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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology


EVIDENCE

CONTENTS

Thursday, February 27, 2003




¿ 0910
V         Mr. Leonard Asper (President and Chief Executive Officer, CanWest Global Communications Corp.)

¿ 0915

¿ 0920
V         The Chair
V         Mr. Robert Yates (Lemay-Yates Associates Inc, As Individual)

¿ 0930
V         The Chair
V         Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

¿ 0935
V         Mr. Leonard Asper
V         Mr. James Rajotte
V         Mr. Leonard Asper
V         Mr. James Rajotte
V         Mr. Leonard Asper
V         Mr. James Rajotte

¿ 0940
V         Mr. Leonard Asper
V         The Chair
V         Mr. Andy Savoy (Tobique—Mactaquac, Lib.)
V         Mr. Leonard Asper

¿ 0945
V         Mr. Andy Savoy
V         Mr. Leonard Asper
V         Mr. Geoffrey Elliot (Vice-President, Corporate Affairs, CanWest Global Communications Corp.)

¿ 0950
V         Mr. Leonard Asper
V         The Chair
V         Mr. Robert Yates
V         The Chair
V         Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

¿ 0955
V         Mr. Leonard Asper
V         Mr. Paul Crête
V         Mr. Leonard Asper
V         Mr. Paul Crête
V         Mr. Leonard Asper
V         Mr. Paul Crête
V         Mr. Leonard Asper
V         Mr. Paul Crête
V         Mr. Leonard Asper
V         Mr. Paul Crête
V         Mr. Leonard Asper

À 1000
V         The Chair
V         Mr. Robert Yates
V         Mr. Paul Crête
V         Mr. Geoffrey Elliot
V         Mr. Paul Crête
V         Mr. Geoffrey Elliot
V         Mr. Paul Crête
V         Mr. Leonard Asper

À 1005
V         The Chair
V         Mr. Robert Yates
V         The Chair
V         Mr. Larry Bagnell (Yukon, Lib.)
V         Mr. Leonard Asper
V         The Chair
V         Mr. Robert Yates

À 1010
V         Mr. Larry Bagnell
V         Mr. Robert Yates
V         The Chair

À 1015
V         Mr. Leonard Asper
V         The Chair
V         Mr. Brian Masse (Windsor West, NDP)
V         Mr. Robert Yates
V         Mr. Leonard Asper
V         Mr. Brian Masse

À 1020
V         Mr. Leonard Asper
V         Mr. Robert Yates

À 1025
V         The Chair
V         Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)
V         Mr. Leonard Asper
V         Mr. Joseph Volpe
V         Mr. Leonard Asper

À 1030
V         Mr. Joseph Volpe
V         Mr. Leonard Asper
V         Mr. Joseph Volpe
V         Mr. Leonard Asper
V         Mr. Joseph Volpe
V         The Chair
V         Mr. Joseph Volpe
V         The Chair
V         Mr. Joseph Volpe
V         Mr. Leonard Asper

À 1035
V         The Chair
V         Mr. Robert Yates
V         The Chair
V         Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

À 1040

À 1045
V         Mr. Leonard Asper
V         The Chair
V         Mr. Leonard Asper
V         The Chair
V         Mr. Leonard Asper
V         Mr. Leonard Asper
V         The Chair
V         Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.)
V         Mr. Robert Yates

À 1050
V         Mr. Leonard Asper
V         Mr. Robert Yates
V         The Chair
V         Mr. Leonard Asper

À 1055
V         The Chair










CANADA

Standing Committee on Industry, Science and Technology


NUMBER 026 
l
2nd SESSION 
l
37th PARLIAMENT 

EVIDENCE

Thursday, February 27, 2003

[Recorded by Electronic Apparatus]

¿  +(0910)  

[English]

+

    Mr. Leonard Asper (President and Chief Executive Officer, CanWest Global Communications Corp.): Thank you, Mr. Chairman. My name is Leonard Asper, and I am the president and chief executive officer of CanWest Global Communications Corp. With me today is Geoffrey Elliot, our vice-president of corporate affairs.

    I'd like to start by thanking you, Mr. Chairman, for allowing us to appear at short notice, well into the proceedings of the committee's study on foreign investment restrictions in the telecom industry. Part of the reason we wanted to appear was some of the things that have been said by other players in the broadcast sector, as well as the general comments other players have made before you.

    The question before the committee is whether or not to recommend changes in the law in order to allow foreign investors greater freedom to invest in Canadian telecommunications companies. It's important that the standing committee understand from the outset that CanWest is not opposed in principle to raising the limits or even eliminating the current restrictions on foreign equity investment in the telecom sector.

    We do believe the question applies to more than just the telecom sector. There are many important competitive linkages among providers of telecom services, cable and satellite distributors of broadcast signals—or BDUs, as they're known—and conventional and cable broadcasters. The cable and satellite companies argue that they should be treated in the same way as telecommunications, and we take the same position for conventional and specialty broadcasters.

    CanWest opposes changing the foreign investment rules for any of our competitors, be they telecom providers or cable or satellite distributors, unless broadcasters are also extended the same treatment. On the other hand, if broadcasters are treated in the same way as BDUs and telecom companies, we support relaxing or removing the current foreign investment restrictions for everyone. We've set out our views in detail in a written submission. Our purpose this morning is to briefly go over some of the main points with you.

    By way of introduction, CanWest is a Canadian-owned and -controlled international media company. The company is publicly traded on the New York and Toronto stock exchanges, with institutional and other shareholders in Canada and the U.S. We have extensive electronic and print media holdings both in Canada and internationally, including radio and television broadcasting operations in Canada, Australia, New Zealand, Ireland, and the United Kingdom. We also owned a television network in Chile in the 1990s, and we have direct experience as a prospective foreign investor in the broadcast industries of several other countries as well, particularly the U.S. Those international experiences inform our position regarding the question of foreign investment in so-called content companies.

    First, what about cross-sectoral competition? Any changes in the rules that apply only to telecom companies would soon be of competitive significance to broadcasters as telecom companies move increasingly into the BDU and broadcasting businesses, and sometimes vice versa. BCE, which owns the Bell Telephone Company of Canada, is already in the BDU business through its ownership of Bell ExpressVu. BCE is also a broadcaster through its majority stake in Bell Globemedia, which owns CTV. Bell Globemedia also has interests in several of the most popular cable and satellite channels, including TSN, CTV Newsnet, and the Discovery Channel, among others that are carried on cable and satellite systems. So today it's impossible, in isolation, to deal with new rules for telecommunications companies without creating serious competitive risks for broadcasters such as CanWest.

    It's relevant also that more telecommunications companies are delivering broadcast signals to consumers using their telephone-line infrastructure to compete directly with BDU, cable, and satellite providers. Telecommunications companies also compete directly with BDUs in the delivery of high-speed Internet services. They also compete with broadcasters and other media companies in delivering Internet content to consumers. Think of Bell Sympatico as compared to CanWest's canada.com portal or Quebecor's canoe.ca portal. And Canadian cable companies also own specialty cable television channels.

    Our position, therefore, is that if BDUs, as well as telecommunications companies, are included within the scope of the review, broadcasters like CanWest and other specialty channel owners must also be included and must be accorded the same treatment in terms of any relaxation of the foreign ownership and investment rules. In other words, because of the growing convergence or overlap between the telecommunications, cable, satellite, and broadcasting industries, all these sectors are increasingly competing for the same revenue and investment dollars in essentially the same markets. None can be dealt with in isolation.

¿  +-(0915)  

    The second issue is access to foreign equity capital and programming. As a Canadian-based media company and broadcaster, CanWest must have the ability to expand internationally, as it has done over the past decade, in order to meet competitive challenges. It must also be able to remain strong in the domestic market.

    International expansion requires access to foreign capital, properly priced, and greater flexibility in capital structure, in order to go head-to-head in a market environment in which giant U.S. media conglomerates already compete directly with us in the Canadian television market. Both Viacom and AOL-Time Warner, for example, already have more analogue channels than CanWest in homes with cable or satellite TV—now more than 80% of Canadian homes.

    Staying strong and healthy at home in Canada requires unfettered access to both Canadian and international capital markets. Calls by some parties for asymmetrical liberalization of the rules would leave CanWest at a competitive disadvantage not only in terms of access to capital to fund future growth, but also in its access to programming.

    Where would the foreign equity capital likely come from? Possibly from institutional investors, but it's likely also that potential foreign investors in Canadian BDUs will include those U.S. media conglomerates with which Canadian broadcasters now have relationships for the supply of entertainment and other programming content.

    I'll give you a brief example of what happened to CanWest in the mid-1990s. NewsCorp, which also owns the Fox Studios and Fox Television groups, bought a 15% interest in Channel 7 Australia, which is the principal competitor to Channel 10. The day after, NewsCorp changed the Fox programming contract over from Channel 10, us, to Channel 7, the company it had just bought an interest in.

    There's a very clear pattern that a foreign company that buys into the infrastructure of a BDU or a telecom company will also take its programming relationships to that company. Providing direct access to the Canadian broadcasting system for those media and entertainment conglomerates through increased equity holdings in Canadian BDUs or telecom providers alone would be a significant competitive disadvantage for Canadian broadcasting companies such as CanWest. Canadian broadcasters may find that their access to the best in international programming—which is what powers all Canadian broadcasters' ability to invest in original Canadian programming—would be diminished in comparison to their Canadian BDU competitors. It's very conceivable that NewsCorp, which also owns other satellite distribution and broadcasting companies like BSkyB or Star-TV, would be an investor in something like a Rogers or a Bell ExpressVu.

    Third, what about pipeline versus content companies? Some broadcasters have argued that broadcasting is different and that it requires special rules to protect Canadian culture. These broadcasters argue in favour of retention of the status quo in the foreign investment rules for both the BDUs and the broadcasting sector. In support of that position, they assert the proposition that broadcasters, including BDUs, are content companies, and that as such, broadcasters have a special cultural role in the delivery and preservation of Canadian culture.

    Without any supporting analysis, these broadcasters argue that relaxation of the foreign investment rules for BDUs and broadcasters would allow foreign interests to obtain strategic control of Canadian content, that Canadian programming content would therefore somehow change, and that Canadian cultural values would be eroded in some unspecified manner. CanWest does not subscribe to that narrow and protectionist view.

    The idea that Canadian ownership controls contribute to more and better Canadian content programming simply does not stand up to any reasonable scrutiny. Actual experience in other, more liberal markets also disproves that theory, and might even suggest the contrary. Apart from the CBC, broadcasters do not usually invest in Canadian programming just because of some claim to intrinsic cultural merit. We private broadcasters try to acquire programming that Canadians want to watch.

    The CRTC determines the level of Canadian content programming, but the marketplace regulates what goes to air. All Canadian conventional broadcasters are required to maintain an overall average of 60% Canadian content in their schedules, with an average of 50% Canadian content in prime time viewing hours. The larger broadcasters like CanWest, CTV, CHUM, and Quebecor, must also include eight hours of weekly “priority Canadian content”, as that term is defined by the CRTC. Most specialty channel operations, as part of their licence, are required to air between 40% and 50% Canadian content. CanWest and most broadcasters exceed or maintain those standards for each of our Global Television, CH, and Prime TV schedules.

    The capital structure and/or the ownership composition of our company have nothing to do with those procurement decisions or the content levels. The licensing powers and discretionary authority of the CRTC to establish Canadian content policies and rules to meet the goals set out in the Broadcasting Act are what determine how much Canadian content is shown on Canadian television. The marketplace dictates, within those regulated limits, what goes to air.

¿  +-(0920)  

    CanWest is the only Canadian broadcaster that has substantial holdings of broadcast operations in other countries. If standing committee members had an opportunity to view CanWest's New Zealand networks, TV3 and TV4, both of which are 100% CanWest-owned, you would see nothing in the content on those networks that would in any way identify the broadcasting operations as Canadian- or foreign-owned. There's no Hockey Night in Canada in New Zealand.

    Up to 40% of TV3's programming is local even though there are absolutely no local content quotas and the network is run by a Canadian. The same can be said of TV3 Ireland, which is run by the person who was running Global TV Winnipeg before and which CanWest co-owns in a joint venture with the British broadcaster Granada Media, and Network TEN Australia, in which CanWest has a 57% economic interest.

    In all cases, the broadcast operations are domestically regulated by the equivalent of the CRTC, and the content is determined entirely by local management in order to meet the needs and desires of the local audience. In all cases, our international operations fully meet or exceed regulatory requirements for domestic content, as CanWest strives constantly to be a good corporate citizen in all the jurisdictions in which it operates, as well as to satisfy local audiences, of course.

    And we're not unique in this regard. Most international media companies subscribe to the same standards of conduct. German-owned Bertelsmann does the same with Channel 5 in the United Kingdom. Denver, Colorado-owned Flextech, which operates several channels in the United Kingdom on cable and satellite, does the same thing. Televisa, owned by a Mexican company, operates in most countries in South America and does the same thing. They are the local content that people want to watch. Why? Because it's good business.

    In sum, we reject the arguments of those who believe there is a correlation between Canadian ownership and Canadian content. In fact, there is no evidence that the nationality of ownership is a factor at all. Increased levels of foreign ownership will have no substantive consequences for the promotion or exhibition of Canadian content on television, given the ongoing role of the CRTC in enforcing compliance with the Broadcasting Act.

    So what does CanWest recommend? We support total elimination of controls on foreign investment in the broadcasting sector. We're not opposed to such similar treatment for telecom companies and BDUs, provided the same treatment is also accorded to broadcasters.

    We also believe that relaxing existing foreign investment limits should be linked in some way to Canadian efforts to secure a similar treatment for Canadian investment access to the telecom, BDU, and broadcast sectors at the international level, particularly in the U.S., Europe, and other countries such as Australia. We recognize these international negotiations go on at their own pace, but we urge the Government of Canada to demand reciprocity and a faster pace toward international liberalization.

    Thank you, Mr. Chairman. That concludes my formal remarks. I'd be pleased to answer your questions.

+-

    The Chair: Thank you very much.

    I would now like to go to Mr. Yates for his opening remarks, and then we'll go to questions.

+-

    Mr. Robert Yates (Lemay-Yates Associates Inc, As Individual):

    Thank you very much, Mr. Chairman.

    I should just start off by saying that in my remarks, I refer to a report. The report has been submitted to the committee, but unfortunately it has not yet been distributed to the members. What I'm going to read to you is effectively an extract from the report, with a couple of pieces in it, but you should have the report itself in the next couple of days. I apologize for that.

[Translation]

    I also wanted to say that the report, along with today's presentation, are in English. However, if you wish to put your questions or to comment in English, feel free to do so. My speaking notes are in both English and French. However, I will be making my presentation primarily in English.

[English]

    The report that we've submitted examines the impact of the present foreign investment restrictions on access to capital for the competitive wireline telecom industry. The report was prepared by us, Lemay-Yates Associates Inc., on behalf of AT&T Canada.

    There's a brief overview of our company in the report as well. We've been in business for ten years. We were ten years old in February of this year, actually. We've worked for pretty much everyone in the competitive telecom industry in Canada, as well as for a number of other entities, including the CRTC, a number of the cable companies, and various government agencies, but primarily for private investors in the Canadian telecom industry. So I bring a lot of background in terms of how investors look at the Canadian market and Canadian regulations. And as I said, this report was prepared on behalf of AT&T Canada, which is one of our clients.

    For simplicity's sake, the report focuses on—and unfortunately there are a couple of acronyms—the two largest ILECs, the incumbent local exchange carriers, which are effectively the large telephone companies, Bell Canada and TELUS. We deal with them as a group. We then deal with the three largest remaining telecom competitors, shall we say, those being AT&T Canada, CallNet—which is operating as Sprint Canada—and GT or Group Telecom, which was actually recently acquired by 360networks Corporation.

    So that's primarily historical. We're dealing with those three competitors and the two large ILECs or large telephone companies.

    To summarize the findings of the report, the restrictions on foreign investment serve to shut out a major potential source of financing for the telecom competitors in Canada. The restrictions do not do this for the ILECs, for the large telephone companies. The large telephone companies have many diverse sources of financing for their activities. For example, just last year, BCE repurchased the foreign-owned shares in Bell Canada. SBC Communications had bought 20%. The repurchase by BCE of those shares was very rapidly financed using both debt and equity. There was no particular issue for that in terms of the rules.

    The ability to obtain financing under the present investment restrictions is starkly asymmetrical. The ILECs can fund their day-to-day operations from internally generated cashflows and do not need risk capital. On the other hand, competitors that are building new businesses and new networks are highly dependent on external sources of financing. I'll get into that a bit more later, but essentially there's a very large asymmetry in terms of the access to capital.

    The present investment restrictions simply ensure that only the ILECs are likely to get continued financing. The restrictions promote passive investment and have done little to promote the development of the Canadian telecommunications industry.

    The foreign investment restrictions are also contradictory to other government policies, particularly the development of broadband access and, interestingly, the promotion of foreign direct investment. Foreign investment has long been a very big part of the Canadian telecommunications industry and it played a major role in the development of the infrastructure that we do have. The world-class infrastructure that's in place was largely developed by foreign entities.

    For ILECs, though, whether the foreign investment restrictions are in place or not at present, that simply shifts where they're going to go to seek their investment. It's no longer a central issue to owning and operating a large incumbent telephone company. On the other hand, it is a very central issue for competitors. Although the competitive telecom industry landscape is certainly mired with failures and exits, as we all know, experience from the past indicates that foreign entities are interested in investing in the Canadian market and in telecom competitors.

    It's an interesting point to be sure that we understand we're not just talking about large U.S. ILECs buying Canadian ILECs. We're talking about interested foreign investors that are non-traditional, as well as traditional telecom operators, and a few examples are cited in the report that I'll mention here: Bechtel, which is a very large engineering firm; the Carlyle Group, which is a large venture capital firm in Washington; T-Mobile, which is the German mobile operator; and others.

    The investment climate for telecom has clearly changed from the heady days of 1998 to 2000, and it's less likely today that investors would enter on the same basis that they did then. However, many competitors that were in the market in the pre-bubble timeframe are now stronger and growing post-restructuring—such as AT&T Canada, for example—and others will no doubt emerge.

    If the rules cannot be harmonized to accommodate the more complicated activities of the ILECs that operate in multiple businesses, the restrictions at the very least must be lifted for telecom competitors. Foreign investment restrictions are a critical gating issue for telecom competitors in Canada.

    Those are the primary conclusions of the report. I'll now just run through some of the main points of the analytical portions that support that summary.

    First, in terms of the state of competition, although the ILECs, the large telephone companies, lost 13% of their top-line revenues to competitors in the ten or so years since the competition was introduced, they still account for essentially all of the industry cashflow from operations, and maintain a near monopoly on the key local line segment. In addition, competitors pay out significant portions of their gross revenue to the ILECs for carrier services and interconnection. In the case of AT&T Canada, this represents 28% of gross revenues and I understand that it makes AT&T Canada into Bell Canada's largest customer.

    Competitors historically have had no cash generated internally to reinvest. Hence, they have relied on external sources of financing to develop their business. In the handout, there's an excerpt from the report that shows a pie chart showing where AT&T Canada has gone for money since 1998, up to the point of restructuring. As you can see, the largest portion, 71.2%, is debt. The other portion to recognize is that virtually all of these sources that are of any significant size are external financing.

    ILECs, on the other hand, have access to diverse sources of financing, and shortly you'll see the Bell Canada equivalent pie chart. Cash from operations provides a major source of financing—up to 50% of the funding in the case of Bell Canada—as well as a stable base on which to attract investors. You'll again notice in the handout that the Bell Canada pie chart is starkly different from the AT&T Canada pie chart, and for two or three reasons. One is the shear number of sources or the magnitude of the different sources that are available. The fact is that roughly half of the funding is basically from operations, and debt represents a much smaller portion.

    Just as a slight and perhaps technical note on the pies, these are representing the sources of financing and not the current balance sheets of the companies. As of now, Bell Canada is a profitable company—and I'm talking about Bell Canada as the subsidiary of BCE, not BCE in total. It has raised money from these sources over the years, and its balance sheet is closely reflective to this. Debt is about 45% of the company. In the case of the competitor's pie—AT&T Canada's—over the same period when they've raised that money, they've had operational losses, so the debt actually exceeded the equity in the company and the debt holders effectively owned the company, which is why they're restructuring. And I apologize for this slight technical note, but it's just to make sure we understand that those pies are the historical places they've gone for money, and not the uses of the money.

    Unlike the competitors, the large telephone companies or ILECs consistently generate more cash from operations than is required to fund ongoing capital investment needs. This was even notably the case in 2002—and I'm sure you've all seen the recent quarterlies that have all been coming out for the fourth quarter—in which, even though revenues have declined in some cases—Bell Canada and TELUS basic revenues, excluding mobile declined—they're actually increasing the amount of cash generated from operations. As the revenues have declined, they've had a much larger decline in capital expenditures.

    Since 1998, Bell Canada and TELUS combined represented five times the financing of the three largest competitors combined. ILEC cash from operations alone represents double the combined financing capability of the same three competitors. I've again added a chart to the handout from the report, and it compiles basically the pie charts that I showed you plus a few others. You can see it's quite interesting. It shows you the stark difference between the types of operations you're talking about. The large ILECs are on the left, where their portion of the funds generated from operations is already double the entire financing of the three competitors, which is 100% from external sources. For investors looking at these two types of investments, they're clearly completely different; hence, the complete difference in the way the rules apply to the two entities.

    Investors, foreign or domestic, can clearly invest in ILECs and expect a predictable return and dividends. ILECs do not attract and in fact do not need risk capital. Competitors, on the other hand, are dependent on the availability of risk capital, which is a severely limited resource if only Canadian sources are considered. Given the limitation on foreign equity participation, competitors have ended up with very high debt levels—typically 70% or more of financing, which is far higher than the ILECs—and the three largest competitors in Canada are all either restructured or in the process of restructuring in order to eliminate high levels of debt. Effectively the bottom line of that, although it sounds very technical, means that the people who did invest in the equity in these companies have basically lost their money.

    Restructuring, essentially referring to the conversion of debt holders to equity holders, is further complicated by the present foreign investment restrictions, since the restrictions limit the amount of voting equity foreign partners can hold. Faced with default, a debt holder can either force liquidation of the defaulting company—not a very good proposition—or accept non-voting participation to replace the debt—also not a very good proposition. This provides limited, if any, influence in the company even though the stakeholders hold the bulk of the economic interest.

    Hence, there's a stark asymmetry in how the rules impact ILECs versus telecom competitors. Restrictions on foreign investment serve to shut out a major potential source of financing for telecom competitors in Canada. The restrictions do not do this for the ILECs. Competitors are building new businesses and new networks and need access to external sources of financing, and the restrictions thus represent a critical gating issue for competitors.

    Thank you.

¿  +-(0930)  

+-

    The Chair: Thank you very much.

    We'll now begin with questioning, starting with Mr. Rajotte.

+-

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

    Mr. Asper, I read through your presentation. I think it's very well done. I have to admit that I have a lot of sympathy for your position, but I have a couple of questions. The first would be with regard to your three fundamental concerns.

    Your second concern is about the need for international expansion, and you talked briefly about your experience in Australia. We've seen a lot of comparisons in terms of foreign ownership restrictions on telecommunications companies and on cable companies, with Canada compared to the other nations. What is your experience personally, both as a business person but even from what you know of other restrictions on broadcasters in other countries, and particularly other OECD countries?

¿  +-(0935)  

+-

    Mr. Leonard Asper: What are the limitations and restrictions?

+-

    Mr. James Rajotte: Yes.

+-

    Mr. Leonard Asper: They vary. You have New Zealand and, say, Chile on one extreme, where there are no restrictions whatsoever. You have a place like Ireland, where there is no restriction in law but the broadcast regulator restricts and, at its discretion, decides whether and what a foreign investor can own. Within the EU group, there are no ownership restrictions, so a German company like Bertelsmann can own anything they want in Britain or in any other EU country. The U.S. still has its 25% restriction.

    In the EU, Britain is now opening up. There's a bill before Parliament in Britain, the United Kingdom, that is expected to go through, and it will open up broadcasting entirely, and outside the EU. So that covers most of the world. If you get into the eastern European or Asian countries, though, it's much more discretionary for government. Some of the laws are not very developed. They're still quite closed, so it becomes a matter of negotiation with the government and of the support of a local partner.

+-

    Mr. James Rajotte: My second question would deal with your first concern about access to foreign equity and greater flexibility in the capital structure. You argue that there is an overlap between telcos, BDUs, and broadcasters. As far as I know, you're unique in stating not that there's an overlap, but that the ownership restrictions should be lowered for broadcasters. Are you aware of any other broadcasters that agree with your position on this?

+-

    Mr. Leonard Asper: No. They're differently situated. I'm not sure, but the broadcaster most likely to be at the table in sharing a similar position is CTV, which of course is under the Bell umbrella. But they're not really being heard here, they're being heard through Bell Canada. They would be deregulated in the same sense.

    Some of the other broadcasters, like Alliance or CHUM—who I think have appeared before the committee—have a different situation. While I caution that I can't speak for them, they have relationships with U.S. broadcasters or cable channel operators like Home and Garden Television, the TV Food Network, Star, and E! Television. Those agreements might have a very different character if the foreign ownership rules were lifted. In fact, they might end because Home and Garden Television U.S., which is owned and operated by the E.W. Scripps Co., would be able to just come into Canada and negotiate with Rogers, Shaw, or ExpressVu. They would no longer need Alliance, quite frankly.

    For CanWest, we already compete against NBC. NBC is already in the country through cable and satellite systems, so we wouldn't suffer anything further by opening the rules. I think Alliance or CHUM, which operate franchises of U.S. cable channels, would find their position quite diminished in terms of the cable channels' need for those, though. And that applies, as I say, to Food or a whole bunch of U.S. channels that have been prohibited from coming to Canada and have had to go through Canadian intermediaries. That might not be the case anymore.

+-

    Mr. James Rajotte: Just picking up on that, I think you're correct. The concern from a Canadian content point of view seems to me to be in two aspects. One is about the Canadian industry or Canadian industrial base as it relates to a viable Canadian industry in the broadcasting, BDU, and telco sectors. But secondly, there is the concern about Canadian creativity, in that if you didn't have this Canadian industrial base and didn't have these Canadian content provisions, you would not be able to develop Canadian creativity and develop the Canadian culture.

    You mentioned in your answer that Global already competes with NBC, so you're already in this situation and are not really affected that much. But how do you address the concerns? The biggest concern we've heard is that we're going to really damage the whole Canadian content situation. With the telcos, the BDU's, and then onto the broadcasters, the concern is that there is a link between the three, and that if you go as far as broadcasting, you're really going to damage the Canadian content issue.

    How would you respond to those concerns?

¿  +-(0940)  

+-

    Mr. Leonard Asper: I think it just goes back to what we've said, which is that the content rules are there. Whether it's CanWest or NewsCorp or Bertelsmann, they're going to be complied with. They're there because the holding of the licence depends on it. The CRTC has the power to take away the licence. And quite frankly, as I say, the international experience is almost the opposite. Foreign companies bend over backwards to ensure that they are seen as and are good corporate citizens who comply with the rules. But the rules are the rules, it doesn't matter who owns CTV or CHUM or Astral or any of these companies. The CRTC will dictate what the content requirements are—and we support that.

    The CRTC not only mandates volume—in other words the 60% and 50% rules—it also regulates what kind of content goes on television. They give credits or they give debits, or they penalize companies that don't' meet some of the cultural objectives. They have every right to do so, and they do use that power. For example, when they decide they want to have more Canadian drama on television, they mandate it. Within our overall requirements, we have to have eight hours of what they call underrepresented programming. There was a feeling that not enough drama was on television, so in that category broadcasters were required to and did step up to air more Canadian drama. So that's the content side of it.

    On the industrial side of it, the Canadian point system is such that to have Canadian content, the two are totally linked. You have to have the creative and industrial input into the product for it to qualify as Canadian. In other words, it has to employ Canadians. The director of photography, the producer, the director, and the actors all have to be...in the point system, these points have to be met for it to qualify as Canadian. So I don't see any change ever happening in the number of Canadians employed, nor in the amount of Canadian content.

    As well, the government through its tax credit system also has the ability, through Telefilm and the Canadian Television Fund, to support Canadian content. That's what drives the system, not the ownership.

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    The Chair: Thank you, Mr. Rajotte. We'll be back to you.

    Mr. Savoy.

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

    Gentlemen, thank you very much for your presentations. They were very informative.

    I'd like to look at two scenarios. One is a do-nothing scenario, and the second scenario is one of actually lifting or significantly decreasing foreign ownership restrictions.

    There are two main economic development or economic impact arguments here. One is that if we increase the amount of foreign ownership permitted, the control will go to foreign-based companies and that many facilities, whether they be R and D facilities or head offices, will be moved from Canada to the foreign country where the majority ownership is. That's one scenario. The second scenario is a known fact. If we do increase foreign ownership, the equity or the capital that we raise will increase innovation in Canada, increase research and development in Canada, and help our economy grow.

    I'd like your comments on those two scenarios—and, Mr. Elliot, if you'd like to comment as well, I'd be happy to hear your comments.

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    Mr. Leonard Asper: The broadcasting business is typically one that employs a lot of R and D, so I'm speaking a little bit as an observer. My experience is that particularly the U.S. companies, but most foreign companies too, have a culture of R and D that is more of a culture of R and D than Canadian companies. I think the statistics show that, but I'm not an expert on this.

    The real R and D in the media sector, the broadcasting sector, is all done in Hollywood anyway. You've probably heard these statistics, but maybe not. Hollywood is the place where 1,000 scripts are submitted but only 150 go on to become pilots. Those pilots, each at probably $3 million to $4 million in costs per two-hour pilot, turn into 15 new shows that are put on the U.S. network schedules, and 6 to 8 make it to the second year. That's the content system of the world as seen from U.S. eyes.

    The Canadian experience is very different, which makes it very difficult. Whether it's CTV, CHUM, us, or any of the other broadcasters, we commission a show like Cold Squad or Blue Murder and we hope it's good. We work with the producer and we have one shot, two shots, or three shots—depending on how many shows we put on—to make the show work.

    R and D, as you probably all know, involves a lot of trial and error. In the Canadian system, the lack of money in the system and the lack of an ability to pay the writers at the same rate Hollywood pays them make it such that our Canadian programming, and our drama programming particularly, lacks the R and D, and therefore we have less chance of getting the hit. It's a very hit-driven business.

    What Canadian broadcasters try to do is minimize the cost of their licence fees, because it's less likely that we'll have a hit just because of the luck of shooting darts at the board, which is what the content game is all about. It's just impossible to predict audience behaviour. You can't invent a chocolate bar, put it out on the market, see what they like, get feedback, and change the chocolate content, or whatever other retail or manufacturing companies do.

    That's beyond the scope of today's discussion, or certainly beyond what I was prepared for. But whether it's tax credits or whatever, in Canadian R and D in programming, we're simply just too small a country to allow it to happen. It doesn't happen in Ireland. In Australia, it's the same thing. We go to a reliable producer who has delivered in the past, and they generally do deliver decent product. We go to the reliable suppliers and we hope they deliver something good. If they don't, we cancel the show and we try something else.

¿  +-(0945)  

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    Mr. Andy Savoy: We'll get off the R and D and back onto more jobs and facilities. In terms of control going to foreign companies and them then moving their headquarters—or whatever types of facilities there may be—to within their own umbrella in their own country, do you think that's a threat?

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    Mr. Leonard Asper: I don't think so. It's not my experience. They tend to want to do their R and D where the local market is in order to get local flavours. There may be a core of R and D that they are already doing, but again it's not something necessarily applicable to the broadcasting industry. The real R and D is already done in Hollywood, where the rates for all the people who do R and D are much higher.

    I'm not sure I can add anything else. Maybe I'll leave this to Geoff, who's had some international, diplomatic, and other experience, and to Mr. Yates, who is in an industry in which R and D is more of a factor in the product.

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    Mr. Geoffrey Elliot (Vice-President, Corporate Affairs, CanWest Global Communications Corp.): It seems to me, Mr. Savoy, that what you're getting at is whether the headquarters of a broadcasting company would somehow shift, as a result of ownership, to some other location outside of Canada.

    It really is difficult to see how that could happen as a practical matter, given that the Canadian market would remain completely distinct from any other market that a parent company may be involved in if you've had a shift in ownership. That's because of the need to meet the requirements of the Broadcasting Act, with 60% overall Canadian content and the other requirements that Mr. Asper has already mentioned. It's difficult to imagine somebody sitting in London or in New York being able to deal with the sensitivities related to meeting those requirements in a Canadian market, where the providers of that content are all here and not in New York or London.

¿  +-(0950)  

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    Mr. Leonard Asper: I might just add our experience as well, Mr. Savoy.

    In every place where we operate, we have a local CEO who deals with the local advertising community, deals with the local government officials, and deals with the local...usually there's something like Telefilm in a place like New Zealand or Australia, so they manage those relationships and they work to apply for the top-up funding for local production. So there's a full infrastructure everywhere we have operations.

    You might see the move of a few accounting consolidations and central accounting functions that CanWest has for service in the Irish, Australian, or New Zealand operations. We might have a payables coordinator in Winnipeg and not in New Zealand. But even then, for the human resource systems, because there are so many different rules about pension deductions, UI deductions, and different systems in every market, we have a pretty much full complement of even accounting staff in those markets in order to handle those issues as well.

    It's the same with IT. You can't centralize much, because broadcasting is so distinct from advertising and program supply relationships. Even Columbia, Paramount, and Warner Brothers all have local agents in Australia, New Zealand, Ireland, and Europe, and you have to deal with them to make your arrangements. They don't just do group deals and deal with somebody in Winnipeg, because they might get a better offer from...they have to manage the local relationships and maximize the profits in each country. Warner Brothers might supply CanWest in Australia, but for our competitor in New Zealand, for whatever reason, their product might be better suited for different broadcasters.

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    The Chair: We'll hear from Mr. Yates, and then we're going to go to Mr. Crête.

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    Mr. Robert Yates: Thank you.

    I'll just maybe make a bit of a segue from the R and D point back to the telecom industry, and just say something on R and D in general, having been involved somewhat with the R and D activities in Canada through other clients and other experiences.

    It's well known that Canadian companies actually do not invest in R and D. We're one of the worst countries in the world for R and D. I think that was discussed with you yesterday in regard to patents and other things as well. It's a terrible situation in Canada for R and D. As Mr. Asper has pointed out, American companies tend to be far more aggressive. So actually the contrary is probably true. If we had more of these companies coming in, we probably would have more R and D.

    In fact, I recall some of the discussion from the Rogers people some time ago. When Rogers Wireless originally set up their network in Canada, they went to a foreign supplier because they didn't want to buy from the same supplier as Bell. They went with Erickson and requested that Erickson set up an R and D lab in Montreal, whenever that was, fifteen years ago or something. It's still there and it employs thousands of people. So it's the foreign company that does it.

    It's also worth keeping in mind that the telephone companies and telephone operators themselves are not the investors in basic R and D, it's the vendors. It's really a vendor community.

    On the other aspect of the question, just to cap off on the question of doing nothing versus doing something, our paper outlines this a little bit, so clearly we have some experience of what the do-nothing scenario is. Verizon allowed its investment in TELUS to get diluted from 51% to 21%. SBC forced BCE to buy back their shares at a $1.2-billion loss. Sprint U.S. maintains a 25% equity in Sprint Canada by putting in nominal amounts every year. And AT&T Corp. basically wrote off billions and billions of dollars in investments in AT&T Canada. So we know what happens if nothing happens.

    On the other hand, we want something to happen. We want innovation, we want broadband deployment, we want the telecom industry to be competitive, and we also want foreign direct investment. We put all those things over here and then we say on the other side that we're really not sure if we want them to invest. We want all those things, but we're not really sure. To me, there's a big dichotomy at the policy level in terms of what we're really asking for. Clearly there would be more innovation...if we want these things to occur, if we want competition, if we want foreign direct investment, there's no point in turning around and telling those very investors that we're not sure we want them to do it.

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    The Chair: Thank you.

    Mr. Crête.

[Translation]

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

    Mr. Asper, you state rather clearly in your introduction - or at least you can confirm this for me - that between the status quo and a situation where certain companies would be treated differently, for example, where broadcasting enterprises would be exempted from foreign ownership restrictions, you would prefer the status quo.

¿  +-(0955)  

[English]

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    Mr. Leonard Asper: I'm sorry, Mr. Crête, but I'm not sure what you mean by “progressive approach”. Do you mean partially increasing the limits to—

[Translation]

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    Mr. Paul Crête: No, I'm saying that you are opposed to this, unless the same treatment is extended to all broadcasters. If I understand the gist of your statement, you would prefer the status quo to a situation where broadcasters would be prevented from accessing foreign financing. Correct?

[English]

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    Mr. Leonard Asper: You're saying that if you deregulate the BDUs and telecom and don't deregulate broadcasters, then that's worse than the status quo? Yes, we believe that.

[Translation]

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    Mr. Paul Crête: That's clear. Therefore, if I understand correctly, you reject the option proposed to us by, among others, Astral Media, by André Bureau and by those who argue that it's possible to treat the two sectors separately and to compel businesses to make choices so that their operations fall into a single category. You maintain that this option does not correspond to the future of the market.

[English]

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    Mr. Leonard Asper: That's right, because there is cross-subsidization. If NewsCorp acquired a company like Rogers, which has both BDU and broadcasting, it would still move the programming relationship that we're so concerned with to its de facto affiliate or its group of companies in which it has invested.

[Translation]

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    Mr. Paul Crête: I have two questions concerning the cultural exemption.

    You claim that the merits of this initiative are not only debatable from a public policy standpoint, but that this initiative is also likely to fail, except in the case of a handful of countries of less commercial significance to Canada.

    I'd like to know which countries, in your opinion, are of less commercial significance to Canada. That's my first question.

    My second question pertains to your proposal that market rules be liberalized to allow foreign investment and that existing restrictions be lifted. Would such action not constitute a major breach in Canadian government policy which aims to develop the kind of cultural exemption to which you object, but which nevertheless represents current government policy?

[English]

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    Mr. Leonard Asper: Canadian culture will be defined, and the extent to which it's enhanced will be managed by the CRTC, irrespective of ownership. I don't see the corporate ownership changing how foreigners or Canadians, for that matter, act today in respect of Canadian culture. The system we have is a CRTC-managed system, not a system managed by the ownership.

    I'm not sure what more I can add. As I say, the experience in other countries is that there's a lot of foreign ownership of broadcasting. I'm not sure if I'm misinterpreting the question, because I see you shaking your head. I'll let you rephrase it.

[Translation]

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    Mr. Paul Crête: I'd like to come back to my first question. Could you tell me which countries, in your opinion, are of less commercial significance to Canada, from a commercial standpoint and stand to benefit from rules exemptions for cultural reasons?

[English]

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    Mr. Leonard Asper: Oh, I see. Okay.

[Translation]

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    Mr. Paul Crête: Could you name some of these countries for me? What about France, or Africa?

[English]

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    Mr. Leonard Asper: I'm not sure it really matters which country. I'm not sure one is more or less significant than the other. I certainly don't think allowing U.S. interests into Canada does any great harm. That's where most foreign programming comes from, just because that's what Canadians want. Whether it's Coronation Street or some other U.K. programming, it's not very popular in Canada. Of course, foreign-language programming—like German or Spanish, which have to be dubbed—is not of great interest to Canadians either. So I'm not sure if it matters which country or that any one country is of less or more significance.

À  +-(1000)  

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    The Chair: Mr. Yates, you had a comment.

[Translation]

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    Mr. Robert Yates: Just to give you an example, several countries were mentioned yesterday. However, as Mr. Asper noted, there's a difference between the rules governing network ownership and those governing broadcasting.

    Yesterday, for instance, mention was made of Spain where there are no restrictions on cable company ownership. However, no mention was made of the fact that cable companies are subject to numerous rules. One of the aims of the country's national broadcasting system, which is comparable to the CBC, is to promote the Catalan language, which is spoken by a minority of Spaniards.

    Regulations are in place to protect the country's culture, even though there are no restrictions on network ownership.

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    Mr. Paul Crête: Let me try to reformulate the question. Along with France and other countries, Canada has developed an approach based on cultural content, an approach that you criticize in your submission.

    Would liberalizing the rules and easing restrictions on foreign investment not constitute a significant flaw in the cultural exemption initiative? In other words, if we adopt a stand on this issue at this very moment, will we not also be rejecting out of hand the overall concept of an exemption for cultural reasons?

[English]

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    Mr. Geoffrey Elliot: I believe you're referring to the Canadian interest in the negotiation of an international instrument on cultural diversity. Is that the case? Yes? Well, in our submission, we raise questions about the wisdom of that initiative, and we indicate that we believe it would be of interest outside of Canada primarily to countries of little commercial significance to us, in terms of Canadian culture.

[Translation]

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    Mr. Paul Crête: To which countries?

[English]

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    Mr. Geoffrey Elliot: The point is that if you look at why we develop this initiative, it relates to concerns in Canada about U.S. trade actions that have been taken in response to Canadian cultural policies that have affected elements of the cultural industry when the instrument was intended to insulate Canada from such trade actions.

    In our opinion, the point is that it's very unlikely that the U.S. would ever sign on to the international instrument on cultural diversity. Therefore, it is unlikely that cultural instrument will achieve its intended purpose. If that's the case, then the Canadian position, which is to not engage in any negotiations internationally in the cultural sector—and that includes broadcasting—would mean that the agenda we have for the international relaxation of rules on foreign ownership will not be addressed until such time as those negotiations on a cultural instrument have been completed.

    As an additional point with respect to that instrument, it's what I would regard as a “one shoe fits all” instrument, in which broadcasting is treated in the same way as Eskimo carvings, aboriginal dance troupes, and poetry. We don't think it's appropriate to look at international rules for broadcasting in that context.

[Translation]

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    Mr. Paul Crête: Do I have any time remaining, Mr. Chairman?

    Your position calls to mind comments made by Mr. Bush to the effect that the UN will prove that it is an effective organization if it sides with the United States.

    Similarly, you're saying that we should leave such matters alone, otherwise the Americans will have no desire to sign an agreement. If we're not capable of negotiating, then we might just as well agree to letting them set the rules in advance.

[English]

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    Mr. Leonard Asper: If I could put it in another way, there seems to be a contest of interests here. We have the liberalization of foreign investment rules versus the protection of culture. I think you're saying they potentially seem to be at odds with each other. Our position is that we just don't believe that's the case. We believe the culture will not suffer by the liberalization of the rules. We think the economic benefits far outweigh the potential and, we think, illusory threats to culture. Therefore, if we have to pick one, let's pick the economic benefits.

À  +-(1005)  

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    The Chair: Mr. Yates, did you have a comment before I move on?

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    Mr. Robert Yates: No, Mr. Chairman.

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    The Chair: Thank you.

    Mr. Bagnell.

[Translation]

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    Mr. Larry Bagnell (Yukon, Lib.): Thank you, Mr. Chairman.

[English]

    Thank you for coming, gentlemen.

    Mr. Asper, I'll take just one more crack at the same question you've been answering all day. We had a panel of artists and artists' unions here. I'm not quite sure why—they didn't give a lot of technical reasons—but they weren't convinced that content wouldn't suffer. They were quite against this. Do you know what their arguments would be or why they're not convinced by the fact that we can control this through content regulations?

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    Mr. Leonard Asper: Again, I hesitate to try to put myself in the shoes of others, but I believe there is an unwarranted fear, in their case, of job loss or non-use of technical or artistic suppliers or sources in Canada. I can again just point to the international experience, whether it's Australia.... I can think of another company, SBS, which is an American-owned company that operates in Sweden, Norway, Finland, and all over Europe, in Slovenia, Hungary, and Switzerland.

    In broadcasting, you have to employ local people who put local productions together. Every broadcaster in the world fills part of its schedule with American content. It's just the way to fill 168 hours a week. You just can't produce 168 hours unless you're in a market like the U.S., where you have 300 million people and a $40-billion advertising market.

    In countries like Canada, Australia, Slovenia, or any of these other countries, it's going to be partly U.S. programming and partly local programming. The local programming has to be done by a local person who has the right accent, who is the talk show host. You're not going to import people from New York or Milwaukee to manage the sets, build the sets, do the makeup, or do all the things that create local programming.

    Even a gardening show produced in the U.S. is not a New Zealand gardening show, because the host would say different things and would refer to different products that would exist in New Zealand and not in the United States. There may be a U.S. gardening show on New Zealand television, but there's still going to be a local gardening show in New Zealand that is completely done by local people, from the technicians operating the switching machines to the camera operators, from the makeup people to the writers, and to the hosts themselves.

    I can't imagine what the fear is, other than what I would call some misplaced concern that jobs will move out of Canada. But the experience is that with all this international ownership that we have, people do local programming, firstly because they're required to, and secondly because the local nuances require that.

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    The Chair: Mr. Yates, do you have a comment?

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    Mr. Robert Yates: I'll segue into the same point, but from a different angle. I think Mr. Asper is entirely correct that when you go into another country, you want to work with the local people and the local culture to create a local presence. Of course, we all have good examples of companies that have done that in the Canadian environment, CanWest being one, and Nortel probably being the largest, most well-known company in the telecom industry that has gone offshore and invested.

    What we need in order to make those companies successful, though, is a dynamic domestic sector in order to help them to flourish and to go do those things. These rules—and I think this is the tone of our paper—have a very asymmetrical effect, because the very companies that could be doing the new things and the dynamic things are the ones that get impacted most by the rules. Maybe that translates a bit into the same broadcast experience, but it certainly applies in telecom.

    This was discussed a bit yesterday. Are they foreign investors, and do they really care if it's voting or not? Well, having sat down at the table with many foreign investors, I can tell you that's the first thing you talk about. You have to get past that, “What do you mean? You want my money but I have no control over what you do? I can't discuss with you what you do? I can't sit on the board? What are you talking about?” You spend a lot of time and a lot of effort structuring something for those rules. After that, you then look at what the market is like, what the regulations are like, and what the other things are. So this is a very critical first step.

    And there may be different aspects. One is employment. Another is whether or not they're interested. The third one is probably whether or not we do it in Canada. If you want to create the Nortel of the telecom industry that's going to invest all over the world and be a big thing, you should realize that the pools of capital in Canada are very small—and I think Jim Shaw talked about that yesterday. Pure risk capital in Canada is a $2.5-billion per year industry. Bell Canada spends twice that in capital expenditures every year. You're not going to build an industry to compete with Bell Canada on a $2.5-billion risk capital business.

    So there are a lot of different aspects to it, but if we want to have the creation and the dynamism and the jobs, it's critical that we open the rules. It's completely the reverse. It's not protectionism, it's opening them and getting on with it.

À  +-(1010)  

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    Mr. Larry Bagnell: My second question is for you, Mr. Yates.

    We were originally asked just to look at the pipe, the hard assets of telecommunications, and I suppose it would have been easy if there wasn't the cable competition. But just on that simple question that the minister asked us to look at, it didn't seem there were any objections that I can remember, except that SaskTel was quite adamantly opposed, saying that we have a vibrant Canadian industry; that there was no problem with competition; that we have the second-largest broadband access in the world; that there is a lot of competition for the consumers; and that since there are no problems, we shouldn't threaten this very Canadian example. Can you comment on that and why they would say such a thing when no one else is saying that?

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    Mr. Robert Yates: They say that because there are more of them to say it. Clearly, when a dozen or so competitors have vanished over the last few years, fewer people are around to say it. But the telephone companies are certainly very proud to say that. If you go to investor forums at which Bell Canada speaks, they're fairly proud to point out their dominant market share, their high level of profitability, and the fact that they can reduce their capital expenditures and still maintain a 95% share. Clearly that's something for them to trumpet. And SaskTel is a government-owned monopoly in Saskatchewan, so I think it's quite clear that it's in their interests to say these things.

    What our paper is showing is that, maybe on a more basic level from an investment point of view, if you own and operate a phone company, it's basically generating cash from operations as a stable business. Phone companies are utilities, basically, so they have sources of capital available to them and they have costs and capital that are commensurate with that. They're not in the business of creating something new, so for them to say it's competitive is....

    Let me put it another way. Another way in which a monopolist or a close near-monopolist can act is to react to potential competition, which is what they've been doing for many years. As soon as someone publishes a brochure for a certain service at 40% off, you can bet it's 40% off from the telephone company. McDonald's would probably do the same thing. If all the Burger Kings dropped the price of hamburgers by 50¢, McDonald's would match it. The fact is that the Burger Kings aren't there in the telecom industry. It's just a bunch of brochures, so it's easy for them to say that.

    And I don't want to make the answer too long, but Bell Canada actually reminds me of another point. If you take the history of deregulation in the U.S., AT&T Corp. in the U.S. lost 40% of its market share over roughly ten years, but their gross revenues never went down. That's because the introduction of competition stimulated usage, it stimulated a reduction in price, and demand went up. And incidentally, the regulator made sure it occurred because it didn't allow AT&T Corp. to undercut all of the competitors by pricing to their cost. So the structure worked.

    In Canada over a similar period of ten years, first of all we did not protect Bell Canada from a dropping of the prices and their revenues did go down. So when they say the competition worked, what they mean is that they reacted to the threat of competition and dropped the price in a commensurate fashion, and therefore the consumers have benefited. But when you go to what the competitive share is, it's not there. It's 13% at the top line and basically nothing at the bottom line.

    I hope that's not too long an answer.

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    The Chair: Mr. Asper.

À  +-(1015)  

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    Mr. Leonard Asper: I'll try to give you one line to try to summarize what I think is at play here. Either some people are afraid of competition or others are afraid of the extra-territorial ownership that will not allow Canadian regulators to get at the foreign party. For example, the Quebec unions or others that are concerned about job losses, etc., may feel that if CanWest, CTV, CHUM, or Asper behaves badly, it's not in our interest to do so and we're less likely to do so because we live here in Canada, whereas somebody from Germany or Australia may say, “Don't worry about Canada. We'll fight that battle, and we'll skirt the rules and try to squeeze some more profits out of Canada.” But again, it has to be local in the content business, so I don't think that would happen. The international experience of CanWest and others is the opposite.

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    The Chair: Thank you, Mr. Bagnell.

    Mr. Masse.

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

    Since Mr. Yates brought up McDonald's, I'll carry on with that. It's a good example of a business that was completely dominated and developed in terms of their plan of continual growth, and we've seen what's happened with them recently. That sustainability is certainly not there.

    In looking at this industry, too, and to start with a first question, by opening up the foreign investment options and that approach right now, is that only going to be a quick fix for the industry, where we've seen potentially a lot of the growth lead to some of the problems that we have now because there isn't a return significant enough for non-voting shares? You have unlimited access to foreign non-voting shares for these companies to get the investment. Will the opening up of the actual voting shares be a quick fix to the situation, or is it going to be something permanent and lasting to improve it, and why?

    And could I get you to comment on that as well, please, Mr. Asper?

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    Mr. Robert Yates: That's certainly a valid question. I think the problems we've seen over the last few years would lead one to wonder whether anybody wants to invest in telecom, whatever kind of share it is. It's an odd thing in the telecom industry, but in a sense we've gone back to what the telecom industry was, which is broadly based, relatively slow-growing, and faster than the economy in general, but not a wild business. It never was and probably never will be.

    There is probably an element of a quick fix, because certainly there are competitors and people in Canada who could use capital on an immediate basis, but I think the issue is more long-term. I mentioned some other types of U.S. investors that were there in 1998 and 1999, but whether they are now or not is a good question. And going forward, would they be there?

    The question is more whether we set up a regime in which we basically say we don't want them there in the event that they might show up, or whether we set up a regime that says we're open for business and maybe when it comes around, they'll be there and come in to invest. So I think it has an element both of the short-term and the long-term issue.

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    Mr. Leonard Asper: I can just agree with Mr. Yates. Generally, in any discussion or approach or anything with U.S. investors, the first thing that does come up is the non-voting shares. Even subordinate voting shares are not loved, although they're tolerated. Non-voting, though, are a big issue. I don't think anybody really sees the current structure as a 46% interest. They look at it and say it's 33%. The trace may be that they get 46% of the economics, but they look at how much influence they have, and particularly at whether they can block or veto any corporate restructuring or transactions.

    When one is a minority investor, if you're a 33% investor or a 20% investor, the first thing one looks at is whether the controlling shareholder can sell the company without your approval or do something to dilute your interest, like issue a few more shares to take you from 33% to 15% or bring in another strategic partner that's your competitor, and things like that. So the non-voting shares simply...most strategic players who actually bring something useful to the table don't want non-voting shares. So it does come up all the time.

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    Mr. Brian Masse: That often brings us back to some of the discussion that's happened over the last three weeks with regard to control.

    I know that in your presentation, Mr. Asper, you identified that, in the interim, potentially 49% should be looked at. Can you elaborate on that? Does that give you enough breathing room? We've had some comments from some who say it would, but some also say it wouldn't in terms of being able to get some new resources into the system and to then maybe address some of the other issues that seem to be out around this issue.

    We're very scoped here in this particular review, and that has been identified as a problem by some of our witnesses. Does that give enough time and enough breathing room for potentially other work to be done?

    As well, Mr. Yates, I'd appreciate it if you could comment on that.

À  +-(1020)  

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    Mr. Leonard Asper: I think it does as long as it's not asymmetrical, as long as we all go to the same level together. Again, if you left broadcasters behind and opened it up for others, it would make those other companies more attractive in terms of foreign capital.

    There's also the issue of looking at how the capital markets look at things. They look at companies like CanWest, maybe Bell Canada, or other regulated companies, as non-acquisition targets or companies that are closed to foreign investment. Therefore, the stock of those companies like CanWest trades at a discount compared to a company in an unregulated market, because there is a dampening effect. Even though a family like the Aspers has never indicated—nor do we intend to—that we wish to sell the company, the fact that it can never be sold puts a depressing element on the stock price of probably 20%.

    An unregulated market would see Canadian multiples of broadcasting entities rise from, say, 8 or 9 times to 11 or 12 times the operating profits. If our multiples were to rise, that would allow Canadian companies to use our stock as currency in a transaction. For example, if we wanted to merge with a U.S. company in a way that still left Canadian control in CanWest's hands, we would find that our multiple—if the U.S. company were a public company—would be trading at 11 or 12 times its operating profits, just because it's a more open market and there's a belief in the United States that ownership caps would be removed. Therefore, stocks would trade higher even within the domestic market.

    So it makes it very difficult. It's essentially a high cost of capital for CanWest to ever have those discussions with a U.S. company, because we're dealing with a cheaper currency, effectively. It would be diluted to the CanWest shareholders. It's just the way the math works. In an open market, a public company's equity trades at a higher level and it effectively makes the cost of capital cheaper for those companies. That's why even the perception that the market is more open would help CanWest and other companies with international ambitions to have those kinds of discussions with international companies that have a more valuable stock price or currency.

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    Mr. Robert Yates: Just on the percentage question specifically, I'm not sure where the 49% would come in. If we can already stack the percentages and get 46.7%, I doubt 49% would make any appreciable difference.

    Interestingly, in the cable company example—let me just go back to that because of the discussion of family-owned firms—under the present rules, the cable industry itself has very small foreign ownership if you're talking about direct voting shares. There's probably quite a bit of a different issue in dealing with those than there is in dealing with telecom competitors who are already at the limit. I'm not sure the 49% versus the 46% would make any appreciable difference unless we mean 49% for one of the categories, in which case it would stack to greater than 50%, which would kind of not be 49% anymore. But I wasn't quite sure what difference it would make to do 49% instead of 46%.

    There is one thing maybe to keep in mind in the discussion, because the percentage in a sense does make a difference. A lot of the companies that would be directly impacted by this are smaller, more dynamic, new entrants into the telecom business. Certainly any investor, foreign or otherwise, is going to want to have a pretty close, hands-on approach to owning and operating the firm, so there may be two different ways to look at this issue.

    If we take a cable TV company—or a broadcaster, for that matter—there is certainly a question of raising financing in international markets on par with your competitors and on par with other international investors and other international firms doing the same thing. There is clearly an advantage in multiples and stock price and things like that for those companies, and lifting the restrictions would help.

    The other types of companies we're looking at are the companies that are entirely dependent upon external sources of financing to build something new. They're really a risk type of investment, which calls for a different category of investor. When you get into that group, then as I said earlier, the Canadian pool is very small, first of all. Secondly, if you're talking about interesting investors in interesting ventures, they want to be hands-on, so whether it's 46% or 49%, I doubt that would really go to the central question.

À  +-(1025)  

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    The Chair: Thank you, Mr. Masse.

    I'll now go to Mr. Volpe.

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

    Gentlemen, thank you. I'm going to pursue questions asked by others for a few moments, if you don't mind.

    It seems that in the course of the last several presentations, the economic argument hasn't really gotten much of a challenge. People seem to accept that the more liberalized the circumstances are, the more likely they are to attract capital. Where we seem to have a big difference is on the second half of the premise that Mr. Asper indicated, and that is that Canadian content is perceived to be influenced first by ownership and then by the mandate. I think the ownership question has been dealt with by Mr. Yates, just as you and others have dealt with it.

    On the mandate side, my colleague Mr. Bagnell and others have referred to the idea that the cultural community—I want to be fair to them—looks upon your responses with enormous scepticism. I don't want to mischaracterize them, but I think they say that if ownership is one of those issues and it falls more into foreign hands, we have big problems, because we don't trust the guys who own the carriers now, and they're ours.

    Yet, Mr. Asper, you say the mandate is really what drives the content.—I think that's the way I interpret your statements—because as businessmen you're only interested in satisfying the market you're serving. If the market you're serving is a Canadian market, then presumably they don't want to watch cartoons made in Australia, so you're going to give cartoons made in Canada and everybody can hoist the flag and say that's what they watch.

    I thought I heard you say you're really confident that this works, because the regulator is pretty severe when you don't meet the criteria under which you operate. In theory, I guess that's right. I'm just wondering how many times that regulator has had occasion to rap your knuckles or the knuckles of your competitors.

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    Mr. Leonard Asper: They have done so every time a broadcaster has.... I'll start by saying that because there's such a strong record of compliance, there have been very few occasions when Canadian broadcasters have not met their commitments. I'll try not to name names here—I'd love to, because it was never us, it was our competitors—but there was one example in Quebec. A Quebec broadcaster did not, so they were given a one-year licence at licence renewal time, with a very short time limit for putting their Canadian content levels back at the required level.

    The same thing just happened with another western-based broadcaster in Alberta—not CanWest—when they were short of their required spending. They were told they had a time limit to comply, otherwise the CRTC would use its discretionary powers to impose penalties. I don't think the CRTC said what the penalties would be, but they have acted quite quickly when people haven't, either through short licences or through directives to comply. Anyway, I think it has been a pretty good record.

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    Mr. Joseph Volpe: You're in the risk business, Mr. Asper. So the licence period was shortened. Did anybody in the business actually think the licence might be revoked?

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    Mr. Leonard Asper: It has rarely been done, if ever, but nobody is willing to take the chance. Certainly in the 25 years that I've been following it, I've never seen anybody defy the CRTC.

À  +-(1030)  

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    Mr. Joseph Volpe: People defy it every day. You've just indicated that they've had occasion to take a look at some of the competitors and say they're not satisfying the mandate.

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    Mr. Leonard Asper: But those are the only two examples I can think of in 25 years of thirty or so broadcasters operating every day.

    Where you hear discussion about people “not complying” is in the definition of Canadian content, which is not part of the rules. Instead, it's a theoretical debate or a cultural debate. Is Andromeda Canadian? It's a Canadian-produced program that employs hundreds of people in British Columbia. It takes place in space. There is no CN Tower and there are no Parliament Buildings. Put it up against Blue Murder, which is a Canadian police drama that again employs hundreds of people in Toronto and in which you do see the CN Tower and Canadian dollar bills changing hands. That's where some of the groups in Canada believe Canadian broadcasters aren't complying.

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    Mr. Joseph Volpe: Isn't that the crux of the whole argument that's made by the cultural communities that have appeared before us, and which was enunciated by Mr. Crête and some of his colleagues from Quebec? The essence of the argument is that the carriers have to put on air a product that is Canadian. If the mandate and the regulator of that mandate are allowing themselves to be caught up by semantic discussions about what is or what isn't Canadian, whether my tower appears in the background or whether it's the sky over Seattle or the sky over Vancouver, then perhaps their skepticism is well founded, is it not?

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    Mr. Leonard Asper: That's the great debate. Most Canadians don't believe that. What do they watch? They watch a well-produced program with a good storyline, and a good storyline comes from good writers. Take a show like Popstars. Popstars is a program on Global that is produced by an independent Canadian producer and does terrific, huge ratings. I'm not going to be scientific on this, but to my knowledge it is the highest-rated Canadian program ever in terms of its share, although ratings keep coming down because of fragmentation. Ratings are how many people watch, while share is how many people watching television viewed that program.

    I won't get into the semantics of it, but other than Hockey Night in Canada, Popstars is one of the highest-rated programs that has ever appeared on Canadian television. Why? Because it's well done, it's well written, and it's a Canadian story about Canadian kids and people in their twenties trying to get a recording contract with a record company. It outrates Cold Squad or Blue Murder by five to one.

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    Mr. Joseph Volpe: Let me interrupt you—

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    The Chair: Mr. Volpe, Mr. Yates would like to answer.

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    Mr. Joseph Volpe: That's okay. I'm going to get to Mr. Yates in a second.

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    The Chair: He would like to comment on your previous questions. You're running out of time.

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    Mr. Joseph Volpe: Mr. Asper, I really didn't want to interrupt you, but I saw that Mr. Yates wanted to jump in.

    If I take away the word “Canadian”, which you repeated four times in one sentence, you're just talking about a program that has quality, and that's all. It has nothing else, really. You're selling a quality product, and you just want to make sure you can attract the capital you need in order to put more of that quality product on the market, right?

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    Mr. Leonard Asper: We would love to be able to try five programs to see which one is the best, rather than just going through the process we have now. Right now, a Canadian producer applies...first of all, broadcasters generally are not allowed to own their own content. They must go through independent producers, many of whom are in the business even though they know the business is not really an economically viable business, quite frankly. They go into the business on the basis that they will receive subsidies and broadcasters will have to pay more than they want to pay, more than it is commercially viable to pay, to air their product.

    If we're into the discussion about how the whole system works, it's a flawed economic system. Take a show like Blue Murder. The producer of Blue Murder is a very good producer, but Blue Murder is a show that CanWest must air, effectively through the rules. We must pay $250,000 per episode because that's what Telefilm requires broadcasters to pay in order to have the producer receive his additional subsidies from Telefilm. The broadcaster must pay a licence fee of $250,000, Telefilm puts in another chunk, and the producer then tries to hopefully make up any gap in international sales.

    We would sell probably $80,000 in advertising time during an episode of Blue Murder. Even though it's a very good show, it's competing against NYPD Blue. It's a cop show. Canadians don't care whether there's a CN Tower or West 48th Street. So we want to be free to come up with different kinds of programming, like Popstars or something else that meets consumers' tastes.

    The system is what it is, and as I say, whether NewsCorp owns CanWest or whether CTV or other Canadians own it, we have to work within that system. We'd love to change the system, but it is what it is and there is compliance. Producers will always want those kinds of deals in which they're subsidized and they have a program on the air. But it's not economically viable. So they're in the business, and I think they're asking, in their own self-interest, to hoist the flag and say Canada's better off because of their products on the air. But I'm quite skeptical of their motives as well.

À  +-(1035)  

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    The Chair: Mr. Yates.

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    Mr. Robert Yates: I didn't mean to jump in. I was going to make a comment on the compliance question, which I'll get to.

    Certainly in the discussion on the cultural aspects and the broadcasting things, there's clearly a lot of debate on those kinds of subjects. In Canada, as in most other countries, we have a separate Broadcasting Act and a Telecommunications Act. Most countries in the rest of the world tend to treat these very separately. There's very little debate about the telecom companies per se in terms of whether they should be liberalized, open for competition, or owned by foreigners. If you go around the world, there's virtually no debate on that subject, in a sense.

    Clearly there's a lot of debate on cultural points. I mentioned Spain earlier, for example. Spain is very similar to Canada in some ways, except that it allows a lot of foreign ownership in the infrastructure but has very strict broadcasting rules, amongst other things, to promote the use of the minority language.

    Just to go back to the compliance point, you asked when the CRTC had gone after people on the content question. In regard to the rules we're talking about here, I think it's also instructive to understand when they've gone after people on the foreign ownership question. I think it should be realized and maybe understood that it's very complicated to manage these rules the way they are.

    For companies that are publicly listed, it's very difficult to know who owns the shares. Usually large companies like Bell and others will put up an estimate of the foreign percentage, but it's very difficult for them to manage. The CRTC doesn't even monitor it at present anyway. There have been a couple of proceedings over the years, one involving AT&T Canada and another involving a small cable company that was partly owned by BC TEL, but there really have been only one or two. They are very complicated to track. I don't want to take up too much time, but from the regulator's point of view and from a compliance point of view, the rules as they are, are also complicated.

    To go back into the industry perspective, which is more where we were coming from, that complication also creates a complication for the companies trying to get financing, which, as I said, is going to be the first question you're going to discuss. But if you are also in an unfortunate situation of restructuring and you have to move the pieces around, it further complicates the moving of the pieces because the debt holders who then would have to own the company, for example, in a sense can't own it because of the rules. That creates a complication that has incumbent impacts on costs of capital and share price eventually, and things like that.

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    The Chair: Thank you very much.

    Mr. Marcil.

[Translation]

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    Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman. It appears that we're reaching the final stages of a consultative process that has lasted for several weeks now. Clearly, when the Industry Minister asked the committee to look into the issue of deregulating the telecommunications sector, having us waste our time was not what he had in mind.

    I agree that if the objective at the outset was to maintain the status quo, we would not have made an effort to engage in such broad consultations. The approach taken has been innovative, hence the reference to intelligent regulations and the efforts to ensure that Canadian companies can continue to grow.

    However, we have heard a range of opinions from the groups and individuals who have testified before the committee. Producers, writers and composers in the field of radio and television are staunchly opposed to any kind of deregulation on the grounds that Canadian cultural sovereignty could be threatened in the process. The fact that foreign companies, in particular US companies, could take over Canadian firms - obviously we are witnessing convergence in this sector - could signal the slow and steady decline over the long term of Canadian programming as we know it.

    We also heard from industry representatives, specifically from telecommunications industry officials, whose views on the subject were divided. These individuals are involved in both broadcasting and production operations and support deregulation. Other telecommunications companies, particularly those that addressed the committee yesterday, that is small Canadian firms like Rogers Communication, Shaw and COGECO that play an important role, have stated that the telecommunications sector can be deregulated and at the same time, steps can be taken to prevent foreign companies from controlling content.

    We've heard from academics. Here again, opinion was divided. Two witnesses voiced moderate support for the integral liberalization of the market, whereas others, particularly witnesses from Quebec, were completely opposed to deregulation, because of this province's distinctive nature and the fact that it is home to North America's Francophones.

    As my colleague mentioned earlier, SaskTel representatives voiced their staunch opposition to deregulation. However, other groups talked about experiments currently under way in the UK. and described current deregulation and privatization initiatives as a way for foreign companies to assume considerable control. However, state regulations ensure cultural sovereignty in the UK.

    Comparisons are often drawn between America and European nations, New Zealand and Australia. The latter two are geographically remote from Canada. As Napoleon once said, politics should be dictated by geography. These countries do not appear to be threatened in an real way by the fact that some businesses are foreign-owned. Indeed, content rules are always upheld.

    A similar situation has been observed in Ireland, except that in that country, over time, language has been lost, as everyone knows. People speak English instead of their own native tongue.

    Not a great deal has been said about South America and Central America; the focus has been more on North America, Canada and the United States. We've heard how Californians are experiencing problems with language. Plans are now afoot to pass legislation to protect the English language in California. That's why officials travelled to Quebec to look into Bill 101 and how the legislation is applied.

    Having said this, your presentation shows that you are open to all suggestions. From our perspective, the situation remains somewhat confusing. We are not experts in the telecommunications sector; we're parliamentarians, more specifically, regional representatives.

À  +-(1040)  

    What would the ideal solution be?

    We must never lose sight of the fact that Canada lives next door to a giant. We are the only country in the world that, given its geographic location, must do business with such a major competitor. Europe has been a multicultural society for decades, and that situation does not appear to have caused it any major problems.

    Judging by what you're saying, a takeover of Canadian companies by foreign interests would not threaten our cultural sovereignty or Canadian content.

    In conclusion, what solution do you should advocate: should we proceed with deregulation without legislation and without safeguards, or should we take a progressive approach?

À  +-(1045)  

[English]

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    Mr. Leonard Asper: As I started to respond to Mr. Masse's question, if you want the utopian ideal, we would have to go back to 1950, because no country other than Canada has U.S. television networks beaming in directly. If you want to watch NBC's programming in Australia, Ireland, or England, a local company buys the programming and it airs on the local broadcaster.

    In Canada, the copyright regime was torn to pieces because of border broadcasters coming in. We buy the rights to NBC's programs, yet we still compete against them. It's like buying the Chiquita banana franchise for Canada and having the exclusive rights, but then Chiquita begins selling against you in Canada. A simulcast regime somewhat helps that, but it only partially ameliorates that situation or compensates it. That was done in 1950.

    With where we are today on the ownership issues, from CanWest's perspective, even a liberalization to 49%, provided it were across the board, would be acceptable as a first step. In principle, ideologically and in overall economic terms, though, we would prefer to see the whole thing deregulated. But as I say, we would accept 49% as a starting point. And I mean 49% directly, not through these different holding companies, with a part in the licensee and a part in the holding company. I mean a 49% direct investment in a Canadian broadcasting company. That would certainly be the minimum starting point.

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    The Chair: We'll let you finish, Mr. Asper, and then Mr. Yates will comment.

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    Mr. Leonard Asper: If I can, I'm just going to say one line to Mr. Volpe, just to finish on his point.

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    The Chair: He's had more than his fair share today.

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    Mr. Leonard Asper: Hopefully we won't re-engage, but I will say one thing. Factor in that CBC just cancelled Tom Stone, one of its showcase dramas, citing ratings as the reason.

    An hon. member: [Inaudible—Editor]

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    Mr. Leonard Asper: Okay, but either way, it's a true blue Canadian indigenous program. I'm just saying that even CBC, the government's state broadcaster, cancels Canadian programs when they don't work.

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    The Chair: We'll go to Mr. McTeague for a short question, and then maybe Mr. Yates can....

    And since I haven't had a chance to ask questions through all these five weeks, I'm going to have one final question.

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    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): I'm going to be extremely brief on this, because I think my colleagues have been able to exhaust this question very thoroughly. And I thank you for your presence, both of you.

    I'm interested in the numbers game. A lot of people, of course, are talking about what level would be satisfactory to affect control. I've seen circumstances in which someone may control a company with 15% or 20%. Would you perhaps give this committee your interpretation of whether we should be caught with a particular number or fixated on a particular number, or whether that is in fact at all relevant to this debate?

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    Mr. Robert Yates: As I mentioned earlier, I'm not sure changing from 46.7% to 49% would have a particularly material impact, if that's what we're looking at. If we go back to what Mr. Marcil was referring to, what would the ideal solution be? Clearly, we're not sitting here with an ideal solution now, so some change to the solution would be for the better.

    In considering what the ideal solution might be, I'd just like to come back to the question we are really focusing on a lot, on the cultural debate, which is certainly interesting and far-reaching. There really is no debate on the telecom companies if we go around the world and look at telecom infrastructure and telecom companies. It may be that dichotomy that we need to try to distinguish when we look at what the ideal solution could be, and make sure they're separate.

    In saying that, I would just reiterate one of the things our paper points out. For some of the entities that would fall under both acts, where you clearly have a grey area, it may be a more complicated discussion point. But if we focus on telecom competitors specifically and on creating a dynamic telecom environment, I don't think there's any question that the rules create a complexity now that's unnecessary, that impedes the industry from developing, and that should therefore be lifted altogether at least for the telecom competitors.

    The question of protection of culture and things like that is perhaps a more complex and separate debate. It's one for which the two acts come into play. It's also a question, maybe more broadly, that comes back to financial questions rather than cultural ones, but for an internationally operating company like CanWest, which is a fabulous success story, being on a par in international markets when they're going for financing is an important stand-alone question. For them, those rules clearly have an impact on doing that. For telecom competitors such as AT&T Canada that want to build and do an infrastructure play in Canada, the rules themselves are a very critical and gating item for them and for other telecom competitors.

À  +-(1050)  

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    Mr. Leonard Asper: I think you're right to focus on the issue of whether any particular number is the right number. I remember that Lawrence Tish controlled CBS with 18% of the equity. He had a widely held board, and he had the largest.... In England, Michael Green controls Carlton probably with 1% of the equity in the company. He was the founder, but he just kept buying companies and diluting his equity stake until he was down to 1%. But he has the moral suasion and he picks the board, and his friends continue and perpetuate that. I'm not saying that's bad, it's just the way companies evolve.

    So you're right. As I say, for me, logically, we say to open everything up because picking any number really doesn't necessarily achieve the objective or guarantee that any particular objective is achieved. Someone can control a company with 49% very easily. There are lots of ways to do it. We've always just suggested 49% as a compromise, as a starting ground that would make some people feel better about the process.

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    Mr. Robert Yates: Just on the control—I didn't really get to that part of the question, sorry—certainly control with a lower percentage is currently managed under the existing rules. That does create a complexity and it does intend.... The way the rules are structured now, they limit the number of board members and things that can be foreign. They also have an impact on agreements and things that the companies eventually do, adding an overlay to the complexity of just trying to manage within the rules themselves. Certainly those kinds of rules also add to the problem of finding investment and doing things in general.

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    The Chair: Thank you, Mr. McTeague.

    We're getting to the end of our witnesses and into our own debate, but we've had five weeks of extended hours in order to make sure we capture, as much as possible, not only the telecoms, but those areas affected if decisions are made. It has gotten to a point at which, if you look at it from the telecom...and we had to make sure we understood the cable business because of technology, because of convergence, and because of the BDUs.

    Mr. Asper, you brought in an additional perspective when you said we have to go right across the board to the broadcasters. What is the effect or the imbalance that you said will occur if we don't do that?

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    Mr. Leonard Asper: It's just a question of exposing us to competitive threats. If foreign ownership is allowed in other sectors, it will come and it could have very significant effects on our bottom line, particularly in the programming area.

    If NewsCorp were to buy a Canadian BDU like Rogers or Bell ExpressVu, and if it were to then switch the Fox programming to CTV and its affiliates, to its other channels in the CTV group—assuming they bought into Bell Canada, for example—that would take tens of millions of dollars right off our bottom line. That's what drives the entire business of the Canadian company, of the Canadian operations.

    Leaving us exposed means that the BDUs in particular, but even a telecom company like Bell Canada—which also owns broadcasting outlets—would be a likely recipient of foreign funds, maybe from NewsCorp or Viacom or AOL-Time Warner. If AOL-Time Warner were to make an acquisition of, say, Rogers—AOL-Time Warner is a cable broadcaster in the U.S., and they have 12 million cable subscribers—they're likely to make an investment or would be a likely candidate to make an investment in Canadian cable systems.

    AOL-Time Warner owns HBO. HBO is a supplier of programming to CanWest, to Alliance, and to CTV. That includes The Sopranos and all these new shows you're seeing. I won't get into the programs, but the point is that HBO is a big supplier to the Canadian broadcasting industry, and it's not allowed to be in Canada, so that would again take programming right out of Canadian broadcasters' hands. And it's not so much CanWest, it's Craig, it's Alliance, it's CHUM, and it's the cable broadcasters that are more likely to be hurt by that. Fox's cable channel also supplies CanWest and other channels, so there would be a real programming bottom-line impact if one of those companies were to invest in one BDU.

    As I said, the lack of access to capital simply will impede our growth. The lack of access to capital will impede our ability to grow and to be a competitor to foreign-owned broadcasters. In other words, if AOL-Time Warner takes a piece of Bell, we'll want to have some ability to have a response, and that response will require capital.

À  -(1055)  

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

    I'd like to thank all the witnesses for being here today and for taking the extra time to answer the many questions that we've had. I'd also like to wish you well in your businesses.

    [Proceedings continue in camera]