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TRANSCRIPT OF PROCEEDINGS FOR THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION TRANSCRIPTION DES AUDIENCES DU CONSEIL DE LA RADIODIFFUSION ET DES TÉLÉCOMMUNICATIONS CANADIENNES SUBJECT / SUJET: FINAL PHASE OF THE PUBLIC HEARING EXAMINING NEW MEDIA / ÉTAPE FINALE DE L'AUDIENCE PUBLIQUE PORTANT SUR L'EXAMEN DES NOUVEAUX MÉDIAS HELD AT: TENUE À: Conference Centre Centre des conférences Outaouais Room Salle Outaouais Place du Portage Place du Portage Phase IV Phase IV Hull, Quebec Hull (Québec) February 9, 1999 9 février 1999 Volume 13 tel: 613-521-0703 StenoTran fax: 613-521-7668 Transcripts In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents. However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing. Transcription Afin de rencontrer les exigences de la Loi sur les langues officielles, les procès-verbaux pour le Conseil seront bilingues en ce qui a trait à la page couverture, la liste des membres et du personnel du CRTC participant à l'audience publique ainsi que la table des matières. Toutefois, la publication susmentionnée est un compte rendu textuel des délibérations et, en tant que tel, est enregistrée et transcrite dans l'une ou l'autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l'audience publique. tel: 613-521-0703 StenoTran fax: 613-521-7668 Canadian Radio-television and Telecommunications Commission Conseil de la radiodiffusion et des télécommunications canadiennes Transcript / Transcription Final Phase of Public Hearing Examining New Media / Étape finale de l'audience publique portant sur l'examen des nouveaux médias BEFORE / DEVANT: David Colville Chairperson / Président Vice-Chairperson, Telecommunications / Vice-président, Télécommunications Françoise Bertrand Chairperson of the Commission / Présidente du Conseil Cindy Grauer Commissioner / Conseillère Joan Pennefather Commissioner / Conseillère David McKendry Commissioner / Conseiller ALSO PRESENT / AUSSI PRÉSENTS: Carolyn Pinsky / Commission Counsel / Karen Moore Avocates du Conseil Ted Woodhead Hearing Manager / Gérant de l'audience Daphne Fry Manager of Convergence Policy / Responsable de la politique sur la convergence Carole Bénard / Secretaries/Secrétaires Diane Santerre HELD AT: TENUE À: Conference Centre Centre des conférences Outaouais Room Salle Outaouais Place du Portage Place du Portage Phase IV Phase IV Hull, Quebec Hull (Québec) February 9, 1999 9 février 1999 Volume 13 tel: 613-521-0703 StenoTran fax: 613-521-7668 ii TABLE OF CONTENTS / TABLE DES MATIÈRES PAGE Presentation by / Présentation par: TELUS Communications 3110 Canadian Association of Broadcasters / 3142 L'Association canadienne des radiodiffuseurs Bell Canada, Island Telecom Inc., MTS 3159 Communications Inc., Maritime Tel & Tel Limited, MediaLinx Interactive Inc., NBTel, New Tel Communications Inc., Northwestel Inc., Québec-Téléphone, SaskTel Call-Net Enterprises Inc. 3177 Canadian Cable Television Association / 3193 L'Association canadienne de télévision par câble tel: 613-521-0703 StenoTran fax: 613-521-7668 3110 1 Hull, Quebec / Hull (Québec) 2 --- Upon resuming on Tuesday, February 9, 1999, 3 at 0900 / L'audience reprend le mardi 4 9 février 1999 à 0900 5 13687 THE CHAIRPERSON: Good morning, 6 ladies and gentlemen. 7 13688 We will return to our proceeding now, 8 the final comments on the issues related to new media. 9 13689 Madam Secretary, would you call the 10 next presenter, please. 11 13690 MS BÉNARD: Thank you, Mr. Chairman. 12 13691 The next presentation will be by 13 TELUS Communications. 14 PRESENTATION / PRÉSENTATION 15 13692 MR. GRIEVE: Thank you, Mr. Chairman. 16 13693 Good morning, Mr. Chairman and 17 Members of the Commission Panel. My name is 18 Willie Grieve. I am Vice-President, Regulatory Affairs 19 at BCT.TELUS Communications. With me today is 20 Mr. Mark Kolesar, Director, Regulatory Services at 21 TELUS Communications. 22 13694 We are pleased to be here today to 23 present this final argument on behalf of TELUS 24 Communications Inc. 25 13695 It is not my intention to take you StenoTran 3111 1 through a precis of our written final argument. 2 Instead, I would like to take this opportunity to touch 3 on the telecommunications issues and what seems to have 4 emerged as the broadcasting issues. 5 13696 To reverse the order, first, the 6 telecommunications issues. 7 13697 As you know, we have asked the 8 Commission to initiate a proceeding to rationalize all 9 interconnection and unbundling arrangements and to 10 include ISP interconnection in that proceeding. This 11 has not exactly been a burning issue in this 12 proceeding. 13 13698 I think everyone would agree that the 14 telecommunications issues took a back seat to the 15 broadcasting issues. Perhaps that is because all 16 parties turned their attention to the obvious impacts 17 that new media will have on the broadcasting sector. 18 But we believe the carriage issues are just as 19 important. They are important because the approach the 20 Commission takes to competition in the 21 telecommunications industry, including broadcast 22 carriers, will have a tremendous impact on the speed 23 with which new higher bandwidth local networks are 24 built and the prices consumers and businesses will be 25 asked to pay for those carriage services. StenoTran 3112 1 13699 We believe that as relative prices 2 come down and bandwidth increases, consumers will have 3 greater access to ever more desirable new media 4 services. 5 13700 In the local competition proceeding, 6 the Commission firmly adopted a facilities-based 7 competition model. In doing so, you recognized that 8 the full benefits of competition can only be realized 9 through competition in facilities as well as the 10 services offered through those facilities. Many 11 parties to that proceeding argued that the Commission 12 should order the unbundling of any telephone company 13 network elements that competitors wanted. 14 13701 The Commission rejected those 15 arguments. It rejected them because it recognized that 16 accepting them would likely shut down competition in 17 the facilities market. So, competitive local exchange 18 carriers are on notice that the Commission expects 19 facilities to be built and the Commission's policies 20 maximize the economic incentives for them to do so and 21 to compete in the facilities market -- and, of course, 22 it is already having the effect you intended. 23 13702 In that proceeding, Stentor presented 24 the CCTA witness panel with an exhibit showing fourteen 25 separate interconnection arrangements in a flow chart StenoTran 3113 1 type of configuration. I have one here. Trust me, I 2 am not going to take you through all of these. It is 3 at the back of your package there. 4 13703 Some of the interconnection 5 arrangements had already been dealt with in other 6 proceedings. The purpose of the exhibit was to take an 7 inventory of the various interconnection arrangements 8 that would have to be dealt with in the Commission's 9 decisions in that proceedings and the Commission did 10 so. But looking back at it now, two things are 11 striking. 12 13704 First, even though the Commission has 13 dealt with all of those arrangements, the rules for 14 many of them were established at different times. They 15 are now out of date because the assumption of natural 16 monopoly in the local network on which they were based 17 has been put to rest by the Commission. If the full 18 benefits of facilities-based competition are to be 19 realized, they should all now be rationalized. 20 13705 But the most striking thing about 21 looking at the exhibit is what is not there. ISPs are 22 not there and broadcast carriers are not there because 23 they were not an issue in that proceeding. But ISPs 24 were not there because when we started the proceeding, 25 and even by the time we finished it, the Internet was StenoTran 3114 1 not a factor. Well it is now. 2 13706 As we said in our opening statement 3 at the hearing, ISPs are coming up the middle, poised 4 to compete with both the broadcasters and the telephone 5 companies but claiming to be neither. But while they 6 claim to be neither, they make exactly the same 7 arguments for unbundling of anything they want from the 8 telephone and cable company networks as those made by 9 new entrants in the local exchange market. 10 13707 In their opening round comments they 11 went even further. They not only demanded "unfettered 12 access" to anything they wanted but they went so far as 13 to demand that the cable and telephone companies be 14 responsible for the provision of "appropriate and 15 timely" upgrades of those networks for their benefit. 16 Quite simply, why should they even consider investing 17 themselves if they can get a regulator to order someone 18 else to do it for them? 19 13708 One can only imagine the ISPs arguing 20 for more timely network upgrades to be performed by the 21 telcos and cablecos and sitting in a proceeding urging 22 the Commission to order that one technology be adopted 23 over another or, like the old construction program 24 reviews, questioning whether the investments were 25 prudently made. StenoTran 3115 1 13709 So here we are. The Commission and 2 the federal government have a policy that favours 3 facilities-based competition. The Commission has put 4 in place the rules necessary to deliver on that policy 5 and yet the ISPs continue to make the same demands that 6 the Commission rejected in the local competition 7 decision. 8 13710 We believe the Commission should 9 reject those arguments again. But we also recognize 10 that there may be a need for the Commission to consider 11 the same types of time-certain transition arrangements 12 for ISPs and other market participants that it put in 13 place for competitive local exchange carriers. 14 Notably, Mr. Stursberg, on behalf of the CCTA agreed 15 with this approach during the hearing in this 16 proceeding. 17 13711 In our written final argument, we 18 have addressed the types of issues we believe the 19 Commission should address in that proceeding as well as 20 who should be made a party. It will not come as a 21 surprise to you that we prefer a full telecom-style 22 proceeding including interrogatories and cross- 23 examination. 24 13712 To us, this proceeding would be the 25 quintessential convergence proceeding. It would be a StenoTran 3116 1 proceeding in which the Commission would establish 2 clear and consistent rules and principles that reach 3 across all types of mandated interconnection and 4 unbundling arrangements, and it would replace the 5 myriad of orders and decisions of the past. It would 6 establish the foundation for a fully competitive 7 communications market. 8 13713 This would not be the first time the 9 Commission recognized a need for regulatory reform and 10 acted to reconsider its past regulatory practices. For 11 example, it did so after the introduction of long 12 distance competition when it initiated a proceeding to 13 consider the regulatory framework for the telephone 14 companies. Now that the entire telecommunications 15 market has been opened to competition, we submit it is 16 time to take the initiative again by commencing a 17 proceeding to rationalize all interconnection and 18 unbundling arrangements. Use this as an opportunity to 19 put in place the incentives for facilities-based 20 competition, not only in traditional telecommunications 21 facilities and networks but in new broadband facilities 22 and networks as well. 23 13714 Now to the broadcasting issues. As 24 you know, we have recommended a proceeding here too 25 and, in our written final argument, we have described StenoTran 3117 1 the types of questions the Commission should ask the 2 parties. 3 13715 We believe that new media will 4 transform the Canadian broadcasting sector. Everything 5 we have heard in this proceeding supports our 6 conclusion that, at the very least, it will certainly 7 have an impact on the broadcasting sector. Consumers 8 will be increasingly drawn to new media because of the 9 new interactive opportunities it affords them. We are 10 already seeing evidence that consumers are substituting 11 their television time for time on the Internet, and 12 Dr. Carey, whose professional career is devoted to 13 studying these types of trends, explained that 14 consumers want new media services and they have been 15 conditioned for some time to use them and are willing 16 to pay. 17 13716 You will recall the pricing analysis 18 based on today's rates -- $20 for basic phone service, 19 $20 for basic Internet, $30 for basic cable. Add in 20 some features, long distance and a couple of tiers and 21 we are already up to $100 or more. 22 13717 We agree with most of the parties to 23 this proceeding that widespread availability of 24 broadband to the home through new media technologies 25 sufficient to deliver broadcast quality video is not StenoTran 3118 1 here now and won't likely be here for at least five 2 years and maybe ten. The outside estimate is 15 years. 3 13718 Of course we find it difficult to 4 understand that anyone would argue that it will never 5 be here, especially when consumers will demand it and 6 pay for it. And, of course, from our perspective, when 7 the telecom hearing we are asking you to initiate 8 establishes the foundation for full facilities-based 9 competition across the entire communications network, 10 you will have created the incentives for competitors to 11 seek out less and less expensive technology with more 12 and more capabilities instead of seeking out more and 13 more regulatory orders. 14 13719 So if we agree that we are five to 15 ten years away from broadcast quality video to the home 16 through new media technologies, why are we asking for a 17 proceeding? Quite simply, unlike other parties to this 18 proceeding, we don't think that this is just a question 19 of when new media technologies will deliver broadcast 20 video to the home. To us, it's not just a question of 21 technology. It's also a question of consumer 22 substitution of time, the effects on advertising 23 revenue and the need to give the broadcasting industry 24 a fair chance to adapt. 25 13720 Dr. Carey described the typical StenoTran 3119 1 responses of industries confronted with something new: 2 first denial, then panic, and then they are forced to 3 adapt and find their own niche. He also testified that 4 it typically takes ten years for an industry to adapt. 5 That's what Dr. Carey predicts here, and we have not 6 heard anything that would prompt us to discount 7 Dr. Carey's expert opinion. Also, on the basis of his 8 research, he predicts that advertising revenues will 9 follow consumers to new media, not in a slow dribble 10 but like a dam breaking. 11 13721 Interestingly, and we note this in 12 our written argument, the advertising executives 13 disagreed with Dr. Carey but at the same time filed 14 data showing that Internet advertising revenue is 15 growing at a rate of about 100 per cent a year. That 16 doesn't sound like a dribble to us. It is exponential 17 growth. 18 13722 Dr. Carey also testified that a loss 19 of 10 to 20 per cent of advertising revenue would have 20 a significant impact on what traditional broadcasters 21 produce. It will also have a significant impact on the 22 Commission's ability to pursue its section 3 objectives 23 through traditional means. 24 13723 Will there be an increase in the 25 total amount of advertising revenue available? Maybe, StenoTran 3120 1 but the advertising executives you heard didn't know. 2 They talked about advertising budgets, finding their 3 niche markets and incremental sales justifying 4 incremental dollars. But the issue there is not just 5 whether advertisers will continue to spend on 6 traditional media, it is whether they will be willing 7 to pay the same advertising rates they do today when 8 the audiences are smaller. 9 13724 When we sat back and tried to get a 10 handle on all of the data, opinions and legal 11 interpretations on the record of this proceeding, we 12 noticed that there are really three approaches to new 13 media being offered for your consideration. The first 14 is the "don't worry" approach. Don't worry, the 15 Internet and other new media will have little or no 16 effect on traditional broadcasting. Don't worry, the 17 consumers aren't there and they won't be in big enough 18 numbers to have an effect on broadcasting advertising 19 revenues, and the technology is not there and may never 20 be. Just exempt Internet service providers if you 21 think they might be broadcasting because they can't be 22 regulated and just keep doing what you are doing. If 23 something happens down the road, then look at your 24 options. There will be lots of time. 25 13725 Of course, our view is that it is StenoTran 3121 1 better to be out in front and prepared than being 2 forced to react. As Dr. Carey has said, when it 3 happens, it happens quickly. By the time you actually 4 see it, it is probably too late. 5 13726 The two other approaches before you 6 are interesting in their similarities and differences. 7 One is the regulation approach -- that is the Directors 8 Guild, among others; the other is the deregulation 9 approach -- that's us. The similarity is that both 10 proceed from the view that sometime in the future new 11 media is likely to have a direct impact on traditional 12 broadcasting, in particular, television. 13 13727 Mr. Grant for the Directors Guild 14 proceeded on the assumption that this is only a 15 technology issue, and one that won't arise for five to 16 ten years. He argued that only then will new media 17 have a direct impact on broadcasters so, until then, 18 all you need to do is exempt Internet service 19 providers. Then, when you see a significant impact on 20 television market share, regulate them by using a 21 complaint process to police service providers and by 22 requiring the carriers to collect payments for a 23 production fund from major players as a condition of 24 their tariffs. That assumes of course that the major 25 players to which he refers are not also carriers and StenoTran 3122 1 that carriers will still have regulated tariffs. 2 13728 The second proposal requires one 3 competitor to police another while the first proposal 4 requires investigation and reports by the Commission or 5 Inquiry Officers. 6 13729 The only purpose we can see to this 7 proposal is to protect and preserve the broadcasting 8 industry in its current form so that there is money 9 available to pay into a production fund. Of course, it 10 assumes that the current advertising revenues will not 11 be eroded by anyone other than service providers 12 offering identical television-like services. Not 13 surprisingly, we do not agree with this approach, nor 14 do we accept the assumptions underlying it. Even if 15 you wanted to do it, you couldn't. This approach 16 simply does not address the more fundamental issues we 17 have identified and it assumes that these service 18 providers will never be able to move away. We have 19 provided even more evidence in our written argument 20 that they can and will leave. 21 13730 But what is really interesting here 22 is where Commissioner McKendry's questioning took 23 Mr. Grant. 24 13731 The Directors Guild had suggested in 25 its written submissions that the Commission could StenoTran 3123 1 require ISPs to provide their customers with 2 information on Canadian sites on their home pages. 3 When Commissioner McKendry asked Mr. Grant about all 4 the evidence on the record of the proceeding that 5 Canadian Web sites are already available and 6 accessible, Mr. Grant agreed that, based on the 7 evidence, there is no point in the Commission requiring 8 it if it's happening anyway. 9 13732 Well, that is precisely the point. 10 The purpose of regulation is to achieve a desired 11 outcome that the market, in the absence of regulation, 12 would not achieve. The desired outcome here is the 13 section 3 objectives. There is a great deal of 14 evidence on the record of this proceeding that those 15 objectives are being met on the Internet already, 16 without content regulation. 17 13733 There is demand for Canadian content. 18 Canadian content is being produced. One party, Rogers, 19 even said it can't keep up with all the new sites and 20 it is always looking for new Canadian content to add. 21 Therefore, even if the Commission could regulate the 22 ISPs there is no need to do it to achieve the 23 objectives. 24 13734 The real issue was described by 25 Netstar quite succinctly: StenoTran 3124 1 "it isn't so much a matter down 2 the road of regulating the 3 Internet but rather making sure 4 that, by not regulating it, you 5 haven't put the regulated system 6 at a severe competitive 7 disadvantage." 8 13735 That's the point. You can't regulate 9 the Internet but it's effects will be felt by the 10 current broadcasting system. Even if you could 11 regulate it, you don't need to because the section 3 12 objectives are already being met. 13 13736 As the current broadcasters begin to 14 feel the effects of new media more directly, they will 15 need to devote more time, energy and resources to it 16 and they will have to compete for Canadian consumers. 17 They will have to acquire Canadian content. All they 18 need is a fair chance to adapt. That's why we are 19 proposing a proceeding to look at how you might remove 20 the regulatory requirements on them as they move over 21 to a market where there is no apparent requirement for 22 regulation. 23 13737 With the approach we suggest, there 24 is no danger that you will lose what you have by moving 25 too quickly. Much like the Directors Guild approach, StenoTran 3125 1 you can wait for milestones to appear, although our 2 milestones would probably be different than theirs. 3 But instead of using the milestones as a trigger to 4 regulate, you use them as a trigger to free up the 5 broadcasting industry. If the milestones don't appear 6 as expected, you have lost nothing. If they do appear 7 and you are not out in front anticipating, as you are 8 now, you will have placed the Canadian broadcasting 9 system at a severe competitive disadvantage. 10 13738 Those are all our comments this 11 morning, Mr. Chairman. Thank you. 12 13739 THE CHAIRPERSON: Thank you, 13 Mr. Grieve. 14 13740 If I take the point you made at the 15 bottom of page 10 of your presentation this morning, 16 and accept for a moment I haven't read your written 17 final argument so you may well have detailed this issue 18 a lot more in your written comment, you say: 19 "The purpose of regulation is to 20 achieve a desired outcome that 21 the market, in the absence of 22 regulation, would not achieve." 23 13741 Then, if I go back to the points you 24 were raising on page 5 respecting the telecom issues, 25 we are of course aware that there are discussions going StenoTran 3126 1 on between some, at least, of the current and/or former 2 Stentor member telephone companies -- I am not sure how 3 to characterize them any more -- 4 13742 MR. GRIEVE: Telcos. 5 13743 THE CHAIRPERSON: -- and the ISPS. 6 13744 Assuming that some sort of 7 satisfactory market-based solution is reached in the 8 context of those discussions, and that the cable issue 9 is dealt with in the proceeding that we had already 10 initiated there, would you still be calling for this 11 proceeding? If that is the case, I wonder if you might 12 just describe a little more precisely what you would 13 have in mind in that event. 14 0915 15 13745 MR. GRIEVE: Well, to the first point 16 on the negotiations, certainly there are negotiations. 17 I think it's interesting that in Alberta we don't seem 18 to have the complaints that other parts of the country 19 have from the ISPs. 20 13746 I do know that some of the decisions 21 the company has made were based on looking at previous 22 Commission orders made in other parts of the country. 23 Therefore, the outcome there is not a market outcome. 24 It's a regulatory outcome. 25 13747 I don't know what the outcome might StenoTran 3127 1 have been without a regulatory order. I think there 2 was one in New Brunswick in this particular case. The 3 fact that the Commission in one part or the country 4 orders something, it has an impact on other parts of 5 the country and on the decisions you make when you are 6 negotiating. In fact, it kind of puts a hammer over 7 your head. 8 13748 Our concern is that there is a 9 difference between when you have something that is 10 voluntarily undertaken in a negotiated setting and 11 something that is undertaken under the threat of 12 regulation or because you are afraid of it being 13 mandated. 14 13749 The distinction between us is not 15 what is tariffed and what is not tariffed. It is a 16 distinction between what is mandated and what is not 17 mandated. 18 13750 I look at this, would we still be 19 calling for the proceeding. Well, first of all the 20 proceeding is not just to deal with ISPs, as you know. 21 There are many other things there. We and the other 22 Stentor companies at the time did ask for this kind of 23 proceeding in the WSP trunk side interconnection tariff 24 proceeding. 25 13751 We added the ISPs to it in this StenoTran 3128 1 proceeding because we saw the same kinds of arguments 2 we saw from the local exchange carriers in the local 3 competition case. There is an expectation that they 4 don't have to do anything in what they call the last 5 mile, that it's up to the telcos, up to the cable 6 companies to do that, and it's up to the Commission to 7 order them to do all that, order the upgrades. 8 13752 We think that if you put the right 9 rules in place, that if you tell them "Well, this might 10 be the case now, you might be negotiating now, but five 11 years, seven years down the road we're not going to 12 mandate this stuff any more". 13 13753 Then what's going to happen? Well, 14 then you are going to put the same incentives you have 15 in place in the local market where people are going to 16 go "Gee, I have options now. I can wait five years in 17 that case. At the end of the five years I will look at 18 that and I will go boy, I haven't built anything. 19 There's not even a threat that I will build something". 20 You have a kind of a funny negotiating situation. 21 13754 I think if you put those kinds of 22 incentives into place you will see the telephone 23 companies and the cable companies reacting because the 24 economics of networks is once you build them, you want 25 to fill them up. You are not going to build them just StenoTran 3129 1 to say "Well, I'm only going to use this for my own 2 customers". They are going to look at ways to fill up 3 that network. They have to be careful with the 4 relationship between retail and wholesale prices. 5 13755 It's not like every ISP in the 6 country, like we would ever expect every ISP or every 7 collective ever to build entirely their own network. 8 In fact, we expect the telephone companies, the 9 metranets of the world, the cable companies, to be 10 buying and leasing stuff from each other as a matter of 11 course in ten years. 12 13756 It sounds like a strange thing to 13 say. It would have sounded like a real strange thing 14 ten years ago, but we kind of expected it. 15 13757 We still call for the proceeding, 16 yes, because it changes the expectations. 17 13758 THE CHAIRPERSON: Thank you very 18 much. 19 13759 Madam Secretary. 20 13760 MS BÉNARD: Thank you, Mr. Chairman. 21 13761 The next presentation will be by the 22 Society or Composers, Authors and Music Publishers of 23 Canada, la Société canadienne des auteurs, compositeurs 24 et éditeurs de musique. 25 13762 M. VALIQUETTE: Monsieur le StenoTran 3130 1 Président, Mesdames et Messieurs les Commissaires, 2 bonjour. Mon nom est Gilles Valiquette. 3 13763 Comme je l'ai mentionné lors de notre 4 dernière comparution devant vous le 1er décembre 5 dernier, je suis auteur-compositeur et président de la 6 Société canadienne des auteurs, compositeurs et 7 éditeurs de musique, mieux connue sous le nom de la 8 SOCAN. Je suis accompagné aujourd'hui du chef du 9 Contentieux de la SOCAN, mon bon ami M. Paul Spurgeon. 10 13764 Je sais que le Conseil a déjà 11 accueilli des représentants de plusieurs associations, 12 mais avant d'aller plus loin j'aimerais quand même 13 prendre quelques instants pour vous décrire brièvement 14 la nôtre. 15 13765 La SOCAN est une association 16 canadienne sans but lucratif qui représente les 17 compositeurs, les paroliers, les auteurs-compositeurs 18 et les éditeurs d'oeuvres musicales non seulement au 19 Canada mais aussi à l'échelle mondiale. Au nom de ses 20 membres canadiens actifs, qui sont aujourd'hui au 21 nombre de plus de 18 000, la SOCAN administre les 22 droits d'exécution liés aux paroles et à la musique. 23 13766 Le droit d'exécution, qui appartient 24 à la famille des droits d'auteur, est celui qui accorde 25 au propriétaire de l'oeuvre musicale le privilège StenoTran 3131 1 exclusif d'exécuter ou de diffuser son oeuvre, ou 2 d'autoriser ces actes en contrepartie d'une redevance à 3 payer. En d'autres mots -- et j'aime bien le dire, 4 Monsieur le Président -- le droit d'auteur, c'est le 5 salaire du créateur. 6 13767 En tant que créateurs de musique 7 canadienne, nous portons un vif intérêt à la Loi sur la 8 radiodiffusion ainsi qu'aux règlements du Conseil en 9 matière de contenu canadien. Puisque les oeuvres de 10 nos membres sont utilisés de plus en plus souvent sur 11 Internet, nous sommes très heureux que le Conseil ait 12 entrepris le présent examen des nouveaux médias. Nous 13 y avons d'ailleurs participé avec le plus grand intérêt 14 dès le départ. 15 13768 En plus du plaidoyer que nous sommes 16 venus faire ici même le 1er décembre dernier, nous 17 avons déposé deux mémoires relatifs à votre examen: 18 notre mémoire préliminaire du 30 septembre 1998 et 19 notre second mémoire du 2 novembre 1998. Nous ne 20 déposons pas de mémoire complémentaire aujourd'hui pour 21 la bonne raison que les deux mémoires que je viens de 22 mentionner décrivent parfaitement notre position sur 23 les nouveaux médias. Nous nous contenterons donc de 24 mettre en relief certains arguments que nous avons déjà 25 présentés en les mettant en contraste avec d'autres StenoTran 3132 1 opinions qui ont été exprimées au cours des derniers 2 mois. 3 13769 Pour commencer, je voudrais dire 4 quelques mots sur les commentaires sur la phase II qui 5 ont été déposés par l'Association canadienne des 6 fournisseurs Internet en novembre dernier. 7 13770 Dans ses commentaires l'ACFI énonçait 8 sept points qui, selon elle, représentent un accord 9 général sur les questions essentielles. Pour rendre ça 10 officiel, permettez-moi de vous dire que la SOCAN ne 11 partage pas la prétendue opinion générale que décrit 12 l'ACFI. Il n'est d'ailleurs même pas dit que les 13 opinions de l'ACFI sont entièrement partagées par la 14 totalité de ses propres membres, comme fait foi la 15 lettre couverture du 2 novembre de la présidente de 16 cette association, dans laquelle celle-ci se contentait 17 d'affirmer que les membres de l'ACFI étaient pas mal 18 d'accord avec son mémoire, whatever that means, 19 Mr. Chairman. 20 13771 L'un des points sur lesquels tout le 21 monde s'entend selon l'ACFI est que la nature 22 planétaire de l'Internet en fait un service difficile 23 sinon impossible à réglementer. Il s'agit là d'un 24 argument assez intéressant qui revient à dire que, même 25 si le Parlement et le Conseil peuvent penser qu'il y va StenoTran 3133 1 de l'intérêt national de réglementer l'Internet, eh, 2 bien, il faut oublier ça parce que c'est une chose 3 difficile ou impossible. 4 13772 Monsieur le Président, l'ACFI n'est 5 pas la seule à avoir exprimé cette opinion; d'autres 6 commentateurs l'ont reprise. Je crois qu'il est temps 7 qu'on se pose d'autres questions et qu'on pousse ce 8 raisonnement jusqu'à sa conclusion logique. 9 13773 La prétendue opinion générale dont 10 parle l'ACFI veut-elle dire, par exemple, que les 11 gouvernements ne peuvent pas taxer l'Internet? Si 12 c'était le cas, alors la loi qui vient d'être passée 13 aux États-Unis, le United States Internet Tax Freedom 14 Act, aurait reconnu en permanence que l'Internet ne 15 peut pas être taxé, mais elle s'en est bien gardée, 16 Monsieur le Président. Ce qu'a plutôt fait le 17 président Clinton, c'est d'annoncer le lancement d'un 18 projet de recherche destiné à trouver des solutions à 19 long terme aux questions fiscales soulevées par le 20 commerce électronique. Le Congrès américain, de son 21 côté, a mis sur pied le Blue Ribbon Internet Tax Panel, 22 une commission justement chargée d'étudier la même 23 question. Il est donc bien évident que les Américains 24 ne partagent pas l'avis de l'ACFI que la réglementation 25 de l'Internet est une entreprise impossible. StenoTran 3134 1 13774 Ici, au Canada, lorsque notre 2 ministre de l'Industrie, M. John Manley, a accueilli la 3 réunion de l'OCDE sur le commerce électronique 4 l'automne dernier, lui et ses collègues n'ont pas 5 conclu que l'absence de réglementation de l'Internet 6 revenait à dire que celui-ci est impossible à taxer. 7 Ce qu'ils ont plutôt fait, c'est d'établir une 8 collaboration qui fera surgir de nouvelles idées afin 9 d'adapter les instruments de politique actuelle aux 10 nouvelles réalités. Qu'on ne vienne donc pas nous 11 dire, Monsieur le Président, que l'Internet n'est pas 12 réglementable. 13 13775 Parallèlement, on cherche 14 présentement des moyens de réglementer la pornographie, 15 par exemple, les pamphlets mal intentionnés et 16 plusieurs autres formes de contenu du même genre 17 publiés sur l'Internet. Nous vous prions donc 18 instamment de continuer à réglementer les contenus qui 19 sont diffusés au public, et ce, quel que soit le moyen 20 de communication employé. 21 13776 J'aimerais conclure en vous rappelant 22 que la SOCAN ne parle pas à travers son chapeau. Ça 23 fait déjà près de 70 ans qu'elle fait face à des défis 24 technologiques à des attributions du genre de ceux 25 auxquels le Conseil est confronté aujourd'hui. StenoTran 3135 1 Qu'entendons-nous par là? Nous voulons dire que la 2 musique, comme l'Internet, est une entreprise de pointe 3 qui a toujours été sans frontières. 4 13777 Pour protéger la musique d'ici la 5 SOCAN a établi des collaborations avec les sociétés de 6 droits d'exécution du monde entier afin de mettre sur 7 pied un système de licences qui inclut de nombreux 8 éléments constitutifs: la législation canadienne, les 9 traités internationaux et un réseau d'ententes avec de 10 nombreuses organisations nationales et internationales. 11 13778 Qu'on le veuille ou non, Monsieur le 12 Président, l'Internet peut se réglementer et il sera 13 réglementé par les gouvernements à l'échelle mondiale. 14 Nous sommes donc convaincus que le Parlement et le 15 Conseil continueront de jouer un rôle important dans 16 cette démarche. 17 13779 Permettez-moi en terminant de 18 souligner un principe sous-jacent à tout ce que je 19 viens de dire: le fait que le média a évolué ne veut 20 pas dire que le Conseil doit renoncer à en réglementer 21 le contenu. 22 13780 Je vous remercie de nous avoir 23 invités à vous présenter de vive voix notre plaidoyer 24 final. J'aimerais céder maintenant le microphone au 25 chef du Contentieux de la SOCAN, M. Paul Spurgeon. StenoTran 3136 1 13781 MR. SPURGEON: Thank you, Gilles. 2 13782 Mr. Chairman, in addition to the 3 Canadian Association of Internet Providers' argument 4 that it is impossible to regulate the Internet, we have 5 also heard some argue that the Commission's Canadian 6 content rules should be abandoned. 7 13783 For example, on January 29 the 8 Financial Post published an article by a University of 9 British Columbia Professor, Mr. William Stanbury, which 10 was entitled "CRTC Should Use the Net to Kick the 11 Cancom Habit". 12 13784 Last December the Professor also 13 published a study for the Fraser Institute which was 14 entitled "Overweening ambition, Assessing the CRTC's 15 Plans to Regulate the Internet". 16 0930 17 13785 The Financial Post published an 18 article by a University of British Columbia professor, 19 a Mr. William Stanbury, which was entitled "CRTC should 20 use the Net to kick the CanCon habit". 21 13786 Last December, the professor also 22 published a study for the Fraser Institute, which was 23 entitled "Overweening Ambition: Assessing the CRTC's 24 Plans to Regulate the Internet". 25 13787 In the Financial Post, StenoTran 3137 1 Professor Stanbury argued that the Commission's new 2 media call for comments, and I quote: 3 "...appears to be the result of 4 the CRTC's own agenda and 5 discretionary power." 6 13788 With all due respect to the professor 7 and the Fraser Institute, I think they are missing the 8 point. Canadian Content rules and this inquiry are not 9 the result of the CRTC's own agenda and discretionary 10 power. Rather, they are the result of legislation that 11 has been duly enacted by Canada's elected 12 representatives. 13 13789 For example, Parliament, and not the 14 Commission, decided that each broadcasting undertaking 15 shall make maximum use of Canadian creative and other 16 resources in the creation and presentation of 17 programming. 18 13790 Contrary to the professor's views, 19 the Commission's own agenda and discretionary power are 20 not driving this review. 21 13791 In paragraph 13 of the Notice that 22 gave rise to this review, the Commission stated, and I 23 quote: 24 "In its 19 May 1995 report to 25 the Government entitled StenoTran 3138 1 Competition and Culture on 2 Canada's Information Highway: 3 Managing the Realities of 4 Transition (the Convergence 5 Report), the Commission noted, 6 among other things, that the 7 current definitions in the 8 Broadcasting Act will likely 9 capture many new and emerging 10 services, for example, on-line 11 commercial multimedia services." 12 13792 SOCAN agrees that, under the current 13 Broadcasting Act, many new media services, including 14 Internet radio undertakings, constitute broadcasting 15 services. 16 13793 As we pointed out in our preliminary 17 submission, the Broadcasting Act does not confine 18 "broadcasting" to transmission by radio waves. 19 13794 In addition, to broadly defining the 20 manner in which broadcast programs may be transmitted, 21 Parliament has not confined the term "broadcasting 22 receiving apparatus" to mean only radios and 23 televisions. The current Broadcasting Act definition 24 of "broadcasting receiving apparatus" is broad enough 25 to cover multimedia computers, or whatever new devices StenoTran 3139 1 may be invented. 2 13795 As a result of the definitions 3 Parliament enacted in the Broadcasting Act, SOCAN 4 submits that new media that include our members' 5 musical works constitute broadcasting services. 6 Therefore, they are subject to the Commission's 7 Canadian content rules. 8 13796 In sum, whether Professor Stanbury, 9 the Fraser Institute or others like Canadian content 10 rules is not relevant to this review. They do not 11 decide how the Commission should regulate traditional 12 broadcasting or the new media. Instead, these 13 decisions have been taken by successive governments and 14 are clearly expressed in a statute duly enacted by 15 Parliament -- the Broadcasting Act. 16 13797 In other words, in this new media 17 review, we believe that the Commission should focus on 18 how the current statutory framework affects certain 19 Internet activities. Whether or not this framework is 20 in the national interest is something that ultimately 21 Parliament must decide. 22 13798 I would now like to address another 23 argument you have heard during this review, which is 24 that the Internet is too new or fragile, too fragile to 25 be regulated, and therefore it must be allowed to StenoTran 3140 1 further develop without regulation. 2 13799 Again, we believe that if the 3 Broadcasting Act requires the Commission to regulate 4 certain new media activities, then the Commission 5 should take action -- now. 6 13800 If some believe that such action is 7 inappropriate, they should request that Parliament 8 amend its legislation. 9 13801 In any event, it is ironic that it 10 was one of Professor Stanbury's colleagues at the 11 University of British Columbia who debunked this 12 argument in an article that appeared in the Financial 13 Post on December 1. 14 13802 The article was written by a 15 professor of business at the same university, 16 Mr. Paul Kedrosky, and was aptly entitled "Now's the 17 time to regulate the Internet -- Claims that it's `too 18 young' are poppycock". I have copies of the article in 19 the event that the Commission didn't have the 20 opportunity to read the article and I will pass them on 21 to the Secretary. 22 13803 In that article, Professor Kedrosky 23 stressed the point that the Internet, for all its 24 newness, is just another communications medium. He 25 also suggested that it is possible to control what StenoTran 3141 1 programming most Canadians see and he provided the 2 example of giving "Made in Canada" pages special 3 prominence and search tools. 4 13804 This brings me to my last point. 5 13805 One of the reasons SOCAN is so 6 interested in this review is because we believe it 7 could affect the right of Canadians to choose to hear 8 and see the creative expressions of their fellow 9 Canadians. 10 13806 From the outset, we have argued that 11 to promote the exhibit of Canadian programming, the 12 Commission must ensure it has access to shelf space 13 that is located where Canadians can easily find it. 14 13807 SOCAN therefore believes that both 15 distribution channels and the growing numbers of 16 content aggregators must allocate some of their shelf 17 space to Canadian programming. The best way to ensure 18 this shelf space exists is to apply Canadian 19 programming exhibition requirements to new media like 20 the Internet. 21 13808 And if I could use another term from 22 retailing -- I am out in the retailing business -- 23 along with "shelf space" we could say "front rack". 24 That is an expression that the music business uses when 25 they put the recordings of certain artists in the front StenoTran 3142 1 rack of the stores. 2 13809 In the past, Canadian programming 3 rules have been an effective policy instrument and we 4 believe they have an important role to play in the 5 future. 6 13810 For example, the Commission just 7 announced a new commercial radio policy which contains 8 a renewed commitment to Canadian content. SOCAN shares 9 this commitment and we again urge you to pursue it in 10 your new media review. 11 13811 On behalf of SOCAN's members, thank 12 you again for this opportunity to express our views. 13 13812 We would be pleased to answer any 14 questions that you may have. 15 13813 Thank you. 16 13814 THE CHAIRPERSON: I don't think we 17 have any questions. 18 13815 Thank you very much. Merci beaucoup. 19 13816 Madam Secretary. 20 13817 MS BÉNARD: Thank you, Mr. Chairman, 21 the next presentation will be the Canadian Association 22 of Broadcasters, l'Association canadienne des 23 radiodiffuseurs. 24 PRESENTATION / PRÉSENTATION 25 13818 THE CHAIRPERSON: Good morning, StenoTran 3143 1 Mr. McCabe. 2 13819 MR. McCABE: Good morning, everybody. 3 13820 I am Michael McCabe, President and 4 CEO of the Canadian Association of Broadcasters. With 5 me today are Cynthia Rothwell, our Vice-President, 6 Legal Affairs; and Ken Goldstein, President of 7 Communications Management Inc. 8 13821 At the outset, let me thank the 9 Commission not only for the opportunity to appear here 10 today to present a summary of the CAB's position, but 11 also for the fact that the Commission has undertaken 12 this process. We are truly standing at the entrance of 13 a new world of media and of commerce, and the process 14 you have initiated can help us make the transition to 15 that very different future. 16 13822 In the written submission that we 17 filed with you yesterday, we stated that: 18 "...new media is an exploding 19 phenomenon that will change the 20 face of the entertainment and 21 information media as we know 22 them today." 23 13823 In fact, new media will impact on 24 conventional media in three ways: 25 13824 First, new media will increasingly StenoTran 3144 1 become a competitor for time that consumers currently 2 spend viewing, listening and reading with traditional 3 media. That is already beginning to happen today. 4 13825 Second, as the capacity of the new 5 media evolves, over time it will become a substitute 6 production and delivery mechanism for the content that 7 is currently carried by conventional media. Because of 8 bandwidth considerations, that will likely happen first 9 with radio and then with television. 10 13826 Third, new media are already changing 11 the nature of the underlying world of commerce on which 12 all media depend for advertising. Quite aside from the 13 competition from the Internet as a medium, if the 14 Internet leads to a reduction in the number of retail 15 outlets for automobiles or other products, as it may 16 well, that will have a significant impact on the way 17 that advertising is bought and sold, and on the amount 18 of advertising in traditional media. 19 13827 Of course, the difficulty in planning 20 for this transition is that all three of those impacts 21 -- the competition for consumers' attention, the future 22 delivery of content, and the changing world of commerce 23 -- will be happening at the same time. 24 13828 As most of the parties to this 25 proceeding observed, the Internet knows no geographic StenoTran 3145 1 boundaries or business boundaries. How, then, should 2 we approach the regulatory issues raised by new media 3 and the Internet? 4 13829 Again, most parties to this 5 proceeding have argued against attempts to regulate new 6 media and the Internet in the manner that has been used 7 for conventional broadcasting. The CAB agrees with 8 that consensus. 9 13830 But what of the impact on Canadian 10 radio and television broadcasters that will continue to 11 carry significant public interest obligations at a time 12 when technology will be undermining our ability to 13 continue to fulfil those obligations? 14 13831 One of the most thoughtful assessment 15 of this issue was contained in the May 1998 report of 16 the Culture, Media and Sports Committee of the United 17 Kingdom House of Commons. In its report the Committee 18 observed: 19 "The Internet will become 20 increasingly a platform for 21 audio-visual content barely 22 distinguishable from broadcast 23 content. This does not mean it 24 can be subject to regulation 25 comparable to broadcasting..." StenoTran 3146 1 13832 The U.K. report went on to say: 2 "Notwithstanding the justifiably 3 different approach to the 4 Internet and a growing emphasis 5 on control within the home, the 6 case for retaining content 7 regulation on broadcasting 8 remains, so long as this 9 continues to be feasible." 10 13833 This is essentially the same as the 11 CAB's message during the earlier phases of this 12 hearing, that at a certain point the existing 13 regulatory framework for traditional broadcasters will 14 also have to be re-evaluated. Yet, when this 15 observation was made by the CAB, critics like Friends 16 of Canadian Broadcasting were quick to claim that this 17 was somehow nothing more than a self-interested 18 argument for a reduction in regulatory obligations. 19 13834 This is an overly simplistic and 20 short-sighted criticism, for it suggests that the CAB 21 is calling for deregulation today. On the contrary, we 22 have simply recognized that, as new media develops, 23 current regulatory tools will be increasingly 24 impractical means of achieving the objectives of the 25 Broadcasting Act and new approaches will be required. StenoTran 3147 1 13835 We are saying, in two words, "be 2 prepared". To do otherwise would be irresponsible. 3 The growth in new media is occurring at a time when 4 traditional radio and television have been responding 5 to the challenges of an increasingly competitive 6 market. 7 13836 For television, the entry into the 8 market of Canadian and U.S. speciality services has 9 resulted in fragmentation of the available audience and 10 advertising revenues. There has also been a decline in 11 television viewing. 12 13837 The audience for radio has also seen 13 a decline, and radio faces fragmentation from 14 CD players, music video services, pay audio radio, 15 border radio, the growth of audio on the Internet, and 16 the imminent arrival of U.S. satellite radio services 17 aimed at listeners in cars. 18 13838 That is the context for considering 19 the impact of new media. Obviously, many of the 20 developments in new media technology and electronic 21 commerce will not happen in neat, predictable straight 22 lines. It is therefore important to set out a series 23 of possible thresholds for consideration by the 24 Commission as trigger points that will bring about a 25 re-evaluation of current broadcasting regulation. StenoTran 3148 1 13839 The CAB would like to suggest at 2 least five such trigger points and we would welcome 3 other suggestions as we develop these new measuring 4 tools for the future. 5 13840 Re-evaluation could occur as each of 6 these triggers is activated: 7 13841 First, if Internet advertising 8 revenues equal 10 per cent of total advertising in 9 traditional broadcast media in Canada and the United 10 States. Because the Internet knows no boundaries, 11 multinational corporations with operations in both 12 countries can reach Canadian consumers via Internet 13 sites in the U.S. For that reason, separate measures 14 of Canadian versus U.S. revenues may no longer be as 15 useful, and a combined approach may be more 16 appropriate. 17 13842 Second, if there was a rapid decline 18 in either television viewing or radio listening within 19 a defined period; for example, a decline of one hour 20 per week in a three-year period. 21 13843 Third, if there is further evidence 22 of the breakdown of the exclusive Canadian rights 23 market. That might be determined if there is evidence 24 that Canadian broadcasters are unable to acquire 25 Canadian rights to one or two of the top 30 U.S. StenoTran 3149 1 programs or to a popular recent theatrical release. 2 13844 Fourth, once there is 5 per cent 3 penetration of high speed access in all Canadian 4 households. As indicated in the study by 5 Communications Management Inc. and the MultiMediator 6 Strategy Group, which was part of the CAB's first phase 7 submission, the 5 per cent level has historically been 8 a threshold for rapid growth for a number of new 9 technologies including colour television, VCRs and CD 10 players. 11 13845 And fifth, if there is a widespread 12 availability in new media of U.S. broadcast or cable 13 services that are not on the eligible satellite list. 14 13846 As we have stated, this list is not 15 exhaustive. As noted in the CMI/MMSG report for the 16 CAB, a Statistics Canada survey in October 1997 found 17 that 40 per cent of Canadians in on-line households 18 were spending 20 or more hours per month on line. The 19 second survey on this subject by StatsCan was conducted 20 in the fall of 1998, but the results have not yet been 21 released. 22 13847 If surveys of this type come to be 23 scheduled on a regular basis, then data from such 24 surveys might also become one of the possible trigger 25 points for regulatory re-evaluation -- perhaps a StenoTran 3150 1 trigger set at the point when the time spent on the 2 Internet reaches some proportion of the time spent with 3 radio or television. 4 13848 We know that young people -- the next 5 generation of viewers and listeners -- see the 6 Internet, in its current form, as a medium of 7 entertainment as well as a medium of information. In 8 fact, many young people have already created their own 9 form of convergence: they are surfing the net on a PC 10 and watching television on a TV at the same time. 11 13849 We know that many parties to this 12 proceeding have placed on the record information that 13 indicates that the Internet is already impacting the 14 time people spend with conventional media. 15 13850 And we know that the number of 16 Canadian households connected to the Internet is likely 17 to grow from 2.5 million in 1998 to 5 million in 2001. 18 13851 We believe that the trigger points 19 outlined above represent a realistic starting point for 20 developing a new set of tools to measuring the impact 21 of the rapidly-evolving new media. 22 13852 What, then, should we do about new 23 media: in the short term, before the thresholds listed 24 above reach the trigger points; and, in the longer 25 term, if and when those trigger points are reached? StenoTran 3151 1 13853 We believe, as did many other parties 2 in this process, that what the CAB calls an incentive- 3 based public policy framework to encourage Canadian 4 firms to invest in new media is the best response to 5 the emergence of new media. 6 13854 In light of the well-documented 7 growth in new media, we believe it is essential that 8 Canada establish a strong and lasting presence in the 9 new media. 10 13855 The CAB's view that traditional 11 content regulation is impractical with respect to new 12 media does not mean that we believe there is no role 13 for public policy in ensuring the development of a 14 strong Canadian new media content and distribution 15 sector. However, if we are to ensure a continued 16 Canadian presence, we must create an environment that 17 encourages investment and innovation. 18 13856 Currently, American media powerhouses 19 are investing large amounts of money to determine how 20 to take advantage of this new medium. For Canada's 21 media players to remain competitive, the Commission 22 must take a proactive yet practical approach to the 23 change the industry is undergoing. 24 13857 To enable the new media sector to 25 grow and develop, the CAB has urged the implementation StenoTran 3152 1 of an incentive-based public policy framework outside 2 of the scope of traditional content regulation. 3 Incentive-based proposals have received wide support 4 from other parties to this proceeding and will 5 encourage risk-taking and economic investment in this 6 emerging industry. 7 13858 This plan would provide public 8 funding and tax credits for both Canadian new media 9 content and the research and development of technology 10 to be used in this area. The CAB also advocates 11 industry self-regulation to deal with offensive content 12 on the Internet. 13 13859 While the CAB's proposals for broad 14 public policy framework do not include CRTC regulation, 15 the Commission can take a leadership role by offering 16 insight and recommendations in its report into what 17 actions other areas of government should pursue. 18 13860 Canada already has a strong presence 19 in new media, and it may be true that Canadian sites 20 comprised of text and graphics will continue to 21 proliferate on the Internet. 22 13861 This larger concern, however, and the 23 one with the most important ramifications for Canadian 24 culture, is the development of high-end new media 25 content and the sophisticated technology needed to StenoTran 3153 1 deliver it. As in traditional broadcasting, 2 distinctively Canadian new media content with high 3 production values that can compete with the new media 4 content of multinational media giants is, and will 5 continue to be, expensive to produce. 6 13862 Many different proposals have been 7 put forth to increase the amount of Canadian content on 8 the Internet. Aside from the practical issues of the 9 extent to which the Commission can regulate new media, 10 the CAB questions the underlying assumption of 11 proposals that focus only on the amount of Canadian 12 content on the Internet, regardless of its quality. 13 13863 On the contrary, it is the CAB's 14 position that it is more important to focus our public 15 policy efforts on generating high quality new media 16 content. 17 13864 The basis for this argument is 18 twofold: first, as the Internet will eventually 19 provide users with an unlimited amount of entertainment 20 options from all over the world, it is essential to 21 have a product that can attract Canadian audiences; 22 and, second, high quality content with universal appeal 23 can be marketed not only in Canada but abroad, turning 24 Canadian content into a money-making not money-losing 25 proposition. StenoTran 3154 1 13865 At the hearing, several parties 2 stressed the importance of developing and producing 3 internationally competitive Canadian new media content. 4 In particular, Telefilm noted the following: 5 "...it is important when 6 developing public policies for 7 new media that we develop them 8 in the context of this global 9 marketplace which we believe can 10 contain distinctively Canadian 11 new media content but which is 12 also universally appealing and 13 viable." 14 13866 Given the right public policy 15 framework, broadcasters are well-positioned to produce 16 this material, just as they have repeatedly 17 demonstrated their ability to engage the public while 18 contributing to policy goals. Their established brands 19 and programming expertise put them in a position to be 20 the leaders in the new media. 21 0950 22 13867 There was general consensus amongst 23 interveners that new media content is not yet 24 profitable. Industry players are being encouraged to 25 invest now for an uncertain future. StenoTran 3155 1 13868 All parties agree that involvement in 2 new media is crucial if Canada is to remain competitive 3 and maintain a real presence in a globalized 4 entertainment industry. As a result, Canada's policy 5 on new media must create incentives that foster growth 6 and development, not impede it. 7 13869 As the CAB identified in its Phase II 8 submission, new media represents a marriage of 9 technology and content. Traditional media use 10 essentially standardized technologies. In contrast, 11 advances in technology are constantly causing the new 12 media environment to change and evolve. 13 13870 As a result, it is the CAB's position 14 that any government assistance should not only 15 encourage the development of distinctively Canadian new 16 media content, but technological innovation as well. 17 13871 Content, though, should be a 18 priority. As it becomes less possible to restrict 19 access to entertainment choices from outside our 20 borders, the production of high quality, competitive 21 Canadian content is more important than ever. Canadian 22 content must be able to hold its own in an increasingly 23 flooded marketplace. 24 13872 Government can use a variety of 25 incentives to spur new media growth. The CAB has StenoTran 3156 1 modeled its suggestions on effective government support 2 mechanisms already in existence. These include: 3 13873 Production tax credits, both federal 4 and provincial, to bolster the production of Canadian 5 new media content and encourage Canadian firms to 6 develop novel new media technologies. The idea of a 7 tax credit system for new system received widespread 8 support from broadcasters, specialty services, the 9 newspaper industry and multimedia groups such as IMAT. 10 13874 Research and development tax credits 11 to encourage technical experimentation or development, 12 projects for which the underlying rights are owned by 13 Canadians, would qualify for additional R&D credits. 14 13875 Advertising tax deductibility to 15 permit Canadian advertisers to deduct spending on 16 Internet advertising on when that advertising is placed 17 on a Canadian site, through amendments to section 19 of 18 the Income Tax Act. Several interveners, including 19 specialty services and newspapers, supported this 20 proposal. 21 13876 Job creation programs to train and 22 employ workers in this vibrant new industry and to 23 prevent a Canadian brain-drain. It is the CAB's 24 position that new media projects that will create jobs 25 could receive Job Creation Program Funds, either StenoTran 3157 1 through loans or grants. 2 13877 This will not only reduce 3 unemployment, but will help train people for jobs in a 4 sector of increasing importance. Centres of excellence 5 like Sheridan College and Ryerson should also be 6 encouraged to participate directly in projects, 7 creating valuable work experience for their students. 8 13878 Loan and equity investment programs 9 for new media content to ensure that cultural policy 10 objectives are met. As with traditional broadcast 11 media, high-end multimedia content is expensive to 12 produce. At the same time, the availability or a 13 multitude of American entertainment options makes it 14 essential that this content be competitive. 15 13879 The CAB has suggested a $25 million 16 annual equity fund be established to support the 17 creation of high-end indigenous Canadian new media 18 content. It is the CAB's position that all industry 19 players should have access to this fund, including new 20 media companies, broadcasters, cable companies, 21 newspapers, telephone companies and ISPs. 22 13880 These funds should not be used to 23 artificially support one sector of an industry only, 24 nor should access to such funds byu licensed 25 broadcasters be tied to any additional regulatory StenoTran 3158 1 obligations. 2 13881 If some new media participants have a 3 strengthened opportunity in new media because of their 4 achievements in other business areas, these 5 participants must be encouraged to realize those 6 opportunities, not deterred by the imposition of new 7 obligations. If Canada does not build on any natural 8 advantages it may have in new media, it will find 9 itself without a meaningful new media presence. 10 13882 Incentives should be available to all 11 projects that meet the cultural criteria. Any proposal 12 to limit access by qualified persons to new media 13 public policy incentives will undermine our broader 14 national goal to achieve a strong Canadian new media 15 presence. 16 13883 And that, after all, is what this 17 process should be about: a strong place for Canada in 18 new media; a policy framework that builds on our 19 strengths; and a forward-looking approach to changing 20 regulatory models at a time of transition unprecedented 21 in the history of the media. 22 13884 Thank you again for the opportunity 23 to participate in this proceeding. We would be pleased 24 to answer any questions you may have. 25 13885 THE CHAIRPERSON: Thank you very StenoTran 3159 1 much, Mr. McCabe. I don't think we have any questions. 2 13886 Thank you. 3 13887 MR. McCABE: Thank you very much. 4 13888 THE CHAIRPERSON: We will hear one 5 more group and then we will take our morning break and 6 then hear from the last two. 7 13889 Madam Secretary. 8 13890 MS BÉNARD: Thank you, Mr. Chairman. 9 13891 The next presentation will be by Bell 10 Canada, Island Telecom Inc., MTS Communications Inc., 11 Maritime Tel & Tel Limited, MediaLinx Interactive Inc., 12 NBTel, New Tel Communications Inc., Northwestel Inc., 13 Québec-Téléphone, SaskTel. 14 PRESENTATION / PRÉSENTATION 15 13892 MR. CHAPMAN: Good morning, Mr. 16 Chairman, Commissioners. 17 13893 I guess I will shorten our speech by 18 a couple of minutes. I won't repeat the companies' 19 names. We will just head into our presentation. 20 13894 Me COURTOIS: Merci. 21 13895 L'information présentée durant les 22 trois premières phases de la présente instance a permis 23 d'évaluer la condition actuelle et future de 24 l'industrie des services de nouveaux médias canadiens 25 et d'Internet. Il en ressort un portrait optimiste de StenoTran 3160 1 cette industrie et un avenir prometteur pour le Canada, 2 tant du point de vue économique que culturel. 3 13896 Le nombre de ménages canadiens 4 raccordés à Internet continue d'augmenter à une vitesse 5 impressionnante. Les projections pour 2001 montrent 6 que 40 pour cent des ménages utiliseront Internet, soit 7 le double par rapport à 1998. L'augmentation soutenue 8 du nombre d'utilisateurs devrait se poursuivre en 9 fonction des baisses de prix des PC et de la 10 performance accrue des services d'accès à haute vitesse 11 à Internet grâce aux modems câbles ou à la technologie 12 LNPA. 13 13897 Les fournisseurs de services de 14 nouveaux médias répondent à cette vague d'utilisateurs 15 canadiens en leur offrant le contenu canadien qu'ils 16 demandent. Ils ont des bons motifs commerciaux de le 17 faire. En effet, on vous a dit que le nombre total de 18 sites Web canadiens est évalué à environ 5 pour cent de 19 tous les sites Web au monde, bien au-delà de notre 20 proportion démographique, même parmi les pays 21 développés. C'est là une preuve convaincante du rôle 22 de leadership du Canada dans le développement 23 d'Internet et de sa forte présence dans ce secteur. 24 13898 Durant l'audience publique, de 25 nombreux témoins, dont les nôtres, ont expliqué que StenoTran 3161 1 leurs plans d'affaires reposaient sur la fourniture 2 d'un contenu canadien aux utilisateurs Internet 3 canadiens. Ils sont convaincus que leurs clients 4 préfèrent nettement le contenu canadien. Leur but est 5 de satisfaire cette demande, y compris pour ceux qui 6 exercent leurs activités à partir de plates-formes 7 élaborées aux États-Unis. 8 13899 Durant la présente instance, de 9 nombreuses parties ont souligné l'importance d'adopter 10 un cadre politique approprié pour assurer la croissance 11 du secteur des nouveaux médias et pour que le Canada 12 tire parti de nos activités et de nos avantages 13 concurrentiels. Le Conseil est dans une position 14 unique pour éliminer l'incertitude réglementaire 15 actuelle à l'égard des services de nouveaux médias. 16 13900 Vu la variété et l'importance des 17 questions sur les nouveaux médias posées par le 18 Conseil, et la diversité des répondants, on pouvait 19 s'attendre ou on aurait pu s'attendre à des opinions 20 bien polarisées. Toutefois, il est intéressant de voir 21 que la présente instance a recueilli un large consensus 22 pragmatique sur la nécessité d'éviter un excès de 23 réglementation pour réaliser ces promesses de 24 croissance économique et culturelle. 25 13901 MR. CHAPMAN: In the Public Notice, StenoTran 3162 1 the Commission asked parties to address the impact that 2 new media might have on existing broadcasting services. 3 In that vein, at the public hearing the Commission 4 asked many parties to estimate when broadcast-quality 5 video would be available over the Internet. 6 13902 State-of-the-art Internet video 7 remains primitive and unreliable. The viewing 8 experience is limited to a credit card sized window 9 featuring pictures of very low resolution. This is the 10 reality even for users of high-speed access services. 11 Most parties to this proceeding have acknowledged that 12 no competitive substitute to tradition, 13 point-to-multipoint, broadcast-quality video 14 programming yet exists. 15 13903 The question remains: if not now, 16 when? Many parties believe that the deployment of 17 broadcast-quality video as a characteristic of the 18 Internet will happen later than sooner, with estimates 19 ranging from five to ten years and beyond. As the 20 benchmark for broadcast-quality video evolves towards 21 high definition TV, even more bandwidth will be needed 22 on the Internet to duplicate a TV viewing experience. 23 This pushes the timeframe out further still. 24 13904 The companies conclude that this will 25 not materialize for many years. Even then, the content StenoTran 3163 1 in question is unlikely to be directly substitutable in 2 any truly competitive sense since end-users are not 3 looking for broadcasting-type experiences on the 4 Internet. 5 13905 A central issue to this proceeding is 6 one of jurisdiction. Does the Broadcasting Act confer 7 on the Commission regulatory authority over new media 8 services? If the answer is yes, then a secondary 9 question arises as to how best for the Commission to 10 exercise its supervisory authority. 11 13906 Our view, and the view of many 12 others, is that most if not all new media services do 13 not constitute broadcasting within the meaning of the 14 Act. There are a number of reasons for this. 15 13907 First, new media services do not 16 involve the transmission of programs. Most current new 17 media services consist predominantly of alphanumeric 18 text and are, therefore, not programs within the 19 meaning of the Broadcasting Act. 20 13908 Accordingly, they fall outside of the 21 Commission's regulatory jurisdiction. Even if content 22 is not predominantly alphanumeric, it must still be 23 presented in a linear or otherwise coherent way in 24 order to be considered a program within the meaning of 25 the Act. StenoTran 3164 1 13909 Second, the definition of 2 broadcasting requires that any programs transmitted 3 must be for reception by the public. However, a 4 service cannot be intended for reception by the public 5 when members of the public accessing such a service 6 view different images, hear different sounds and read 7 different text. 8 13910 An interactive experience falls 9 outside the definition of broadcasting. Almost any 10 interactivity that affords a user control over content 11 is sufficient to render the content customized and, 12 therefore, outside the purview of the Act. 13 13911 Third, the definition of broadcasting 14 requires that programs be received by means of 15 broadcasting receiving apparatus. In this regard, the 16 intent of the 1991 Act was to capture only programs 17 received by devices designed to receive traditional, 18 mass media-oriented broadcasting. The Act was not 19 intended to capture personal computers or even Web TV 20 boxes when used to access the Internet. 21 13912 In addition to the definitional 22 issue, Internet service providers, or ISPs, can not be 23 considered broadcasting distribution undertakings, 24 BDUs. 25 13913 When an ISP provides network StenoTran 3165 1 connectivity, it does only that, provide connectivity. 2 Virtually all of the traffic on the Internet is the 3 result of private communications and transactional 4 activities that do not involve the transmission of 5 programs for reception by the public. 6 13914 Further, even where programs may be 7 transmitted, it is only when an undertaking engages in 8 true gatekeeping activity, such as setting the roster 9 of TV channels which users can select, that it should 10 be considered a distribution undertaking. Therefore, 11 since this is not the role of an ISP, it does not 12 require licensing or exempting. 13 13915 If, despite this, the Commission 14 still finds some new media services to be broadcasting, 15 then such services should be exempted from a licensing 16 requirement. The new media services industry is an 17 emerging and highly competitive one that holds great 18 economic and cultural promise for Canadians. 19 13916 Current indications are that the 20 broad objectives of the Broadcasting Act are already 21 being met without government intervention. The 22 imposition of a licensing requirement would have a 23 negative effect on the industry's development and would 24 seem to be at odds with other government policies, such 25 as Industry Canada's enabling approach to electronic StenoTran 3166 1 commerce. Indeed, a licensing requirement would tend 2 to disadvantage Canadian sites in competition with 3 unlicensed international rivals. 4 13917 The Commission should properly find 5 that broadcasting does not include the transmission of 6 multimedia content online, available on demand or 7 non-simultaneously, whether or not the content consists 8 predominantly of audio/visual elements. 9 13918 Accordingly, to the extent that this 10 interpretation is adopted, no exemption order is 11 required for the vast majority of new media services. 12 13919 Those few services that would remain 13 as potentially being captured by the Broadcasting Act 14 could be subject to a general exemption order and could 15 be defined as follows: the simultaneous transmission 16 online to the public of non-interactive multimedia 17 content, over which users have minimal or no control 18 beyond channel/site selection, where such services are 19 akin to conventional radio and television broadcasting. 20 13920 The exemption order should be general 21 and unconditional and should exempt undertakings that 22 engage in the activities defined above. An 23 unconditional exemption is required, not only because 24 the imposition of substantive conditions will have some 25 of the same chilling effect on the development of StenoTran 3167 1 Canadian new media services as would licensing, but 2 also because it is difficult to envisage useful and 3 viable conditions of exemption. 4 13921 MR. COURTOIS: Turning to 5 telecommunications issues, some parties have argued 6 that the Commission should implement regulatory 7 measures pursuant to the Telecommunications Act to 8 achieve Canadian cultural policy objectives. The 9 companies disagree with both the policy and 10 jurisdictional aspects of these suggestions. 11 13922 By far the most critical issue is 12 whether online distributors of new media content should 13 be required to contribute to the production of Canadian 14 new media products and services. A large majority of 15 the parties expressed the view that a content 16 development tax on ISPs is not required because there 17 is no shortage of Canadian new media content. 18 13923 As well, such a tax would send the 19 wrong signal. In contrast to the supportive efforts of 20 other countries, Canada would be viewed in a bad light 21 as a hostile environment for the Internet. 22 13924 In any event, the Internet is 23 primarily a telecommunications vehicle used for 24 applications such as e-mail and business-to-business 25 electronic commerce. There is little, if anything, StenoTran 3168 1 here that involves the type of cultural content that 2 warrants a tax-financed support mechanism. 3 13925 The vast majority of ISPs are not 4 subject to the Broadcasting Act or the 5 Telecommunications Act. Consequently, the Commission 6 would have no authority to impose a content development 7 tax on these ISPs. 8 13926 For those relatively few ISPs that 9 own and operate transmission facilities and are 10 Canadian carriers subject to the Telecommunications 11 Act, there is no authority to mandate financial 12 contributions to the funding of Canadian content. 13 13927 The regulatory jurisdiction for 14 promoting Canadian content is in the Broadcasting Act. 15 The Telecommunications Act does not encompass mandating 16 financial support of content to achieve cultural 17 objectives. 18 13928 There has been broad agreement among 19 interested parties regarding the desire for Canadian 20 new media content to be highly visible and readily 21 accessible on the Internet. This naturally prompts the 22 question as to the best way to see this happen. 23 13929 A small number of parties argued for 24 an approach that would impose traditional 25 broadcasting-style regulatory obligations to ensure a StenoTran 3169 1 prominence or predominance of both Canadian content and 2 Canadian links. However, the companies, and indeed the 3 majority of interveners from a variety of industry 4 sectors, maintain that such a regulatory initiative is 5 unnecessary over and above the fact that it would be 6 infeasible and outside the Commission's jurisdiction. 7 13930 Three conclusions regarding the 8 Internet are indisputable. First, there is a great 9 deal of Canadian content already on the Internet. 10 Second, this content is being prominently featured by 11 major Canadian ISPs and portals as their business 12 raison d'étre. 13 13931 Third, content has been created by 14 Canadian entrepreneurs absent any regulatory 15 requirement to do so. Consequently, there is no public 16 policy rationale for prominence regulations to be 17 imposed on the Internet. 18 13932 Other telecommunications issues have 19 also surfaced. Some of these are service issues. We 20 spoke to these during our appearance before you at the 21 public hearing in November. They are further addressed 22 in our written final argument and we will not repeat 23 our positions here. 24 13933 However, it must be emphasized that 25 the local telecommunications market, as well as the StenoTran 3170 1 rest of the telecommunications market, is open to 2 competition and ISPs in major centres have a choice of 3 suppliers. Telephone companies are strongly motivated 4 to provide excellent service to ISPs or risk losing 5 their business. 6 13934 As another issue, some large, 7 foreign-owned or controlled ISPs have requested during 8 the proceeding that Canada's telecommunications foreign 9 ownership rules be changed. They did not call for the 10 elimination of these rules, but rather for an amendment 11 that would allow them, on an exceptional basis, to own 12 and operate transmission facilities in Canada. 13 13935 However, no justification was 14 provided as to why they should be given special 15 treatment relative to other service providers facing 16 the same restrictions. There is nothing in the record 17 of this proceeding that would support the Commission's 18 recommending to government that the telecommunications 19 foreign ownership rules be amended in this way. 20 13936 These ISPs have also requested that 21 the Commission amend its rules for local competition 22 and grant ISPs the rights that have ben extended to 23 competitive local exchange carriers, CLECs. However, 24 they did not offer to assume the responsibilities that 25 the Commission has imposed on CLECs. StenoTran 3171 1 13937 Indeed, implicit in their testimony 2 is the proposal that they not be bound by these 3 responsibilities. Moreover, these ISPs did not address 4 why they alone of all non-facilities-based service 5 providers should be granted such rights. Therefore, 6 this request should be rejected. 7 13938 Some ISPs have also complained about 8 arrangements to provide access and in particular, 9 high-speed access, to the Internet. We note that cable 10 companies are the dominant providers of high-speed 11 Internet to the residential market. However, despite 12 years of effort and Commission directions, ISPs have 13 still not been able to obtain access to cable networks. 14 By contrast, ISPs can use telephone networks in a 15 variety of ways. 16 13939 Nonetheless, these ISPs seem to be 17 focusing their complaints on the telephone companies 18 and have sought regulatory intervention against 19 telephone companies. We note that there is a Part VII 20 application, filed by some ISPs regarding Bell Canada, 21 pending in front of the Commission. We will not 22 comment in this forum on the regulatory issues raised 23 in the application as they are being dealt with in that 24 proceeding. 25 13940 In terms of the business issues, we StenoTran 3172 1 have expended considerable effort to address the cost 2 and technology challenges of high-speed access to the 3 Internet on telephone networks. In the case of the 4 one-Mb modem high speed service, not only have great 5 strides been made in respect of the modem at the 6 customer end, but Bell can also advise that pursuant to 7 field trials currently underway, a significant 8 technology breakthrough on the network side has been 9 achieved. 10 1015 11 13941 We have had discussions with ISPs, 12 and they have indicated that there are still a number 13 of issues to address in making high-speed access 14 profitable, even with these breakthroughs. We are 15 taking their comments and suggestions into account and 16 will be diligently working on what we can do with the 17 capabilities of our various affiliates and businesses 18 to help tackle these problems within the art of the 19 possible. 20 13942 Now, on a different topic, a number 21 of parties commented on regulation of the Internet 22 regarding issues such as illegal content and copyright. 23 I think here another consensus has emerged that it is 24 not a question of whether you have zero regulation or 25 broadcast type regulation; the Internet is not immune StenoTran 3173 1 to legal remedies even despite the fact that it is a 2 new and unique technology. 3 13943 Like most parties, we submit that 4 existing Canadian laws remain capable of dealing with 5 criminal conduct on the Internet and that existing 6 criminal legislation remains the best avenue to deal 7 with matters such as hate-based material and child 8 pornography. As far as copyright is concerned, there 9 may be a need to adapt current legislation or 10 international treaties, but the record of this 11 proceeding is not developed enough to resolve these 12 matters. 13 13944 The companies have read and listened 14 to the comments of hundreds of interested parties, and 15 we find that what is most striking is the large number 16 of individual and cross-country voices articulating a 17 similar perception of the Canadian new media industry 18 upon which to base a common vision for its future. 19 That perception is of a young and dynamic industry 20 encouraged by early success yet aware of the challenges 21 that lie ahead. 22 13945 A number of parties have expressed 23 the need for elimination of regulatory uncertainty. 24 The Commission has an important contribution to make in 25 determining the status of new media services with StenoTran 3174 1 respect to the definition of "broadcasting". 2 Confirming that the Internet and the vast majority of 3 new media services are not captured by the relevant 4 definitions of the Broadcasting Act, and exempting 5 unconditionally the few remaining services that might 6 not be so excluded, would be a positive and 7 constructive step that the Commission could take in 8 support of this industry sector. 9 13946 A second key issue focuses on what 10 policy framework would best serve the needs of the new 11 media services industry. Most parties share the 12 conviction that the strong forces behind the early 13 success of the industry should be what we count on to 14 drive growth opportunities. There was concern that the 15 imposition of a broadcasting style regulatory 16 framework, even if possible, would only frustrate 17 industry players and constrain their abilities and 18 inclination to build upon the success that they have 19 already realized. The companies join this majority in 20 urging the adoption of a public policy approach that 21 relies upon encouragement and promotion rather than 22 attempting to control what is offered on the Internet. 23 13947 Driven by consumer demand, Canadian 24 new media content is featured prominently on Canadian 25 Web sites. The Commission can contribute its own StenoTran 3175 1 acknowledgement that such prominence is a reality and 2 that there is no need, and indeed no practical means, 3 to regulate this result into existence. It is already 4 happening on its own. 5 13948 The consensus of interested parties 6 is that broadcast quality video will not be a 7 characteristic of the Internet for years to come. The 8 companies agree. This cross-industry consensus should 9 allay concern the Commission may have regarding the 10 threat of substitutability that such Internet-based 11 video might pose to the traditional broadcasting 12 industry. There should be no motivation to regulate 13 the Internet in response to such an unlikely threat. 14 13949 In the future, should the Commission 15 see a need to revisit this question based on its 16 monitoring of developments in the new media services 17 marketplace, then it is, of course, free to do so. At 18 that time, a new and different broadcast regulatory 19 framework may be called for in light of those 20 developments. 21 13950 Il est aussi généralement convenu 22 qu'un autre enjeu clé, bien qu'il échappe à la 23 compétence du Conseil, profiterait d'une recommandation 24 appropriée du Conseil auprès du gouvernement. La taxe 25 sur l'élaboration de contenu imposée aux fournisseurs StenoTran 3176 1 de services Internet est en effet perçue par la plupart 2 des parties, dont nos compagnies, comme une mesure 3 négative propre à décourager les investissements, la 4 création d'emplois et l'expansion d'Internet. Elle 5 ferait du Canada un environnement commercial hostile et 6 contraire à l'orientation de la politique de ses 7 principaux partenaires commerciaux. Par conséquent, 8 nous invitons le Conseil à appuyer l'orientation de la 9 politique opposée à toute nouvelle taxe Internet, 10 récemment annoncée par M. Manley, le ministre de 11 l'Industrie. 12 13951 En conclusion, l'accord assez 13 généralisé sur les enjeux clés de la présente instance 14 dans l'industrie devrait inciter le Conseil à élaborer 15 des réponses définitives aux questions posées dans 16 l'avis public relatif aux nouveaux médias. Le Conseil 17 est bien placé pour contribuer de façon positive à la 18 santé à long terme de l'industrie des nouveaux médias, 19 dans l'intérêt de tous les Canadiens. 20 13952 Merci. 21 13953 LE PRÉSIDENT: Merci, Monsieur 22 Courtois and Mr. Chapman. I don't think we have any 23 questions. Thank you very much. 24 13954 We will take our morning break at 25 this point and reconvene at twenty to eleven, at which StenoTran 3177 1 point we will hear the final two submissions. 2 --- Short recess at / Courte suspension à 1020 3 --- Upon resuming at / Reprise à 1043 4 13955 THE CHAIRPERSON: We will return to 5 our proceeding now. 6 13956 Madam Secretary, the next presenter, 7 please. 8 13957 MS BÉNARD: Thank you, Mr. Chairman. 9 13958 The next presentation will be by 10 Call-Net Enterprises Inc. 11 PRESENTATION / PRÉSENTATION 12 13959 MR. SCOTT: Good morning, Mr. Vice- 13 Chairman, Madam Chairperson and Commissioners. My name 14 is Ian Scott and I am Vice-President, Government 15 Affairs of Call-Net Enterprises Inc. With me today is 16 Jonathan Daniels, Director, Regulatory Affairs of Call- 17 Net. 18 13960 As evidenced by our active 19 involvement in all stages of this proceeding, Call-Net 20 is keenly interested in the Commission's deliberations 21 respecting the new media, which I will sometimes refer 22 to also as the Internet. 23 13961 Call-Net, as you know, is a Canadian 24 owned and controlled corporation and is the sole 25 shareholder of Sprint Canada, one of Canada's largest StenoTran 3178 1 long distance providers. In addition to its long 2 distance offerings, Sprint Canada operates the second 3 largest Internet service provider, The Most Online, or 4 TMO. Through TMO we provide Internet access to more 5 than 100,000 customers across the country. 6 13962 As well as providing retail dial-up 7 Internet access through TMO, Call-Net is also a major 8 provider of Internet backbone facilities to other ISPs 9 on its optical fibre network traversing North America. 10 As of last week, Call-Net's subsidiary, CNCI, also 11 commenced operation as a local exchange operator in the 12 province of Alberta. 13 13963 As a part of its plan for the roll- 14 out of its local exchange service, Call-Net intends to 15 offer high-speed Internet access service to residential 16 and business customers alike through the use of digital 17 subscriber line, or DSL, technology. 18 13964 As already acknowledged by the 19 Commission, this proceeding represents an opportunity 20 to step back and assess the impacts of this significant 21 technology, not only on the broadcasting and 22 telecommunications industries but also on Canada's 23 economy and society. 24 13965 The record of this proceeding reveals 25 three fundamental facts from which we submit your StenoTran 3179 1 regulatory framework should take its shape: 2 13966 First, the Internet is 3 revolutionizing the use of telecommunications networks. 4 13967 Second, certain limited uses of the 5 Internet do fall within the definition of 6 "broadcasting"; however, the Internet is not about 7 broadcasting. 8 13968 Third, the reasons why you regulate 9 traditional broadcasting undertakings are absent from 10 the Internet. 11 13969 I will address each of these points 12 in turn. 13 13970 The Internet is revolutionizing 14 telecommunications networks. 15 13971 In our Phase I comments in this 16 proceeding, we described how telecommunications are 17 being revolutionized by the advent of Internet Protocol 18 and packet-switching technologies, as well as the 19 explosive growth of Internet and other data traffic 20 being carried over these networks. 21 13972 Networks were previously separated 22 into data and voice components. However, IP and 23 packet-switching technology are increasingly being used 24 to consolidate traffic on converged networks capable of 25 carrying both voice and data. This blurring of the StenoTran 3180 1 lines which traditionally existed between voice and 2 data traffic is occurring at the same time as the 3 development of increasingly innovative and more 4 powerful communications services delivered over the 5 Internet. 6 13973 These new telecommunications 7 services, such as e-mail and Internet telephony, which 8 we refer to in our written submissions as "telecom 9 analogous" services, are being adopted by consumers as 10 less expensive and more powerful alternatives to 11 traditional telecommunications services such as 12 circuit-switched fax and voice. This is but one way in 13 which telecommunications undertakings which you 14 regulate are being affected by the new media. 15 13974 A second way in which the advent of 16 new media is affecting telecommunications undertakings 17 is through the explosive growth of traffic that has 18 been occasioned in large part by Internet usage. This 19 growth in data traffic is driven by the migration of 20 services onto data networks and the substitution of 21 traditional telecommunications services by telecom 22 analogous new media services. It is also driven by the 23 diversity of powerful new services available over the 24 Internet, which I will come to in a moment. 25 13975 So what implications do these StenoTran 3181 1 developments have for the Commission's jurisdiction 2 under the Telecommunications Act? 3 13976 In its public notice the Commission 4 acknowledged that the existing system of 5 telecommunications subsidies may not be appropriate to 6 the emerging environment. As the Commission is aware, 7 Call-Net is strongly of the view that the existing 8 subsidy collection mechanism is no longer sustainable 9 in light of the dynamic pace of change affecting 10 telecommunications networks in Canada and around the 11 world. 12 13977 In this regard, we acknowledge the 13 Commission's recently issued public notice relating to 14 a review of the frozen contribution charges applicable 15 to interexchange services. In that notice, the 16 Commission also reiterated its intention to commence a 17 proceeding shortly to examine the existing collection 18 mechanism. Call-Net looks forward to participating in 19 that proceeding to assist the Commission in preserving 20 the sustainability of the funding of affordable local 21 service. 22 13978 I come now to my second point. 23 13979 Certain limited uses of the Internet 24 do fall within the definition of "broadcasting", but 25 the Internet is not about broadcasting. StenoTran 3182 1 13980 Much of the discussion in this 2 proceeding has focused on the question of whether the 3 Commission has jurisdiction to regulate the Internet. 4 13981 We are of the view that certain 5 limited uses of the Internet do fall within the 6 definition of broadcasting. For instance, Web sites 7 currently exist which transmit the very same 8 programming as is transmitted by radio programming 9 undertakings licensed by the Commission. In our view, 10 the mere fact that the transmission of these programs 11 takes place by means of the Internet does not remove 12 that transmission from the Commission's jurisdiction. 13 13982 However, we are of the view that very 14 little of what is transmitted over the Internet does 15 consist of "programs" as intended by Parliament. This 16 is what we mean when we say "the Internet is not about 17 broadcasting". 18 13983 In our submissions we have outlined 19 for the Commission our approach to the categorization 20 of new media services transmitted over the Internet. 21 In addition to the telecom analogous services which I 22 have already described, we list the additional 23 categories of interactive services and broadcast 24 analogous services. 25 13984 Interactive services are often StenoTran 3183 1 predominantly alphanumeric, which takes them outside 2 the definition of "programs" under the Broadcasting 3 Act. These services generally feature multimedia 4 content which is interactive with, and customizable by, 5 the user. This category covers a broad range of new 6 services, delivered primarily over the World Wide Web, 7 which are transforming not only communications, but the 8 economy in general. They include electronic commerce 9 applications such as book retailing, personal computer 10 banking and on-line securities trading. They also 11 include a broad range of corporate and informational 12 sites through which the user cannot actually transact 13 business but which provide the user with valuable 14 information regarding the site-owner's business or 15 institution. 16 13985 The services falling within this 17 category form the true genius and "value-add" of the 18 Internet. Along with telecom analogous services, these 19 services also make up the overwhelming bulk of the 20 traffic carried on the Internet. 21 13986 As we have explained previously in 22 our written submissions and during our appearance 23 before you in November, these services lack the 24 linearity or unity to be considered programs. The user 25 adapts these services to his or her needs. Within the StenoTran 3184 1 parameters set by their creators, these services take 2 on the look, feel and content determined by the user. 3 In other words, the role of the user in interacting 4 with the content is so significant that it is not 5 meaningful to speak of what is ultimately being 6 transmitted as a program. 7 13987 I would like now to turn briefly to 8 services which do meet the definition of "program" in 9 the Broadcasting Act, which we categorize as "broadcast 10 analogous services". 11 13988 It may be technologically feasible to 12 deliver streamed video over the Internet. 13 Technological feasibility, however, does not equate 14 with practical reality, as the recent history of cable 15 with digital video compression proves. 16 13989 No participant in this proceeding has 17 made a credible case for the proposition that the 18 Internet is poised to become a viable competitor to 19 existing programming and distribution undertakings. In 20 fact, there was near unanimity in this proceeding that 21 such a development will not occur on a widespread basis 22 within the foreseeable future. The technological 23 impediment to widespread deployment of broadcasting- 24 capable access was confirmed at the hearing by the 25 chief technology officer, for example, of BC Tel, StenoTran 3185 1 Susanna Reardon. The Commission may recall from 2 Ms Reardon's testimony that not even the ITU-approved 3 standard for universal ADSL will be able to transmit 4 long-form programming on a practical basis. Other 5 participants such as the Directors' Guild and 6 advertising groups stressed the lack of any 7 arrangements for the clearance of copyright or a 8 workable advertising model as other significant 9 impediments to the roll-out of commercially viable 10 services. 11 13990 The simple fact that most of what is 12 being transmitted over the Internet does not constitute 13 broadcasting is the reason why we say that the Internet 14 is not about broadcasting. In other words, although a 15 small amount of broadcasting does take place over the 16 Internet, the Internet is not primarily a broadcasting 17 medium. 18 13991 The fact that some broadcasting does 19 take place over the Internet raises the question, 20 however, of which persons are carrying on broadcasting 21 undertakings. In our submission, this is where it 22 becomes very difficult to analogize from the 23 traditional broadcasting model to the Internet. It is 24 also where the practical difficulty of regulating the 25 Internet looms most large. StenoTran 3186 1 13992 A person who controls a Web site from 2 which a broadcasting analogous service can be 3 downloaded is carrying on a broadcasting undertaking. 4 However, Web sites may be numerous and may be located 5 anywhere on the globe. Accordingly, it would be 6 impractical for the Commission to regulate those 7 carrying on these undertakings. 8 13993 Certain participants have therefore 9 turned their attention to the ISPs. In our view, ISPs 10 cannot be properly characterized as broadcasting 11 undertakings. ISPs provide a transmission path that 12 allows a user to communicate with other persons 13 connected to the Internet and with sites on the Web. 14 However, ISPs do not generally control the content that 15 their customers access in the same fashion, for 16 instance, as a cable television undertaking, which 17 controls what services its subscribers can access over 18 its limited channel capacity. 19 13994 Furthermore, given the small amount 20 of broadcasting available over the Internet, we are of 21 the view that the Commission should take into 22 consideration the fact that an ISP's primary function 23 is not broadcasting. In light of this fact, we are of 24 the view that it would not be appropriate to 25 characterize ISPs as broadcasting undertakings. StenoTran 3187 1 13995 Before leaving this issue, I note 2 that the Broadcasting Act specifically does not apply 3 to telecommunications common carriers acting solely in 4 that capacity. 5 13996 I come now to our third point: The 6 reasons why you regulate traditional broadcasting 7 undertakings are absent from the Internet. 8 13997 This point is a good-news story. The 9 good news is twofold. The first piece of good news is 10 that the Internet is a unique technology which 11 alleviates many of the concerns which motivated 12 Parliament to mandate the licensing of broadcasting 13 undertakings. The second piece of good news is that 14 the marketplace is promoting Parliament's objective of 15 ensuring that Canadians have access to a diversity of 16 quality new media services and therefore there is no 17 need for regulation. 18 13998 As outlined already, we do not share 19 the view of some that transmission over the Internet 20 can never be broadcasting. However, we are of the view 21 that the unique characteristics of the Internet, 22 combined with the reality of what is occurring in the 23 marketplace, dictate that regulation of any 24 broadcasting taking place over the Internet would not 25 contribute materially to the implementation of StenoTran 3188 1 broadcasting policy. 2 13999 The Internet and new media services 3 differ from traditional broadcast media in several 4 important respects. 5 14000 First, barriers to entry in the new 6 media production sector are much lower than in relation 7 to the production of traditional long-form programming. 8 Moreover, the relatively low cost of developing, 9 publishing and distributing services on the Web has a 10 levelling effect among organizations of different sizes 11 and strengths. 12 14001 Second, the cost of distributing 13 materials over the Web is much lower than for 14 traditional broadcasting undertakings. In return for a 15 relatively low monthly fee or the cost of operating an 16 Internet server, an organization can post material on 17 the Web, thereby gaining access to a potential 18 international audience of millions of people. 19 14002 Third, because of the low costs of 20 both producing and distributing new media services over 21 the Internet, it is uniquely geared towards 22 narrowcasting type services, which might not otherwise 23 find a home on traditional broadcast media because of 24 their limited audience. 25 14003 The role of ISPs is also unique. StenoTran 3189 1 ISPs exist primarily to provide a transmission path to 2 the Internet. In traditional forms of media such as 3 television or radio, the broadcaster or distribution 4 undertaking selects the information that will be 5 provided to the audience. Over the Internet, however, 6 it is not possible to predict, let alone control, the 7 sites that a user may access over the vast 8 interconnected network. The fact that the Internet has 9 no limitations in terms of the number of sites that can 10 be accessed by an individual user is perhaps its most 11 significant distinguishing feature. 12 14004 These features of the Internet and 13 the new media have resulted in a healthy Canadian new 14 media industry that has succeeded in finding 15 international markets without the benefit of regulatory 16 intervention. In particular, we note that most of the 17 relatively few participants in this proceeding who 18 called for levies to fund new media production belonged 19 not to the new media industry but to the traditional 20 production industry or trades. 21 14005 In terms of distribution and access, 22 the fact that the Internet does not have limited 23 channel capacity has ensured free access to Canadian 24 new media services of every description. 25 14006 More significantly, however, the StenoTran 3190 1 marketplace has recognized that providing Canadian 2 users with access to Canadian sites is simply good 3 business. The marketplace has provided this access 4 through ISPs, like The Most Online, which have portal 5 sites that feature Canadian sites of interest to their 6 users. In fact, among the various services featured on 7 the TMO site, there is an all-Canadian palette of 8 electronic commerce sites. 9 14007 The marketplace has also taken 10 advantage of the fact that the Internet remains 11 primarily an informational, rather than entertainment, 12 medium. Accordingly, Canadians have access to 13 excellent content aggregator sites such as CANOE or 14 Canada.com. Finally, even in the realm of strictly 15 entertainment services, there is a significant Canadian 16 presence on the Web with such sites as Virtually 17 Canadian.com and the Web sites of major Canadian media 18 outlets. 19 14008 The good news, therefore, is that a 20 problem does not exist for the creation of Canadian 21 content for the Internet, the access of content 22 creators to the Internet as a distribution vehicle and 23 the access of Canadians to that content. That is why 24 Call-Net submits that the Commission should issue a 25 broad exemption order. StenoTran 3191 1 14009 We have attached to our final written 2 argument a draft exemption order for the Commission's 3 consideration. This exemption order is meant to 4 provide the Commission with the greatest amount of 5 flexibility on a going-forward basis. The Commission 6 will be able to deal with broadcasting over the 7 Internet if and when it becomes a viable commercial 8 service and if and when there is evidence before the 9 Commission that regulation of the Internet would 10 contribute materially to the implementation of the 11 broadcasting policy. The exemption order has been 12 drafted to avoid the Commission having to determine 13 today which specific Web sites might constitute 14 broadcasting and which persons might be carrying on 15 broadcasting undertakings. In our view, this exemption 16 order also provides sufficient certainty for the 17 marketplace. 18 14010 A small number of participants in 19 this proceeding have suggested that the Commission 20 could issue an exemption order containing substantive 21 conditions requiring portal sites to provide eye-level 22 shelf space to Canadian sites or requiring ISPs to make 23 contributions towards the funding of the production of 24 new media services. In our view, these measures are 25 unnecessary in light of the nature of the Internet and StenoTran 3192 1 the wealth of Canadian new media services actually 2 available to Canadians. 3 14011 Moreover, in our respectful 4 submission, such substantive conditions attaching to an 5 exemption order would set a dangerous precedent from 6 the point of view of regulatory policy. Such 7 conditions, and in particular a requirement that ISPs 8 contribute a percentage of their revenues to the 9 production of new media services, would require 10 considerable supervision by the Commission. 11 Effectively, this would create a category of semi- 12 regulated undertakings. As well, in our view, because 13 of the doubt surrounding the question of whether ISPs 14 are in fact broadcasting undertakings, imposing a 15 substantive obligation on ISPs, even by way of an 16 exemption order, would be highly controversial. 17 14012 As I have already indicated, the good 18 news in the marketplace is that the marketplace appears 19 to be fulfilling the policy objectives outlined by 20 Parliament and further regulation would not contribute 21 materially to the implementation of those objectives. 22 14013 Call-Net believes that the Canadian 23 new media industry, including the Canadian Internet 24 industry, are vital to Canada's competitiveness and 25 pride of place in the new knowledge-based economy. StenoTran 3193 1 While Call-Net is of the view that the marketplace is 2 working to provide Canadians with the new media 3 services they both need and want, Call-Net would 4 support the view expressed by a number of other 5 participants in this proceeding that if the government 6 feels it is in Canada's best interest to subsidize a 7 new media industry, that goal should be accomplished 8 through the use of tax incentives and funding from the 9 government's general tax revenues. 10 14014 Thank you for your attention 11 throughout this proceeding. We wish you well in your 12 deliberations and would be happy to answer any 13 questions you may have. 14 14015 THE CHAIRPERSON: Thank you, 15 Mr. Scott and Mr. Daniels. I don't think we have any 16 questions. 17 14016 MR. SCOTT: Thank you. 18 14017 THE CHAIRPERSON: Madam Secretary. 19 14018 MS BÉNARD: Thank you, Mr. Chairman. 20 14019 The next presentation will be by the 21 Canadian Cable Television Association, l'Association 22 canadienne de télévision par câble. 23 PRESENTATION / PRÉSENTATION 24 14020 MR. STURSBERG: Good morning. I 25 understand I am the last -- great relief to all StenoTran 3194 1 concerned, no doubt. 2 14021 LA PRÉSIDENTE DU CONSEIL: Le 3 dessert. 4 14022 M. STURSBERG: Le dessert. 5 14023 My name is Richard Stursberg, and I 6 am the President of the Canadian Cable Television 7 Association. 8 14024 We came into this proceeding to 9 review with the Commission the issues surrounding 10 regulation of the new media industry. 11 14025 As you know, we don't believe that 12 the CRTC should try to regulate this industry. Indeed, 13 should you find that the associated services, described 14 in detail in our first round submission, are caught 15 under the Broadcasting Act, we believe that you should 16 take the necessary steps to exempt them. This is 17 important in order that the greatest possible business 18 certainty be established in the new media marketplace. 19 In turn, a free market approach with business certainty 20 will ensure the most innovative services and benefits 21 for the Canadian economy. 22 14026 In our written argument which we 23 filed yesterday afternoon we have responded to your 24 questions on these and other issues surrounding the 25 regulation of the new media industry. StenoTran 3195 1 14027 Today, what I want to speak to you 2 about -- and I have actually one thing that I want to 3 talk to you about today -- is different from that but 4 it is related to it. It is related in the sense that 5 it demands the same level of business certainty and for 6 many of the same reasons: so that the industry and the 7 industry players can have a full understanding of the 8 future regulatory and economic environment and thereby 9 make sensible investment decisions. 10 14028 On numerous occasions, parties to 11 this proceeding have indicated that the issue of access 12 to facilities is a critical matter in the new media 13 industry. Indeed, as a result of these suggestions, 14 the Panel has addressed a variety of access-related 15 questions to various interveners. The answers that you 16 have received have touched on a number of different 17 issues and in our view have created considerable 18 confusion. 19 14029 Today I want to clarify this issue -- 20 at least I want to try to clarify this issue -- 21 particularly as it relates to providing third-party 22 access to our networks for the purposes of providing 23 high-speed Internet service. 24 14030 Through various proceedings and 25 filings, we have been providing you with detailed StenoTran 3196 1 reports and information on the roll-out of this access. 2 We have appended copies of these reports to our written 3 argument; there is a long description of where we are 4 in technical terms vis-à-vis our discussions with the 5 ISPs. These reports are self-explanatory, both with 6 respect to the technical issues being addressed and the 7 timing of the laboratory trials, field trials, related 8 development work and so on. Rather than focus on the 9 technical details of third-party access today, I would 10 like to examine with you the regulatory and economic 11 logic underpinning these activities. 12 14031 First, in your consideration of these 13 issues you have treated cable companies facilities used 14 in the provision of Internet services as 15 telecommunications facilities and have therefore 16 brought us under an established set of rules and 17 policies. 18 14032 As you know, Mr. Chairman, this set 19 of rules and policies includes a number of economic 20 elements. One of the most important of them has been 21 focused on the resolution of issues involving essential 22 facilities. Essential facilities, as the Panel will 23 recall, are typically defined as facilities that are 24 monopoly controlled and that cannot be readily 25 duplicated by others. This is probably, I dare say, StenoTran 3197 1 the most fundamental concept in telecommunications 2 regulation and has been at the centre of the 3 Commission's findings over the course of the last 10 4 years. 5 14033 In your past examinations of 6 essential facilities issues you have carefully 7 considered the issue of requiring tariffed access to 8 these facilities. Typically, you have refused to 9 require access if the facilities involved were not 10 essential. Your reasoning has been that, since they 11 are monopoly controlled and they can be duplicated by 12 other competitors, it would be both economically and 13 competitively harmful to require tariffed access. It 14 is far better to encourage competitive entry on its own 15 merits using facilities that can be easily built by the 16 new competitors rather than creating artificial 17 arrangements to prop them up. 18 14034 In your Decision 98-9 last year, 19 which is the decision that mandates access to the cable 20 networks by the ISPs, you did not find cable company 21 facilities used in the provision of high-speed Internet 22 services to be essential. Nonetheless, in view of what 23 you perceived to be dominance on our part in the high- 24 speed access market, you ordered a tariff for access to 25 our facilities. StenoTran 3198 1 14035 This was quite a revolutionary 2 approach, since it was a dramatic change from your 3 historical regulatory approach and since such access 4 was not even technically understood and certainly not 5 commercially available anywhere else in North America. 6 Indeed, in the U.S., this access is still not available 7 and it seems unlikely that the FCC will order it any 8 time soon. 9 14036 Nevertheless, we have been working 10 hard to develop the necessary technical means and 11 business systems that will enable this third-party 12 access. This implementation is occurring through 13 several channels, including technical committee 14 meetings with ISPs, where CRTC observers are present, 15 as well as through CRTC proceedings. As I mentioned 16 earlier, we have attached a copy of our latest 17 technical report on this matter to our written 18 argument. 19 14037 At the same time we have also been 20 negotiating access rates with the ISPs. Our next 21 meeting on this subject will be held on the 26th of 22 February. 23 14038 Unfortunately, Decision 98-9, the one 24 that mandates access to our network through the ISPs, 25 did not establish the time frame within which tariffing StenoTran 3199 1 of access would apply. This is different from what you 2 did in the local telephone market. There, although you 3 also took a non-traditional approach to non-essential 4 facilities, you established very precise guidelines. 5 You made clear that the telephone companies would only 6 have to provide access to their facilities -- and this 7 is in the A and B bands -- for five years from the 8 date of Decision 97-8. 9 14039 You went this route with respect to 10 these non-essential telephone company services and 11 facilities for a specific reason: because you believed 12 that facilities-based entry was the only way to obtain 13 real competition in the marketplace. As you said: 14 "While resale competition can 15 help promote the development of 16 a competitive market, it is the 17 Commission's view that the full 18 benefits of competition can only 19 be realized with facilities- 20 based competition." 21 14040 In addition, you noted that in order 22 to obtain facilities-based entry, entrants must be 23 encouraged to undertake construction or acquisition of 24 facilities by providing them with a regulatory leg-up 25 for a very clearly specified and limited time period. StenoTran 3200 1 As you said -- and I quote again: 2 "After this five-year period, 3 these facilities will not be 4 subject to mandatory unbundling 5 or essential facilities rating. 6 In the Commission's view, this 7 approach will permit entry at a 8 pace that will better serve the 9 public interest and, at the same 10 time, provide incentives to 11 CLECs to undertake construction 12 or acquisition of facilities... 13 The Commission is of the view 14 that resale can promote the 15 development of a competitive 16 market while allowing 17 competitors time to construct 18 their own facilities." 19 14041 With this advance notice, local 20 telephone entrants have the certainty and the 21 understanding of the critical regulatory and economic 22 parameters for their business plans, both in the short 23 run and in the long run. 24 1115 25 14042 As to the result of this approach, StenoTran 3201 1 regulatory risk in the local telephone market case has 2 been eliminated. You have indicated very clearly that 3 five years from the date of the local competition 4 decision, entrants will face real market forces with 5 respect to obtaining access to non-essential services 6 and facilities such as certain unbundled loops in the A 7 and B bands. 8 14043 Now, as I mentioned earlier, you 9 provided no such time limits in your decision regarding 10 third-party access to cable company facilities. 11 14044 This is unfortunate because ISPs are 12 currently not being given the proper investment signals 13 that would allow them to help create a truly 14 competitive Internet market in Canada. As you have 15 concluded in the local telephone case, facilities-based 16 entry is the only way to achieve the full benefits of 17 competition. 18 14045 The key economic condition, that is, 19 the ability to purchase or build facilities, exists in 20 the high-speed Internet market as it does in the case 21 of the local telephone market. There are no reasons 22 why companies providing Internet services cannot pursue 23 the same facilities-based approach to entry that is 24 being pursued by entrants in the local market. Indeed, 25 as you recognized in the local telephone decision, for StenoTran 3202 1 the public policy reason of achieving the full benefits 2 of competition, these companies should be pursuing a 3 facilities-based approach to entry. 4 14046 The five-year rule has clearly worked 5 well in the local telephone market. The new entrants 6 are currently responding to the signals provided in the 7 local competition decision with respect to the 8 construction and acquisition of facilities. 9 14047 These companies already know that 10 access to non-essential facilities at tariffed rates 11 will not exist indefinitely, and that they must 12 ultimately construct or acquire their own facilities. 13 14048 In many cases, starting with very 14 little, these companies have either already invested or 15 are planning to invest significant amounts of capital 16 that will be used to provide a number of 17 telecommunications services, including local telephony 18 and high-speed Internet. 19 14049 Since the companies that we currently 20 recognize as ISPs are not being provided by the 21 Commission with the same signals, they are not pursuing 22 the same strategy. Indeed, public statements by some 23 of these ISPs suggest that they believe that once 24 access is available, they will forever have use of 25 cable company and telephone company facilities for the StenoTran 3203 1 purpose of providing Internet services. 2 14050 With local competitors and a variety 3 of other facilities-based providers now emerging on the 4 scene, this belief is unfounded and will simply not be 5 realized. The Commission is likely before very long to 6 find that cable companies and telephone companies are 7 not dominant providers of access facilities for the 8 provision of Internet services, and that tariffing of 9 access is no longer required. Not only are we 10 confident of this outcome from a market evolution point 11 of view, but it should also be emphasized that this is 12 in fact the Commission's fundamental public policy 13 goal. 14 14051 Regulation does not control or drive 15 competition. Regulation is intended to help establish 16 competition and once this competition is established 17 regulation should retreat from the marketplace. The 18 Commission has recognized and implemented this 19 principle on numerous occasions and with great success. 20 14052 Unless the ISPs understand this 21 market reality and public policy goal now, these 22 companies will in the future find that they are not 23 able to compete effectively because they have not made 24 the necessary investments in facilities. 25 14053 The Commission was right to concluded StenoTran 3204 1 that the cable companies did not control essential 2 facilities. 3 14054 Now I just direct you -- actually, we 4 have brought one tiny attachment, which is at the back. 5 If you open it up here, on page 1, this is just a 6 listing of the various facilities-based providers of 7 access to the Internet that are already in the 8 marketplace. 9 14055 So you were right to conclude that 10 these are non-essential facilities. Not only is there 11 no monopoly on them, there are lots and lots of people 12 out there who are building them. 13 14056 In fact, I just noted, when I was 14 reading the paper this morning -- if you don't mind my 15 boring you with this but it's quite interesting, it is 16 in today's Citizen -- "Internet giants go wireless". 17 Microsoft Corp's Cisco Systems Inc. and Netscape have 18 announced that they are pouring, you know, the usual 19 billions of dollars into the development of wireless 20 Internet and data services; Microsoft and British 21 Telecommunications will develop wireless Internet 22 access, and so on, and it describes the various people 23 who are doing this, so that you could add to this chart 24 now all the cellular companies of one variety or 25 another. StenoTran 3205 1 14057 You can see that there is a number of 2 facilities-based providers that are already in the 3 marketplace and even more will soon be in operation. 4 14058 These entrants represent a number of 5 diverse companies with keen interests in the access 6 market in Canada. Indeed, as you can see, there are 7 more facilities-based entrants now in this market than 8 in the local telephone market where the five-year rule 9 applies -- if you would just turn to page 2 of the 10 attachment, this is our general view -- this is also 11 shown on page 2 of the attachment. There you can see 12 that, by our estimates, the dial-up market will 13 continue to be an important element in this marketplace 14 for a number of years, but that others are going to 15 capture a very substantial share of the high-speed 16 market over time. 17 14059 The conclusion to be drawn from this 18 information is that the Commission will not be required 19 to intervene in this marketplace for very long. 20 Consequently, unless ISPs are incented to build, they 21 will not be around for very long. Indeed, other 22 providers, those with facilities, will become the ISPs 23 of the future. 24 14060 The statistics in the attachment are 25 also representative of the rapidly developing access StenoTran 3206 1 market in the United States. In that country, third- 2 party access, as I mentioned earlier, is not being made 3 available through tariffs. U.S. entrants are, as a 4 result, responding to market forces with immediate 5 investment decisions. 6 14061 Two weeks ago, the FCC concluded that 7 broadband is being deployed in the U.S. in a reasonable 8 and timely fashion, and that this deployment will 9 accelerate in the coming years. Consistent with the 10 data that we have just seen for Canada, the FCC was 11 also encouraged that methods for delivering digital 12 information at high speeds to consumers are emerging in 13 virtually all segments of the communications industry, 14 including wireline telephone, land-based, satellite, 15 wireless and cable -- as I mentioned just from this 16 morning, cellular as well. 17 14062 In conclusion, if the Commission is 18 to encourage companies that are currently successful 19 ISPs to continue to provide innovative and useful 20 services in the new media industry and in the Canadian 21 economy, these companies must be given the proper 22 investment signals. 23 14063 As it did in the local market for 24 non-essential facilities, the Commission in this case 25 should signal to entrants that access to cable StenoTran 3207 1 facilities obtained from regulatory intervention will 2 be available for a limited period of time such as five 3 years. This is sufficient time for these entrants to 4 organize themselves to become full competitors in the 5 Internet market, to the benefit of that marketplace and 6 to the benefit of the public interest and the Canadian 7 economy. 8 14064 Thank you very much. 9 14065 THE CHAIRPERSON: Thank you, 10 Mr. Stursberg. 11 14066 One of the things I think that we had 12 indicated when we rendered our decision on local 13 competition was that we would mandate a tariff for the 14 five-year period for access to telephone company 15 infrastructure at tariffed rates and define the 16 parameters around those tariffs. As you correctly 17 pointed out, we had indicated that we were adopting 18 this philosophy because we wanted to encourage 19 facilities-based competition, but did recognize that 20 access to the telephone companies' facilities would 21 likely be a business proposition for the phone 22 companies in any event, and that at the end of the 23 five-year period it would be likely that that access 24 would continue but at what one might characterize as 25 market-based rates, whatever they might be. StenoTran 3208 1 14067 I am wondering what the view is of 2 your members in terms of -- regardless of what the 3 regulatory arrangement might be and what timelines one 4 might be talking about, about whether your members 5 would be providing access to third parties for high- 6 speed Internet access at some rate? 7 14068 MR. STURSBERG: As I mentioned 8 earlier, we are in the process of a negotiation which 9 has been going on with the ISPs for some time to do 10 precisely that. The discussions are subject to certain 11 non-disclosures but, you know, they have a view as to 12 what the price should be and we have a view as to what 13 the price should be, so we are still working on that. 14 14069 My general sense is that we would 15 like to be able to conclude those arrangements. I 16 think personally that there is going to be -- it is 17 advantageous to be able to have a sensible arrangement 18 with the ISPs because suddenly they bring to bear their 19 marketing force and their customer base, and obviously 20 we would rather have them rolled over onto cable high 21 speed than onto telephone high speed. So my personal 22 view is that that is a good thing to do and that would 23 substantially enhance our position in the market. 24 14070 I think that we are going to find 25 over time that this is going to become a market share StenoTran 3209 1 race between those people who are capable of providing 2 high-speed access. As I mentioned earlier, there are 3 lots of them who are coming into the market and, 4 precisely for that reason, that the quicker you can 5 establish a significant share in that market the harder 6 it will make it to dislodge you later on because then 7 you will be the incumbent. 8 14071 THE CHAIRPERSON: I presume, 9 notwithstanding your comments here about the Commission 10 encouraging facilities-based competition, your members 11 would see this as a business proposition to in fact 12 encourage them to use your network rather than create 13 another network or two or three? 14 14072 MR. STURSBERG: That's right. Yes. 15 And rolling them over that way would be a good thing. 16 14073 But I think that over the longer term 17 it's like anything else. It is like what we saw for 18 resale operations in the inner exchange markets. If 19 you exist purely on that basis, though, you are going 20 to be subject to margin squeezing inevitably, and that 21 the better course for anybody who wants to be in this 22 business for the long term is to own your own 23 facilities. 24 14074 I think it is going to be true of the 25 ISPs. It's obviously going to be true of anybody else StenoTran 3210 1 who comes into it, otherwise you are going to get 2 caught in that kind of margin squeezing. 3 14075 THE CHAIRPERSON: I think those are 4 all our questions. 5 14076 Thank you very much. 6 14077 MR. STURSBERG: Great. Thank you. 7 14078 THE CHAIRPERSON: Madam Secretary, I 8 think those are all the parties who registered to 9 appear. 10 14079 MS BÉNARD: Yes, Mr. Chairman. 11 14080 THE CHAIRPERSON: Okay. On behalf of 12 my colleagues on the Panel and the staff, I would like 13 to thank all of those who appeared today and yesterday 14 for their thoughtful representations, and to all the 15 others who have filed written comments as part of this 16 final comment period or the final phase of the public 17 proceeding regarding new media. 18 14081 I think we have all found this 19 particular hearing to be particularly interesting and 20 informative, educating us on both the technical and 21 policy issues surrounding the whole development of new 22 media. 23 14082 I guess anybody's guess is either 24 right or wrong as to where we are going in the future 25 of all of this thing, but we certainly have a wealth of StenoTran 3211 1 information to deal with now, and the hard part that 2 comes for us now is to take all of this information and 3 figure out where we are going to go with it. I guess 4 it is our expectation we should have a decision out on 5 this sometime during the second quarter of this year, 6 before we go on to other things over the summer. 7 14083 So with that I will close this 8 proceeding, or this stage of it. 9 14084 I would again like to thank our 10 translators and court reporters, and again thank 11 everybody for their participation. 12 14085 As I say, we will take all the 13 information we have now and figure out what we are 14 going to do with it. 15 14086 Thank you very much. This proceeding 16 is adjourned. 17 --- Whereupon the hearing concluded at / L'audience se 18 termine à 1128 19 20 21 22 23 24 25
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