Canadian Telecom Summit 2014 June 18, 2014

Pierre Blouin Chief Executive Officer Manitoba Telecom Services Inc.

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Thank you Vello for that introduction. Good morning/Bonjour everyone!

I am happy to be opening up the final day of this year’s Telecom Summit.

This event provides an opportunity not only to see people involved in our dynamic industry, but also to discuss important issues that will impact our business for the coming years.

In the fast changing world of:

• lightning Internet speed, • billions of wireless devices, • the internet of everything like − sprinkler systems that check the weather prior to watering, − wearables tracking your biometrics − and calling 911 if needed, − or connected cars that check for available parking spots

We must get our Canadian industry model right.

So, today, I will talk to you about two topics of prime interest: competition and choice in telecom.

On Monday, we heard views from a panel on the subject, and I’d like to add some perspective that I hope will contribute to and expand the discussion.

I’ll start by saying that while there has been quite an intense discussion about telecom competition and choice in Canada over the past year, I believe we have missed an important fact.

Let me ask you a question: where do you find the most competitive telecommunication market in this country and why?

Not sure many will get the answer right.

Well, while there has been increased competition created by the new wireless entrants in some of the largest cities in the country, I may surprise you by claiming that the most active and competitive markets are somewhere else.

Indeed, in Canada, a number of smaller, regionally-focused telecommunications providers contribute to even more vigorous competition in their respective markets.

I am thinking here about MTS in Manitoba and also the likes of SaskTel, Eastlink, TBayTel, and Quebecor.

Each of these regional providers is facing the ‘Big Three’: Bell, TELUS and Rogers.

This competition is real, solid, covers many product lines and is successful.

I believe it is strongly contributing to the outcomes customers want to see – creating innovation, increased choice, and lower prices.

The press has reported on it recently asking questions about why the strategy of the big three in these regional markets is more aggressive than in larger markets, like Toronto for example.

I will put forward that this competition is a good thing! But these regional dynamics cannot be taken for granted, and I’d like to touch upon the policy and regulatory issues that, we as a country, must be attentive to if we are to continue to reap the benefits that result from them.

At MTS Allstream, we have long appreciated the benefits of competition, and I think most of you know that we have supported efforts to expand competition and choice in the industry.

Just think about Allstream!

It is successfully competing coast to coast for over 10 years with national incumbents more than 10 times its size.

It competes with innovative and often unique products and solutions and offers the best customer experience in Canada – just ask our customers!

That success translates into more business serving all government levels and nationally recognized brands like Starbucks, Scotiabank and WestJet to name a few.

In Manitoba, which is the most competitive telecommunications market in the country, MTS has achieved leading and unmatched market shares with: • over 50% share in wireless and broadband, • close to 70% share in voice • and the highest market share for an incumbent telco with IPTV at 35% where it has footprint.

MTS has competed successfully against larger national providers like Rogers, Bell, TELUS, and Shaw for years.

Why is this good?

Well, this competition has made our company better.

To compete, both MTS and Allstream have had to be:

• more innovative in their product offerings, • sharper in customer experience, • and continually invest to ensure we stay ahead of customer demand and of our larger competitors.

And we did!

Some examples of those innovations are the many firsts we had such as:

• MTS being the first telecom provider to launch TV in 2003, • the first to roll-out LTE in Manitoba, • the first in Canada to launch IPTV, • the first to put your pictures on your TV, and many more.

When we first started selling the iPhone, we were the smallest carrier in the world to do so. – not a small feat!

We were a world pioneer in testing the deployment of fibre to the home in the cold Canadian prairies in 1981. This was way before people were even talking about fibre to the home.

MTS deployed fibre deep in its network years ago, which allowed us to be a leader in television.

We have continued to deploy FTTH and are now covering 14 communities across Manitoba, giving remote northern cities like Thompson access to 150 meg of Internet speed! A service not available in many urban centers across Canada – that is indeed good! Add to that MTS being:

• the largest private employer in Manitoba, • a deeply involved community leader • and offering to our customers the most complete and flexible bundle in the country, • and you can easily see the benefits of regional competition!

Hopefully you can appreciate that while competition has been sometimes challenging for our company, it has also been good for our customers and for Manitoba.

We share the federal Government’s view that competition drives innovation, productivity and service – MTS and Allstream are prime examples of how competition translates into innovative companies and better outcomes for customers.

We may not be a national player, but I am sure that our competitors will tell you that we are a tough and sophisticated competitor.

There is significant regional competition, not only Manitoba, but in other regions as well.

So, what is needed for this type of successful competition to continue to thrive and grow?

First, there must be a predictable policy and regulatory environment.

Whatever that policy is, let’s make it clear and give the regulator the power to enforce it.

Assuming all else is equal, that policy and regulatory environment must ensure fair competition.

The challenge here is that all isn’t equal today.

While Regional carriers are more innovative, nimble and closer to their customers, they aren’t like large national providers.

The national carriers have different opportunities available to them, and as a result regional carriers face different challenges.

The Big Three have deeper pools of capital, and the national scope of their operations presents them with unique choices.

For example, they can choose to build networks if they don’t like roaming prices; they can easily offer national rate plans; and they fully enjoy the benefits that their scale brings in terms of capabilities and prices.

So the second thing that must happen for competition to take full root is that regulations must take into account and reflect these differences. It can’t be one solution fits all.

My point is that competition can take many shapes, and we need to be mindful of this as we consider the regulatory and policy frameworks which underpin the industry.

Let me explore this point further.

The objective that the Government of Canada has announced very clearly is more competition and more choice.

But the question is how best to get there?

One way that was put forward is to achieve greater choice via a fourth national wireless provider.

I am not here today to comment on whether that is the right objective or to speculate as to whether how or when that could happen.

But what am I here to talk about is that in Manitoba – we have 4 wireless carriers and we’ve had a thriving competitive market for quite some time.

Having lived it for many years, I’ll share some thoughts on how our policy framework can continue to assure that competition continues to thrive in regional markets.

The nature of the Canadian market and of the telecom business make it challenging for a small or regional provider to develop the network infrastructure and the scale to compete on a national level.

Canadian policy must consider this reality.

Our policy frameworks can be pro-competitive, but the alternatives for regional carriers can’t be “go national” or “go bankrupt.”

There can and should be a middle ground.

The regional competition is successfully delivering in many provinces the outcomes that the government and consumers are telling us they want.

So we need to ensure that our policy frameworks enable regional providers to continue to thrive, and do not disadvantage companies like MTS in our efforts to provide an alternative to the Big Three.

We are not asking for any favours. Nor do we want to prevent the arrival of new carriers.

We simply want policies to consider and not harm the true regional competition Canada has today, in the pursuit of the competition it may want tomorrow.

Look at Manitoba, the market I know best.

It is the leading model of regional competition.

In fact, although this has been reported by some media, Manitobans enjoy wireless prices that are significantly lower than for example, here in Ontario.

Saskatchewan, another market where a small regional player goes up against the national players, shows a similar trend.

In the spring, the Canadian press reported that SaskTel released data showing that the Big Three charge between $65 and $75 in Saskatchewan for national plans compared to up to $145 in other markets.1

Indeed, in provinces where committed regional providers are active, we see national incumbents offering rates that are quite lower than in the balance of the country.

So, for those of you who want affordable wireless plans with a lot of inexpensive data, I encourage you to move to Manitoba! It is a great place to live and raise families, and we would love to welcome you as a new MTS customer!

The Manitoba example proves that an innovative and well-managed regional telco can compete and win against the national providers, with consumers better off as a result.

But the ability of regional carriers to compete cannot be taken for granted, and attention is needed to ensure that this competition continues to occur.

The fact is, some aspects of the current policy approach actually disadvantages regional providers. And this puts competition at risk.

If our policy framework becomes overly focused on national-scale competition, it could fail to take into account the important role that regional providers occupy in the market.

This has significant implications for the goals of increased competition and choice for consumers.

Let me give you some examples of what I am talking about.

1 Canadian Press, April 9, 2014 - http://www.huffingtonpost.ca/2014/04/10/sasktel-wireless-pricing-competition_n_5121401.html

Take the recent 700 spectrum auction.

While we were pleased with the outcome for MTS, but because of the auction rules, that outcome was far from certain about our ability to even acquire spectrum.

Because of how the rules were constructed, the auction had the effect of favouring national bids over regional bids.

This was the case in Manitoba where despite being the leading provider in the province, our bid for a provincial block was evaluated differently than bids for Manitoba spectrum part of a larger national play.

With rules oriented towards national bids, our Manitoba only bid, even if it was the highest could have lost out.

That result would have affected service in the province, because indeed, we are the one most likely to use the spectrum across rural Manitoba – and not just in the urban areas where it is more profitable to do so.

A national carrier will pick and choose how and when to roll out services.

I can’t fault them for making these decisions, but those who set the auction rules need to appreciate that this can ultimately come at a cost to consumers and businesses.

We hope that the rules governing the upcoming auction of the 2500 megahertz will take into account these competitive implications.

Another example of the impact of nationally-focused policy relates to preferential roaming rates aimed at enabling new wireless providers to roam on incumbents’ networks.

Where that policy is deficient, is that it proposes to also be extended to national carriers that are active in regional markets.

At MTS, we are prepared to work with government on the goal of expanding competition and are willing to cap rates for new market entrants.

But we don’t believe that such exceptions should also apply to major national carriers.

The national incumbents are more than able to leverage their scale to offer wireless service in urban centres but have not made much investment on rural areas in new markets.

MTS continues to significantly invest in rural coverage in Manitoba and we think it is only fair that we be able to earn a proper return on that investment through roaming rates.

The common thread of these examples are the differences in investment patterns and market opportunities for the national and regional carriers.

We should aim to avoid a policy regime that is ‘one-size-fits-all’ as we seek to incent national-level competition.

Addressing national policy concerns should not come at the expense of the vibrant regional competition that we already have which is delivering the kind of results for consumers that we all want.

While challenging, considering the size of the Canadian market, there may be merit in drafting legislation and adjusting regulation in hopes of establishing a new paradigm of “the Big Four” rather than the Big Three, that’s for government to decide.

But if that is indeed what we want, we need to acknowledge that the search for that kind of competition tomorrow could put at risk the beneficial regional competition we have today.

This isn’t a matter of overhauling the government approach or policy goals, it is a matter of fine-tuning policies in areas like those I mentioned earlier, in particular:

• Ensuring that spectrum auction rules don’t unreasonably favour national bids over regional bids.

• Considering roaming price caps only when they support competition rather than creating dominance.

• Acknowledging the vital role of regional carriers in providing rural service, and ensuring that ongoing investment is enabled.

At the root, it is about being more mindful of the true nature of the Canadian market, and the effective competition that is occurring in many regions today. I hope I have demonstrated to you this morning that regional competition is vibrant, good for all stakeholders and good for our country and that our telecom regulations must continue to support it.

Thank you.