Bill C-17: An Act to amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act(C17e)

BILL C-17: AN ACT TO AMEND THE
TELECOMMUNICATIONS ACT AND THE TELEGLOBE
CANADA REORGANIZATION AND DIVESTITURE ACT

HOUSE OF COMMONS		SENATE
Bill Stage	Date	Bill Stage	Date
First Reading:	30 October 1997	First Reading:	9 December 1997
Second Reading:	25 November 1997	Second Reading:	24 February 1998
Committee Report:	5 December 1997	Committee Report:	25 March 1998
Report Stage:	9 December 1997	Report Stage:
Third Reading:	9 December 1997	Third Reading:	29 April 1998

BILL C-17: AN ACT TO AMEND THE TELECOMMUNICATIONS ACT
AND THE TELEGLOBE CANADA
REORGANIZATION AND DIVESTITURE ACT

On 30 October 1997, the Minister of Industry, the Hon. John Manley, tabled Bill C-17, An Act to amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act, in the House of Commons. Bill C-17 would implement commitments made by Canada under the Agreement on Basic Telecommunications (ABT) to the General Agreement on Trade in Services (GATS). Between April 1994 and February 1997, this Agreement was negotiated by Canada and 68 other nations in order to liberalize international trade in basic telecommunications services. Canada’s commitments under the ABT included offers to end certain carrier monopolies and to remove certain restrictions on foreign ownership.

Aside from implementing Canada’s commitments under the ABT, Bill C-17 would make additional amendments to the Telecommunications Act that would be consistent with these obligations and are considered necessary to continue levelling the playing field for competitors in an era of liberalized trade in basic telecommunications. The Minister highlighted this aspect in the House of Commons noting:

Parliament enacted the Telecommunications Act in 1993, thereby consolidating the regulatory regime for telecommunications, which until then had been scattered among a number of statutes. The Act modernized the tools of telecommunications regulation available to the Canadian Radio-television and Telecommunications Commission (CRTC), making them lighter, more flexible, and in some circumstances completely optional. Most important, it articulated Parliament’s policy objectives for telecommunications in Canada, including the following goals: to render reliable and affordable telecommunications services; to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications; to foster increased reliance on market forces for the provision of telecommunications services; and to ensure that regulation, where required, is efficient and effective (Telecommunications Act, section 7).

Since the coming into force of this Act, the CRTC has been mapping out a new regulatory framework for telecommunications in Canada -- one that will be adaptable to rapid technological change, foster growing competition and recognize the importance of telecommunications to Canada’s economic growth. For example, the CRTC’s Telecom Decision 1994-19, released 16 September 1994, led the way to lower long-distance rates, to local rates that better reflect their true cost, and to competition in the provision of local services.

Against this backdrop of domestic regulatory reform and expanding competition in telecommunications, Canada entered into negotiations with the member countries of the GATS to establish a multilateral framework for trade in basic telecommunications services. Since the resulting agreement, the ABT, committed Canada to liberalization of its international telecommunications services, Parliament must now make certain amendments to the Telecommunications Act, and to the Teleglobe Canada Reorganization and Divestiture Act. Also, not as a direct response to Canada’s treaty obligations but as a general consequence of the liberalization process, Bill C-17 proposes certain additional amendments to these Acts.

The General Agreement on Trade in Services, GATS, continues trade liberalization into the area of services. Increased competition in services offers the benefits of wider markets for industry and lower prices for consumers. GATS offers "national treatment" (i.e., access to markets in services with no discrimination in favour of national providers) and "most favoured nation" (MFN) status (i.e., non discrimination between Members of the Agreement).

The first GATS areas negotiated were labour mobility, maritime transport, financial services, telecommunication services, and professional services. In addition, specific countries have entered into commitments on business services; communication construction and related engineering services; distribution services; educational services; environmental services; financial health-related and social services; tourism and travel-related recreational, cultural and sporting services; and transport services.

In trade treaties for goods, tariff schedules are negotiated; in trade treaties for services, specific commitment schedules are negotiated. These are binding undertakings on market access and national treatment. Under GATS, such commitments cannot be altered in the first three years of their life, and compensation is required for alterations after that period. These commitments may also contain limitations, typically on such matters as foreign ownership. Taken together, specific commitments detail in advance the conditions of market access and any restrictions a foreign competitor may meet in a particular national market.

Basic telecommunication services are broadly defined in GATS to include such things as person-to-person voice services, mobile services, telegram, telex, and data services and corporate leased-line communications, but not the broadcast or cable distribution of television or radio programming. It was decided that the negotiations shall be comprehensive in scope, with no basic telecommunications excluded a priori.

The Canadian commitment to the ABT contained the following undertakings to open up competition for:

Like many other countries, Canada has maintained its foreign ownership policies to the best of its abilities by putting limitations into its commitment. The guiding principle is to retain existing policies for facilities-based operations within Canada while allowing total foreign ownership for links to the outside world by submarine cable or satellite service, and permitting Canadian-owned service providers to make use of totally foreign-owned satellite services within Canada. The limit on foreign investment in facilities-based telecommunications service suppliers is a cumulative total of 46.7% of voting shares, based on 20% direct investment and 33% indirect investment; such suppliers must be controlled, in fact, by Canadians. Resellers of basic services may be 100% foreign-owned, but such services may not be provided by pay telephones. Existing foreign-owned facilities-based telcos are grandfathered.

As a consequence of competition in overseas cable services, Teleglobe will no longer be a monopoly; however, the foreign-ownership conditions will apply and limit the cumulative foreign investment level to 46.7%, thus restricting the Teleglobe holdings of foreign telecom carriers and their associated companies. The Teleglobe monopoly is enforced administratively by restricting the right to land a submarine cable, not by legislation. The Telesat monopoly over fixed satellite space segment facilities will be brought to an end by 1 March 2000 by allowing the CRTC to issue licences.

The Schedule of Specific Commitments also contains a number of matters particular to individual phone companies. Restrictions ensuring they are widely held will be maintained on Maritime Telegraph and Telephone Ltd. and on Manitoba Telecom Services Inc. The Schedule also points out that competition may be limited with respect to a number of previously provincially regulated phone companies that came under federal jurisdiction as a result of the 1994 Supreme Court decision in Attorney-General of Quebec et al. v. Téléphone Guèvremont Inc. Presumably any such limitations would be considered by the CRTC as part of its bringing these telcos under the federal regulatory umbrella.

Clause 1 would add a definition of "telecommunications service provider" to section 2(1) of the Telecommunications Act. According to this definition, a person who provides "basic telecommunications services," including by exempt transmission apparatus, would be a "telecommunications service provider." Basic telecommunications services, though not enumerated or defined in the Act, are generally understood to include local and long distance telecom services, delivered through any type of network technology (e.g., wire-based, radio-based, satellite networks, cable television, etc.) and provided either on a facilities basis or through resale of existing facilities.⁽²⁾ Basic telecommunications services provide real-time carriage of information between two points without any intervention. Value-added services, such as on-line data processing, on-line data base storage and retrieval, electronic data interchange, e-mail and voice mail, require intervention and, are therefore not considered basic telecommunications services.⁽³⁾

Clause 3 would introduce a new licensing regime to the Act, under proposed sections 16.1 to 16.4, which would apply to any class of "telecommunications service providers" specified by the Commission. Proposed section 16.1 would require those classes of telecommunications service providers identified by the Commission (pursuant to a new regulation-making power to be conferred by clause 7) to acquire a telecommunications service licence. The licence and licensing process would allow the CRTC to collect licence fees and necessary information about the licence applicant (under proposed section 16.2); authorize the CRTC to attach appropriate conditions to the licence, and decide on its exact duration, which would not exceed ten years (under proposed section 16.3); and permit the CRTC (under proposed section 16.4) to suspend or revoke the licence whenever it believed, on reasonable grounds, that the licensee had contravened either the Telecommunications Act, regulations, or any condition of its licence.

The new licensing regime would provide the CRTC with the authority to establish conditions of operation for companies offering international services as Teleglobe’s monopoly on overseas traffic ends.⁽⁴⁾ Industry Minister John Manley explained, "We will be empowering the CRTC to introduce a licensing regime to ensure that all providers of international services play by the same rules."⁽⁵⁾ In May 1997, the Industry Minister formally advised the Commission of the government’s intention to table a bill which, among other things, would amend the Telecommunications Act to provide the CRTC with the statutory authority to require all members of any class of service providers to obtain a licence. Consequently, in October 1997 the CRTC issued a public request for proposals and comments on a regulatory regime to apply to the provision of international telecommunications services when Teleglobe’s monopoly terminates.⁽⁶⁾

Currently, Canada does not allow any foreign ownership of international submarine cables that land on its shores. Also, Canada restricts the use of foreign-owned and controlled satellites that provide telecommunications services to Canadians. Canada made commitments, in the Agreement on Basic Telecommunications that, as of 1 October 1998, it will allow 100% foreign ownership and control of international submarine cables that land in Canada and will remove restrictions on the use of foreign-owned and controlled fixed and mobile satellites that provide telecommunications services to Canadians. Clause 2 would fulfil these commitments by exempting (a) international submarine cables and (b) earth stations that provide telecommunications services by means of satellite from the Canadian ownership and control requirements for telecommunications common carriers set out in section 16 of the Telecommunications Act.

Currently, section 19(1) of the Telecommunications Act authorizes the Minister to issue an international submarine cable licence to a "corporation" that is eligible under the regulations to hold such a licence. Section 22(2)(c) of the Act authorizes the Governor in Council to make the regulations determining the "corporations" eligible to hold these licences. Clauses 4 and 5 would amend these provisions of the Act by replacing the references to "corporations" with references to "persons," thereby allowing other types of business entities to hold such licences. "Person" is currently defined in section 2(1) of the Act to include "any individual, partnership, body corporate, unincorporated organization, government, government agency, trustee, executor, administrator or other legal representative."

Clause 6 would add six new sections to the Act, sections 46.1 to 46. 6. Proposed section 46.1 would give the CRTC the authority to administer telecommunications "numbering resources" or any "other activities" related to the provision of telecommunications services by Canadian carriers. Numbering resources are the phone numbers, area codes, country codes, carrier codes, billing codes and other numbering codes used in operating telecommunications networks. The Governor in Council would decide specifically what constituted "other activities" related to the provision of telecommunications services and would identify them in regulations made pursuant to section 46.3. Telephone directory databases are one example of activities related to providing telecommunications services that the Commission might administer, pursuant to this new authority.

Proposed section 46.2 would allow the Commission to delegate to any person its administrative authority assigned under section 46.1. For example, this new section would allow the Commission to delegate the responsibility for administering the numbering resources to a private company, such as a management-accounting firm. Proposed section 46.4 would allow a person to whom such administrative activities were delegated to charge for the services; however, the Commission would be able, if necessary, to regulate the rates charged. Also, pursuant to proposed section 46.5, the Commission would be able to regulate how services were provided by the party to whom it had delegated one of the administrative functions contemplated in this clause.

Proposed section 46.6 would give the Commission the authority to arrange for the administration of a contribution fund, a type of fund found to be necessary with the introduction of competitive long-distance services. As long as the major telephone companies maintained a monopoly over long-distance and local services, their local rates were subsidized substantially by their revenues from long-distances services. When competitors were permitted to enter the long-distance market, however, the CRTC determined that they would have to submit a portion of their revenues to the monopoly local carriers; thus, local services continued to be subsidized by long-distance revenues during the rate rebalancing period. (Rate rebalancing is a process whereby the cost of providing local and long distance services will be more truly reflected in the rates charged for these services.) The imminent arrival of competition in the provision of local services adds another dimension to administering the contribution fund regime. Since more than one local service provider will now be able to operate in a local market, the contributions from various long-distance service providers will have to be distributed proportionately among the various local service providers. As the Commission noted in its Local Competition decision of May 1997:

The regime recommended by the Commission in its May decision was a centralized fund (administered by an independent third party which would not be a participant in or a beneficiary of the fund), from which contributions would be dispersed proportionately to local exchange carriers.⁽⁸⁾ Proposed section 46.6 would enable such a regime to be established.

New section 46.6(1) would give the Commission the authority to require any telecommunication service provider to contribute to a fund "to support continuing access by Canadians to basic telecommunications services." The objective of such a fund, as described in this subsection, would be consistent with the Canadian telecommunications policy objective set out in section 7(b) of the Telecommunications Act which is: "to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in the regions of Canada." The remaining subsections of proposed section 46.6 would enable the administration of such a fund to be carried out by an independent third party, according to any administrative requirements that the Commission might establish.

Clause 8 would introduce a new Part IV.1 to the Act that, in essence, would augment the current quality control system for telecommunications apparatus in Canada. The enhanced system would apply, according to new section 69.1, specifically to telecommunications apparatus that can be connected to the telecommunications networks of Canadian carriers and are used by telecommunications service subscribers at their premises. Examples of the apparatus to which this improved system would apply are telephone sets, fax machines, modems, and multi-line business phones.

Both the Minister and the Governor in Council would be assigned new powers to ensure that the requisite elements of this quality control system were put in place. A new section 69.3 would give the Minister powers related to certification, such as the authority to establish technical specifications for telecommunications apparatus and to issue technical acceptance certificates for equipment meeting the standards. At the same time, the new section 69.4 would give the Governor in Council the power to make the regulations necessary for governing the certification system; for example, the authority to make regulations establishing technical specifications, identifying the apparatus that required technical acceptance certificates, and setting out the procedure for obtaining a certificate.

The new section 69.2 would prohibit any person from distributing, leasing, offering for sale, selling or importing any telecommunications apparatus that had not been properly certified. This provision would parallel, but would not be identical to, a provision in the Radiocommunication Act (section 4(2)), which prohibits persons from distributing, leasing, selling, manufacturing and importing certain types of radio apparatus and equipment that do not meet the requisite technical standards.

Inspectors would be appointed to enforce this quality control system and would be provided with the authority to enter a place of business and to examine apparatus and documents (new section 69.5). These investigative powers would be similar to those assigned to inspectors under the Radiocommunication Act (section 8) and could conceivably be exercised by the same individuals.

Section 73 of the Telecommunications Act declares that by contravening certain listed sections of the Act a person commits an offence and is liable for the financial penalty attached to that particular violation. Clause 9 would add, to the existing list of offences, contraventions of certain new sections of the Act, including the section prohibiting dealing in uncertified apparatus (section 69.2).

In case the maximum penalty ($10,000 for individuals and $100,000 for corporations who contravened section 69.2) did not deter potential violators, clause 9(4) and clause 10 would provide the Minister with additional enforcement tools. Clause 9(4) would give the Federal Court the authority to grant injunctions, at the request of the Minister, to prevent persons from engaging in activities related to violating section 69.2. Clause 10 would permit the Minister, when a conviction was obtained for the contravention of section 69.2, to order that the telecommunications apparatus associated with the commission of that offence be forfeited to Her Majesty in Right of Canada. Similar forfeiture provisions are found in section 13 of the Radiocommunication Act.

Canada agreed, under the ABT, to end Teleglobe Canada’s monopoly on overseas traffic. On 1 October 1998, Teleglobe Canada will no longer be authorized to be the sole supplier of Canada-overseas facilities-based telecommunications services. Consequently, Bill C-17 proposes to repeal all those sections of the Teleglobe Canada Reorganization and Divestiture Act that would no longer be appropriate.

Clause 12, which would repeal section 5 of the Teleglobe Canada Reorganization and Divestiture Act, would respond directly to Canada’s commitment under the ABT to relax the current foreign ownership rules for Teleglobe Canada by allowing cumulative foreign investment levels to reach 46.7%.

Bill C-17 would enact the commitments made by Canada under GATS. Some additional amendments would fill gaps in the regulatory structure. The bill would enable the CRTC to authorize a commercial firm to administer the allocation of telephone numbering and other such activities. The mechanisms to check that only certified telephone equipment was connected to the Canadian networks would be updated.

Breaking the monopoly on overseas service would present the prospect of cheaper phone calls abroad and face our current monopolies, Teleglobe and Telesat, with commercial challenges that they have known about for years. Who would benefit first is hard to predict, but those communities with strong business and family links abroad, such as Vancouver has with Hong Kong, would most likely be first to find that choice lowered cost as new cable connections were made available.

Satellites do not respect national boundaries. The Canadian geostationary satellites that serve this country could equally well serve those countries to the south of us (with perhaps some antenna rotation), while the newer generations of low-orbit satellites cross borders at will. An established concern of the Canadian government has been to ensure that sufficient orbital slots have been made available to us. It is not clear how the provisions of Bill C-17 would affect the demand for Canadian satellite services and consequently orbital slots. Canadian telcos could choose an American satellite service if they so wished. On the other hand, the opportunities for television, data and internet services to be delivered by satellite in Canada are increasing and it will be much easier for Canadian satellite companies to compete in an expanding, rather than contracting, North American market.

The dilemma that Canada faces on phone pricing would be unchanged by Bill C-17. According to proposed section 46.6, the CRTC could require any telecommunications service provider to contribute to a fund that subsidized local phone service. Maintaining the current level of cross-subsidization or further rebalancing rates would still be viable, but difficult, policy choices.

Bill C-17 would maintain foreign ownership restrictions on operators with physical telecommunications facilities in Canada, but, of necessity, has had to nibble at the edges of foreign ownership policy because overseas cable operators would wish to service Canada and foreign satellites overfly Canada. If the government feels that a mixture of regulation and competition would make this part of the system work well for Canadians, it will be difficult for it to argue for other foreign ownership restrictions on some, but not all, parts of the domestic system, particularly when the foreign ownership of B.C. Tel and Quebec Tel would continue to be grandfathered under this Act. Whether this would be an international irritant is not clear. Though access by Canadian companies to telecommunications service markets abroad would be opened up, the likely extent of this is unknown.

The indirect effects of GATS could be the strongest for Canada. Opening up world telephone service markets would increase the demand for telecom and information technologies equipment. The world market for the information industry is growing twice as fast as world trade and Canada has a comparative advantage in this industry.