unless there's a hidden owner of that great Canadian nationalist company, Bell Canada, it seems to me it wasn't a foreign company that sold its operators like chattel to an American company, it wasn't BC TEL under foreign ownership; it was Bell Canada under Canadian control.

It seems to me that you had better start worrying about how to put those types of handcuffs on these companies to satisfy these objectives, because foreign ownership is not the problem. It's messy, competition. There are losses, and I think we have to make sure we compensate people for losses and protect them, and we use social policies to do this. We don't want to drive the poor or the elderly off the telephone service. I'd be the last one to do that.

I think there are better ways to do it than protecting the incumbents. It's not a question, with respect to my colleagues--and because I'm a member of a union at the university I may say “my brothers”.... Don't worry about it; I also actually have three brothers and they don't like me either.

» (1700)

The Chair: After an hour and a half we have “brothers”, and we have half an hour to go!

Prof. Richard Schultz: The thing is, these are opportunities to develop new arrangements. We are in the most dramatic upheaval of our economy possible. And I really do believe we must--with respect, as a professor I say this--take our ignorance very seriously. We must not have these incredible impediments to growth and to expansion. We must look after the social policies and look for the protection of those who need it. I believe this very firmly. But we must allow the opportunity for the entrepreneurial spirit and the new applications to emerge. Barriers don't give us that.

And if you believe that ownership is in fact involved--I feel like a guy on the shopping channel--buy option number one then. Let's have tiering. Let's experiment, taking those companies with less than 40% or 50% market share. It doesn't hurt the incumbents, despite what you've said; but it give us an opportunity to try something. Then, rather than trying to prove it to you now, sir, I'd try to come back and prove it, if you'd invite me, in five years.

The Chair: Thank you very much.

Is there anybody else who wanted to make a quick comment?

Mr. Murdock.

Mr. Peter Murdock: I just want to say very quickly, it sounds like our members don't have tenure. Our brothers and sisters don't have tenure.

I just want to say one thing. Again, you're getting back to the competitive argument. I don't believe we are here and these hearings are being held for reasons of competition. They're being held and are primarily motivated, I think, by debt. These hearings are motivated by companies who are looking for foreign capital because they have made, sadly, some horrendous mistakes and their investors, their shareholders, Canadians, have paid for them, as have their management teams. But they can't be allowed to correct it through foreign ownership and foreign control.

That's what the motivation is here, so let's get it on the table and deal with it. It's not about competition. There has been healthy competition, and were it not for these mistakes that happened within the market--some of which I believe were beyond their capabilities to foresee--there would be a great deal of money left in the marketplace now for competitive actions. We're not here against competition.

The Chair: Thank you very much.

Mr. Normand.

[Translation]

Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): Thank you , Mr. Chairman.

As they say, the best way to make enemies is to try to make changes. I find it interesting to see how the views have completely polarized here around the table in the past few weeks. I would almost say they are either black or white, yet it is quite possible that the solution is grey.

For several weeks now, we have been hearing people say they were prepared to accept change, but things would have to be done slowly and with a certain degree of flexibility. Others have expressed some misgivings, although prepared to accept certain changes. Then there were the people from the heritage committee, who voiced concerns about content if foreign companies were allowed to own the infrastructures.

My question is a very simple one, and is for both of these groups. In your opinion, can there be a solution that would fall mid-way between the two extremes?

» (1705)

[English]

The Chair: Mr. Carlson.

Mr. Ron Carlson: I'll make an initial comment on this, and again, one of my colleagues might want to add to it.

Unfortunately my friend here from Nipawin is gone. When he asked the question earlier about the issue of going back to where the world was before, without deregulation in the industry, etc., I wanted to describe one of the suggestions we're making in our paper. We suggest that one might want to look at, on behalf of the Government of Canada, a review of what's happened since privatization and deregulation in the telephone industry has happened. The review should look at the entire industry and say in fact whether it has been a success.

Has it been a success story in 10 years, and who have been the winners and losers of that 10-year situation? And has the problem been related to that initial decision rather than the need now to go further and add to the additional problem of increasing foreign investment?

We're saying, why do we need to take this step forward? Maybe we ought to have a revisit of where we're at, and in fact, revisit the whole situation of what's happened in the industry for the last 10 years--look at it, do a commission on it of some sort, and come back with some position that understands how successful or unsuccessful it has actually been.

It can easily be argued that, as many winners as there are from the privatization and deregulation of the industry, there have been as many losers in the situation. Long distance service charges might have gone down for the average Canadian, but at the same time, local rates have more than doubled. People are actually paying more now than they have ever paid before for their telephones, which they never expected to do.

Mr. Brian Payne: I have just one further point specifically on your question.

You asked if we are looking at this as black and white, and whether there may be shades of grey. I'm not sure there can be shades of grey when it comes to majority ownership equalling control.

That's the problem here. It's not about adequate competition. There's no shortage of money out there available for this industry. The whole industry is reeling, for all the reasons we know about. But it's about control and it is about a utility--or however you want to describe the telecommunications industry--in a large country with very few people, all clustered along the border. I don't know if there's any grey here. I'm afraid this issue is like some other issues that are unique to this country.

As the panel member here pointed out, it's not a big worry here that we're going to have someone from Europe come over and buy up companies and set up shop and build a big complex and steal some jobs from Bell across the street in Montreal or something. Although our position is the same, our big worry is our friends to the south, inhabitants of the most protective nation on earth who otherwise try to pretend they're free traders.

There is no grey area when it comes to ownership. In every industry, if ownership is about control, it then becomes, how do we maximize some dollars and cents? And quite frankly, we don't believe, at the end of the day, this is all this industry should be about. It obviously has to be about profit, but not about maximizing it.

The Chair: Mr. Schultz.

Prof. Richard Schultz: Let me be reasonable.

» (1710)

The Chair: I need you to be short and to the point so I can be reasonable.

Prof. Richard Schultz: Yes, sir.

There is a grey area, but before I get to that, we don't need another commission, sir. There is an ongoing investigation and report, and I refer you to the CRTC's annual monitoring reports that show us the state and health of competition.

Fifteen years ago I was hired by the Competition Bureau because they said that when we got competition, if we got it, 6 million Canadians would be driven off the telephone system. They said 8 million Americans would be driven off the system after 1984. It just didn't happen.

It is true that prices have gone up, local prices. Long distance has gone way down. But when I was a consultant for Bell, prices for local service were so heavily subsidized that they should have probably gone up five times. So they're nowhere near their cost. They're moving up there.

But what is the grey area? If, as my colleagues on the panel say, it's a question of control, then I suggest we do a tiering approach; then I suggest that it's not a question of Bell Canada or TELUS, but that we in fact say, let's have a market share test, and if you're below a certain mark--let's say 40% or 50%, or whatever--then we're going to let you have greater access to foreign capital and see who will come in, the new entrants.

I would take Mr. Carlson's suggestion; I would add to the CRTC's monitoring responsibilities and say, we expect you to report to Parliament every year on what has happened in this industry, what has been the consequence for the new entrants.

If we are so worried about Bell Canada and TELUS, let's leave them alone. Be careful, don't wrap them in the flag, because they will seek special status from that. They've already said they're not affected by the current restrictions. They've said that to this committee. Therefore, I say, let's not worry about you; let's deal with the new entrants and the smaller companies and see if in fact there are people willing to come along and offer not just new investments...and it's the cost of capital. It's not that there's lots of capital, but these companies have argued that it's the costs they have to pay, not the price that Bell pays for it but the price that Microcell or Call-Net pays for it.

Let's have an experiment that in fact will allow us to worry about making steps, monitoring it, and then if the fears that you and others have articulated become true, then let's say, no further; let's impose public policy objectives. But let's try.

Mr. Peter Murdock: If you were even to consider a two-tiered system, what you end up having is some company or maybe a handful of companies that are now open to foreign investment even though they'd be smaller. This bids the share price up. You will have shareholders immediately flow from BCE and these others only in order to maximize their own profits. Talk about unfair advantage. It would be ludicrous to have a two-tiered system. It would make the market wonky, to say nothing of the issues of ownership.

By the way, to some degree, when I talk about the cable companies, that is precisely what they want, of course. They want to boost the shares, never mind simply the influx of capital, but once that capital starts to influx, the share prices go up, and who benefits? Certainly in the cable industry, it's not necessarily the consumers.

The Chair: I saw another hand here.

Mr. Morrison.

Mr. Neil Morrison: Yes, in response to the gentleman's question.

I don't think there is much grey area, because once the majority control is gone, it's over. It appears as if people might be under the understanding that all this competition has been solely responsible for the reduction of long-distance costs. But as the professor mentioned, there has been rate rebalancing, and prior to that, the long-distance costs subsidized, very heavily--I agree with the professor--the supplying of local service. That is why there was much more universal local service in Canada and the U.S. In the U.S. there's approximately 93% penetration rate for local service, and in Canada it's 98%. That is because that cross-subsidization was there.

That cross-subsidization of providing local service by long-distance service has been, for the most part, removed. But that is not the only thing that has dropped long-distance calls. Technology has also dropped the cost of those calls. When two fibre optic strands can carry all the traffic in Canada, the unit cost of placing a call decreases so much. And then on top of that, they have a prism in front of that shot of light now, and they've increased the capacity by seven times because they're putting seven different colours in. Once you have that fibre optic in place, it's by today's standards virtually unlimited traffic that you can put in that infrastructure. So the costs of maintaining that infrastructure are almost zero per call.

You also have your e-mails, your data changes. Most of your voice calls, when they go to the local switch, are compressed to data, shipped as data to the far switch, and into your house.

So it has been those technological advances that have led to the lowering of costs, not just competition.

» (1715)

The Chair: Professor Schultz.

Prof. Richard Schultz: I agree with the technological changes. Absent competition, the long-distance user and the business user would not have seen the benefits of those technological changes. That money would have gone, as it did at the beginning of the eighties, into Bell Canada's edifice complex, where they got involved in real estate development and other areas, when they said they had to be outside of the regulated area. And what did they buy? They bought Trans-Canada PipeLines.

Absent effective competition to drive them down, the benefits of those technological advantages wouldn't have accrued to you and the rest of Canadians. Local prices would have continued at their rates, and long distance would have stayed high.

The Chair: We must proceed to Mr. Rajotte.

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

I want to touch on some of the issues that the communications unions have been bringing up, particularly control and ownership. One of the suggestions put forward by the witnesses was restricting the percentage that any one party could own. Take TELUS or BCE or whatever. So you'd have, say, a maximum of 5% or 10%. You would not have one majority owner. Would this address any of your concerns with regard to foreign ownership?

Whoever would like to can answer.

Mr. Peter Murdock: I'll say something, and then I'll turn it over.

It strikes me in some ways that then what we would have is a multi-headed foreign monster. Now you would have to place a call not only to Los Angeles, but also to some place in Wyoming. So I'm not sure that would resolve it.

Mr. James Rajotte: I thought some concern, though, was over majority control.

Mr. Peter Murdock: That's true, and in some ways it may appear to address that. But then, how are you going to regulate the industry when you have the majority of ownership still outside your national borders? It would be impossible.

Mr. James Rajotte: But having majority control does not prevent a nation from passing internal regulation.

Mr. Peter Murdock: No, but...sorry, go ahead.

Mr. Neil Morrison: I don't think so, because telephone companies can form telecommunications structures that look like the most complicated entanglement that was ever put on earth.

What I've noticed is that even these great competitors that go at each other right by the throat also tend to coalesce around things. There are examples in areas where, as you said, there can be more than one foreign owner there to create more than majority control. So there's me and someone else, and we each own 26%--it's now 52%--but we're also friends and operating partners in other areas. So then the deal comes. Well, I'll totally run this company and you totally run that one.

That's the way it works. There are meetings behind the curtains, and guess what, they both come out saying the same thing.

Mr. Brian Payne: There's one further point I might add. I don't want to make it sound too ominous. I can't think of the right word. In the world we live in today, certainly from our other experiences, if we were talking about a conglomeration of U.S. ventures that between them added up to 50% plus, my guess is we'd have some trade advocate banging on another door on their behalf. I'm not sure that gets us where we want to go. It obviously dampens the sharpness of the spear, but I'm not sure it leaves us where we want to be, and that's with Canadian control over our telecommunications industry.

Mr. James Rajotte: Suppose you did allow one party to have majority ownership and you eliminated the foreign ownership restrictions. Mr. Carlson, you talked about cutting costs, job losses, our companies being bought up, and jobs moving out of the country. Take TELUS, for example. That's the one I'm most familiar with. They have their wires in the ground. They have TELUS Mobility. They have customers, largely out west. If an American company came in and bought 51%, explain to me how they're going to move all the jobs south. If I order telephone service, someone has to be sent over either to input that or change it. There has to be a TELUS Mobility person at a mall or somewhere else to propose the services. You talked about operator services and test centres. If they're moving those down, how many jobs are we losing here? Why are there call centres for American companies in northern Ontario and New Brunswick?

» (1720)

Mr. Ron Carlson: I'll try to answer that as best I can, and my colleague probably will add to it.

To come back to the call centre issue, I have a short response to the issue the professor raised, that these call centres are springing up across Canada. They are springing up across Canada for a number of reasons. There's an economic advantage to running a call centre in Canada because of the difference between our dollar and that of the United States. You can pay someone the minimum wage within a province and in fact be paying them in American dollars some $2 less an hour. With that in mind, it in fact ends up being an economic advantage to run a call centre in Canada as opposed to the States. If in fact our dollar was even with the United States dollar, I could almost guarantee you that many of these call centres would not exist where they exist today.

On the issue of moving jobs if foreign ownership took place, I think we only need to look at the history of what has happened in this industry in terms of the whole issue of privatization and deregulation and how this adds another step to that. The ball is rolling down the hill, to coin an old phrase, when all of those things happen. Look at the more rural parts of Canada. Take Saskatchewan and Manitoba, for example. I'll pick Manitoba right up front. When Manitoba was privatized and deregulation took place, some 2,000 jobs were lost there with the centralization. They don't have a service rep in Dauphin, Manitoba, any more, and they don't have one in Morden, Selkirk, or Portage la Prairie. In fact, they're moving the last ones out of Thompson.

Mr. James Rajotte: Because of the consolidation.

Mr. Ron Carlson: Yes.

Take that consolidation to the next step. If Manitoba Telephone, which is a private company, was bought up by AT&T, wouldn't it be easy to consolidate those jobs and move them, along with the SR responsibilities, the testing of lines, and the operator services, to Denver, where they in fact have more capabilities and facilities than they have anywhere else? Wouldn't it be easy to transfer all of the lines and the calls directly from Manitoba across the line, and anywhere else you want to put them, into their system? It would be much easier to do that.

Look at what AT&T did in Canada. Unfortunately, the brother from AT&T isn't here to tell their story. They laid off people in Canada while they brought in people from the United States to do the work on the switches in Canada. All of those things would just compound themselves, in my view.

Mr. James Rajotte: So it would only be in one direction. It would not be the other way. In other words, in a province such as Alberta, companies would not choose to increase the workforce there and service some of their American customers.

Mr. Ron Carlson: It's possible that could happen in the reverse, but it's very unlikely when they already have the centres and the capacity in the United States. Why would it happen in reverse? It doesn't make a lot of sense to me.

Prof. Richard Schultz: This argument is not against American foreign ownership or foreign ownership liberalization generally. It seems to me, with respect, this is an argument to reverse almost two decades of public policies against privatization and competition in telecommunications and go back to the status quo. You can't.

On the other hand, I think the benefits of the two decades we've had of telecommunications competition are clear and evident. We have to be concerned about whether we take the next step, and I think we're in danger of reverting back to an Air Canada-type situation in telecommunications. We have one big firm and a couple of pesky little ones on the side. Hopefully they can expand enough, but I'm afraid we're going to revert to TELUS and BCE.

» (1725)

The Chair: Mr. Morrison.

Mr. Neil Morrison: In response to the gentleman, I don't know if you understand the sizes at stake here. A few years back--and it's more true today--there were about seven RBOCs, as they call them, regional Bell operating companies, in the U.S.--baby Bells. The total Canadian telecommunications system added together was still smaller than the smallest baby Bell.

I know baby Bell was south of British Columbia and Alberta in those 14 midwestern states, and all the systems of Canada together are not as big as that telephone company, US West, now called Qwest. All of their engineering, dispatches, tests, and operators are centralized in Denver, Colorado. So could they eat us? Yes, they could, without even blinking. We wouldn't even fill up the cavities in their teeth.

The Chair: Mr. Rajotte is next, and then I'm going to go to Ms. Girard-Bujold to finish up.

Mr. James Rajotte: Are you recommending Canadian majority ownership for every industry in Canada? The Canadian Auto Workers are on here, but I don't know if they're represented here today. Are you recommending Canadian majority ownership for the auto industry? Should we to say to Ford Canada, you have to have a majority of Canadian ownership and, in fact, separate yourselves? Is that where we want to go in Canada, where every industry has to be Canadian majority owned?

Mr. Brian Payne: Let me be clear. We're at these hearings speaking about this industry, which we have very first-hand and particular concerns about. We've made a couple of passing references to other--

Mr. James Rajotte: You've made reference to softwood and to other industries.

Mr. Brian Payne: I'm just telling you those are some of the reasons why we're driven to be as passionate and concerned about this industry as we are.

Although several of us in this country look at Wal-Mart with a bit of a suspicious eye, we're not advocating control of everything. We are advocating keeping majority control of this very important connect-the-dots industry in this country. We're telling this committee there is no lack of innovation, advancement, or Samsung cellphones in Canada today.

The Chair: Thank you very much.

Ms. Girard-Bujold.

[Translation]

Ms. Jocelyne Girard-Bujold (Jonquière, BQ): It is no fun being the last one to ask questions, gentlemen. I have found today's debates quite extraordinary, but I still have some questions. It is obvious that we need to talk now if we want to have any impact on what is to come. But have we really analyzed everything that is going on? Are we currently at the allowed limit as far as foreign investment in our companies here in Canada is concerned? I would like an answer to that before I go on.

If so, what do we stand to gain by lifting the restrictions? More money? A different quality? American protectionism implies that jobs will be lost in this country, or at least for me that is what it means.

Why are we not asking why we are not even at the present limit? Why do we want to raise it, when it has not even been reached yet, on the pretext that this might broaden the range of possibilities?

As far as I am concerned, there are a lot of questions that need to be answered before I would conclude, as the professor has, that we are going to end up with a Berlin-type wall. The present is more of a concern to me than the past, because when we ask questions of ourselves in the present, we can end up in the long term by having an impact on the future. The question, as far as I am concerned, however, comes down to job creation in this country.

You have referred to Bell Canada. I am from a region of Quebec, Saguenay--Lac-Saint-Jean, where some communities do not even have phone service, believe it or not. Were you not aware of that? Studies were carried out, commissions struck by the CRTC, and then Bell was told it had to connect them. The process take so long that they still do not have their phone service.

At least, throughout this process, Bell Canada was accessible and could be questioned. If the Americans take over, will it be as easy to tell them they have to provide phone service here? They will be far removed from the problem. Those are my points of concern today.

Professor, there are a number of points I would like to raise, but what I want particularly is for the unions, you who represent ordinary people, to show some concern about local employment. Quality is hard to find here, but could we at least call upon you to get through to those who can really change the situation?

If it is a matter of obtaining more sophisticated equipment, I can tell you we already have that. It is a matter of will.

You spoke of the CRTC and I am totally in agreement with you on that. One of these days, they are going to have to get busy and make some quick decisions, instead of humming and hawing forever. That is what I think also.

So those are my questions, although I have plenty of others as well.

» (1730)

[English]

Mr. Brian Payne: I'll take a shot at a couple.

You asked the question, if I understood it correctly, whether we have reached the maximum level of investment that we can expect with our current rules--in other words, are the current rules the bar.

In our submission, the current rules are not a bar. We're talking about an industry that has been on a fairly significant roller coaster of late. If there's a shortage of investment dollars for the telecommunications industry around the world, it's not because of foreign ownership; it's because of the mess, quite frankly, that it's got itself into in the last couple of years.

It's astounding when one stands back and looks and realizes that half the people on the face of the earth have never made or received a telephone call, yet many of these larger companies have wasted hundreds of billions of dollars in the last few years and are, all of a sudden, wiping that slate clean and arguing that somehow they're not going to make a mess again.

I don't believe that at all. I don't believe this is the only way we're going to get investment to provide adequate telephone service in your region of Québec. There may be other rules we need to put in place to ensure that. That's an argument for another day, because I think there are some obligations there that Canada should expect. If we expand the foreign ownership rules, I think you'll have more trouble getting that service than you currently have today.

Prof. Richard Schultz: Can I add just one comment, please?

It seems to me, Mr. Chair and madame, that the question is not really the availability of capital, to a large extent. The question is the cost of capital. Bell Canada, under the 20% rule, can easily get $5 billion like that and can in fact, under the regulatory system, manage to pay back that $5 billion because they get capital at a lower price. The new entrants cannot do that.

It links to the question of service. I've seen this. I run training programs in different parts of the world where they're leapfrogging, in certain respects, the service provided in North America. New entrants came in and extended service because it was competitive. They went wireless in many respects.

I am convinced of this. If you keep the new entrants in the weakened state they are in today, even if some of them have made mistakes, then you are going to be at the mercy of the dominant firms, as you are obviously today, in terms of extending service. Competition requires healthy new entrants. Competition doesn't require two large companies fighting with one another. That's where the cost of capital is, not majority control. Let these companies get freer access to cheaper capital so they can effectively compete. If you don't let them do that, then we can kiss competition goodbye.

Mr. Ron Carlson: Just to add to what my colleague Brian Payne said, in terms of figures when we looked back and were doing our research in putting together information for this committee, in 2001 the investment capital was somewhere around $7.7 billion put into the industry in Canada. Those are not small dollars; they are significant dollars.

More importantly, to the professor's point, the issue of competing for capital, it's an interesting world when we look around and say, well, WorldCom was this marvellous big company that came out of nowhere land and ended up going bankrupt and now has no debts. It could effectively buy out one of the Canadian companies if foreign ownership was dropped, because it has no debts. Do you think it has better access to capital than a Canadian company does? Oh yes, it does.

The Chair: I'm sorry, I'm going to have to close.

I have a question I wanted to pose to the members of the National Alliance. Professor Schultz mentioned he was a consultant for Microcell and Bell. I'd like to have you tell me in which telecom and cable companies you have people you represent.

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Mr. Brian Payne: It is in our brief. Collectively here we represent membership at Aliant, at Bell, at TELUS, at SaskTel, at Manitoba Telecom Services, Rogers Cable, Shaw, and virtually every media that you can name in this country, from the CBC to all the major newspapers and so on. We represent all the major telecom corporations.

I want to make the point, though, in answering that question, that we are not here beating the drum on their behalf. That's what we do. We're in Grand Falls. We're in Badger, by the way. We're in all those communities. We know how people feel the results of these things, just as people feel the results of inaccessible air travel in Canada.

The Chair: I'd like to thank the witnesses for their presentation and for their discussion, and for some good humour for once, because we've had a lot of dry presentations. I'd like to thank you very much. Have a great day.

To the members, I remind you tomorrow at 9:30 we have visitors from the U.K. We don't want to let them down.

The meeting is adjourned to the call of the chair.