A Wireless Future for Canada

September 20, 2007

A Wireless Future for Canada



PIERRE KARL PÉLADEAU

President and CEO, Quebecor Inc.



Chairman: Catherine S. Swift

President, The Empire Club of Canada



Head Table Guests



Lisa A. Baiton: Vice-President Government Relations, Environics Communications Inc., and Second Vice-President, The Empire Club of Canada

Nicole Lecka: Grade 12 Student, Eastern Commerce Collegiate Institute

Grant Kerr: Associate Pastor, St. Paul’s United Church, Brampton

Glenn Garnett: Executive National Editor, Sun Media

Kin-Man Lee: Publisher and CEO, Toronto Sun

Jo-Ann McArthur: President, Jo-Ann McArthur Strategies Inc., and First Vice-President and President Elect, The Empire Club of Canada

Michael Sifton: President and CEO, Osprey Media

Douglas Bassett OC, OOnt, Chairman and President, Windward Investment

Joel Finlayson: Partner, SECOR Consulting.



Introduction by Catherine Swift:



The last few decades have seen enormous changes in so many parts of our economy, but the communications sector is one that has been among the most turbulent. Just three decades or so ago we had monopoly provision of telecommunications service in Canada, and you could have any colour of telephone you wanted, as long as it was black. As some competition was introduced in later years—still very much on a managed and tentative basis—we did see improvements in quality, variety and cost of services and equipment, as well as the introduction of such fundamental elements as wireless and the Internet. Over the last few years in particular, some of the activity we have seen in telecommunications, cable television, wireless and the Internet have been mind-boggling in the amount and the speed of change. Some of the traditional players in the industry, comfortable monopolies in years past, have faced serious difficulties. Others have merged or been taken over, and some have thrived.



It is challenging enough just to be an observer of these trends, let alone be a major player. What is clear is that it takes a certain type of person to thrive in this volatile sector, and we are lucky today to have such a person as our speaker to offer his insights into the future for this vital part of our economic infrastructure.



Pierre Karl Péladeau is the President and CEO of Quebecor World and its principal shareholder Quebecor Inc. He holds degrees in philosophy and law, and was called to the Québec bar in 1988. He is the son of the founder, Pierre Peladeau, and joined Quebecor’s management team at an early age. He became President of Quebecor Communications in 1991, and later went on to develop Quebecor Printing Europe into Europe’s largest printer. In 1998, Mr. Péladeau spearheaded the acquisition of Sun Media Corporation, making Quebecor the second-largest newspaper chain in Canada. He became President and CEO of Quebecor Inc. in 1999, and in 2000 was responsible for the acquisition of Groupe Vidéotron, the largest cable TV operator in Québec, and TVA, the largest French-language broadcaster in Canada. In 2004, Mr. Péladeau assumed his current role at Quebecor World. He also sits on the Boards of several Quebecor companies, and is active in many charitable and cultural organizations including being President of the Board of the modern dance company La La La Human Steps. In a very short time, Mr. Péladeau has assembled a truly formidable media and communications empire, and has tweaked the noses of a few other notables in the sector in the process. He is also viewed as perhaps the only industry leader who has actually made convergence work, something that others have tried unsuccessfully to achieve.

Please join me in welcoming Pierre Karl Péladeau.



PIERRE KARL PÉLADEAU:



Ladies and gentlemen, members of the Empire Club, it’s a great honour to be here where so many great Canadians in history have come to speak. I am humbled by your kind invitation. Catherine, thank you for the kind introduction.



From a podium of great history and tradition I want to talk about the future—a wireless future for Canada. I have come here today with one of the most coveted new wireless products on earth—the new iPhone. With this iPhone you can watch a film, flip on your favourite TV show, browse the Web in amazing speed, find your way home on an interactive map, and buy a song along the way. You can actually do a lot more than that and it’s really very cool. It’s a small taste of the true potential of the wireless future, but like you I have not had a chance to actually use an iPhone. It’s not available in Canada.



One million have already been sold south of the border. Americans can pay about $60 a month to use this iPhone. In Canada, this same phone will likely cost between $260 and $879 a month. In fact the National Post recently ran a story featuring a renowned expert in the field, who estimated it would cost $900 a month to use all the functions of the iPhone in Canada. Under certain conditions, you might have to take out a new mortgage to pay for your new iPhone. What about our own source of national pride—the BlackBerry? It’s a beautiful work of art and I must admit my wife and I have become crackberry addicts. It’s revolutionized my life and business in Canada. RIM has done an amazing job and the latest Pearl and 8800 series are simply magnificent. RIM is truly a symbol of Canadian genius.



Unfortunately, a lot of Canadians don’t have access to the BlackBerry. Why? Because the data plans used to service the BlackBerry have simply priced it out of the market for a great number of Canadians. The Chief Operating Officer of RIM believes that Canadian carriers could increase the number of BlackBerries they sell each week by eight or nine times if they simply lowered their prices to the levels seen in such countries as Germany, France and Spain. Eight or nine times the current sales volume! The very symbol of the Canadian wireless success is being denied to Canadians. That’s a real shame but it does tell us something very concerning about the wireless industry in Canada, and that is the focus of my address today.



Ladies and gentlemen, the wireless market in Canada is dominated by three very large players that control the market. The big three wireless players have a stranglehold on competition and your wallet. This stranglehold on competition leads not only to higher prices. It leads to fewer services and less innovation. Where Canada once led the world in wireless, we now lag behind. Just like the monopoly on the old telephone, it is in the national interest to see this stranglehold come to an end. It is inevitable and in the best interests of consumers that we open up the wireless market, and allow for new choices, new competition, and lower prices.



I am encouraged that we are moving in the right direction. The new federal Minister of Industry Jim Prentice just announced yesterday that the government will move forward with the new 3G wireless auction. For those of you not in the business, 3G is the next generation of high-speed wireless. Mr. Prentice’s announcement is a positive step in the right direction. To truly appreciate why we need more competition let us consider the full implications of keeping the status quo alive with the big three. And let us consider how restricting the wireless market in Canada is also restricting the growth of new media in Canada.



Wireless is the future. It’s the future of business, and we cannot afford to lag behind even further. Lacking proper communications standards is impairing our national capacity to compete in the global world. The measurement of this lag is straightforward: the penetration rate of wireless, the level of adoption of advanced wireless services—the 3G services—and the complexity of the plans for wireless. Whatever criteria you use, we are falling behind the United States, behind all the industrialized countries, and even behind some emerging economies. How did Canada, a country that has been known for its performance in telecommunications, fall behind?



Just as in any sector of the economy, a lack of adequate competition results in bigger profit margins, higher prices for consumers and lower-quality service. Individuals, businesses and the entire Canadian economy pay for this lack of competition in the wireless sector. For the moment, our consumers are lulled by an illusion that our wireless here costs less than in other areas, as long as it is used strictly for basic telephone service, without making too many long distance calls and by limiting the use of new services that are seen as luxuries. I don’t want to drown you in statistics, but this one illustration of the cost of wireless access to data illustrates the low level of innovation in Canadian wireless.



More competition would quickly produce fair prices for consumers to make use of third-generation telephone services. Only the emergence of new competition would force the current players to demonstrate a bit of imagination to reduce the cost of accessing data. It is fascinating to see what is happening in other industrialized countries. Not a week goes by without an announcement of new developments. Wireless is the technology of the moment. In France, U.K. and Japan, and in most countries whose policies encourage competition, an entire content industry is developing based on wireless.



Here in Canada, we are still waiting for the rules of the new spectrum auction. In the U.S., the Federal Communications Commission (the FCC) is about to roll out an auction. Not the 3G we’re waiting for, but the 4G—the Fourth Generation wireless. They are planning their second auction, all within one year, while we are still waiting for our first. There is lots of interest on the part of Google, Yahoo, equipment manufacturers, technology companies and financial groups. They want to get into this market. They asked the American officials to set rules that will allow them to provide their expertise along with a higher level of competition. The next auctions in the U.S. will be conducted with the clearly stated objective of stimulating competition.



The Americans see the urgency—urgent because they are convinced that a more competitive environment will allow the American economy to take better advantage of the development of this new technology. The participation of new players will bring massive new investments in all the sectors that are involved, as well as in the technologies themselves.



Instead, in Canada we are protecting the big three established players unchallenged by new competitors. While the debate about the “hollowing out” of the Canadian economy is ongoing, I believe that protection for domestic companies will not produce a strong enough Canadian corporate structure that would slow the recent trend of selling out to foreign companies.



In the space of one year, the Americans conducted consultations, made decisions and announced the auction rules. A new spectrum auction in the U.S. will take place on January 28, 2008. In a marketplace that is already much more competitive than ours, they are encouraging the entrance of even more new players. In Canada, we are still talking about whether our level of competition is sufficient with the big three wireless companies. A thousand and one reasons are cited to justify our lower penetration rates and our higher prices. If you listen to the big three, they would actually say they are in favour of competition and that they favour an open and free market. But Canada is not a free market; it is a highly protected market that favours the established players. The current wireless players enjoyed highly favourable start-up conditions. They had free access to spectrum and were able to focus their efforts on building their networks, their clienteles, and their profitability. The Canadian market would be considered free if it were open to foreign ownership, but I am led to believe a truly open market is simply not in the cards politically right now. Too many issues come to play.



So we find ourselves among Canadian providers, asking the federal government to set rules that best guarantee a higher level of wireless competition. The first rule has to be about access to spectrum. Having enough spectrum is a critical condition for a company to build a network to offer Third Generation services. There are 105 MHz up for auction in Canada today. And it is clear that the members of the big three wireless companies don’t need anymore spectrum to operate even with the new technology. However it’s not hard to figure out it would be in their best interest to buy all the available spectrum, in order to shut out new competitors. At any price? Probably not, but at a price that would not leave room for a new Canadian provider to prepare a credible business plan. I won’t bore you with the views of the many economic experts who confirm what common sense would dictate.



Spectrum is more valuable for a company that wants to block competition than for an operator who must invest heavily to establish that competition. Without the right conditions, no new Canadian operator is able to buy spectrum at a price set by the current players, already well established and with enough resources to maintain their oligopoly. Let me be very clear: This is in no way a proposal for favourable treatment and even less for a subsidy. We are simply asking the government to ensure that the wireless market will be stimulated by new competition.



In the long run, the Canadian economy will be well served. Consumers will stop paying to sustain the big three, they will pay less and they will have access to more advanced services. You can understand the efforts of the current operators to protect their market. Not all that long ago, the telephone monopolies came out with tons of expert opinion to demonstrate that the long-distance market should not be deregulated since the revenue financed basic local telephone service. This claim was shattered with the arrival of competition. Long-distance charges today are a fraction of what they were and, at Videotron, we are proud to say that we have slashed phone bills by 50 per cent and it was a first for consumers.



Watch how the arguments change. The champions of monopolies one day become the advocate of deregulation the next. Monopolies carry great weight and in fact they spend millions of dollars to argue their case in Ottawa. If you could only see the statistics they generate it’s mind-boggling. I should say here that we, at Quebecor, know what we are talking about. When we acquired Videotron in 2000, the company had been a monopoly since the early ’60s. On the other hand, Bell seems to be having more trouble adapting to the new environment and consequently, they lost more than 500,000 customers to its local telephony services. We are now very proud to see Videotron, after a massive cultural change, at the forefront of creative telecom companies in Canada. We provide exceptional customer service, the best technology available, and the strongest Canadian broadcasting content.



Now let’s talk about the future. I have stated clearly Quebecor’s interest in building and operating a Third Generation wireless network. As a Canadian, I want to see more advanced wireless services and lower prices. I truly want to see strong wireless competition throughout Canada. It benefits us all. We want to be a media leader throughout Canada. We want to integrate on every possible platform the creation, production and distribution of information content generated by the print media, video and music operations of our various subsidiaries. We must look at wireless as a new avenue for distributing our Canadian media coverage.



The present structure of the print media is challenged by the migration of the young generation to new distribution channels. Not responding to their need by providing the right technological channel will encourage them to choose other ways to get what they want outside Canada. How can we finance a solid news gathering machine if we can’t reach the consumers where they are? This is why 3G is essential to the survival of a strong news-gathering infrastructure in this country. More competition in wireless will be good for your business and all businesses in Canada. Like all of you, I need to have access to the most advanced services and I need customers who are encouraged by pricing to use their wireless for access to all sorts of content. Establishing competition in the wireless area is a major Canadian project, a stimulating goal for our economy and a great opportunity for all businesses, particularly those in the media sector.



The current digital revolution is leading us directly into a multimedia world, where mobile access will be an increasingly attractive option. Wireless will compete directly with satellite, cable or telephone lines. Obviously, consumer pricing in Canada will have a big impact on the potential for mobile systems to be used here, as they are in other places. The experts are all forecasting that. Mobile access will enjoy the biggest growth of all the distribution systems in the years to come. With mobile, the two most popular services are, and will continue to be, information and video.



We are witnessing a profound revolution in the way we consume information. Never has content been so valuable, since content now is everywhere, on every platform, at any time. Traditional media have to adapt. Quebecor is a key player in this universe. We are ranked among the top producers and distributors of content in Canada and therefore we find ourselves in the eye of the storm.



Take newspapers and magazines for example. We recently acquired the Osprey Publications. That makes us Canada’s largest newspaper publisher in terms of readership. The dailies in the Quebecor media universe now have a combined Canada-wide readership of more than 6.4 million every week, putting us more than 1.6 million readers ahead of the nearest competition. That acquisition brought us one step closer to the radical transformation in the way we produce information content. We are going to reinforce our print presence, as we develop a robust online presence. We will use multimedia techniques and deliver news and advertising content across multiple platforms.



Constant information, on screen at any time, is profoundly shaking up the venerable world of daily newspapers. This evening’s news is no longer news in the morning. Sports results come to us before we go to bed, and they’re repeated when we wake. Free newspapers, easy to read, are multiplying and are available almost everywhere. Every interest group today—whether it is financial, sports or social—has a Web site for news, information and entertainment. To complete the picture, we can see that 15 to 29 year olds virtually do not read newspapers anymore. Looking at all of this, many experts are announcing the death of print. But that does not take into account their capacity to evolve and adapt to the current changes. That does not take into account what is most important—the value of content, the ability of journalists and production teams to track news, process it and make it available in new formats. That includes photos or videos, enriched with commentary and new facts, which are transmitted over the Internet or to mobile devices.



This is the way print media is transforming itself. It is becoming the backbone of Web sites, then subdividing into financial information, classifieds or home renovation. The news can be used by television, by 24-hour information sites, and in free morning newspapers. Our news teams have to become multifunctional, able to use information to meet various needs. They have to adapt and we have to give them the means to do so. I quote from a recent study from Harvard University: “Like the cosmos, the Internet is expanding. There are 300 million Web sites worldwide and the number is constantly increasing, creating heightened competition for people’s time and attention.”



Yes, there are hundreds of millions of sites. Competition is fierce but being there is the only option. In this highly competitive world, there is no formula other than to invest in quality, in originality and in relevance. This is why we believe more than ever in convergence, in combining our forces for the production of content and also in the areas of sales and marketing. Print media are perhaps the most obvious examples, but the same observations apply to music, video, films and television. Their universe too is multimedia.



At Quebecor, we produce content in each of these areas and we intend to apply convergence to all, so that our content is positioned strongly in the ultra-competitive world of the Internet and the new platforms. Saul Berman, a leader at IBM, offered this assessment: “But we are in Canada, in a country where regulation and control by the state and its entities are omnipresent. We still want to regulate the relationships between producers, broadcasters and others. We want to rely on quotas and multiple rules to give ourselves the illusion of protecting our identity. "We want to maintain a tidy world where every action is predetermined, where the media have their own space and develop in isolation of other media in the new economy. “This does not mesh with reality and this is not my vision. Canada has to throw off the regulatory yoke and give the private sector the chance to be entrepreneurial. By restricting access to new media, we are condemning traditional media to mediocrity and decline.”



It is with this vision in mind that I ask the federal government to stimulate competition in the wireless world. It’s time to end the big three wireless companies from holding businesses and Canadians hostage, by putting their profit margins ahead of competition. In the same spirit of entrepreneurs who have made Canada great, I would like to contribute to the development of the uniquely Canadian wireless era. I will invest the necessary funds and I am determined to offer Canadians the very best services for the very best price. Canadians deserve better than the current protected market. Let the new low-cost competitive wireless future begin. Thank you.



The appreciation of the meeting was expressed by Jo-Ann McArthur, President, Jo-Ann McArthur Strategies Inc., and First Vice-President and President Elect, The Empire Club of Canada.