Wednesday, November 18, 2009

TELUS cover letter to Minister Clement re Globalive

November 18, 2009
The Honourable Tony Clement
Minister of Industry
C.D. Howe Building
235 Queen Street
Ottawa, ON K1A 0H5

Dear Minister,

Subject: TELUS’ Further Comments In Respect of Globalive – Telecom Notice of Consultation 2009-429

In reply to your correspondence dated November 6, 2009, please find attached TELUS’ further comments in respect of Globalive’s non-compliance with the Canadian ownership and control requirements. There are many compelling reasons why you should not intervene as you are being urged to do by Globalive and Orascom. These reasons are fully discussed in TELUS’ submission, but include the following:
•There is no reason that would justify intervention by the Governor in Council in a legal finding of fact, by an independent tribunal, in an open and public process

•To intervene, as Orascom is urging, would render meaningless Canada’s ownership and control regime governing the Canadian wireless, telecom, cable and broadcasting industries

•Allowing foreign interests to control our telecommunications and broadcasting sectors through the back door is not in the public interest and would create major uncertainty and confusion for all communications companies currently complying with the law

•There is no way to intervene that would not trigger most favoured nation provisions of the North American Free Trade Agreement and the General Agreement on Trade in Services

•Bidders including all new entrants, were put on notice as to the rules for eligibility and bid over $4 billion in the AWS auction and, as you have been advised by other new entrants, it would be patently unfair to now change the rules of the game after the fact

•It is a matter of public record that the CRTC offered to hold its review process at the same time as that of Industry Canada, but Globalive refused that offer. The effect of that refusal lies clearly with Globalive and Orascom

•The CRTC had no choice under the law to find Globalive in non-compliance given 82% of the capital of Globalive is owned by Orascom, in addition to other levers of control unearthed by the CRTC

•Globalive and Orascom were provided a roadmap by the CRTC to comply, but have chosen instead to ask the Governor in Council to exempt them from the laws that govern all other competitors to advantage itself

•Regardless of the choice Globalive makes, the Government’s objective of more competition has been achieved with the licensing of compliant Canadian competitors like Public Mobile, Shaw, Eastlink, Videotron and Dave Wireless

•Globalive is the master of its own destiny and can enter as soon as it meets the same threshold as other new entrants have done.

I trust that these comments are of assistance to you in your review of this matter.
Yours truly,
Michael Hennessy
Senior Vice President
Regulatory & Government Affairs

Friday, November 13, 2009

Local TV and the battle to control Jurassic Park

It's hard to meet anyone on the street that does not suggest that the debate on local TV has gone over-the-top. It's getting hard to disagree, even as a participant in the CRTC debate. When you think of it in terms of time and energy spent as well as resources wasted, this debate is missing the point. Big time.

This has become much like a battle of dinosaurs to see who controls Jurassic Park. The big question now is who cares? Some people very much, but I think most Canadians are ready to hit the off button.

Here is a radical thought. The whole issue about local TV is a red herring and a waste of our time. I grew up in an era when local TV was, well, really local. Local TV was not defined by the news hours but by hours of homegrown local programs, hosted by local personalities.

Most local TV has not been local for ages. Local TV died when big broadcasting consolidated and created national networks. Rational economics drove those decisions at the time but its a little late to pretend to save it now.

That said, local content is alive and well in papers, magazines, radio, community TV and the Internet. On those platforms we are incredibly well served and well connected.

The local TV fight between distributors, yes TELUS is a distributor, and big broadcasters has become a sideshow. Forget this debate for a minute and test the waters.

We should be talking about how all our media systems can be engaged to benefit creators and consumers. About how we can invest in ever improved digital platforms to connect creators and consumers. About how we can leverage the internet to create new market opportunities.

After all the content value chain starts at creation and ends at consumption. It does not work unless those elements are engaged.

So how do we engage? Engagement means developing consensus about building a national digital strategy rather than errecting a protected enclosure to preserve dinosaurs.

A key element of a digital media strategy is resolving creator rights disputes for new media so creators are incented to dedicate resources to new platform development.

Its about digital training so that our creative resources can exploit new technologies.

It means putting more content on-demand so it’s available to consumers anywhere, anytime and on any platform.

And it’s about giving consumers more opportunities to select the channels they want to watch and drop what they don’t value. That's a tough economic debate given the financial realities of the Canadian market but it does not help to ignore the issue. Discretionary consumption is what defines our markets today.

We think value for service should be defined by consumers not regulators.
And everyone should wake up from this noisy debate and start thinking “Internet “ before the next ice age.

I remember local TV and believe me local TV ain't local anymore. But local content is all around us.

Sunday, November 8, 2009

Why should Cabinet gut the law to fix a problem of Orascom/Globalive's own making?

November 2009 should go down as a sea change month for wireless and broadband competition in Canada. It sure has been an awesome start to the month for our team at TELUS.

Two new national networks (ours is better of course) that erase the competitive advantage Rogers has had on GSM. New international roaming agreements across 200 countries, competitive supply of iPhones, Android phones and a range of other devices. Massive extension of the new networks deep into rural and remote areas that were previously unserved in terms of broadband coverage.

On November 5th, TELUS launched a network that is clearly top tier in the world. It’s a network that allows Canada to leapfrog to the top of the heap when it comes to broadband wireless infrastructure. Infrastructure that is available on a competitive basis. That's not debatable anymore. Network equipment vendor Huawei in a full page ad last week, described it as "one of the fastest and most advanced cell phone networks on the planet."
How big? Try 1.1 million square kilometers big. That's 4X the size of Rogers 3G network. And its way ahead of the 3G networks in the USA. How did we get there? Competition and a billion dollars of private investment made this happen in the middle of the biggest recession in a generation.

Now that should be cause for celebration for everyone who was concerned that there was not enough competition in the market, or that Canadian broadband infrastructure has been lagging our trading partners, or that subsidies are needed to close the broadband gap. No matter your point of view on that, clearly all those items on that wish list just got checked off. Again as a result of private investment and the need to respond to existing competition.

But in Ottawa, the big noise around broadband and wireless is not the fact we have brand new leading edge networks but rather on the impact of the CRTC's decision that found Globalive, a prospective new wireless entrant, non-compliant with Canada's foreign ownership laws because Orascom a global carrier with 15 times the number of subscribers TELUS has, controls 82 percent of Globalive’s capital structure. This (the CRTC decision) is not really surprising, given that the evidence presented by Globalive itself, in an open and transparent hearing, proved beyond any reasonable doubt that Globalive was way offside. Not a little offside but miles off side. Yet somehow this seems to be everyone's fault but Globalive's.

So ignoring evidence that, with or without Globalive, there will be 4 to 6 competitors operating in most urban markets in 2010 and from 2 to 4 in most rural and remote areas, rhetoric has reached epic heights about a failure of Government policy unless Cabinet turns a blind eye to Globalive's obvious non-compliance. Never let the facts get in the way of a good story! In some quarters, Cabinet is being called upon to overturn a legal decision of the CRTC, even though that would fundamentally undermine the law and gut the ownership rules that apply to every telecom and wireless carrier, broadcaster and cable company now operating in Canada. All to ensure an ineligible foreign carrier, Orascom, can enter the Canadian market with a capital structure not permitted for every other company in Canada. Let’s call it the Globalive “special”.
There is a lot of noise about the loss of a competitive market if Orascom is not allowed to play by its own set of rules. In fact, the front-page story in the National Post on November 5 was not about the launch of new advanced networks that have already brought an end to Rogers GSM monopoly, but about the fall out from Orascom's now obviously ineligible participation in the AWS auction. An auction process that Financial Post editor, Terry Corcoran referred to as a "as a distorted shambles in which prices were grossly exaggerated by Mr. Sawiris' (Orascom's) authorized participation." Authorized but ineligible as it turns out.

The AWS auction has been a sore point with TELUS. NERA estimated those "grossly exaggerated prices" cost the industry over $2 billion in overpayments because of flawed design and cost TELUS an extra $400 million from inflated prices, including from a bidder that had no right, it now seems, to have been in the auction in the first place. To realize we were forced to pay that penalty because, in part, a key bidder was ineligible to participate is a bitter pill to swallow.

How much is $400 million. It’s almost twice as much as the Government of Canada is prepared to allocate to broadband stimulus/expansion for fiber and wireless. $400 million we can't spend to expand fiber in our own IPTV network expansion to compete with cable in the the TV business.

There should be no sympathy for Orascom. It placed a bet it could get into the market with a plan that was offside. It can't claim the CRTC process was a surprise. All bidders knew that the CRTC requirements were part of the compliance regime. It made a risky decision and lost. It can hardly be surprised irrespective of the PR noise it is now pushing out.
Face it, it would be pretty hard to imagine that any Canadian lawyer or bank, faced with a plan where 82 percent of the capital structure was foreign controlled, wouldn't have advised that the Orascom/Globalive game plan was a very high risk proposition. Orascom rolled the dice. In fact most critics of the CRTC decision actually agree the CRTC had no choice under the law but to reach the conclusion it did reach.

But now the CRTC is being painted as a villain for upholding the law, and Cabinet is being asked to essentially ignore the law in order to help Orascom enter a market in a way other foreign carriers are prevented from. I bet Cabinet won't get sucked in. The law is the law. And right now it's a law that every wireless and telecom carrier, cable company and broadcaster is forced to abide by.

Moreover, if Cabinet were to overturn the CRTC and allow Globalive to operate with control of 82% of its capital structure held by one foreign carrier, it would automatically trigger MFN clauses in NAFTA and violate other commitments made by Canada under the GATS. The CRTC would be forced to allow companies like Viacom or Disney similar rights in broadcasting because the criteria it rejected would now guide all future proceedings.
Effectively to make Orascom Canadian, Cabinet would have to gut all laws regarding foreign ownership in the communications sector, turning every carrier’s business strategy on its head. That's not about to happen. Orascom's problems are of it's own making and these are problems it could fix without standing the rule of law on it's head. It's not going to happen because it does not need to happen to ensure competition.

Clearly competition is operating with all engines firing. First, lets go back to the GSM monopoly Rogers has. It’s dead and buried as a result of competitive investment that had to be made irrespective of the auction. Open access? Can you say Android? Network supply? Start with the TELUS and Bell builds that cover around 90 percent of the population on HSPA and HSPA plus and that's global superiority that is top tier. Add Rogers HSPA and HSPA plus network across Canada and coverage with the fastest and most innovative networks on a competitive supply basis is a fait accompli. That's three national networks all on the latest HSPA technologies.

Now add Videotron in Quebec and you have even more competitors there. MTS Allstream and SaskTel already dominate in terms of market share in Manitoba and Saskatchewan so add even more competition there as well. (p.s. how did the auction policy ever decide that the dominant carriers in these two provinces were new entrants?)

Assume Shaw and Eastlink will move in the west and Atlantic Canada. Both have spectrum and Shaw just launched a $600 million debt offering. Remember too that under the auction rules cable companies get preferential treatment as new entrants. Under the policy cable companies get government help to compete. I am not making this up. It’d be nice if TELUS got the same deal in TV but those are the auction rules.

But what about real "new entrants" you might ask? Well the other new entrants are not going to be hurt if Orascom refuses to abide by the rules and goes home. In fact they become the big winners. According to a recent report by The Convergence Consulting Group, if Globalive does not enter then new entrants like Dave and Public Mobile probably add another 900,000 subscribers.

So even without Globalive we can expect at least 3 incumbent national carriers, new cable entrants in addition to Rogers across most regional markets and new national players like Dave and Public Mobile. That suggests 4 to 6 competitors in every major market in Canada and from 2 to 4 in rural areas. All without any need to gut our laws to fix Orascom's obviously offside business case.

This month while countries like Australia are pouring billions into broadband subsidies, private investment may have just closed 40% of Canada's broadband gap and is extending wireless broadband on a competitive basis to over 90 percent of Canadians. All with private money and all compliant with Canadian laws. That's a remarkable achievement. So here's the big question for Ottawa before it takes a step that is as irrevocable as it is unnecessary. Does anyone really believe Orascom/Globalive would ever had gone deep into our rural areas or is it just another urban play? Testifying before a Senate Committee, a Globalive executive tried to deflect the question by saying that service in those areas is very challenging economically. Really? Putting aside that astonishing statement of the obvious, if there are going to be 4 to 6 competitors in every urban market, is it worth breaking the rules for Orascom in a way that changes the game for scores of Canadian companies that have abided by the law?

This is a matter of law not policy and if policy dictates a change in the law that's up to Parliament to enact.

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