ARCHIVED -  Transcript - Hull, QC - 1998/11/27

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:

PUBLIC HEARING EXAMINING NEW MEDIA /

AUDIENCE PUBLIQUE SUR LES NOUVEAUX MÉDIAS

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 27, 1998 Le 27 novembre 1998

Volume 5

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.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Public Hearing / Audience publique

New Media / Nouveaux médias

BEFORE / DEVANT:

David Colville Chairperson / Président

Martha Wilson Commissioner / Conseillère

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

Carol Bénard

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 27, 1998 Le 27 novembre 1998

Volume 5

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

Presentation by / Présentation par:

Stentor Resources Centre Inc. 1267

AT&T Canada Enterprises Company 1357

Hull, Quebec / Hull (Québec)

--- Upon resuming on Friday, November 27, 1998,

at 0900 / L'audience reprend le vendredi

27 novembre 1998, à 0900

1. THE CHAIRPERSON: Good morning, ladies and gentlemen. We will return to our proceeding now looking at the issues surrounding new media and the Internet.
2. Madam Secretary.
3. MS SANTERRE: Thank you, Mr. Chairman.
4. The first presentation this morning will be by Stentor Resources Centre Inc.

   PRESENTATION / PRÉSENTATION

5. MR. CHAPMAN: Thank you. Good morning, Mr. Chairman, Commissioners.
6. My name is Barry Chapman. I am Vice-President, Convergence, with Stentor Resource Centre Inc. I will be acting as chairman of the witness team representing the Stentor companies this morning. Please allow me to introduce my fellow panellists.
7. On my left is Susanna Reardon, Director, Technical Services, with B.C. Tel Entertainment Inc.; on my near right is Bernard Courtois, Group Vice-President, Regulatory, with Bell Canada; on my far right is Jean-Pascal Lion, Senior Vice-President with MédiaLinx interactif; and behind me is Ken Goldstein, President of the consulting firm Communications Management Inc.
8. THE CHAIRPERSON: How many clients did you have for this proceeding, Mr. Goldstein?
9. MR. GOLDSTEIN: All of them.
10. MR. CHAPMAN: The Stentor companies appreciate the opportunity to appear at this important and timely public hearing.
11. When the Commission issued its convergence report in 1995, it spoke of the promise offered by the Information Highway, as well as the uncertainty clouding its future. At that time, the Information Highway was expected to involve multiple hybrid fibre coax networks and to be television-centric. Today, three and one-half years later, it is the Internet that has emerged as that Information Highway, and it is computer-centric.
12. The Internet is in an early stage of evolution. It is clear, however, that its social and economic impact will be significant. The rapid adoption of Internet use by Canadian consumers underscores this. Conservative projections foresee a doubling to 40 per cent of Canadian households accessing the Internet by 2001.
13. Although much uncertainty remains regarding the ultimate role of the Internet, the promise that the Commission spoke of has begun to be fulfilled. Services such as electronic mail, access to information on Canadian and global topics, and electronic commerce are proliferating. As you have heard from a number of parties already, the Internet is a good news story for Canada.
14. The state of the Canadian new media services industry has previously been examined for the Commission and the government by Wall Communications Inc. Among other things, the Wall report highlighted the success of French and English-Canadian new media content producers. These early successes are occurring in a marketplace where entrepreneurs are choosing to provide Canadian-based services and Canadian content to Canadian consumers without any regulatory requirement to do so. They are doing this because it makes good business sense. A good example of this is the Stentor companies' Sympatico Web site.
15. M. LION: Dès le départ, Sympatico a volontairement favorisé les sites Web à contenu canadien. Par conséquent, cela nous permet aujourd'hui d'offrir un grand nombre de services Internet d'intérêt qui répondent aux besoins et aux préférences des consommateurs canadiens.
16. Citons comme exemple le service Canada411, conçu par Sympatico, qui est un annuaire en ligne de plus de 10 millions de numéros de téléphone de résidences et d'affaires canadiens.
17. Soulignons aussi le service Canada SansFrais qui propose une énorme banque de numéros de téléphone sans frais permettant aux consommateurs d'avoir accès gratuitement à des renseignements sur des produits et des services aux quatre coins du Canada.
18. Ces deux services sont parmi les plus fréquentés, ce qui confirme que les usagers les trouvent pertinents et utiles.
19. De surcroît, Sympatico a jugé qu'il n'y avait pas suffisamment d'outils appropriés pour guider les usagers canadiens français vers des sites francophones.
20. C'est pourquoi Sympatico a créé Carrefour, un répertoire de recherche axé uniquement sur le contenu francophone, et en priorité sur le contenu canadien.
21. Par ailleurs, notre répertoire des catégories de sujets, tant en français qu'en anglais, accorde la priorité au contenu canadien. Nos sections Carrefour Santé et HealthyWay, qui ont été reconnues au plan international, offrent un accès guidé à des informations sur la santé et la médecine contenues dans le Web, qui ont été évaluées par des professionnels et mettent prioritairement en évidence les ressources canadiennes.
22. Par ailleurs, notre service BookShelf, qui portera bientôt le nom de marque Indigo, offre aux utilisateurs la possibilité d'acheter des livres en ligne et de participer activement à la vie littéraire canadienne.
23. La création de ce service découle de ce que nous avons perçu comme étant une occasion d'affaires pour créer un équivalent canadien de la société américaine "Amazon.com". Le succès de BookShelf repose sur la satisfaction des besoins particuliers du marché canadien. C'est là le genre de services que veulent les Canadiens et les Canadiennes et que nous nous efforçons de leur offrir.
24. Les compagnies Stentor partagent l'intérêt que porte le Conseil pour l'élaboration, la production, la diffusion et la promotion de contenu canadien dans les nouveaux médias. Pour concrétiser cet intérêt, nous pouvons déjà compter non seulement sur de nouveaux joueurs, tels que Canoe et NetGraphe (une entreprise qui s'intéresse exclusivement à la promotion de contenu français sur l'Internet), mais aussi sur de nombreuses grandes chaînes de télévision, comme NetStar, CHUM, Pelmorex et la Société Radio Canada. Leurs initiatives requièrent des efforts de promotion croisée contribuant à l'évolution des services de nouveaux médias.
25. Même si un nombre considérable de progrès ont été accomplis, l'avenir de l'Internet et des services de nouveaux médias est rempli d'incertitudes. Des entités telles que IMAT et le Digital Media Champion Group en ont déjà fait mention dans leur témoignage plus tôt cette semaine.
26. Le secteur des nouveaux médias canadiens semble se diriger dans la bonne direction. Il reste toutefois encore beaucoup à faire afin d'assurer son avenir à long terme.
27. The adoption of an appropriate policy framework is of particular importance for the new media sector if it is to flourish and if Canada is to make the most of our competitive opportunities.
28. This proceeding represents a milestone in the policy-making process. We are encouraged by the Commission's openness in not looking to apply old regulatory models to new media, or having in mind any regulatory model.
29. For our part, we believe that the appropriate public policy model would be grounded in a commitment to allow new media players in Canada the freedom to continue to experiment, innovate and invest.
30. Canada is not alone in deliberating on how to help this industry thrive. The United States, the United Kingdom and Australia have all taken public policy positions that have as a theme that governments best serve new media by eliminating barriers to their growth and expansion. Given the global scope and impact of the Internet, Canada's interests are best served by a similar approach.
31. Measures such as content development taxes on Internet service providers, and regulations requiring predominance of Canadian content on a Web site, would not only present significant feasibility problems, but would also place Canada at a competitive disadvantage and out of step with our major trading partners.
32. The Stentor companies note the Chairman's acknowledgement at the start of these proceedings of the need to deal with the uncertainty with respect to the Internet. Interested parties have spoken of this, as well as of their very real fear of regulation and the resulting negative impact on the development of the Canadian new media services industry. A positive contribution by the Commission would be the elimination of such uncertainty. In this regard, we urge the Commission to confirm that the Internet itself and the overwhelming majority of new media services do not constitute broadcasting undertakings as defined in the Broadcasting Act, and should remain free of regulation. To the extent that the Commission identifies that there are services and undertakings that could be subject to its licensing jurisdiction, it should issue a simple exemption order to deal with the situation.
33. Apart from the jurisdictional issue, a number of other matters have been raised. One such issue relates to the accessibility of the Internet to providers of Canadian new media content. In our view, access to the Net is not an issue in the way that access to channels on broadcasting distribution undertakings may be for providers of programming services. It appears that no access problem exists for new media services and that the market is dealing successfully with the issue.
34. The Commission has stated that, as a result of this proceeding, it will develop a comprehensive record of the views of participating parties, and may make determinations with respect to certain issues.
35. In this regard, the Stentor companies urge the Commission to seize the opportunity to contribute significantly to the development of the Canadian new media services industry by deciding to take the following actions: Commit to a public policy approach that encourages and promotes new media services rather than attempting to impose a traditional broadcasting-style regulatory framework; confirm that the Internet and the vast majority of new media services are not captured by the relevant definitions in the Broadcasting Act; exempt unconditionally any remaining services that might not be so excluded; offer practical encouragement to broadcasters to participate in the development of Canadian new media content for the Internet; and forbear from regulating new media transport services.
36. In matters outside its jurisdiction, the Commission may also wish to consider making recommendations to the government to refrain from imposing a content development tax on Internet service providers; and to encourage the availability of industrial and cultural support mechanisms, such as tax incentives for new media service companies and the funding of distinctively Canadian new media projects.
37. Mr. Chairman, we thank the Commission for the opportunity to present these opening remarks, and are pleased to answer any questions you may have.
38. THE CHAIRPERSON: Thank you, Mr. Chapman.
39. Let's, perhaps, start by maybe you just giving us a bit of a sense of what you see as the growth of this business. I guess if I look at your members sort of being in the pipe business, and one aspect of this whole Internet phenomenon has been characterized as a cloud but inside the cloud there is just a whole lot of pipes running around interconnecting all these sites, on the one hand, but also being in the content side of the business through MédiaLinx and Sympatico.
40. What do you see as the sort of developments that are going to help this business grow over the next few years?
41. MR. CHAPMAN: Maybe I would ask Jean-Pascal to start, please.
42. MR. LION: I think we have to discriminate what you refer to as the "pipe" situation with the content one. As far as the pipe is concerned, for people involved in content like MédiaLinx, this is pretty transparent.
43. What we might see if we try to project in the future is that we might see probably different kinds of Internets, instead of having just one single big, huge road, we might see different Internets. This has been said many times because of the need for certain areas to have their unique paved road, high speed. So we might see one, two, three Internets that could happen in the near future.
44. But, as far as the content is concerned, this pipe universe is really transparent and, in fact, like most consumers, we don't know exactly where the traffic comes from, where it goes, and which route it is following. This is not really the issue for content.
45. For content, what is very important is to attract consumers, to build traffic for some is huge traffic, mainly for what we call portals, for some other dedicated specific specialized Web site, what they want to get is really specialized traffic from individuals they are aiming at.
46. So there is -- this is exactly what I see in the future.
47. THE CHAIRPERSON: Taking those two elements, then, while I suppose it is true that the network is transparent to the users -- and I realize that this is, to some extent, a bit of a chicken and an egg issue in terms of how fast the modem might be that I have hooked up to my computer, or how fast the computer itself may even be, if I am still running an old 100 megahertz system, no matter how fast the pipe is I may be having problems; but how do you see this growing in terms of providing higher speed, higher capacity capability going into homes and new businesses? That is part of what was behind my question, that is, as you and your members fundamentally being the providers of the network infrastructure that was the access for this? What are we likely to see over the next few years in that regard?
48. MS REARDON: I think it is fair to say that over the next few years we are going to see fantastic growth in high-speed access. We are going to see growth in backbone networks. We will see growth in dial-up access, as well. So you will see growth across all aspects of the network.
49. THE CHAIRPERSON: What is the high-speed capability going to be?
50. MS REARDON: Well, in terms of the telephone companies, we are looking at a technology called asymmetrical digital subscriber line. This is a technology which allows the simultaneous use of a telephone line for POTS, or plain old telephone service, and for high-speed data access.
51. We see the future in ADSL being as being with universal ADSL. So data rates typically being between one and one and a half megabits.
52. THE CHAIRPERSON: And do you have a sense of how that is going to roll out in the marketplace?
53. MS REARDON: Universal ADSL? Universal ADSL is the recommendations from the Universal ADSL Working Group were accepted by the ITU in October of this year. The actual standard will come out sometime in June. We expect to see interoperable, fully standardized equipment on the retail shelf by the end of next year.
54. THE CHAIRPERSON: What does that mean in terms of your own roll-out plans?
55. MS REARDON: In terms of our roll-out plans, as you know, we do have ADSL now. It is a different version to the universal ADSL program that is coming out. We will continue with our current ADSL until sort of the mass market product does appear on the retail shelves.
56. Once we see a sort of mass market vehicle available, we anticipate an accelerated deployment of ADSL.
57. THE CHAIRPERSON: What does that mean in terms of timing?
58. MS REARDON: We have said publicly -- Stentor has said earlier this year that we anticipated by the end of 2001 that 70 per cent of the households would have high-speed access. We still believe that is our best estimate.
59. THE CHAIRPERSON: By the end of 2001, 70 per cent?
60. MS REARDON: Of the telephone subscribing base, yes.
61. THE CHAIRPERSON: Would have the capability or would be subscribing?
62. MS REARDON: Would have the capability. Subscription is really a decision based on the consumer.
63. THE CHAIRPERSON: And can you give us a sense of what we are likely to see, sort of order of magnitude of what that is likely to cost individual residents, consumers?
64. MS REARDON: One of the things that we have found with our current version of ADSL is it is not necessarily as customer friendly as we would like. ADSL requires a truck roll to the house to install a filter and involves a fair amount of coordination, sometimes new cabling to be installed between the unit outside the house and the modem itself.
65. Universal ADSL is sort of a good news story. Actually, it is a good news story for both the consumer and for the telephone companies, and I will get to the telephone companies in a minute.
66. For the consumers, what it means is when we have a modem which is available on the retail shelves, the next step of course will be to integrate this modem into a card that sits inside the personal computer. So, to the consumer buying an ADSL modem will be exactly like buying a 56-kilobit modem today -- so, as simple as going out to your retail store and buying it, putting it in your PC, and then phoning up your telephone provider and asking for service.
67. So it is a much simpler, easy to use product. For the consumer, of course, it provides always-on access. It clears up the telephone line for the telephone service. All in all, it is sort of a good thing.
68. In terms of the telephone company, I am sure you can well appreciate that the growth of the dial-up business is sort of unprecedented. Our core networks are congested with traffic.
69. One of the things that ADSL does do for us, whether it is universal ADSL or just plain old ADSL as we have now, it allows us to peel off the data stream before it hits the network switch. So this is a connectionless always-on service for the consumer, but at the same time it allows us to essentially unclog our networks. We are spending millions of dollars on clearing up network congestion.
70. It is really quite an interesting technology.
71. In terms of the access, then, and where we see the world, we don't see the access even at high-speed access supporting things such as broadcast video. As you can well imagine, the world today is dial-up modem. The vast majority of subscribers access the Internet by dial-up modem, and this isn't going to go away. Even with the advent of high-speed access, such as universal ADSL on a mass scale, access data rates in the order of one to one and a half megabits just isn't going to support broadcast video.
72. I mean you need, typically, with the compression technology envisioned for the next couple of years, you need at least two to six megabits depending on the type of content that we are digitizing.
73. So, for the foreseeable future we just -- we see high-speed access growing. We see the introduction of universal ADSL as sort of the next step to the 56-kilobit modem, and we also see growth in dial-up access.
74. THE CHAIRPERSON: So you see the modem for ADSL being a consumer product.
75. MS REARDON: Yes. Simply a card in the PC, yes.
76. THE CHAIRPERSON: And what do you think that's going to -- once we start rolling this out as this universal consumer product, what is that going to cost consumers?
77. MS REARDON: The modem? Well, of course, it is in the telephone companies' best interest to get people off the telephone network, so it is going to have to be priced similar to the 56-kilobit modem today.
78. THE CHAIRPERSON: Ten years ago one would have said it was in the telephone companies' interest to get a lot of traffic on the long distance telephone network and that is why we charge the rates we do.
79. MS REARDON: Well, if you like a number, $200.
80. THE CHAIRPERSON: Sorry?
81. MS REARDON: $200; $150 to $200 would be our ballpark for the modem for the consumer.
82. THE CHAIRPERSON: One hundred fifty to $200.
83. And the access line?
84. MS REARDON: I am not sure. You know, I am here to talk on technology issues. The actual costs of the access lines, I think are --
85. THE CHAIRPERSON: I am not looking for a precise figure here; I am looking for sort of an order of magnitude. Are we talking $20, $50, $100, $150?
86. MR. COURTOIS: Let me try that, Mr. Chairman. The price is different in the residence market than in the business market; and in the residence market there are two things that are determining that price. One is the competitive alternative that is out there, which is the cable modem; and, two, is the experience with cable modems and the price points and what different customer reaction and customer take you would get at different price points.
87. So these kinds of -- this information is obviously going to be affecting us in how we price the -- price our retail service.
88. On the business side, the situation is different. On the residence side, of course, what that means is that at the present time because we are starting with this technology, shifting from one type of DSL to another, and we don't yet have the mass market for the equipment, et cetera, our costs are obviously much higher than the retail price; and we are investing in trying to get that down. As a matter of fact, we would be very interested if other ISPs were also prepared to invest like us in doing that.
89. The other ISPs are essentially at the moment, those that are doing ADSL because they can do it on the telephone network, it is an open network, they are in the business end of things where you don't have the problem of the retail price versus the cost because the business users can make more valuable use of the high-speed technology; and, obviously, the higher value and also they are sometimes saving the alternative of subscribing to what are more expensive services.
90. On the residence side, I think those factors will determine the price that I mentioned; and, on the business side, as I say, there is more value there and I think the pricing going in is less of a demanding investment.
91. With the pricing appropriately set on the retail side, with us tackling some of the network issues and the evolution of the equipment, we hope to build up a mass market base to get the costs down. When he get the costs down, of course, everybody will benefit, not just the telcos related ISPs but all ISPs will benefit from this technology and the efforts we have made.
92. In the case of Bell, as we talked earlier about when is mass market roll outgoing to come, as you know, we have announced that first we had a connected capital region project which was going to be Ottawa-Hull, which we have expanded now to -- actually, we have gone back and tried to expand it to a much broader number of cities. We hope in the very near future to announce a big push, a big effort on our part to begin to try and get into mass market roll out of at least a 1-meg modem.
93. THE CHAIRPERSON: It is interesting the term we are using here is "universal DSL". The term that is coming out of the ITU discussions, I guess, in terms of arriving at a standard for that.
94. MS REARDON: May I just sort of clarify? A 1-meg modem is an early predecessor to universal ADSL, and it is one manufacturer's version of universal ADSL. They will still have to -- early deployments will likely still be proprietary. So universal ADSL is still subject to standardization, the full standardization rigour that you expect from the ITU.
95. THE CHAIRPERSON: Which means a long time.
96. MS REARDON: No, no. They have accepted the recommendation in October, as I said before. As you can well imagine, even with the 56-kilobit modem, manufacturers geared up long before the standard came out and were actually producing products weeks after the standard was actually struck.
97. Yes, it has been slow in the past, but I think this is a different world that requires speed to market. The fact that we were able to -- large telephone companies were able to even get together in the Universal ADSL Working Group with the likes of software manufacturers, and international telecom groups, such as France Telecom, Deutsche Bundespost, like large Arbox and so on, the fact they got together, even came up with a recommendation, they only struck the team early this year and actually got a recommendation accepted by the ITU in 10 months is in itself sort of record for the telephone companies. I hold a lot of hope for this.
98. THE CHAIRPERSON: Do you think that as an objective, as a policy objective, we should be striving for the kind of universality and ubiquity with high-speed Internet access that we have with today's dial-up telephone network?
99. MR. COURTOIS: Let me try and take a cut at that one.
100. It looks at the moment like universality anywhere near like what we have got for telephone service, which is -- everybody's got it, 98 or 99 per cent is -- doesn't seem at the present time to be feasible on both the technical and economic basis. It would take billions and billions. So, obviously, it is a good thing and it would be a good thing for Canada, for any country, to get, for example, high-speed access rolled out as much as possible.
101. At the present time, and for the next few years, it is going to be a massive effort to get the more densely populated areas of the country covered and for people to begin to take up the service. Maybe during that time further technological changes in wire line or wireless technologies will allow other solutions to develop. But, at the present time, it just looks like too big a mountain to climb.
102. THE CHAIRPERSON: Where in this with using the sort of technology that we are talking about now are the billions of dollars needed?
103. MR. COURTOIS: Well, it would be, first of all, to cover those customers that are farther away from the CO than the DSL technology really can work with. It would be equipping the network in less densely populated parts of the territory. Even today, as the Commission has seen in some of the information filed in the high-cost serving area proceeding, it is even difficult to guarantee a given bit rate even for slow-speed modems at the present time in many parts of the telephone network.
104. While that means that everybody -- just about everybody can have universal access on slow speed, there won't be a guaranteed -- we can't give a guaranteed speed for that without spending billions. Putting high-speed access would be billions more.
105. MS REARDON: We do have -- our current version of ADSL does offer, depending on the company and how they have configured their network, access speeds up to 6 megabits or higher.
106. One of the things you find in the telephone architecture is that the copper twisted pair is very much a band width limited transmission medium, and the footprint for, say, a 6-megabit service from around the central office is much, much smaller than, say, for a 1-megabit service. But even a 1-megabit service can't be guaranteed to the entire serving area of a central office.
107. So, as Bernard has stated, a lot of the investment will be simply to move fibre out into the access and shorten the sort of the loop reach of our telephone subscribers.
108. MR. COURTOIS: There has been a lot of change already in a very short period of time. So we don't know whether that situation will change in the future.
109. For the moment, we know we have gone through, in Bell, already two generations of equipment for the existing ADSL service that has quite a small base of customers. We have got this 1-meg modem and universal DSL and different solutions being tried on the network itself. And there may be, of course, wireless approaches, whether ground based or satellite or whatever that may evolve as well.
110. So it is just the kind of thing we are at the moment, as I said, we are going to be putting in a major push like any other new technology to roll it out in the larger centres first. Who knows what will happen a few years from now with this technology.
111. THE CHAIRPERSON: So getting back to my question on rough rates, what is this going to mean in terms of me as a consumer in a couple of years' time, 2001-2002, in terms of what it is going to cost me to get this sort of DSL access as a regular day-to-day consumer product, consumer service that I can buy from my telephone company? What kind of order of magnitude? You talked about pricing relative --
112. MR. COURTOIS: It sounds like an order of magnitude not much more than what it costs today for slow-speed access. Maybe the modem is going to be pretty well equipment what you pay today for a modem, and the access charges may be a bit higher as you get higher speeds, and there may be alternatives in the market where you can get the 1 meg or universal modem at a given price; but, if you want higher speeds, you get the other form of DSL, ADSL or they may be VDSL that comes along where, if the customer wants more speed, then he can pay for that and get more.
113. I think what you are going to see in the next year or so is, with these kinds of technologies, the access speeds as exist today with the cable modems is way ahead of the Internet speed. So the Internet, you are going to be a victim of the slowest link in the whole chain. It is very rare that you are going to be getting, without caching pretty close to where you are, the kind of speeds that your access technology can give you.
114. THE CHAIRPERSON: But do you think as, perhaps, a public policy and an industrial strategy in this country that we should be working to try and make sure that we -- I guess I sort have had the view, from the users' point of view, almost any speed you can give me is not fast enough in terms of sitting at my computer.
115. I remember working in the telephone industry 30 years ago when we were introducing what we called then the data route, and the determining factor for putting a data route serving area into a community is whether you could have, in aggregate, 56 kilobits of data coming out of the entire community. To think about that today -- now we figure that is slow going into a single personal computer sitting on a desk.
116. MR. COURTOIS: The type of situation you have mentioned has caused hiccoughs in us -- more than hiccoughs -- in the provisioning in the last year or so as these things have changed, particularly in the smaller towns.
117. I think from a public policy standpoint, if someone were to be -- it obviously would be tempting to say: Can we develop a policy that is going to assure roll out of high-speed access to all Canadians over a given period of time? At the moment, with what we know, that would just sound to be like an impossible project.
118. I think what we have to look to at the moment, based on the art of the possible, is that in the more remote communities we might look to give a community access point of some sort, whether it will be the municipal or library or school or some sort of public facility. But just the hope of getting everybody, everywhere, high-speed access, we are just -- we just don't have a solution at the moment, and I mean not just the telcos. I mean the telcos, cablecos and the others who are in this business, the wireless people trying to get in.
119. At the moment --
120. THE CHAIRPERSON: I take your point on that, Mr. Courtois, but I guess my -- I am trying to come to grips with the sort of philosophy underpinning this from your point of view. I mean I understand we are going to have to start with the major centres and then roll out to the more smaller and rural areas as the system moves along.
121. The reason I mentioned that earlier one is that, historically, the philosophy has been, "Show me that the traffic is there and then we will go in and provide the service." I guess what I am talking about is what generally has been characterized as the field-of-dreams philosophy, where build it and they will come, which the telephone companies -- and I don't mean to be critical here -- typically haven't taken that view of providing those kinds of services.
122. I am wondering whether, in order to move this along, it is true that it is only as fast as the weakest link, but if we start patching up this system so that we find where the weaker links are and improve those, such that we have this high-speed capability, I am wondering what that does, because I want to link this to the content side. Does that then provide us with the infrastructure on which one can now start looking at, well, now that we have this capability to drive this through to business or homes and generate e-commerce with this, now I can build the content, the information platforms, because now I have got so much more opportunity or capability to deal with it in terms of the network infrastructure.
123. But if I am always going to be limited by the network infrastructure, then it seems to me what I can do on the content side will be limited.
124. MR. COURTOIS: I think it is not in this case a problem about not thinking that the traffic will be there. I think that the efforts we are making, indeed, at the moment, in high-speed access and others, we would be willing to try to push pretty hard because we see this as very interesting for the future of our industry.
125. Perhaps Susanna can explain why it is not a question that we don't think there will be traffic in smaller towns or whatever. It is a question of whether we -- we or anyone with the existing technologies can make it work and actually be able to do it out there. It's not the lack of demand. I think it is the current limitations, technological limitations and economic limitations.
126. MS REARDON: As you can well imagine, capacity exists between our central offices. We have spent a lot of time introducing high band width capacity systems and much of the dial-up traffic rides on it now.
127. So that the question really becomes one of the access per se, or that segment of the network between the central office and the home; sometimes people call it the last mile. We have all sorts of nice names for it. But it is sort of getting to the customer and, you know, the future is quite interesting insofar as it may make sense in certain geographical regions because of the terrain, topography, in our case the amount of water -- I am from British Columbia -- that to do certain things at certain times, like we may want to push fibre out because the network makes sense, the loops are too long, or wherever. There are other areas where it is, for instance, too mountainous to do something and maybe wireless access would be a meaningful way to go.
128. High-speed access is, I sort of view it as technology agnostic, even so far as we in B.C. Tel are running a trial to look at wireless Internet access, high-speed wireless Internet access. It doesn't really matter whether it is by cable, modem, DSL, wireless -- we have to find some way to get to the home.
129. I don't think any one network can do it ubiquitously today and for the foreseeable future. It just doesn't make a lot of sense.
130. THE CHAIRPERSON: Did you wish to add something, Mr. Courtois?
131. MR. COURTOIS: No.
132. THE CHAIRPERSON: You mentioned broadcast quality video and we have had, you know, a number of people have suggested that this whole Internet phenomenon is going to be a threat to existing broadcasting, in the sense that the Internet is going to be able to deliver broadcast quality video either to my personal computer or my digital video screen, let's put it that way, whether it is considered to be a television set or a big PC.
133. What is your view in terms of when we are going to have the technical capability to be able to deliver that to enough of an audience that would make that worthwhile?
134. MS REARDON: Well, personally, I think it is more than three to five years out, if not later, and I will explain to you why.
135. Sometimes it is easier just to start at the client end. When you talk about delivering video, you are talking about delivering a high band width service for a long period of time, and that band width has got to be available from the source dedicated to the destination, to the subscriber.
136. If you start at the client end, you look at the computers, many of the computers are not capable of handling, you know, a bit rate of that capacity for that period of time, just not possible.
137. Then, you look at the fact that the majority of subscribers today use dial-up modem. Well, I think I have some interesting statistics, but the average movie, say a broadcast quality movie has, if you were to put it on to a server, would occupy three gigabytes worth of space. Well, to download that over a 56-kilobit modem takes days. I think it is upwards of five days. So that is not going to happen. Even at 1 megabit, I think the download rate is around seven, eight hours, so you can't view it in real time.
138. So you have got sort of the bottleneck at the computer. You have got a bottleneck in the access technology. When you remove those two, then you have got the bottleneck in the local network because the local network wasn't designed to sustain a bit rate of such a large magnitude for such a long period of time.
139. So you build up the network. Then you have got the Internet itself, where there is no quality of service guarantees. You know, when you are in the Internet it is an uncontrolled, undefined environment. So, you really have no way today to define a quality of service or a guaranteed bit rate for that video stream from the source within the Internet, all the way to the home.
140. So, when you sort of look at the layers, almost like that of an onion, I think it is fairly safe to say that for the foreseeable future, and I certainly have been around technology long enough to know if you sort of guess anywhere -- or put your stamp anywhere -- beyond three years, it is really sort of guessing. But, for the foreseeable future, I really don't see it being possible.
141. THE CHAIRPERSON: You said in starting your answer "more than three to five years".
142. MS REARDON: Yes.
143. THE CHAIRPERSON: So probably more than five years, five to 10 years out. I think we heard numbers earlier this week in that sort of range, before we could even contemplate that sort of activity, just from the network point of view.
144. MS REARDON: From our network point of view, I would say that, you know, technology changes so fast, I wouldn't commit beyond five years. Ten years to me, you know, I only graduated from university 12 years ago, and when I graduated they introduced fax.
145. THE CHAIRPERSON: We keep getting reminded here about that.
146. MR. LION: I would like to add something else. When we look, and obviously in developing content we always ask ourselves: Is it worthwhile trying to look now at developing some video content just because there will be so many high-speed users, we hope so, in the near future? This is not what we are looking at.
147. First, we have always to be, when we develop or create content, to look at what consumers are doing and how they are equipped. In fact, if you have watched the evolution of the Sympatico Web site, we never use frames. There was that frame craziness in the past because we always monitor what kind of competitors our consumers have, what kind of resolution, what kind of modem they have, and we try to make sure that we will meet their requests. So far, 60 per cent of our visitors still are using 14.4 modem, so we have to be careful about that.
148. The second point is that content is not always what we are looking at when we create our applications on the Sympatico Web site. What we look at and what looks more and more important for consumers is what we call the Internet life, which is everything dealing with chats, forums, e-mail, downloading software; and, when we look at that, yes, high speed will help to a certain extent in that Internet life to get your e-mail faster, especially if you have a big power point attachment attached to your e-mail, that would be very useful. Also, we have to be careful about the overall architecture of the network.
149. Just to give you an example, I have a palm pilot, like many users, and I try to download the new 3.0 version of the software to make that palm pilot running very well; and, in my office, I benefit from a T-1 line, and the best bit rate I got was 1.4 kilobits per second. So I think that I will revisit the Web site within a few weeks when I will be able not to wait 45 minutes for that software to be downloaded. So we have to look at the overall architecture.
150. But what is very important and on what we are putting more and more emphasis is really towards the experienced consumers enjoy when visiting us, and most of that has nothing to do with developing content. It is more toward developing context. It is more around giving better search engine, better facility, main doors and, in our case, it has been proven that offering specific Canadian content for Canadian eyes was something that was very benefitting for us.
151. This is even more important for the francophones which, surprisingly enough, have twice the tendency of the anglophones to use those interactive tools, whether it is chat, whether it is forums. Give an example, Quebecers are using twice ICQ as their anglophone counterparts.
152. So, this is what would take care and, frankly, high speed for us doesn't mean that there is here an opportunity nor an obligation to think mainly about broadcast content.
153. THE CHAIRPERSON: When you talk about these issues, do you draw a distinction between a residence consumer and a business consumer -- user?
154. MR. LION: I am just thinking about residence customers.
155. THE CHAIRPERSON: What about the business side?
156. MR. LION: Business side, I think the first thing that comes up in my mind is obviously video conferencing. There is already very good tools that enable some video conferencing at reasonably low speed. You don't need high resolution. You don't need a quality of picture that will give you an award or an Oscar or whatever it is. It is just a practical thing. So much you don't need exactly that kind of quality that you could expect; and even now today it is quite acceptable. If it can be improved, yes, that is good. But it is mostly for video conferencing.
157. THE CHAIRPERSON: What about electronic commerce-like applications either business to business or business to consumer?
158. MR. LION: When I spoke to the first question about specific networks, I think what we see very interesting is using TCPIP and then involved as the jazz network, which is a network enabling video producers to exchange files, so that if you work on a movie in California you can get access to some software application in Montreal, and these jazz media is, I would say, like a private Internet using the power and the strength of TCPIP standards, but it is specifically dedicated to these kinds of needs.
159. THE CHAIRPERSON: If we can just finish up on the earlier subject for a second, when we were talking about relative pricing issues, you were mentioning the cable modems. What do you see as the competitive environment for higher-speed access, higher than simply dial-up lines? What do you see as the competition and the extent of it in the marketplace today and over the next few years?
160. MR. COURTOIS: Well, we see that the cable modem technology has rolled out and is rolling out in larger numbers at the moment than the DSL technology. As I mentioned to you, we are working hard, and I think, hopefully, you will see in 1999 a number of telephone companies beginning to roll out the DSL.
161. I see that in the paper, whether it is this morning, that LookTV is announcing that it is going to start offering an Internet access service.
162. You have the satellite service providers that are still looking at this, maybe the low-earth orbit ones will get into it more, or the mobile satellite capability, but that's another possibility on the horizon, as well as LMCS and the other technologies.
163. In terms of the other elements of the competitive environment will be that the telco-based approach has the advantage of being an open system. That is an advantage to the customer as well as to other service providers. They can make use of it.
164. As I mentioned earlier, the arrangements are there today for ISPs to put their own equipment in and offer ADSL and make the same investment we do; or to take the service from, in the case of Bell, to take the service at the -- at what it costs us and, like Sympatico, make the same investment Sympatico is to develop that.
165. As we get the costs down, we hopefully will get the wholesale cost to us and the wholesale price to ISPs down, and at least in the open network telco base they can -- a whole bunch of them can be active in that area.
166. I think in the cable modem world -- I think Susanna might be able to explain this -- but I understand that the technology is there to open the cable modem system to other ISPs. At the moment, they are operating as a closed system, but I think at some point they may open as well.
167. So, you are going to have -- you are going to have a mix and match here. You are going to have people who play the role of doing everything end to end but also possibilities of other players playing at various steps of the process.
168. THE CHAIRPERSON: Would you see those other players as being fairly small, almost bit players, pardon the pun, in this business? I mean if I go back and consider the projections that LookTV -- in fact all of the MMDS applicants -- had when we were considering licensing of those services, the penetration rates were pretty low.
169. MR. COURTOIS: Yes, it depends again whether you -- I think it is going to be a very dynamic environment because you will have -- and of course you will have new local telephone service -- telecom service providers that will also be into it. You will have enough diversity that the competitive impact of the alternatives doesn't have to be based only on the fact that they would be very big.
170. You know, the impact on the behaviour of the larger players will be there even if there is a small amount of market share captured by the entrants because you have to base your market behaviour on what you think those people can do, if you don't react yourself to what their capabilities are.
171. In addition, as I say, you will have people -- you have heard this week people are sort of halfway between the role of a carrier or reseller and ISP. You have ISPs that are purely in the business of just connecting people to the Internet on services and facilities provided by others. You have people, like the telcos and the cablecos, that might be prepared by themselves or within their family of companies to offer all the steps of the process; and you have people like UUNET who are in between.
172. Therefore, I think the environment is going to be fairly dynamic. I don't think you can focus on trying to split it up bit by bit. I think the dynamics of the industry will be that you have players who, if they sense an opportunity that there isn't enough competitive impact at other steps in the chain, are going to move into those other parts of chain.
173. You have small players. Of course, I think the smaller ISPs will just ride on those developments and benefit from them.
174. There are large ISPs that are very big companies. Some of them appeared before you this week. They have a lot of resources to move into various steps of the process as the indication may be, either as direct carriers or resellers or various other steps, as well as going all the way up to the content.
175. Susanna, maybe you can explain on the cable side where things stand in terms of opening that system, just so people have the -- realize that that openness is feasible right now.
176. MS REARDON: One of the interesting things about using the Internet protocol as your transport medium is that there are now products available that allow you to essentially implement third-party access. So, whether, you know, you are going to have an IP protocol in a wireless environment, in a CATV environment, or in a DSL environment, they all use IP protocol and they can all use very similar products. So third-party access is something I think that is extremely important for new players in the Internet.
177. Certainly, today, it is possible to have third-party access to cable TV networks, as it is to DSL networks.
178. THE CHAIRPERSON: Going back to this issue of ISPs as carriers, would you consider that the ISPs would be what we would understand to be telecommunications carriers?
179. MR. COURTOIS: Again, there is no -- an ISP, it is like defining new media. I am not sure that -- it almost gets to be an impossible task at some point because you can define them for specific purposes, as the Commission has done in some of its decisions; but they can wear many hats and play different roles. I think what you heard this week is some ISPs would like to be treated like carriers because they have the size, the resources; and one of their particular approaches that they really want to get into building a network that they actually then wholesale to others and so on.
180. So, I think whether they are carriers or not does not depend on whether they are an ISP or not. It depends on what particular type of ISP they want to be. Of course, if you want to be a carrier, you are going to have to fit within what the law says, and also you are going to have to be prepared to take what comes with that.
181. For example, in Canada, if you want to be a carrier, if you want to own transmission facilities in this country, you have to be subject to Canadian ownership and Canadian control; but also you have to be subject to CRTC jurisdiction in matters of discrimination and other things. If you are offering a service that is not covered by forbearance, you may have to file tariffs. If you are on the local side and wanted to be an interconnected local carrier, you may be getting yourself into equal access, contribution pool, number portability, et cetera, et cetera.
182. So there are -- I mean there are ISPs that are carriers, like the telephone companies or the cable companies. There are ISPs that don't get involved in any of that. There are ISPs that are playing the role of sort of resellers; and around the data business there are a lot of people that have been operating in Canada for many years as quasi-carriers. They operate just for -- many of the characteristics of carriers, but they don't own the transmission equipment proper. They don't operate it; and they don't qualify as carriers and, therefore, they don't have to face all these other requirements.
183. Therefore, as I say, you have got very different -- a whole range of different types of animals in the --
184. THE CHAIRPERSON: And perhaps a whole range of different types of issues.
185. What would you think of the proposition that on a going-forward basis we considered that it would be in our interest to help develop the Internet and the technical capability that may go with that to treat ISPs as carriers and encourage the sort of interconnection and competition among ISPs, including yourselves and others, in encouraging the interconnection and competition and so on, similar to what we have done with respect to long distance and local telephony, but viewing this broader as terms of the whole Internet world, if you will?
186. MR. COURTOIS: I think the Commission can use the same kinds of approaches. As I said, the UUNETs of this world are playing much of that role today and the existing laws and rules don't seem to impede them too much.
187. What the Commission did in long distance and what the commission did in local competition, however, is that in setting regulatory rules and regulatory approaches, then you have to make distinctions and let people choose what kind of animal they want to be.
188. So, in the case of long distance, and in the case of local, the Commission distinguished between carriers and resellers; distinguished between wire line and wireless; distinguished between those who want to be CLECs and those who do not want to be CLECs.
189. In its local competition decision, in particular, the Commission pointed out that the efficient and effective competition has to be anchored on facilities-based players developing. You have got all these people now gearing up, going through all that is needed to start up and enter that market, and I think that is a whole set of a coherent rules that looks to be based on the sound economics of where the business is going and what regulatory obligations come with that.
190. I think that I wouldn't want to risk this nascent industry by all of a sudden in midstream changing the rules so that ISPs get the favourable treatment and can upset that. At the moment, there appears to be no demonstrable need to give ISPs a special advantage over everybody else in the system. They seem to be doing -- they seem to be developing quite well indeed.
191. I heard some comments this week about prices in Canada that ISPs have to pay and there is an unfortunate wrong impression left on that and a number of other topics. But, on the prices, for example, I don't think there is a disadvantage between Canada and the U.S. I heard prices mentioned, for example, of you know the lowest price in Canada at 23-cents per DS-3 mile which is really measured in DS-0 equivalent circuit miles. I can say that even the person who was saying that, his own people seemed to be doing a lot better trying to get offers from Canadian carriers at -- but just to give you an example, there is on the public record in front of the Commission the contract between Stentor and Teleglobe and, for a seven-year contract, long haul across this country -- because of course the longer haul the service is the lower the price is per mile -- long haul, very high capacity, I think that is in the order of OC-48 and sometimes OC-24 in some cross-sections, but the price of that amounts to about 3.8-cents Canadian per DS-0 equivalent circuit mile.
192. We can go through both the local and the long distance. As you know, from the prices that people know at the retail side, long distance, basic local, access charges, our prices in Canada are considerably lower than the U.S.
193. In the very high speed, very high capacity world, we are a lot closer, because in the U.S. there is a lot more density, a lot more very high volume users, but we are close. I mean we are all looking at the U.S. market to see the opportunities for us as Canadian carriers.
194. While there is a lot of dynamics and sometimes they get ahead of us, sometimes we get ahead of them, maybe Quest and Level 3, and other people, they will put in big huge new networks and everybody get excited and that changes the dynamics.
195. You have to realize that in Canada you have got a whole bunch of new network capacity coming in in 1999. These led-core networks are going to be mean that Sprint is going to get a new network in 1999. Bell and its natco are going to get a lot of new network capacity. MetroNet will get a lot of new network capacity. B.C. Tel-Telus are also looking at some of that capacity, plus of using the U.S. networks. The U.S. networks are now open to be available for long haul traffic for Canadians.
196. So this is a very dynamic market, both in the long haul and local short haul market. There is just not a need now for the Commission to try to do something artificial and try to upset the whole regime that it has put together which seems to be headed to work well.
197. THE CHAIRPERSON: I am not sure I said "artificial" or that we would give them any more preferential treatment than we would give anyone else. I guess what I was suggesting is: Is there any reason to not consider ISPs to be another form of competition, and consider that they should have comparable kinds of access treatment that we have said, for example, dealt with in the question of local telephone competition, and have access to unbundled capability, co-location and those kinds of issues?
198. Is there any public policy reason to prevent that?
199. MR. COURTOIS: There is no problem in considering them as another form of competition and letting that develop. The reason why I used the expression "artificial" is that they can't have it both ways. They can't want all of the advantages and characteristics of being a carrier or a CLEC without wanting to take what other people have to take to become that.
200. I mean take a company like ACC that has been operating in this country for years. The Commission concluded that you can't have -- you can't have all the advantages of a carrier or a CLEC without also taking on what being a carrier requires in terms of legislation and regulatory rules.
201. The ISPs are getting -- I think what you need to do there is to tailor a regime that is particular to the type of entity that you are looking at, and you are getting that. I mean the ISPs, because of co-location of ADSL modems that has been offered, for example, in Bell territory, are getting something that is not available to others. Obviously, it is for ADSL and it is unique, but they can put their equipment in, they can ride on other customers on the lines to customers' premises as opposed to their own facilities. They don't have to buy the unbundled loop.
202. So, yes, there is -- they have a regime that is sort of tailored to the particulars of their business. They have a regime that is absolutely identical to being a CLEC without being a CLEC. No, I don't think they should.
203. THE CHAIRPERSON: Why?
204. MR. COURTOIS: Well, either there is a reason for the Commission to have all the rules that it sets for CLECs, which involve as I say prescribing that they have to offer equal access, participate in the contribution pool, number portability --
205. THE CHAIRPERSON: I guess, Mr. Courtois, I am trying to get over trying to view this as simply let's deal with plain old dial telephony. Let's try to take a look at where this business is going in terms of developing a whole new approach to this new network phenomenon; and what is it going to take in terms of approaching it from, let's say, a pro-competitive point of view, and is there any public policy reason for not wanting to change our thinking with respect to this; and, perhaps, take a broader look at what we mean by carrier and would that sort of competition that we might be able to instill there help achieve some broader public policy goals in terms of developing this whole network infrastructure by having these kinds of players enter this business as well?
206. MR. COURTOIS: I think we are -- I don't think that is where there is a problem. I don't think there is a problem in the Commission or anyone having a competitive mind set and letting these people enter the business. I mean they are in the business and they are thriving now.
207. THE CHAIRPERSON: They are in the business largely as customers of yours, right? Not as -- .
208. MR. COURTOIS: No. Some of them are in business as customers and some of them, like the UUNETs of this world, are in the business of providing a lot more than just serving -- they are actually serving other ISPs and providing service to them; and they are getting some bits of what they want from Bell or they will from MetroNet and others.
209. I think that the concept is that they are not asking for a competitive -- an open competitive environment. What they are asking is something that would have you intervene and, by regulatory prescription, make certain things happen.
210. The underpinnings of making competition develop is to have it develop based on market forces and favouring facilities investment. The Commission then has a conceptual and sound regime that says, well, when something -- here is what is an essential facility and here is what is not. Even when things are not essential facilities, there are times when I will move in and keep things tariffed because I will want to oversee the basis on which something is accessed.
211. What they are talking about is: Do they want to come and do commercial arrangements with the whole variety of players that are out there that have different roles, some of them in long distance, some in local? Do they want to make commercial arrangements in the normal market forces and the economics of the business develop? Or do they want to try and tinker with regulatory interventions that will make some things happen differently than they would based on normal market economics and competitive dynamics? I think it is the latter that they are looking for.
212. When you think about it, they have a lot of clout and they will have a lot of alternatives. They will be able to play with the various players and get what they want.
213. What they would like is something that market dynamics -- apparently they think something market dynamics would not give them. When that is taking place, you are saying, we used to say: "Wait a minute. I am being asked here to do something that won't help competition; that, really, when you look deep down is going to hurt competition."
214. THE CHAIRPERSON: Let's switch subjects for a bit.
215. Where do you see the ISP business going from a content point of view? Sympatico has grown quite dramatically over the past few years to, I guess, one might consider it to be -- I hesitate to use the word "dominant" -- I guess a fairly significant player in this marketplace.
216. What is your sense of where this whole side of the business is going to go? I mean, I have heard some comments that with some of the big mega mergers we are seeing even in the last few days that we are going to have a few big strong powerhouses, with probably a whole lot of small little players having interesting hobby Web sites and so on. Are we going to see a pretty dynamic and thriving world in Canada?
217. MR. COURTOIS: Before Jean-Pascal maybe gets into it from his perspective on things, I would say that, standing back, you are seeing major, big, big players, to put it politely, emerging that make us with our enterprises in Canada and a worldwide web that is really a global activity look pretty tiny.
218. But we are not sure that we small guys -- and I know that sometimes a lot of people appear here look to us as being the -- we are not sure that we small guys are out of this game by any means, but maybe Jean-Pascal can talk about the dynamics and how even the Sympaticos of this world are not planning to go the way of the dodo bird.
219. MR. LION: First of all, it is very difficult to forecast more than six months and, just to let you know, we revisit totally our business cases within MédiaLinx every six months. Every six months we reinvent ourselves, checking if we are going in the right track, and we are totally marketing-centric and consumer-driven.
220. What we have found is that we have been successful as a major portal, like others, like Canoe, for instance, which is not ISP related, or even YO.dot.ca, because we have been offering Canadians user friendliness and easy access to mostly Canadian content. What we see is that the success -- and I won't say the natural protection of our portals resides in what we call the proximity content, which is the contents that are uniquely dedicated to Canadian needs. We have some unique situations. For instance, one of the biggest uses of the Internet we see, at least on the world Web site, is for personal finance. In personal finance, we have a unique Canadian financial system. We have RRSPs. We have a lot of unique features which makes us quite assured of being protected from, for instance, equitable big U.S. web sites; and, if we have the tools, the energy and we can get the revenues that will enable us to offer Canadians the services that they are looking for, we might be successful and have a significant size. We are not only looking at that. When we decided to invest into BookShelf, for instance, we knew that by offering an alternative to Amazon.com, sure we would be offering Canadians something that would be more user friendly, that they will pay in Canadian dollars, they will have lower rates to receive at home their books, but also it will put a bias on Canadian literature. I am not a specialist of English Canadian literature, but I have been told by my colleagues that this is something that has pretty good appeal for exports, south of the border, and not only that but in other countries. So, if you go in BookShelf, you can buy books in francs, in euros, in Canadian dollars, in U.S. dollars, and I think we might attract also people south of the border, and bring that Web site to a level that it would be very, very attractive. It has been so attractive that we sold our interest in BookShelf to Indigo that wants to push that service to even to a higher level by leveraging the existing big megastore business and following their growth into the on-line service.
221. That is mostly what I see for the content.
222. THE CHAIRPERSON: Do you think that this capability that the Internet provides us allows us, taking your example about being able to sell Canadian books -- we have often struggled whether it is books or magazines or film in Canada in terms of the cost of producing product and getting access to market, whether the market is just scattered over the world. It has been quite a struggle for us to be financially successful and just let the market run; and we have needed various subsidies or other schemes in order -- depending on the particular type of cultural media, if you will -- to try and make a go of it in this country. Do you think that this technology is going to allow us the opportunity to overcome that using, for example, the book example you just gave?
223. MR. LION: I think we will achieve that objective being proactive and being aggressive and being marketing driven than trying to reach that status through protection or regulation. Definitely.
224. When you give access to a user to the Internet, you give them access to the whole universe. I think that probably the best news that we have seen is the success of big portals such as Sympatico. We took the bias from day one to promote Canadian content first permanently. In fact, consumers could have elected to go elsewhere, but they are using the Web site and they are coming on the Web site even if they don't use Sympatico -- 30 per cent of the visitors which are not using Sympatico as their ISPs have elected to make Sympatico their default home page. These are the kind of results that, for us, are showing that we are aiming on the right track.
225. Yes, people can go all around the world, can shop all around the world, but mainly and truly if we offer them something that they are familiar with, they understand, they know, for instance, I know that we switch for the news the feed from Reuters to Canadian Press, and automatically, instantly, you see the results into the page views.
226. You see one of the big, big advantage of the Internet is that the minute you put something, I would say not on air, but live on line, it will take you just a few hours to know if it is a flop or if it is going to be a success. We monitor that life. I can tell you that just even on the French Web site using Canadian Press versus Reuters has doubled in a week the page views on that specific area.
227. So, we try as much as possible to be very fast, proactive, and meet specific niche markets where we find unique content for our users. By seeing the results, by measuring the page views, which is a very fragile status as a portal. We can be ejected very easily by a click of a mouse, so we have to earn that position. You have to fight day after day, hour per hour, to earn that position in order for people to keep us as their default home page. So far, we have been successful, and I think we have found the right recipes to achieve that.
228. THE CHAIRPERSON: Do you think there is a certain economy of scale associated with this business? Yesterday, I think it was the TorStar people who were saying that there is a certain economy of scale, particularly in the U.S. market, that those U.S. players who are doing largely what you are doing, that to some extent makes it extremely difficult for Canadians to do well here and compete.
229. MR. LION: Where I would say we see the biggest impact on what you refer to as economies of scales is we benefit from the fact that we are a national service and definitely when we rely on advertising revenues the fact that we can offer a national distribution, the fact that we can offer most Canadian Internet users to potential advertisers on a national basis, this is the kind of thing that helps us to generate those very difficult advertising revenues that we are aiming at in order to keep investing in either content or context initiatives, which as I said before are as important.
230. THE CHAIRPERSON: We have had some suggestions with respect to the treatment of advertising revenues, I think it is section 19, the way -- the treatment of advertising expenditures and it has been suggested that that is a growing problem, in terms of advertising dollars showing up on U.S. sites. What is your view of that? Do you see that as a problem?
231. MR. LION: In fact, it is growing. If we look from 1996 to 1997, the advertising revenue grew by 516 per cent to reach a level of 9.8 million in 1997. For 1998, we will reach $22.9 million of advertising revenue; and we expect that this will increase again and, by 1999, we should see something close to $57 million. These are good dollars. This is still only 1 per cent of the U.S. advertising expenditure that we see south of the border. So, yes, it is improving. Yes, it is increasing.
232. But it is yet -- I would say that right now what we have been receiving, and it is mostly test budgets, people investing into the Internet to see if it is working, if it works, we are experimenting with a lot of kinds of advertising, from plain banners to interactive banners, to new way of -- so it is still a very experimental environment as far as advertising is concerned.
233. What we see is that there is definitely advertising money that is being leveraged south of the border that we don't benefit from in Canada. Why? Because if you look at the biggest advertisers, they are mostly big computer manufacturers and other companies like that that, in Canada, mostly have distribution outlets and no marketing facilities.
234. So, what we have to make sure is that having now played a national role, and I think my colleagues will see next week for the Canadian Internet Advertising Bureau will explain you that, I think even better. MédiaLinx has been a co-founder of this IAB; and one of the big objectives is to group all the forces of the major portals that are selling advertising so that we could collectively either sign deals with rep shops south of the border or to be able to make big presentations in major agencies on Madison Avenue, and represent the fact that we offer an unique entry to Canadian Internet users.
235. We can do that if we create things like the Canadian IAB; if we have national offering. And this is what we are working on in order to change the trends that I just described.
236. THE CHAIRPERSON: Given those comments, what is your view of the suggestion that we should apply the same provisions with respect to taxation on advertising dollars? Would it be beneficial or could it, in fact, be counterproductive if one was in fact trying to attract foreign advertising dollars to your site?
237. MR. LION: What would be interesting is to see the Canadian major advertisers invest on the Internet and one of the -- some of the major advertisers in this country are both the Canadian government and the provincial governments. So far we haven't seen very much money coming from these various big advertisers.
238. THE CHAIRPERSON: Mr. Chapman, did you want to say something?
239. MR. CHAPMAN: Just another couple of points on section 19. As Jean-Pascal was saying, and he was using the example of BookShelf, when people advertise on the Internet they tend to go for a domestic plus a global audience. We think that would have practical difficulties in that section 19 is really to prevent Canadian advertisers going to U.S. border stations and then reaching the Canadian marketplace. If you are a U.S. -- sorry, if you are a Canadian advertiser and you are trying to reach American -- the American marketplace, you know, section 19 doesn't kick in. So therefore, from a practical point of view, I am not sure if section 19 would work.
240. I think as well the other issue is a whole trade issue. The trade issue is such a hot topic among governments these days. We are all sort of watching what is going on with Heritage Canada and the magazine issue. I think that the U.S. and major U.S -- our major trading partners would also have concerns as well with this.
241. MR. COURTOIS: I think the reason that the concern would be heightened with the Internet is, as you have heard, the Internet at the moment is not -- it is very hard to tie that to saying that it is a cultural vehicle the way television is. I mean it would be pretty easy for someone to show that it is de minimus in terms of the role of the Internet, hard to connect it and have some -- even if you were to build a structure around countries having to recognize cultural diversity and whatever, very hard to tie that to advertising on the Internet.
242. MR. LION: Mr. Chairman, I just have to add a caveat. I went this morning on the French Sympatico Web site and I saw big advertising from the Director General of Elections Québec, announcing that they will give live results of next Monday's elections on their own Web site. So, yes, we start to see some government advertising.
243. THE CHAIRPERSON: The new media fund that you folks have put money into, what has been your experience with that? What is your sense of the need for it? How successful has it been in terms of helping to stimulate development of that aspect of this business? Do you think there is a continuing need for it? Are you going to continue to put money into it? That's about four questions.
244. MR. CHAPMAN: Maybe I will start and then I would ask Bernard to jump in a little bit later.
245. I would have to say that the experience has been very successful. I think people during this week have talked about the Bell Broadcast Fund; have talked about the Stentor fund.
246. In our first round submission, as well, we included a number of projects that the funds have funded, and I think they have been very successful. It has been successful in creating that link where you have taken a broadcast product and linked it to a new media window.
247. I guess the feedback to us has been that it has created more audience and more reach for traditional broadcast product, and that is where they have really -- that is where they have found it successful.
248. Also, some of the other feedback when we have meetings together with some of the broadcasters and some of the new media producers, actually getting them together in the same room, they have actually sort of walked away from the meeting saying, "Gee, thanks, it is really good talking to these people. We understand a little bit more about their industry. They understand more about our industry. So I think it has been successful.
249. The other point, though, is I think when you say should it continue, I think that -- I know the B.C. Tel fund is up and running and it is going to be going on. I think, based on business plans, it should be business-based. I think there will probably be reasons for us to invest in various businesses, whether we want to invest directly, whether we want to do it through some funds, you know, we will probably -- we will still have that business need.
250. As for, I would say, a government obligation for us to create -- to put money into a fund or tax the ISPs, we definitely would not take that approach.
251. Bernard.
252. MR. COURTOIS: I think that we are trying to think of how we can make the Bell fund -- it does seem to be quite a success -- permanent or more permanent. At the moment, it has a finite life. It is an independently managed fund. It really does work like the concept of the type of funds that the Commission is allowing or directing BDUs or broadcasters to contribute to.
253. Here, there is a couple of concepts that you have heard in this proceeding and whether people could take some of the money they have been directed to spend on broadcasting content to defer to new media expenditures. We are -- while we think that may be a good idea, we don't feel too strongly either way there in terms of diverting money. We know that, however, the Bell fund might be able to qualify and say you spend on broadcasting content there, but this fund happens to be one that says, we will look at your broadcasting content, but we will favour in particular things that also have a new media dimension because it is sort of a future oriented that will benefit the broadcasting system.
254. It would be a next step to say spending on the new media component itself would qualify for the broadcasting. I mean, sure, to fit within the Commission's jurisdiction, it would have to be an extension of the broadcasting content that benefits the broadcasting system by making that spending more dynamic and attracting more money to that; but we are a little -- we will let the people who are more directly involved in having to make those funding expenditures coming to you and say whether they would prefer to have that or not.
255. THE CHAIRPERSON: Setting aside the Commission's jurisdiction and whether or not this is broadcast, let's assume it is not, and there is no broadcast link.
256. MR. COURTOIS: Okay.
257. THE CHAIRPERSON: Is there a need for this sort of thing in and of itself, do you think? Some people have said there is and others have said there isn't, just let the market -- if we could just get governments, at federal and provincial levels, spending more money, perhaps some tax credits or whatever for more R&D, we don't need to create funds; we don't need a Bell fund or whatever. But others are saying maybe we do. What is your view on that?
258. MR. COURTOIS: I think along the spectrum no doubt people will say these are all good things if they can happen. I don't think that these kinds of funds are a prerequisite to the success of new media in Canada, or the success of Canada's participation on the Internet. So we have to be careful.
259. In my view, I don't think anybody has come -- or don't think anybody should come and say that unless you channel some government money or some mandated money into this business, we are going to fail. Indeed, there is no way that success could come from that.
260. You have heard that, at the moment, it is a success story in Canada. We are doing pretty well, indeed. In terms of government policy, there is big, big things that can be done that completely outweigh any question of funds. The biggest one, as we have mentioned to you, would be to help clear up in people's minds that the Canadian public policy and regulatory policy is to favour the continued development of the Internet based on its natural forces and remove the cloud of some possible broadcasting regime, or regime set up for entirely something else be imposed on it.
261. Or, the other thing would be to avoid putting a tax on ISPs, which would be one of the strangest things. Here is something you want to encourage and help and you would have to pass a new law to do it or whatever. You can just imagine how we would be viewed internationally if we were to become the first one to tax the Internet.
262. But funds -- obviously, anything helps, and you have a lot of people who come and say, "Well, gee, if the government can give me a little bit of money here, or if money can be directed -- I would say you are just giving a little bit of an extra push here and, of course, anything like that is going to help. But you shouldn't view that as being an absolute requirement or a demand because I think that has the world upside down. The dynamics of this business are going to be based on something far different than that. And so I think you are into just every little bit helps here, and why not, type of thing.
263. THE CHAIRPERSON: Let's just finish up on that point that you just made about creating this or eliminating the uncertainty or creating a more certain environment around this whole thing in broadcasting and I must say that I felt at the end of the day yesterday, enough already. We have heard enough about this, keep your hands -- this is not broadcasting, and going through all this definitional stuff. Yes, and we are also old.
264. You have talked in your submission and in your opening comments here today about this issue of that it is not broadcasting but have -- you said:

     "-- we urge the Commission to confirm that the Internet itself and the overwhelming majority of new media services do not constitute broadcasting undertakings...To the extent that the Commission identifies that there are services and undertakings that could be subject to its licensing jurisdiction, it should issue a simple exemption order to deal with the situation."

265. Now, we heard discussions this week about, well, none of it is broadcasting, so exemption wouldn't apply any way. We have also had some discussion about whether or not some of this activity may be undertaken by foreign enterprises; and there is some debate about whether one can exempt what you can't licence, even within the Commission.
266. Another approach one could take to this would be an interpretation of some of the aspects of the definition of broadcasting. I guess -- I am wondering, given what -- there are a number of options, it seems to me, in dealing with this to clarify this issue, and I am wondering what you think we should do in that respect, because you have raised the issue of clarifying it, but you have also then raised the issue about this exemption order.
267. So the exemption order would presume that some of it is broadcasting, and then if that is how would one come to grips with trying to figure out what is and what isn't? I guess I am asking you, can you be a little more specific in terms of what exactly should the Commission do to clarify this uncertainty coming out of this proceeding?
268. MR. COURTOIS: Yes, I think you are obviously in a unique position here and you have got a unique role. You are building up a record of this proceeding and you are in a position, therefore, to see the range of views that appreciation from the individuals' perspectives coming here don't have the total picture the way you will. You have the expertise to look at these things and report and make these pronouncements; and, of course, you are the ones who have to administer the laws that would anchor what would otherwise be the regulatory regimes that would apply. So I think this is something -- and you have also heard that the uncertainty is affecting, is having -- actually there are some specific things that you were told that may not be happening here because of that uncertainty, and I think you can do a lot to clarify it.
269. It seems that as we live more the experience of the Internet of what is happening in that market, even our own perspective, whereas a year ago or a couple of years ago it would seem that, again, there was a TV-centric component or potential to it that was, I don't want to say, was hype, but it just is not the way -- not just in terms of what the technology can or cannot deliver, on the basis that people are not turning to the Internet for a broadcasting experience. They use it completely differently.
270. It seems to us that even once you look at the facts and what is happening and the prospects of what is happening and where it is going, even the need for an exemption or the anchor for an exemption is much less than even a few months ago, or a year or two ago, we would have thought.
271. What we have here is that on the Internet we are having trouble finding something that would really be -- have all the attributes of what you would have something subject to a licensing so that if it were subject to licensing you could exempt it.
272. Therefore, I think based on what you are picking up in the record of this proceeding you can do a huge benefit to this industry by setting this clear. Most of it is going to be on your defining what is and is not subject to potential -- potentially subject to licensing jurisdictions.
273. As we have heard, you need a lot of pieces, a lot of components to be -- to come under the type of broadcasting and the kind of thing that would require licensing. Even in the newer evolutions of television, such as when we got satellite and other methods of delivering television services, it is pretty easy to recognize and track down all these pieces.
274. In the case of the Internet, it is not at all clear that you can find those components. So let me try and go through them in an organized way to give you an idea of where I think, as you pick up the information here, that you can go through a very structured approach to it.
275. It has -- the material has to be a program. As you have heard, most of the material on the Internet is predominantly alpha numeric, so it is not going to be a program even, so you don't enter the system; so that leaves very little that really could be captured.
276. It has to be -- in order to be broadcasting, it has to be not only a program, but it has to be transmission for reception by the public. As you have heard, even if you find something that looks like a program -- in other words, it is a coherent, cohesive piece that looks, walks and talks like a radio or a TV program, it's -- the Internet mode of getting it is interactive; it is not necessarily simultaneous. It is pull rather than push, that is, it is not being spewed out there all at the same time so that everybody lives the same experience, and if you come a half hour into it you have missed the first half hour.
277. On the Internet, it is none of that. It is more that the customer goes and gets the material. Even when you use web casting technology, it is not like broadcasting. The whole thing is being -- is out there -- sitting out there at a given point in time and only available to a small number of people and when they go and retrieve it, they retrieve the whole thing. They are not living the same experience as the others; they are not halfway through their program. So that because you don't have broadcasting transmission for reception by the public in the broadcasting mode, that -- you start off with very little. Now you have even less.
278. Then, in order to be subject to licensing, you have to have an identifiable undertaking. So, track down undertakings that are doing that, sending that kind of material through the Internet; and it has to be a substantial function of what they are doing, not some just experimental or de minimus or side activity.
279. What you find on the Internet is maybe there is some entities that are already licensed that are using the Internet and putting some of the same material on the Internet, so you leave those aside. They are already licensed, even if most of what they are putting there is not really broadcasting.
280. That leaves, again, not too many -- there is not too many, if there are at all, entities that are actually what you would find as -- here is a radio station, or here is a TV station operating only on the Internet.
281. I tried to look through in an organized way a whole bunch of these sites to try and see what the experience was like, and I could say that maybe there is one-tenth or one-one thousandth of 1 per cent of what is on the Internet that you might say this is streaming audio and streaming video that is sort of scheduled real time, sort of simultaneous experience and a coherent programming, there is a tiny bit, and that might look like, okay, it is broadcasting, and I might track down a programming entity, mind you it might be in Sri Lanka, or there was -- the best sound I got for radio was out of a Finnish site.
282. But then I sat there and said, wait a minute, this is not a broadcasting -- it is not the experience of listening to or watching a broadcasting program. I didn't turn on the radio or the TV set and just pressed my channel selector and get this. If you are not that proficient with computers and the Internet, and I know a lot of people are, it is still some job to get in there and go and reach this kind of stuff. You are going to be listening to something that comes into you at a bit rate that varies depending on the load that is on the Internet, how many people are on, so even the audio, and certainly the video, are going to be choppy. The quality of the sound is going to vary on you. The image I think that someone this week who should be close to that said even on the high speed stuff the image is tiny and it's terrible or something like that. You don't see the lips move as much as the words that are being said, and even on a tiny little screen.
283. What you have got is a screen with a whole bunch of other things, utilities, sometimes someone may be trying to sell you something on most of the rest of the screen while you are listening to something and watching. It is just not the experience that you see with broadcasting.
284. I would qualify it as sort of a novelty or you have to be a real aficionado and therefore it just feels wrong to try and apply a broadcasting concept to that; so it got me to thinking am I really using, for example, broadcasting receiving apparatus here? Because the definition of broadcasting receiving apparatus appears totally circular, as long as it is intended for being used for reception or broadcasting. But that sounds like you might as well throw out the words, they have no meaning. That is not normally how you are directed to interpret legislation.
285. It seems to me that the Internet and a PC and even web TV when you are accessing the Internet is not substantially or fundamentally either intended for or capable of being used for reception or broadcasting. It is being used for that, as I say, as a novelty or as a sort of a fun thing that you might get into, something you might not otherwise get.
286. It also leads me to think, wait a minute, in 3(1)(b) of the act there is still that reference to "the system makes use of radio frequencies that are public property". Sure, the act is technology neutral, and if you use purely a wire line system to achieve the same effect, I guess you would want to capture that. But, on the Internet, much of the stuff -- if you have got something that is only Internet, not something that is already licensed or whatever, it is not going to use radio frequencies at any point in the chain.
287. Moreover, it is not a substitute because, as I said, the experience is so different, it is not even a way to get around the act. Its not a substitute for the types of services that originally used the radio waves.
288. So, that leaves me with saying, gosh, I am not sure I am left with anything that I can track down and say, here, you are the kind of undertaking we are going to exempt. But I would say the technology may evolve. There is the potential for this kind of thing to develop, or there might be some doubt as to whether you have gone through all that and you say it is pretty doubtful, it is not quite clear, then you might say but if there is some risk, or if we ourselves think there is some risk and we want to see where things go, maybe you would issue an exemption order.
289. Now, as I say, it is not going to be easy because if you want to define the entities that you are trying to exempt, you will find this a bit of an iffy exercise. It says to me that most of what you are going to do here to be useful is to set out for everybody, and that should calm a lot of people down and say, "Wait a minute. We have this act to administer, so we can't ignore it. We have this expertise. We have this record now. We are going to tell you in a structured way why we have concluded that the Internet -- there is nothing."
290. If, as you go through that exercise, hearing not just my point of view but those of others, you found something that might be licensable, then I say, okay, issue an exemption. I think it would be pretty clear, based on section 9(4), that you would have to issue an exemption. We have not found anything or heard of anything that has any, for the foreseeable future, really any impact on the system.
291. Then you have heard the question that there might be a foreign ownership problem if you use the exemption power. I think, by the way, you can do away with that. I mean in order to qualify for a licence, you have to meet the direction from the Governor in Council in section 26. But section 9(4), which is your exemption power does not -- 26(1) applies to licences, not to exemptions. So you don't have to face -- if you want, you don't have to engage into a foreign ownership problem; and, indeed, that is what you did with the SMATV exemptions. But those are different sections of the act, different environments.
292. THE CHAIRPERSON: What an interesting answer. Maybe we should just go back to a comment you made a few minutes ago as part of that answer and say we are not going to do it because it just doesn't feel right.
293. MR. COURTOIS: Well, you know, people look to the Commission and, you know, sometimes we criticize the Commission -- who knows, even we. But the fact is the Commission has built a reputation for doing the right thing. You have got the expertise. You have got the material. You have got the information. I think that people -- I mean that will have an impact if you make these pronouncements here.
294. THE CHAIRPERSON: Well, thank you for your answers. I think counsel has a few questions.
295. MS PINSKY: Thank you, Mr. Chairman. Just to follow up on that discussion, I wonder if there is, with respect to the definition, or the types of new media services that you would consider would fall outside the scope of the Broadcasting Act. The definition that you have provided of new media services in your written material refers to the concept of material interactive capability. I wonder if you could just, perhaps, address that specific component in more detail in terms of how -- if the objective is to give some type of certainty, is there any additional clarification that you could provide with respect to that term? For example, some parties have referred to let's say the option of choosing between two endings of a movie. Obviously, that would be one end of the spectrum and being able to tailor every word or whatever would be the other end.
296. MR. COURTOIS: First of all, let me comment on the definition of new media. I think it is useful to define new need if you want to know what we are all going to be talking about here in this room. But once you get into whether something is captured by broadcasting or telecom, then defining new media, unless you are trying to do something entirely circular, is not where you start from. You are going to have to go well beyond that and say -- because a CD-ROM or a digital video disk is perceived by everybody to be a new medium.
297. Okay, we are talking about something here that -- you are talking about the Interactive component and it came up in my discussion of why things are not broadcasting. Interactive -- if you mean interactive in the sense that I have got a bunch of canned or continuously broadcast movies out there and it is Interactive in the sense that you go in and reach for the one that you want, I don't think that is the kind of interactive that we meant. That kind of interactive still can walk, talk and act like a duck and be broadcasting, if licensed entities do that.
298. What we are talking about interactive is it is actually the customer that goes in and picks -- it is not just because they are digital bits as opposed to analogue waves. The customer actually picks and actually makes the content that he is accessing at that particular time.
299. So, yes, I suppose if you had a movie and you could have three different endings, and it is in a server somewhere and you can pick and you are going to chose ending one, two or three, that may be interactive in saying you are actually creating the movie that you are watching as opposed to it being broadcast.
300. However, you might have that kind of experience in a truly broadcasting mode where it is being sent through a broadcast distribution undertaking to the TV in the traditional sense and you are just given two options and at some point in the program it is almost like you are changing from one channel to another. They are both running simultaneously. So you may have that kind of interactivity in a broadcasting world.
301. But, in the Internet world, it is more the other kind of interactivity where you are actually -- you are the one creating the program that -- or the -- it is not -- you are the one creating what you are actually accessing.
302. MS PINSKY: You discussed this morning how the transmission speed of content over the network will depend on the weakest link and, as a result, it is necessary to cache popular content or certain sites and servers closer to the end user. First, is that a correct sort of summary of your position?
303. MR. COURTOIS: Yes.
304. MS PINSKY: You also discussed that with Commissioner Colville the various activities of an ISP and how an ISP's functions can differ depending on what their objectives are.
305. Could you clarify for me how you see the caching function in terms of an ISP? Would you say that all ISPs would need to have that type of function if they wanted to offer similar type services and to benefit from high-speed access?
306. MR. COURTOIS: I think there are varying degrees. You have a run from systems where you are on the Internet and you cache something sort of in country, or at various degrees closer to the customer, to having almost a parallel system where, while people have access to the Internet, and I think that is more the at-home experience. You have access to the Internet but the at-home service itself or the high-speed portion is really in a smaller circuit much closer to you and it is being cached there and it is being sent to just that smaller number of people who are there.
307. However, that still is not going to be -- when it is sent to these people, as I understand it, it is still not sent in a broadcast mode. That is, you get a number of demands and you might then -- that is what causes you to go and reach out in the Internet, put something, cache it, and maybe web cast it, but even then, as I mentioned, web casting is not the same as broadcasting.
308. MS PINSKY: Okay. Just to sort of follow up on your answer, would you consider that that -- the ability to do that, to be able to cache certain content in order to serve your end-users, is that something that ISPs will need to be able to do? Is that an important question?
309. MR. COURTOIS: Again, ISPs, not being all the same, you can have a small ISP that really allows its customers to access services that play that role, maybe access AOL or maybe some day they will be able to unbundle at-home content from at-home access the way we do with Sympatico and others. So, not all ISPs; but, obviously, again, some service providers who are trying to provide the whole experience end to end to the customer, yes, will do that. Some will do that simply as a portal or a particular service that people are accessing and some will just be providing customers with access and let the customer chase down and find those sites or those services that have that capability.
310. MS PINSKY: For those who do perform that, in your phase two submissions you referred to the distinction between a gatekeeping function and a gateway function. Do you consider that caching content on a server would be a form of gatekeeping function to the extent that you select the content that is put out on the server is cached?
311. MR. COURTOIS: I suppose that is another one of these notions where, conceptually, that could evolve to be the case in the future, but in practice that is not how it is being done. The BDU kind of gatekeeping, and what makes people BDUs is they have a controlled specific package that they put out to customers. They contract with the customer for that package or for the elements of that package that the customer wants.
312. They collect the money for accessing those particular parts of the package, and it is all in a controlled distribution. It is accessed simultaneously. It is broadcast in sort of a push broadcast set of -- broadcasting and sending it out.
313. The way that ISPs, and even the ones who want to play that end-to-end role, as I say, do it, has nothing to do with that. The package is -- some elements of it are provided by them or through their affiliation with a large U.S. supplier.
314. But, as I mentioned, most of the time the package being deliver to the customer is going to be driven by customer demand. It is going to be tailored and down by the customers.
315. So, based on this morning, how many people are looking for the Clinton tapes, that all of a sudden becomes what is on the server and -- but that was not controlled or packaged or done by the ISP of the service provider; it was done by the customers.
316. So, in that sense, there is not evolving in practice the kind of gatekeeping role and control package, albeit that you find in a BDU environment.
317. MS REARDON: May I just add one thing, too? From a technical perspective, because -- you don't cache the entire content of the web. That is impossible to do. So, from the client perspective, they can access content from the cache material, or they can go out into the web regardless of whether it is cached or not. There is no sort of restrictive activity. You always are able to go everywhere.
318. MS PINSKY: Thank you very much. Those are all my questions.
319. THE CHAIRPERSON: Thank you, counsel.
320. Thank you very much. We appreciate your participation with us today.
321. Mr. Courtois, did you have something you wish to add?
322. MR. COURTOIS: Yes. I know we have been here a long time and so on but I just wanted to mention that, as I mentioned, there are some unfortunate things brought forth in this hearing that leave quite a wrong impression. I was wondering if I could take just a couple of minutes to just flag that to you.
323. What I am referring to is that there is some sort of discussions about Bell and serving ISPs and some of the -- all the bad things that we do. I talked earlier about the pricing and so on. But I do want it put on the record that we have made significant efforts and we are actually getting kudos from some of the very same organizations that you have seen come -- have a very different discourse in front of you.
324. But I think it might be useful for everybody to understand that ISPs have unique characteristics and unique demands. They chew up band width much more substantially than other customers who buy the same kinds of services. They require the kinds of services that usually large customers in downtown cores get and ask for in switching offices that are equipped to handle variations of demand there. But they require those kind of services in pockets that are distributed sometimes in very small centres.
325. So, in our case, that really caused us last year around the fall of 1997, all of a sudden there was a lot more activity, a lot of demand, and a lot of growth on that and we were just not able to handle them and give them the service that they wanted. But we have taken real action there.
326. We have created a centre of excellence, which we put in our carrier service group. We added technical resources. We started to build up discussions and relationships with them to get to know them better and get to know their business better. We went to our provisioners and asked them if they could sort of tinker with their provisioning thresholds, particularly in smaller offices, to try and solve some of these problems.
327. We also sat down with the ISPs and said there is another difference between you and our other customers is -- if you are a large bank or even if you are a carrier, you are more used to sort of seeing where your business is going and have an interface with us that says, well, a few months from now I may need this and that. I guess some of the ISPs were not operating that way and they would wake up with blockage one night and say, "I want this tomorrow morning." So we had to have a two-way discussion to solve that.
328. We have introduced escalation procedures so that they know where to call if, in the local business office, people either don't have the expertise or are not getting satisfied with what they have got.
329. We have had two symposiums with the ISP industry and we are beginning to cut through the rhetoric and the initial sort of two worlds don't understand each other. We would just hope that we move more in that direction than the kind of commentary we have heard.
330. The results are improving and, this year, for the high-speed data services, we changed our provisioning interval from 20 days to 10 days, which is a big demand. When we did that in May this year for the following few months we had trouble meeting that new standard. But now we are into 95 per cent meeting that standard.
331. As I said, we were getting some positive comments and we are opening up the channels of communications; and on these issues, as well as on things like ADSL, that is where we would like to go rather than keeping -- trying to keep turning our backs to each other and cause a bit of flack.
332. There was also one comment about possibly questioning the integrity of our CSG process, that information might have been given and they were surprised that it seemed that Bell was coming around and offering servers that might have implied knowledge of what an ISP had said.
333. We have years of experience with our CSG process and years of demonstrating that we do it right. We take these kinds of allegations very seriously. Sometimes we found over the years that they are based on coincidences that -- we don't have the people spending the time or having the resources to do the kind of bad things people are imagining we do. But, nonetheless, we like to take all these things and say we take this very seriously, let's raise it with the management or our CSG and deal with it there. At this time, we don't have that one individual incident in enough details to follow it up.
334. I just wanted to leave with -- change the flavour of saying, at Bell, we are not out to be at war with these people and to throw accusations at each other. We would really like to work with them. For us, they are a big component in trying to fill all these pipes and all this capacity that we are doing and also keep evolving this industry and that is the direction we would like to take with them.
335. THE CHAIRPERSON: Okay. Thank you for that.
336. We will take our morning break now and reconvene at 11:15.

     --- Short recess at / Courte suspension à 1100

     --- Upon resuming at / Reprise à 1115

337. THE CHAIRPERSON: Order, please, ladies and gentlemen.
338. Madam Secretary.
339. MS SANTERRE: Thank you, Mr. Chairman. Now, I would like to introduce AT&T Canada Enterprises Company.
340. Mr. Barnes.

     PRESENTATION / PRÉSENTATION

341. MR. BARNES: Thank you, merci.
342. Mr. Chair, Commissioners, ladies and gentlemen.
343. My name is Peter Barnes. I am Vice-President, Public Affairs, with AT&T Canada Enterprises Company, the investment arm of AT&T which has interests in AT&T Canada long distance, an affiliate relationship with CanTel AT&T, and also owns ACC long distance services.
344. With me today on my right is Brian Kelly, who is the principal of his own consulting firm and who has helped out with much of today's presentation and our interventions in this proceeding to date.
345. As we indicated in our written submission to this proceeding, AT&T Canada Enterprises will address most of its remarks to the telecommunications aspects of the issues raised in Public Notice 98-20, this being our principal area of interest and expertise. In most cases, my references will be to the Internet, unless otherwise stated.
346. On behalf of AT&T Enterprises, I welcome the opportunity to express our views in this public hearing on the relationship between new media, the CRTC and the Government of Canada.
347. You outlined three broad questions that the Commission would like answered. In my presentation, I will deal with all three to some extent. However, our major focus will be on the third of these questions, the broad policy issues that could apply government-wide and could be useful as a basis for recommendations from the CRTC to the government.
348. Dans un discours important à la Chambre de Commerce du Canada, le 13 septembre dernier, le premier ministre déclarait:

     "Notre objectif primordial a toujours été de faire tout le nécessaire pour favoriser la création d'emplois, de meilleurs revenus et un niveau de vie plus élevé pour les Canadiens. Pour y parvenir, la société tout entière doit améliorer sa production à long terme. Il faut adopter une approche globale à cette fin".

349. Now, in his November 13, 1998 remarks to the Federal-Provincial-Territorial Consumer Affairs Ministers, Minister John Manley pointed out:

     "We can rise to this challenge by making Canada a world leader in electronic commerce by the year 2000. If we do it right, we get increased productivity, enhanced competitiveness of Canadian business, new investment and new industries and products. If we do it fast, we can stay ahead of the global race."

350. In our view, the government has seen the direct link between essential productivity improvements and global excellence in Internet content and commerce. It recognizes that the way to achieve this is to foster the appropriate framework and then let the private sector and individual Canadians do the rest.
351. In this regard, our comments today will deal specifically with the global nature of the Internet and the appropriate role for government; the success of Canada on-line today; and the role of the CRTC in fostering truly competitive Internet service delivery.
352. Le gouvernement du Canada mérite d'être félicité pour l'approche graduelle qu'il a adoptée face aux questions des nouveaux médias, en particulier l'Internet. Le Premier ministre Chrétien a récemment établi la politique du Canada, dans un discours devant le forum de SoftWorld à Terre-Neuve, lorsqu'il a engagé son gouvernement dans les "premières" suivantes pour sa stratégie relative au commerce électronique.
353. And you see those firsts on the screen.
354. Toward fulfilment of the Prime Minister's firsts, Industry Canada Minister John Manley has already introduced a number of progressive policies in Bill C-54 which will support the new media in the area of cryptography and privacy protection. They will enhance Canadian participation in the global e-com industry which is expected to be in the magnitude of $650 billion by 2002. Canada's potential share of that amount has been estimated at as much as $20 billion. That amount is roughly equal to the existing local and long distance revenues of the telecom industry in Canada today.
355. The growth of Internet hasn't been without its challenges. The use of these new media for the conducting of business, searching for information, exchanging confidential data or for pure entertainment have added a unique twist to some old problems. They include, but are by no means limited to, encryption and security, intellectual property rights, taxation and e-com, illegal content, and access to questionable content by minors.
356. Les solutions pour ces problèmes sont réalisables mais, comme c'est le cas pour bien d'autres aspects de l'Internet, trouver des solutions pour les questions de l'Internet n'est pas encore aussi facile que de trouver, par exemple, des copies archivées des décisions du CRTC. Les outils réglementaires conventionnels, auxquels nous sommes habitués dans l'univers de la radiodiffusion et des télécommunications, ne conviennent pas au monde de l'Internet. L'Internet est un médium mondial, et les exigences en matière de contenu intérieur ne seraient pas plus qu'un inconvénient temporaire pour les opérateurs de sites qui ont choisi de ne pas s'y conformer. La plupart pourraient facilement se placer sous une juridiction différente et ne pas souffrir de pertes en terme d'accès du client, Canadien ou autre, tout en continuant comme avant. Dans de telles circonstances, des mesures concertées entre les gouvernements nationaux et les organismes internationaux sont le seul recours.
357. This is a crucial point that bears emphasis. There is no viable alternative to the international cooperative approach. The Internet belongs to no one nation and no one nation can effectively dictate its terms and conditions of operation. It is not mere rhetoric to say that failure to agree on the ground rules is harmful to all parties. In fact, we are witnessing an important example at this time.
358. The European Union and the United States have so far been unable to agree on rules for providing e-com customers with privacy protection. The essence of their disagreement is that the EU favours government enforcement of the rules while the U.S.A. prefers self-regulation of agreed to standards by industry. In a worst case scenario, this will inhibit the flow of electronic commerce between these two large economies. Ideally, they will work out a compromise and move on to strengthen the economic ties between them. With so much at stake, it is difficult to imagine any other outcome.
359. Management of the Internet is a process driven by international consensus. I would like to illustrate my point with specific examples of how Internet issues are under negotiation at the international level. However, the complete list is too long to discuss in any detail at this hearing, but I have included a list of issues and the names of international bodies that are working toward solutions to them.
360. Canada's voice is being heard through its input to most, if not all, of these organizations. For example, with regard to the protection of privacy and personal data, the International Standards Organization, the International Telecommunications Union, the OECD, to mention just a few. On the issue of secure infrastructure and technologies, authentication and certification, again, we have the ITU and the United Postal Union. As regards trade policy and market access, the United Nations generally, the World Trade Organization, among others.
361. Now, while I am not aware of the extent, if any, of CRTC involvement in these international processes, AT&T Canada would certainly be in favour of Commission participation in them. I am confident that the deliberations would benefit from the expertise of the Commission and its knowledge of domestic market conditions.
362. The Internet is an enabling technology for the booming electronic economy. Canada has staked out a position of global leadership for itself in this industry and has the tools to get the job done.
363. In addition to using our debit cards 10 times more than do Americans on a per capita basis, Canadians lead the G-7 in technology potential, home computer, cable and telephone penetration, and with one of the most educated populations in the world.
364. Pour cette raison, le Canada est prêt à se positionner avec succès dans l'industrie naissante du commerce électronique en s'appuyant sur la force de ses nombreux avantages concurrentiels. Nous devrions chercher à identifier ces avantages concurrentiels et à renforcer ceux que nous avons déjà, incluant l'absence d'exigences en matière de contenu.
365. With regard to cultural content on the Internet, one notes that Canadians have a certain appetite for the cultural exports of foreign countries. However, there should be no doubt that ISPs who wish to successfully address the Canadian market must, over time, offer high quality Canadian content. In other words, Canadian customers will look for Canadian stories and Canadian voices.
366. While that is happening, it stands to reason that our content is widely available to the rest of the world who will be looking and listening to us also. All of this has occurred without the presence of content requirements.
367. At my office, we recently attempted to test the ability of people in far away places to access Canadian cultural content on the Internet. We asked a couple of colleagues in other countries to seek out Canadian content on their web browsers. In addition to viewing the state-of-the-art home page of the CBC, our correspondent in Beijing turned up a home page of a Canadian Internet railroad cartoonist, Erik Swanson. A U.S. office reported that the "SearchCanada.ca" page, with all of its links to tourism, government, the media, was found with no difficulty.
368. Ces conclusions renforcent notre conviction que tous les Canadiens sont tout autant des adeptes quant à l'exploitation du potentiel des nouveaux médias que n'importe qui d'autre dans le monde. Cela pousse les partisans d'une aide spéciale pour les fournisseurs de contenu canadien à défendre leur cas dans des termes concrets, plutôt que de seulement dépoussiérer des arguments utilisés pour soutenir des subventions dans l'industrie de la radiodiffusion.
369. En plus du rôle suggéré que je viens de suggérer pour le Conseil dans le développement des politiques internationales, il y a un rôle que seul peut jouer le CRTC. Pendant que le Canada accomplit des progrès en vue de la création d'un marché de télécommunications très concurrentiel, la prestation de services est toujours caractérisée par une réglementation qui joue en faveur des compagnies de téléphone établies et dominantes.
370. AT&T Canada stands by its long held position that more effective transitional regulations governing the behaviour of established carriers are needed if they are to be prevented from becoming dominant carriers in new services. A case in point is that of the Sympatico service which was, for a time, being offered for free by Bell Canada. Pity the small ISP who offers only Internet services when a monopoly phone company gives away your product for free. Such cross-subsidization also puts a chill on large companies that are putting together a business case for entering the market.
371. In Saskatchewan, high-speed ADSL Internet service was made available to SaskTel customers at a discounted price while competitors' long distance customers were charged a significant premium, recognizing that is not an area of CRTC jurisdiction, but it is certainly part of the marketplace.
372. Actions such as these have made Sympatico the largest ISP in Canada with 450,000 subscribers, having built market share, in our view, on the strengths of its market dominance.
373. The federal government has properly set productivity improvement as a critical national economic objective. It has also recognized the close relationship between this goal and national excellence in new media services and offerings. We think these goals are appropriate and should be reinforced.
374. Le rôle du gouvernement dans l'établissement du cadre de travail est critique. L'infrastructure doit être adéquate. Les règles doivent être établies mondialement et appliquées aux niveaux régional et national.
375. Avec un bon cadre de travail et une bonne infrastructure, nous croyons que les innovateurs et les compétiteurs canadiens assureront que le Canada soit à l'avant-scène de la technologie et du développement des nouveaux médias.
376. Between ongoing domestic regulation in the manner that I described, and increased involvement in the international consensus building process, the CRTC itself constitutes an important building block in Canada's drive for increased productivity and economic development.
377. In conclusion, our proposed areas for government policy and regulatory action are, in summary, ongoing active participation in international rule setting organizations to create a global framework for Internet communication and commerce; continued harmonization of international rules amongst national provincial and regional frameworks; ensuring competitive access to bottleneck facilities until such time as fully competitive options arise; and regulation of integrated suppliers to avoid use of their dominant position to reduce or inhibit competition.
378. Thank you for the opportunity to present our views. Merci beaucoup. I would be pleased to answer any of your questions.
379. THE CHAIRPERSON: Thank you, Mr. Barnes. I will turn the questioning over to Commissioner Grauer.
380. COMMISSIONER GRAUER: Thank you.
381. You refer in both your written submission and your oral remarks, and we have heard a great deal about some of the issues that currently exist, if I can call it, with respect to the last mile, and if I can just read you on page 3 of your written submission, you say:

     "The lack of true competition in local telephone service creates significant bottleneck problems and constitutes an impediment to the efficient and effective competition. Real local competition is critical to enhanced new media and conventional service offerings, competitive pricing and content development."

382. You have spoken more about it in your oral remarks. I just wonder if you could elaborate and be specific about what the impediments you think exist. Are these the same as has been referred to as the others; and if you have any sort of specific recommendations for us?
383. MR. BARNES: I think in addition to what has been mentioned about the differential pricing of ADSL lines between what the telephone company affiliates charge the telephone companies and what they charge to other people, I think that is an issue that we certainly support. We certainly support the position of others on that issue.
384. We also, as you know, have taken a position contrary to the Commission on the bundling of local service. That is nothing new for you there. We think that is an issue that does hurt the marketplace because we believe that the telephone companies have a particular ability that can't be replicated economically or efficiently by competitors.
385. The issue of -- to bring it up to a -- maybe to a structural level as well, there is a concern in the marketplace, from our perspective, and there is a degree of ambiguity, as to the hand-off between the CRTC and the Competition Bureau, as issues -- as marketplaces are transitioning from new markets, monopoly markets, to fully competitive markets. And we believe it would be certainly helpful to the marketplace in total if the line of demarcation between the CRTC's role in telecom regulation and the role of the Competition Bureau were further elaborated upon and further clarified, because the approaches taken and the requirements that would be put on participants in the market vary depending on which regime is involved.
386. So any clarification that the Commission and/or the Bureau could bring forth would be helpful.
387. COMMISSIONER GRAUER: I am not sure I quite understand what you mean. How would that -- how would you suggest we proceed in that regard?
388. MR. BARNES: Well, the traditional -- and I will -- I will probably upset lawyers in the room because I will probably oversimplify the situation. The traditional approach in telecommunications regulation is that if the behaviour, the prices, are subject to the CRTC's oversight, then there is a regulated conduct defence that even though that conduct in the marketplace may be contrary to some of the precepts of the requirements of the Competition Act, what comes first and overrides is the role of the CRTC. The CRTC will establish its rules based on its proceedings and its understanding and its expertise in the marketplace.
389. The Competition Bureau will apply different tests and, depending on -- given the usual scarcity of resources for dealing with these issues, knowing which venue regulates or has jurisdiction over a particular market would certainly make life easier for competitors, if only to not begin a proceeding and find out three weeks or three months into it that really you should have gone somewhere else because three weeks or three months, particularly in the new media market, is a long time, and a competitor can gain a very strong foothold in that period of time.
390. COMMISSIONER GRAUER: I was just given a note by the Chair that says we are working with the Competition Bureau to clarify that issue now.
391. MR. BARNES: Thank you. We look forward to it.
392. COMMISSIONER GRAUER: Your welcome.
393. I know you have concerns with respect to the affiliated ISPs and the local service monopolies. You have touched on it here. You have touched on it in your oral and written submissions.
394. I wonder if you could be a little more specific with respect to the type of transitional controls and mechanisms you have in mind. I am wondering in the same context if you would also comment on the proposals by the -- I don't know if you are familiar with them -- that were made by the ISP group, UUNET, which -- they recommended to us that, in our report, to include speedy definition and implementation -- their remedial proposals include speedy definition and implementation by the incumbent local exchange carriers of a tariff last mile access service to be defined in functional and not technological terms and provided on an equal access basis within markets defined by the Commission.
395. MR. BARNES: Certainly, that description is one that, at the level of principles, we would support.
396. The way that I would approach that particular issue is always having as a basic principle, as a basic goal, that competitors in the marketplace should not be favoured by their relationship with a dominant carrier, and that they have the ability, as much as possible, to replicate the services and the packages that others can do.
397. This morning's discussion about treatment of ISPs as carriers or not as carriers, my -- without having detailed knowledge of the various criteria the ISPs meet individually or don't meet, I think that if you are driven by a principle that says, what you want to accomplish is as competitive a marketplace as possible, and without having situations where you have a market imbalance caused by a corporate relationship, which has as its centre a monopoly situation or a very recent monopoly situation, and getting back to your issue about transitional regulation, I personally was disappointed in the fact that the regulatory structure, the broad regulatory structure -- not just the CRTC but the overall regulatory and policy structure -- did not react to what I consider to be inappropriate behaviour when Sympatico service was given out for free for a period of time based on a relationship to $15-a-month minimum long distance bill. That to me -- the fact that that went unchecked was a failure of the system.
398. Now, people will disagree with me, but I think that is the kind of thing that needs to be dealt with.
399. COMMISSIONER GRAUER: I guess my question is, I appreciate an articulation of principles, and though for us going forward I think the issue with respect to the ISPs that has been discussed this morning or whatever is -- if I am characterizing this correctly -- that the current regulations provide for them being treated as a customer. This appears in their mind at least to not be sufficient with respect to providing, in particular, high-speed service to their customers.
400. So, I guess my question is in a practical sense it seems that it is all part and parcel of what you are talking about.
401. MR. BARNES: Right.
402. COMMISSIONER GRAUER: I am trying to get a sense of --
403. MR. BARNES: Let me -- I spoke yesterday with my colleagues in our affiliate long distance company and I put the question to them, after having read the submission of the ISPs, and asked them: Was this ADSL issue affecting them? Is it something they would face even though they certainly are a carrier?
404. Their answer was that they are unable, through their operation as a carrier, they would be unable to economically replicate the $60 or $70 a month ADSL fee and offer their customers ADSL at anywhere near that kind of rate, even as a carrier, because when you consider the costs of co-location, the cost of termination, creation of a point of presence, all of those issues, and the added band width that you need to get from point A to point B between the central office and wherever you are working from, you are driving your costs up.
405. Now, probably some of those costs have to do with economies of scale, or some of those cost imbalances have to do with economies of scale. But they were talking about if not orders of magnitude, certainly two and three times higher costs than the $60 or $70 rate. So, even as a carrier, they are unable to compete with that $60 or $70 rate.
406. I then have to begin to ask myself: Well, is there something wrong with that $60 or $70 rate that the telephone company is getting from its affiliate?
407. I am not sure that the solution is, even if the definition -- or if ISPs who otherwise wouldn't be deemed carriers were deemed to for purposes of getting this access, I am not sure that would solve the problem, because as I say when I put the question to our affiliate, which is a carrier, they say, "We have the same problem."
408. COMMISSIONER GRAUER: So, in other words, if I understand you correctly, you are saying, yes, it is a problem. It is part and parcel of what you are talking about. You are not sure that designating them co-carriers will solve it, but you do believe we should look at some other options and investigate this with respect to trying to come up with a mechanism?
409. MR. BARNES: Yes. If I can just go back to the principle again, I don't think it is appropriate that a telephone company, for reason of the fact that it has a corporate affiliation with another firm, has the ability to get a $60 or $70 rate when other firms that are quite capable technologically of doing things at the same level, can't get anywhere near that.
410. If you were talking a 15 to 20 per cent cost difference, I could say, well, we have to be more productive; but we are talking two or three times higher. That whole issue of intercorporate relationships and what that does to the competitive marketplace and the effectiveness of the competitive marketplace is what I am -- where I think the Commission should spend resources.
411. COMMISSIONER GRAUER: Thank you.
412. I want to move to the area of e-commerce. I don't know if you heard that when IBM was here they referred to a Boston consulting group's report that talked about -- there was a report on e-commerce activities in the United States. They couldn't include Canada in the study because there wasn't even a measurable amount of e-commerce activity taking place vis-à-vis the United States.
413. We have also heard about the amount of -- this isn't e-commerce, but with respect to advertising, that there is a considerable lag in this country with respect to Internet advertising vis-à-vis the United States. I mean that it is a more mature market or whatever. I note that we do in this country have a high penetration and adoption of debit cards, computers and whatever. I am just wondering if you have any comments on the discrepancy and if you could --
414. MR. BARNES: Unfortunately, I have no comments on the advertising revenues in that situation because I am not in the operational company. I guess the only point I would like to mention is that recently we did a bit of a search on subscription rates to Internet and the Canadian -- one of the summaries or one of the estimates by Neilsen had -- Brian has the numbers, as you can see.
415. It was quite high. It was very close to the traditional ten to one ratio, so it didn't seem to be out of kilter.
416. Whether advertising is just slow picking up or whether -- or whatever, I don't know. Certainly, from a subscription level the Internet seems to be quite in line, if not ahead, on a per capita basis with the U.S.
417. COMMISSIONER GRAUER: The reason I am asking about e-commerce is that you know part of the rationale for holding this hearing was we heard from IBM and some others that the silence of the Commission, or questions out there in the marketplace about whether some of the new media activities would fall under the Broadcasting Act was creating an uncertainty that was holding back investment. I just wondered if you had any thoughts on that related to e-commerce activities?
418. MR. BARNES: Apart from understanding the reluctance of one of the witnesses yesterday or the day before about getting into the fax business or Internet as a result of this uncertainty, I have no firsthand knowledge.
419. Mr. Kelly has now given me the figures. We were off by just by an order of magnitude. It is 8.9 million was the March 1998 estimate of people on line in Canada by A.C. Neilsen.
420. The most recent U.S. estimation, August 1998, so a few months later by CommerceNet Neilsen, was 79 million. So slightly above the normal ten to one ratio. These are people on line as opposed to PCs on line.
421. COMMISSIONER GRAUER: I don't really have too much more. I just wonder one other -- two things.
422. First, Commissioner Colville asked this morning of the Stentor panel, and I ask the same of you, whether we as a Commission should be pursuing as a stated policy objective ubiquitous high-speed Internet access in this country?
423. MR. BARNES: I think the answer to that has to be a qualified yes because it is -- and it is qualified by timing considerations and technology considerations. But I think that the kind of work that has been done at the policy and regulatory level to date has encouraged people to invest. I think there will be a multiplier effect as a number of the service providers invest more and more in facilities. There was mention of the lead-core cable. There certainly has been a lot of investment by our long distance affiliate in backbone. Of course, that company also offers an Internet offering.
424. I think you have the normal situation where it is big cities first and then smaller cities and so on.
425. I think that the program of delivering the service to communities, schools and libraries, which Industry Canada and CANARIE are heavily involved with, is going to be the seed that moves things out. So a lot depends -- it is like the old definition of universal service, ubiquity is -- I don't think means in every home, but I think that when you have access to the Net in every school and every library and the numbers are quite -- in my longer written text you see the numbers there are quite impressive -- and speedier than any other country in the world in that regard. So I think that it is a good policy objective.
426. I think anything that -- any of the regulatory policies or other policies that are established should keep that in mind, but understanding that the investment will be driven and effectively will be made by private capital. So that with the right framework that will happen, but it is going to take some time.
427. The seeding through the school and library program will certainly get us there. But I think it is a good beacon to have in mind.
428. COMMISSIONER GRAUER: Certainly, it is more a matter of having -- if we have a policy in place that will, you know, inform our work, not to say that we would -- try to take over the work of other government departments or anyone else. Obviously, keeping all that in mind.
429. I do have one other question. With respect to tax incentives, I know you have not felt that -- other than the activities that Revenue Canada with respect to e-commerce transactions, you have been silent on some of the other comments. I don't know if you heard the specific recommendations that were made by the Toronto Star yesterday -- TorStar yesterday. They have recommended a refundable tax credit for employee training; allowing research and development in Canadian content to qualify for scientific research and experimental development credit; and the tax credit for capital expenditures. In addition to that, several people have suggested that section 19 of the Income Tax Act be harmonized to come into line with the deduction of advertising expenditures.
430. I just wonder if I could get your comments on those.
431. MR. BARNES: I think -- the section 19 discussion, I don't think I want to get into because I think that raises rather complex trade issues that I don't feel equipped to deal with at this point at least.
432. But, as regards domestic tax treatment, the R&D tax credits and the like, I think that my first cut would be to say those tax incentives that exist today, which have been developed as a result of -- or as a result of expressed or perceived need of a given technology or a given business, were probably developed with a technology -- with a given technology window, a given technology understanding. Technology has changed, and to the extent that the principles behind the kind of services and the kind of economic development behind those tax principles apply to Internet-based services, it would make sense to broaden them. What I am saying is that to use the Broadcasting Act preamble, the tax structure should be technology neutral.
433. I say that with due regard to the effect on fiscal revenues and recognizing that the government still reels from some of the losses in the R&D tax credits of a few years back.
434. So, with considerable caution, I think technology neutrality in the application of those taxes makes sense, but with due caution and making sure that we don't create another loophole that stays with us for many years as the R&D tax credit did for some time.
435. COMMISSIONER GRAUER: Thank you. Those are my questions.
436. THE CHAIRPERSON: Thank you, Commissioner Grauer.
437. I think those are all our questions, Mr. Barnes. We appreciate you coming here today.
438. MR. BARNES: Thank you.
439. THE CHAIRPERSON: Next on the agenda is the representative for about B'Nai Brith; but my understanding is their preference was to appear first after lunch. Even though it is slightly before 12, I think we will take our lunch break now and reconvene at 1:30.

     --- Recess at / Suspension à 1200

     --- Upon resuming at / Reprise à 1330

440. PRESIDING MEMBER: Good afternoon, ladies and gentlemen. We return to our proceeding now. I indicated just before lunch that we would have the representative from B'nai Brith up first this afternoon. However, I do not see them in the room.
441. We will then switch to the next party, Madam Secretary.
442. MS SANTERRE: Yes, thank you, Mr. Chairman. So I would like to introduce Call-Net Enterprises Inc., Sprint Canada Inc.
443. MR. KOCH: If we could just beg your indulgence, we are just getting our paper organized given that we have moved in the schedule.
444. PRESIDING MEMBER: Whenever you are ready, Mr. Scott.
445. MR. SCOTT: Thank you. Good afternoon, Mr. Chairman and commissioners.
446. My name is Ian Scott and I am vice-president of government affairs of Call-Net Enterprises Inc.
447. With me today to my right is David Hagan, executive vice-president, marketing sales and service for Sprint Canada. To my left is Jonathan Daniels, regulatory counsel for Call-Net. And, finally, to Jonathan's left is Michael Koch, Call-Net's outside regulatory counsel.
448. Call-Net is a Canadian owned and controlled corporation based in Toronto. Call-Net is proud to be the sole shareholder of Sprint Canada, Canada's largest alternative long distance provider, with more than 1 million residential and business customers nation-wide.
449. In addition to providing long distance services to Canadians, Call-Net owns a significant fiber optical network traversing Canada and the United States and is actively deploying an overseas network.
450. More importantly to our appearance today, Sprint Canada offers Internet access to its customers through The Most On-Line Internet access service.
451. Call-Net is pleased to have been afforded this opportunity to address the Commission on the subject of the new media. The impact of new media on the business and regulatory environments is a subject at the forefront of the concerns of all communications companies and to this Call-Net is no exception.
452. Call-Net therefore applauds the Commission's initiative to bring clarity to some of the regulatory issues raised by the new media phenomenon.
453. I would now like to turn the microphone over to David Hagan who will tell you more about Sprint Canada's The Most On-Line service as well as Call-Net's perspective on the issues raised by this proceeding.
454. MR. HAGAN: Mr. Chairman, commissioners, in today's knowledge based, computer oriented economy, nothing is more central to Canada's competitiveness than ensuring Canadians enjoy the most competitive, innovative and online service environment.
455. In 1997, Sprint Canada seized the opportunity to provide Canadians with the same great service and price innovation delivered by our long distance products by introducing Sprint Canada's The Most On-Line Internet access service. The Most On-Line was designed for Canadians by Canadians here in Canada.
456. Since its introduction just over a year ago, The Most On-Line was grown to become Canada's second largest Internet service provider, or ISP, with well over 100,000 customers. Our goal, however, is to be Canada's largest ISP. To date, The Most On-Line offers residential customers dial up access at a maximum need of 56 kb per second. Unlimited access is provided to customers at flat monthly rate as low as $20.95.
457. Our strategy for the future is to offer Canadians across the country high speed Internet access using digital subscriber line technology.
458. This service will initially be offered over local loops, leased from the incumbent Stentor companies. For this initiative, we eagerly look forward to the Commission's decision on local loop rates.
459. The Most On-Line's home page is currently only viewable by Sprint Canada's The Most On-Line customers. Even with this limitation, it still attracts the fifth greatest number of page views of any Canadian site, just behind TSN.
460. However, we have come to recognize that on the Internet users will seek out information and services of appeal whenever they can find them, sometimes in spite of the best laid plans of their service providers.
461. Accordingly, The Most On-Line is redesigning its home page as a site accessible to any user of the Worldwide Web.
462. We have handed out some screen shots which show our current home page. Note that the Reuters News content on our site features Canadian news stories which are edited here in Canada.
463. In addition to providing retail dial up Internet access, Sprint Canada as a facilities based carrier, is a major provider of dedicated access to the Internet. Sprint Canada's dedicated access service is the fastest offered and is available across the country. Sprint Canada provides hundreds of businesses, including smaller ISPs, with backbone facilities.
464. I would like now to address Call-Net's perspective on the impact of the new media. If you forgive me, I will actually use the term "Internet" by which I am referring loosely to Internet protocol or IP networks as well as all of the services which can be delivered over these networks whether these be new media or old media services.
465. The Internet is changing the world of telecommunications. In our Phase I submission in this proceeding, we described how telecommunications are being revolutionized by the advent of IP protocol networks and by the explosive growth of the Internet and other data traffic being carried over these networks.
466. Of course, this development presents a great opportunity, an opportunity to use newly converged networks to carry an increasingly broad range of new and innovative services. Certain of these services, like Internet data, including e-mail, have already become major substitutes for some of the more traditional communications services such as fax. Other new applications, such as Internet telephony are still in their developmental phase, but hold great promise.
467. This leads me to the second feature of this development, which is that it also presents an element of risk. Risk for existing players, risk for new players and risk for the Commission's telecommunications policies.
468. As the Commission acknowledged in the public notice initiated in this proceeding, the existing system of telecommunications subsidies may not be appropriate to the emerging environment.
469. Call-Net is firmly of the same view and has applied to the Commission for fundamental reform of all existing toll contribution collection mechanisms.
470. Call-Net has applied to the Commission because the existing mechanism cannot accommodate either the technological changes or the service and competitive innovations sweeping this dynamic industry. These changes make the existing usage based tax, which is restricted to toll providers, an anachronism in a digital, flat rated and distance insensitive marketplace.
471. The Internet is also changing the world of business and learning. In our Phase I submission, we highlighted the role that electronic commerce and other interactive services are playing in erasing geographical distance and boundaries and transforming national markets into global ones.
472. Online delivery of these services is nothing short of revolution. These services are the value added of the Internet and have a major presence on the Worldwide Web. These services are multimedia in form and interactive in nature. They do not have a beginning, middle or end. The user adapts these services to his or her needs.
473. Within the parameters set by the their creators, these services take on the look, feel and content determined by the user. Some of these services have a cultural component, but the overwhelming majority do not. These services truly recommend the new media.
474. In Call-Net's view, these services because of their interactive and ever changing nature, do not constitute programs and are accordingly not broadcasting under the Broadcasting Act.
475. Many Canadian companies are actively involved in the production of these new media services. These companies are flourishing by taking advantage of the dynamic global markets for their services.
476. On the distribution side, the fact that the Internet does not have limited channel capacity has ensured free access to Canadian new media services. The marketplace has also ensured that Canadians have access to a selection of high quality Canadian information services of which CANOE and Canada.Com are notable examples.
477. We see it as important that Canadians be able to use these new media services to their maximum advantage to transact business and to access information.
478. In a knowledge based global economy, Canada's competitiveness will require that Canadians keep up with their counterparts elsewhere in the world.
479. While Call-Net is of the view that the marketplace is working to provide Canadians with new media services they both need and want, Call-Net would support the view expressed by a number of other participants in this proceeding that if the government feels it is in Canada's best interests to subsidize a new media industry, that goal should be accomplished through the use of tax incentives and funding from the government's general tax revenues.
480. In contrast to the world of telecommunications, the Internet is not yet changing the world of broadcasting and may never do so. The streaming of video over the Internet is just becoming possible from a technological point of view. This raises the issue of whether the Internet threatens existing broadcasting undertakings. In our view, it is important not to confuse technological possibility with business reality and consumer behaviour.
481. The availability and quality of streaming of video over the Internet is still very limited. However, even assuming the technological capability of the Internet to deliver streamed video, many business and infrastructure issues remain to be resolved before the Internet becomes a substitute for existing broadcasting programming and distribution undertakings on a broad, commercial basis.
482. Even ignoring the band width issue, there will remain real barriers like cost, low residential penetration of computers and copyright issues to be worked out before Canadians gather in their living room to watch "Traders" or "Ally McBeal" on their computers.
483. That said, Call-Net is of the view that the language in the Broadcasting Act is sufficiently broad to capture transmission over the Internet of true programs, which we refer to as broadcast analogous services, in our written comments. However, as set out in our written submissions, there are good arguments why ISPs are not broadcasting undertakings.
484. In addition, in light of the uncertainties involved in the delivery of this programming over the Internet, as well as the fact that the delivery of these programs make up only a tiny fraction of the traffic on the Internet today, Call-Net is of the view that it is best for the Commission to take a cautious approach. To the extent that any persons are today carrying on a broadcasting undertaking, licensing or other regulation of these undertakings would not contribute materially to the implementation of the broadcasting policy set out in the act.
485. The Commission should, therefore, preserve its jurisdiction through a broad exemption order which avoids the necessity of making determinations regarding who is and who is not acting as a broadcasting undertaking today.
486. In Call-Net's view, this approach will permit the Commission the most flexibility on a going forward basis. It will also avoid inadvertently killing or even injuring the Internet goose which is so busy laying golden, Canadian, new media eggs.
487. MR. SCOTT: Thank you for your attention. Those are our remarks and we welcome any questions you may have.
488. PRESIDING MEMBER: Thank you, Mr. Scott, Mr. Hagen. I turn the questioning over to Commissioner McKendry.
489. COMMISSIONER McKENDRY: Good afternoon.
490. MR. SCOTT: Good afternoon.
491. COMMISSIONER McKENDRY: Let me just start by covering the landscape of the Internet for a few minutes so we can ensure that we have some insight into how things are and how you expect things to unfold in the near future.
492. Before I do that, I just had a quick question with respect to paragraph 10 in your oral comments. And it was with respect to your comment that The Most On-Line's home page is currently only viewable by Sprint Canada's customers.
493. Can you explain to me why that is? Because I was under the impression that, generally speaking, home pages were available -- for example, the Stentor people made the point this morning that Sympatico, 30 per cent of the people that are using their home page are not Sympatico subscribers. Is there a technical reason for this? Is it a policy reason? I was wondering if you could elaborate on that.
494. MR. SCOTT: I will turn it over to Dave Hagen in a second, but I think the comment that you just cited from Stentor is one of the reasons why we are contemplating changing the way that it is currently designed.
495. We, too, expect that we could have a broader audience for our home page if it were not restricted.
496. Dave, would you like to further answer the question?
497. MR. HAGAN: Sure. Originally, when we launched The Most On-Line, back in September of 1997, we were concerned with security issues of an open home page and so we launched as an ISP providing the information that our customers are looking for to them in a closed Web site format.
498. It is our intention to open the site within the next few months. So we are following a similar model to what you have heard prior in these proceedings. But originally it was not really a technological decision, it was one of a customer relationship model that we wanted to have. So we wanted to provide that information to our customers, not to the outside world.
499. We now think there are good business reasons why we should be opening the site and we will be doing so.
500. COMMISSIONER McKENDRY: So if I were to try to access it today, not being one of your subscribers, I would need a password, is that how you control access is through a password?
501. MR. HAGAN: Yeah. In fact, you would not be able to get in. You would have to be a subscriber to The Most On-Line service to have access. So even with a password you could not get in unless you were a customer.
502. COMMISSIONER McKENDRY: If one is a most online subscriber, can they select any home page they want? For example, can they change their home page from your home page if that is what they choose to do?
503. MR. HAGAN: Yes. Customers are free to change what we call a default page, the home page.
504. COMMISSIONER McKENDRY: I do not know whether you had an opportunity to hear the Stentor comments this morning, but I just wanted to ask you a couple of questions about some of the views they put forward about the unrolling of high speed access and so on to see whether or not it is consistent with your perspective.
505. One of the things they said is that by the end of 2001, 70 per cent of households will have the capability of high speed access. Is that consistent with your view of how high speed access will roll out?
506. MR. SCOTT: It is always a challenge to be asked whether we agree with Stentor.
507. I guess there are two parts to that answer. The first is I guess from Call-Net and Sprint Canada's perspective, the extent of penetration or an estimate of penetration of how many people have high speed access is, I guess, dependent in part on how many people -- how many players providers are actually capable of providing it.
508. You may know that Sprint Canada, in conjunction with its roll out of local services, intends to employ DSL technology.
509. Now, all of that is in part dependent on the economics of the business which will in significant part be determined by the Commission's upcoming loop decision.
510. But use that as an example, we may roll out DSL technology more aggressively than would telephone companies. Or the two of them -- our rolling it out through our local roll out will also prompt the phone companies and others to more aggressively roll it out.
511. So I am not quite sure how one does a sort of static estimate of how many consumers will be reached. It is certainly a reachable target in my view.
512. I don't know -- Dave, do you have anything to add to that?
513. MR. HAGAN: Was it 70 per cent in how many years?
514. COMMISSIONER McKENDRY: They said 70 per cent by the end of 2001. I think the point they were trying to make is, in fact, they use the expression that there is going to be fantastic growth in high speed access.
515. MR. HAGAN: I agree there will be fantastic growth. And there is definitely consumer need in my opinion today, for more, faster access to the Internet. So I think there will be very rapid growth.
516. COMMISSIONER McKENDRY: Thank you. The other -- one of the other matters that Commissioner Colville had a discussion with them about was the ability of high speed access as currently anticipated to support broadcast quality video.
517. And I took it from the Stentor comments that we should not look forward to seeing that happen for quite some time to come. I wonder if that is consistent with your views?
518. MR. SCOTT: Short answer I think is yes. I did hear part of that response this morning and as well, I guess, from my past experience with another industry sector, I have a pretty good feeling for how realistic that is.
519. You know, the reality is the band width that is required is really large, and the through put speed is very large. It is going to be a number of years before we have the kind of transmission, the high speed transmission capability of down loading a movie.
520. I think Stentor is -- the panel member from Stentor this morning was talking about seven hours to down load a feature length -- full length feature movie using ADSL. You know, even using some arguably faster product, it is still numerous hours. It is just not there yet. It will not be for a while.
521. I guess underpinning that, not to stray too far from your question is I am not sure that is what is really going to drive the growth of the Internet or high speed service. It is not being driven by, I think what we call broadcast analogous service nearly as much as it is being driven by informational or transactional services.
522. COMMISSIONER McKENDRY: The reason I think we are interested in that area or one of the reasons is that when we started this proceeding we posed the question as to what the potential impact on the emergence of new media in the Internet was on traditional regulation.
523. So we are interested in people's opinions as to when the point comes where broadcast video, broadcast quality video will transfer to the Internet. And I think the impression we are getting to now is that it is certainly not imminent. And I think the expression that Stentor used was not for the foreseeable future. That is really why we are interested in that area, I think.
524. Another question, another area that Commissioner Colville discussed with Stentor this morning, we have discussed it with the other parties as well, is the question should we treat ISPs as carriers in order to promote the development of the Internet. And that raises up questions surrounding co-location, unbundled loop rates and so on being made available to ISPs.
525. I think Stentor told us in their view there was no need to do this, that it would put local competition at risk. I wonder if you have any views on this matter.
526. MR. SCOTT: I am not sure that is what would put local competition at risk, but I will not go down that path too far.
527. I guess the short answer is, and I did, as I recall Commissioner Colville's question, and I think he has put it to some other parties, the issue is does the Commission have to do something proactive along the lines that they have or it has, I should say, in telecommunications to ensure there is effective competition to deliver these similar services to end users.
528. And I guess the short answer is certainly Call-Net and Sprint Canada, you know, have been a major recipient and actor, corresponding to a lot of those Commission decisions.
529. And our experience and the experience of the competitive market is that if you put the framework in place, allow for effective competitive entry, consumers will get what they want.
530. In the case of Internet access, as I mentioned before, it is in part related. We already have a national data network, a backbone through which we provide Internet service in every province, as Mr. Hagen outlined in our opening remarks. The roll out, the anticipated roll out of our local services, beginning in the first quarter of next year helps accelerate that deployment.
531. As I said, we would use DSL technology as well to offer high speed services. As we do that, consumers are going to get additional choice. Also, as we do that, the phone companies and other competitors in the market will respond and you will eliminate some of the problems that you have been hearing about from ISPs in terms of access and pricing. I mean, competition solves a lot of problems and we will be happy to help solve a lot of those.
532. I guess the other part of that question is, you know, whether or not we in turn will serve as a backbone, a provider for other competitors just like in the long distance business where we support rebillers and resellers, in the Internet access market, if we are providing DSL technology, then through us, other ISPs and competitors will be able to provide either existing speed or higher speed services.
533. COMMISSIONER McKENDRY: I am not sure that I understand what you just told me in relation to the question that I asked. Are you saying that we should treat ISPs as carriers? Or are you saying that we should not?
534. MR. SCOTT: Pardon me if I did not answer your question. If it is the legal issue of is an ISP a carrier, I think I will ask Jonathan in a moment to address that. I think some ISPs are carriers. We are. We own transmission facilities, there is a legal framework there, we are both an ISP and a Canadian carrier. Others, clearly, are not.
535. And I am sorry if I am not being responsive, I am not sure beyond that what you are asking me.
536. COMMISSIONER McKENDRY: I think the issue is that some ISPs are customers of carriers and from a regulatory policy point of view would it make any sense for us in order to promote competition, the development of the Internet and so on to allow those ISPs to have access to the kinds of interconnection terms and conditions that are available to carriers, for example, for example co-location, unbundled loop rates and so on. Would that be something, in your view, we should consider doing for that class of ISPs that is really now in a customer relationship with carriers?
537. MR. SCOTT: Sorry, I did not respond to that component. I still go back to the point that if we are there, we will do it.
538. In other words, if the competitive market and there are competitive carriers in, I think they will be in numerous sources of facilities. So I am not sure the Commission has to do it. Whether it should, I guess you would go back to sort of reconsidering some of the other regulatory issues involved in something like local competition. Do they -- does an ISP get loops at cost plus 25 per cent? I do not have an answer for that right now. I would really have to go back and look at it in the context of the local competition decision.
539. Jonathan, do you have anything to add to that?
540. MR. DANIELS: I guess the way I can characterize your question or I have seen your question is sort of what should the CRTC do. And one of the possible solutions is taking a look at an ISP and sort of putting them in a different category of treatment for what you mandate telecommunication carriers to respond and treat to them.
541. And I guess the first thing I would say is that you are in the process of doing what we believe is going to be the solution, if you see that there is a problem out there, if you feel that there is a problem out there.
542. So I come back to the traditional approach that I guess most people come and tell you before in the telecommunications industry, you know, regulate only, only intervene. And I agree, I think the CRTC has taken this approach on a number of occasions. We only want intervene where we absolutely have to in the market. We would much prefer to see the market do it on its own.
543. I think what Mr. Scott is talking about and what we believe strongly is that you are doing something right now that is going to fundamentally change the market which we believe will be the solution to this problem. And that is creating local competition.
544. When there is local competition, when we enter the market as a CLEC, and we are able to lease the local loop providing that, you know, obviously we are -- the local loop decision is something favourable, assuming that it is, that justifies us to be able to enter the market, when we enter the market and lease the local loop, we will be able to turn and offer to ISPs this access that you are talking about.
545. And we will do it on a commercial basis because we think it is a good business to get into. And I think that is what Mr. Scott was referring to before that we offer this to wholesalers, to rebillers, to resellers. We are not just Sprint Canada in terms of in the marketplace offering strictly under the brand names for Canada. We are one of the largest carriers of wholesale providers in the country. Why? Because that makes good corporate sense. That is our corporate philosophy in that regard.
546. So when we enter the market as a CLEC and we have access to local loop, we are going to provide that, this type of service.
547. There are two reasons for that. One, we keep saying it makes good business sense; but the other reason is that if customers want it, we will do it. We will do anything that the customers want. We are not in the business of protecting our hold on the market that are last vestiges of monopoly. We are not a monopoly provider.
548. One thing which history has shown, which I also believe Mr. Scott was referring to, is that we will change the market behaviour. When we do something that is innovative in the market, the market follows.
549. So in that sense, if you are looking at this strictly, you know, what the CLEC is going to do, Sprint Canada as a CLEC or other companies as a CLEC, is that going to solve the problem, we believe so. Because when we start to offer this to ISPs and we make this a good business, the ILECs are going to have to say, "Well, I should be doing the same thing, or their customers are going to call up and how come I can get this better service from this ISP if I am a local customer of Call-Net Communications Inc. or Sprint Canada and I am not of, you know, Bell Canada?" Or whatever, whatever ILEC it may be. And that -- they will change their behaviour.
550. So I guess it brings it back to what do you need to do. And I say, you know, create local competition. It is the solution to this problem and in that sense we eagerly await the local loop decision.
551. COMMISSIONER McKENDRY: Thank you very much. I just want to ask you another question about high speed access before I leave that topic for the moment.
552. We have had a discussion with respect to -- with some other parties with respect to the necessity in a high speed environment of cashing Web sites on a server that is closer to the high speed access that the consumer will have in order to get around the slowest part of the Internet that we are told it does not make much sense to offer high speed access if, when the consumer turns on the service, it is all slowed down by a bottle neck out there somewhere in the Internet. The solution or at least one of the solutions is to cache Web sites close to the consumer.
553. I guess it is a two-part question. Do you agree that that is going to happen? Is that what you will be doing when you introduce high speed access? Will you have to cache Web sites on services close to your customers?
554. MR. SCOTT: I will ask David Hagen to answer the second part. But I think the first part, there certainly is -- that technology is used and seems to be growing in popularity for obvious reasons.
555. I mean, certain sites, you know, if there is a high demand for a site based in Vancouver and you have a very large number of requests going out for it from Toronto and you have the server designed to cache material, it makes sense obviously to bring it closer to the source of the request.
556. Sprint Canada's The Most On-Line service does not currently cache. We do not use caching technology. As to whether or not we will in the future when we roll out DSL, I do not know the answer. I will ask Mr. Hagen and put him on the spot.
557. MR. HAGAN: You took the part of the answer that I knew.
558. We do not cache today because we do not see the need to and it is expensive to do so, it takes more capital to do it. We have chosen at this stage not to.
559. With high speed, speed is driven by all links of the Internet. So it is only as fast as the slowest link. So there could be a need in the future, but we do not have any specific plans to start doing it with high speed access. We just have not gotten to that point yet.
560. COMMISSIONER McKENDRY: So you have not made a decision whether or not to do it, or maybe you will not do it unless you find out that there is a problem that needs to be addressed?
561. MR. HAGAN: That is correct. We would only do it if it made sense to do so, there was either a problem or there was an economic or customer benefit to providing it.
562. COMMISSIONER McKENDRY: Is the disadvantage of caching primarily a cost one, you have got to incur costs for the servers, and so on, or is it an issue, as well, of deciding who gets cached?
563. MR. HAGAN: Our analysis at this stage is that it is purely a cost issue for us, that is why we have not done it.
564. COMMISSIONER McKENDRY: Okay. Thanks.
565. I want to ask you a few questions now about your written submission. And I noticed in paragraph 56 of your phase 1 comments, and I was interested in your view in paragraph 56, while you start off in paragraph 56, you state that:

     "The question as to whether the new media constitutes either broadcasting or telecommunications services is fundamentally a legal question."

566. But then you go on to say that the answers to the legal question should not ultimately determine the treatment of new media. You state that:

     "The practical industrial and policy questions are much more suggestive of their appropriate treatment."

567. If the answer to the legal question found that new media were broadcasting your telecommunication services, but the answer to the policy question determined that we did not want to regulate new media, how would we implement the policy? Is that where exemption orders come in, for example?
568. MR. SCOTT: You have asked and I think answered the question. Yes. I think the short answer to it is that the Commission has available to it a solution.
569. And perhaps, Jonathan, you might just address briefly the issue of our views on the exemption order.
570. MR. DANIELS: Sure. I guess our view, we started off with the question, you know, is there broadcasting going on in the Internet. And I do not -- if you want to go into our views on that, we are happy to do that.
571. But we then took the next step. To the extent that there is broadcasting, we had a look at the policy question, you know, is this the type of thing that needs to be regulated. And in that extent, we are guided by section 9(4) of the Broadcasting Act which is the exemption power.
572. If I could just turn to that for a second. Where it says that:

     "The Commission can exempt, where the Commission is satisfied, that compliance with those requirements will not contribute in a material manner to the implementation of the broadcasting policies set out at subsection 3(1)."

573. For reasons we are happy to go into, the short end of it is that we do not think there is any benefit in regulating broadcasting that is on the Internet at this time.
574. Having said that, the question is how do you go about doing this? In our view, the safest route to go is through a broad exemption. The reason for that is because it is one thing to say that there is broadcasting on the Internet. It is another thing to say who has the broadcasting undertaking that is transmitting this broadcasting on the Internet. And in order to do that, you have to characterize who is the broadcasting undertaking and you have to figure out. And that makes it a very difficult proposition for a number of reasons.
575. For example, as we stated in our comments today as well as in our submissions, we stated that ISPs in our view are not broadcasting undertakings under the Internet.
576. But yet it is very complicated and tricky to figure out exactly who the broadcasting undertakings are.
577. So instead what we are proposing is that the Commission would create, take an overly broad approach and when it comes to exempting, it would exempt broadcasting on the Internet in its aggregate. And in that way it would probably be capturing in its exemption order people and undertakings who are performing functions that would be broadcasting undertakings under the definition. And it would also in the exemption order capture people who are not caught under the Broadcasting Act. And that is okay, because you are just exempting them.
578. The one caveat I would have to put to that is if you attach any obligations as on the non-broadcasting undertakings, then I think you have to be mindful that you are inviting challenge as to that -- the exemption order, the applicability to the exemption order. So it must be carefully thought out as to whether any obligations should be attached at all which, once again, goes to our view as to what are the objectives and doesn't one need to attach them.
579. Second, to ensure that any of those obligations would be those that belongs to someone who you do have jurisdiction to cover as a broadcasting undertaking.
580. Basically, it is a tricky question of putting square pegs in the round holes, how you do it. And we are just saying cover the whole board, you know, with your exemption order. And the one thing we note, of course, is that we haven't provided any proposals to you yet, but that is because we intend to -- we want to look at the entire record of this proceeding. And it is our intention and I guess by me now saying it, it is sort of an undertaking that we are going to try to put together some wording of what we think an exemption order should look and final comments and give people an opportunity to comment on that as well by replying to that.
581. So I don't know whether you want to add anything to that, Michael.
582. COMMISSIONER McKENDRY: Thank you. Just on the exemption orders, could we issue an exemption order to an organization or company that we cannot licence because of the foreign ownership consideration?
583. MR. SCOTT: Again, I think I will ask Jonathan to respond to that.
584. MR. DANIELS: I think that -- I do not think there is much of a problem, as I say, if you are overly broad because there is two parts here. One is you are overly broad in saying that someone is exempt from the requirement to go get a license, generally, as long as there is no obligations attached to that exemption order, that to me is the key. Because if you attach obligations to that exemption order, to adhere to it, then I think you run into some legal questions as to your ability to do so.
585. I would like to comment specifically, though, on the foreign ownership issue. And it is my understanding that foreign ownership is created by -- under the Broadcast Act in contrast to the Telecommunications Act, it is done through a direction to the Commission which says how you -- which directs you as to who you are eligible to give a licence to, not who you are eligible to give an exemption to.
586. So an exemption order is not giving a licence. I do not know if, Michael, if you have anything else you want to say on that.
587. MR. KOCH: I think maybe just to summarize, again, what Jonathan has said, the key is that, if appropriately worded, the exemption order is not saying we as the Commission exempt these individuals. It would say something like we as the Commission exempt undertakings that fit this description and, of course, then it is a question of who fits the description and who does not fit the description. That does not actively, unless as Jonathan says, unless it imposes some serious obligations which are going to raise the, you know, raise the ire of anyone it might attach to, that so to speak does not raise the legal issue on anyone's part. There is no reason to challenge that.
588. Fundamentally, we believe that if the direction addresses the issue which it does of who you may grant a licence to, and not who you may exempt, there would be no restriction on you exempting people who might not meet the terms of the exemption. Again, you are not -- I do not see you as actively exempting individuals in this context. You are exempting, in essence, almost a class of service provider.
589. COMMISSIONER McKENDRY: Thank you. I wanted to go to paragraph 50 for a moment in your Phase I comments, and ask you a question about your comments with respect to narrow casting, about narrow casting. And you take this up again in paragraph 72 where you talk about narrow casting that serves niche markets. And you say that is not broadcasting.
590. And my question relates to the narrow casting point you are making. And the question is, does the narrow casting nature of the Internet in any way determine whether or not programs are broadcast on the Internet from the perspective of the Broadcasting Act.
591. And I am really interested just in this narrow casting point at this stage.
592. MR. SCOTT: I will again turn to legal counsel. Michael, if you would care to respond to that.
593. MR. KOCH: Sure. I think that is a good question. If the impression was left with the reader that we were arguing that it is the narrow casting nature of the services that make them not broadcasting, then we apologize for that impression because that is not what we are saying.
594. I think one has to again, it goes back to your question about paragraph 56, separate out the legalities from the policy level. There is the legal level and then there is the policy level.
595. So we are not saying this that because there are narrow cast services, there is no broadcasting on the Internet. Quite the reverse. What we are saying, actually, is that while there may be broadcasting services on the Internet, there is also the unique ability of the Internet to serve narrow cast type niches or, you know, to use other language, perhaps, underserved interests. And that the -- the Internet is uniquely able to serve a very, very broad range of interests and desires of consumers to obtain information on a very broad range of topics.
596. And so that, again, is a policy reason why one might not wish to regulate the Internet. But, again, does not go to the strict legalities of it.
597. COMMISSIONER McKENDRY: Thank you for clarifying that.
598. While we are on paragraph 50, I wanted to ask you a question about paragraph 49 as well. You refer there to the U.S. Supreme Court decision that struck down portions of the Communications Decency Act. And other parties have referred to this important U.S. decision as well.
599. And as I have been going through the submissions, it is something that has been on my mind. So I am just wondering if you could offer your comments on to what extent this decision or the things that were taken into account in this decision are relevant to what is before us here in this proceeding.
600. MR. SCOTT: I am tempted to ask Mr. Hagen to respond to that, but I think I will turn to Mr. Koch, instead.
601. MR. KOCH: I can tell you the context in which we thought it was relevant to refer to that decision. And I probably cannot go a lot further than that. I think that decision deals with some real civil rights issues.
602. The jurisprudence in Canada and the United States, while having certain parallels on these issues, also has some differences. And certainly we are not saying -- we frankly have not canvassed the issues that might be attracted to freedom of speech. And this is a freedom of speech case that is being referred to here.
603. What we felt could be taken from that case was really just from the quote. In other words, the importance, and it is similar to the point we make about narrow casting, the importance of the Internet as distinct from traditional broadcasting mass media, is a medium that permits a very broad range of expression.
604. And so you tie -- that point ties back into the type of policy issue I was addressing a moment with you, Mr. McKendry, and which is that the Internet has a unique ability to fulfil a very broad range of customer and consumer desires. And for that reason or that is an additional reason why the Commission should be comfortable in not regulating the Internet.
605. But that is the context in which this is being referred to.
606. COMMISSIONER McKENDRY: Thank you.
607. Well, I do have a freedom of speech expression question for you in the Canadian context. And in paragraph 13 of your Phase II comments, you noted that a number of participants promoted the idea of mandatory shelf space or eye level prominence for Canadian Web sites and new media on the portal sites of ISPs.
608. And I am just going to quote you something from the Canadian Charter of Rights and Freedoms. It states that everyone has a fundamental:

     "... freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication."

609. I am wondering whether you consider the type of measures that you referred to in paragraph 13, if those raise any issues under the Charter and those are the measures that say that there should be mandatory shelf space or eye level prominence for Canadian Web sites.
610. MR. SCOTT: Mr. Koch?
611. MR. KOCH: It has been about 18 months since I was in front of the Court of Appeal of Ontario and arguing a charter case.
612. I think the simple and honest answer is that we have not addressed that in our thinking about this issue. I think that we are certainly not saying that here. We -- and, of course, to raise that issue, is to raise the whole question over all of the Commission's Canadian content policies, frankly, because there is an element of control there of what people are seeing.
613. That is not the point of this. And I guess the point that we are making is the unique feature of the Internet is that it, again, provides the broadest possible access to expression. And I think on a policy level, while there may not be a legal issue under the Charter with this type of restriction -- and I do not want to, you know, comment in an absolute fashion one way or another on that -- there is a good policy reason why it may not be necessary.
614. I do not know whether Ian wants to add anything to that.
615. MR. SCOTT: No.
616. COMMISSIONER McKENDRY: Thank you for that.
617. I just want to go back to the mandatory shelf space or eye level prominence for Canadian Web sites. I understand that you have not decided yet whether or not you are going to cache with respect to your high speed service, but some providers do.
618. And I guess what I am wondering, and I hadn't really thought about it until now is whether, in a caching situation whether by default mandatory shelf space or eye level prominence is being given to certain Web sites merely by the fact that they are in the cache and others are not.
619. Now, I understand the user could go beyond the cache and get access to that other material, presumably not at such a high speed. But is there any issue around the act of caching that, in effect, gives default prominence to certain Web sites whether or not they are Canadian?
620. MR. SCOTT: I am not aware of any. And I will not, at least immediately, put Mr. Hagen on the spot but he may have something to add at the end.
621. My understanding of caching, you know, is simply, you know, an intelligent function in the network, you know, keeping material -- frequently requested material closer to the source of the requests.
622. If you go after the same, you know, site in the United Kingdom, and get, you know, the same information. Obviously, the response time will be greater if it is not cached locally. I do not think it affects -- it has a role or an impact on the issue of shelf space. I mean, that really, to my mind is more a question of what you have direct links to on your site.
623. Needless to say, the items which you showcase, highlight, on your site are likely to be those most frequently requested and, in turn, those most likely to be cached, assuming they are geographically removed from you are location, from the location of your server.
624. Dave, do you have anything to add to that?
625. MR. HAGAN: Yes. Caching is the best way to provide customers with the fastest access to information.
626. So the way I understand most caching works is it is based on frequency of visits to a particular site and so those are the sites that you put closest to the customer. So it is simply to be most efficient, provide speed to customers.
627. COMMISSIONER McKENDRY: When you -- this is my last question for you.
628. When you offer high speed access, can that be dial up access, or is it high speed access not dial up access by -- I was going to say by definition -- but the narrow question is can high speed access be dial up access?
629. MR. HAGAN: I am not sure if that is a definitional question or not. I believe it will be dial up access. I am not the technology guru here, but I expect it will be dial up, yes.
630. COMMISSIONER McKENDRY: The reason I am asking the question is that one of the parties -- I cannot recall at this moment -- indicated to us and this was in connection with the Wave, which I realize is a different form of high speed access than you will be offering. Is that with dial up access, the user can change his or her home page quite easily and people do as obviously the Sympatico information indicated. But that with the type of service being offered by Wave -- by the Wave, which is not a dial up service, that one of the parties suggested that one cannot change one's home page in that environment, that there is always the default home page of the service provider.
631. I guess I am wondering if you have any comment on that situation. Do I understand that correctly that in the non-dial up access you cannot change your home page?
632. MR. SCOTT: Dave, you may still want to add to it. Was that in the context of the Wave or at home? I wonder if it is at home.
633. COMMISSIONER McKENDRY: You are right. It was in the context of at home.
634. MR. SCOTT: It may have to do not only with caching but a -- the whole at home architecture in terms of caching replication and access to a -- an essentially closed high speed backbone and that may be the reason for it. I am not aware that otherwise it is not basically universally possible to change your home site.
635. So that may be a unique technical characteristic of the at home architecture, but between the MBAs, political scientists and lawyers we probably do not have quite enough technical expertise to answer that properly.
636. MR. HAGAN: I do not know the technology answer to that. I am not sure if that is what drives that or not. Our customers can change the home page or default page and do.
637. COMMISSIONER McKENDRY: In your high speed environment they will be able to, as well?
638. MR. HAGAN: Yes.
639. COMMISSIONER McKENDRY: Thank you very much for answering my questions.
640. PRESIDING MEMBER: Change you, Commissioner McKendry.
641. Counsel Pinski.
642. MS PINSKY: Thank you, Mr. Chairman.
643. I would just like to explore some of the interpretations that you have given of the Broadcasting Act.
644. MR. SCOTT: You mean more questions for Mr. Koch.
645. MS PINSKY: Mr. Koch, certainly.
646. In the first place, at the definition of "program" at page 22 of your submissions you stated that interactive services which generally consist of multimedia works do not have the unity or linearity of traditional programs which only have one beginning, one middle and one end, and, therefore, they do not constitute programs.
647. And with the definition of "programs" in the Broadcasting Act, as you well know, is:

     "... sounds or visual images or a combination thereof that are intended to inform, enlighten or entertain but does not include visual images whether or not combined with sounds that consists predominantly of alphanumeric text."

648. I wonder if you could just elaborate on sort of how you get from the interactive services with their description here as not having unity to the statement that they are not programs.
649. MR. KOCH: You know, I think the starting point is that what we are engaged in is statutory interpretation. So there are a number of views of statutory interpretation.
650. I think what you're dressing, Counsel Pinski is that the words "interactive" or "non-interactive", those words do not necessarily appear within the language that defines broadcasting under the act.
651. You know, I think when -- one must argue these points and these points ultimately are argued before courts, the first -- one of the first precepts is that, of course, the language of a statute should not be interpreted in a vacuum. It has to be interpreted in light of the policies underlying the statute. So I think it flows from that, that issues such as interactivity come into play.
652. One way of posing the question as well is would someone trying to decide this issue -- and I recognize that the Commission has to grapple with this issue and it is not an easy issue, it is a tricky issue, in fact -- is whether one simply disregards the work "program" at the beginning of the definition just because there is language that follows that seeks to give it four corners.
653. In my submission, that is not the way to go. I think you have to look at the definition of program, look at what we have understood by that definition for a long time and ask about that.
654. Now, in the real world, I think you also have to look at some of the facts. When I navigate the Internet, which I do somewhat ham-handedly, I am sometimes looking for, let us say I am looking for a vacation site. And I am interested in going canoeing. So I type in "canoe" and I get the canoe site and that is not what I want. I move on and I get a page -- find myself on a page about canoeing the that Nahanni River, let us say.
655. One of the things that I find perhaps vexing about the Internet is I actually do not know where I am at at this point. I see the page about navigating the Nahanni River. I do not know whether I am on a Web site that is put out by a canoe company at this point, canoe trip company, or a Web site by a travel company. Whether, if it is a Web site of a travel company, it is about travel across North America, across the world.
656. So the first thing I find I do is once I look at that information is the next place I go is to the bottom of the page which says "home". And I go home. So I am going now back in that service. And the next thing I look for is the Web site map so I understand the context and the four corners around the entire Web site.
657. And then the next place I might go could be very different. I may find this is a travel site and click on an article about Tuscany that is featured. And within that article on Tuscany that is featured, there might actually be a tiny video clip.
658. So I think when you look at the linearity, you have to -- although the word is not in there, you have to look at the reality of what we are talking about here and look at that type of service that I just described for the Commissioners and ask yourself: Is that what was intended by Parliament? Because that is the question when we speak of a program.
659. I think the other thing that is perhaps not strictly speaking a linearity or an interactivity issue is raised by the language that you have read which is predominantly alpha-numeric. And I think one of the things we find is that a lot of these services which are interactive in nature are, in fact, also predominantly alpha-numeric.
660. So I hope that is an answer to your question.
661. MS PINSKY: Thank you. I would like to also just try to explore a bit further the distinction that you have made between the types of services you have called interactive services and the category of services that you have named broadcast analogous services. And that was, as I understand it, a way to suggest how the Commission could go about categorizing services and determining which ones would follow the Broadcasting Act.
662. In terms of services, there are basically two types of service one would be the simulcast of material available over licensed broadcasting undertakings and the second would be Internet music or video services.
663. I believe Commissioner McKendry referred to them before, those services which are performing a narrow casting rather than a broadcasting function. And in this latter category, you refer to Web sites that transmit live or archived programs on particular types of music and Web sites that provide pre-recorded video about recent news topics.
664. I am trying to understand where you would draw the distinction between the broadcast analogous services and interactive services. And if you take, for example, the second category, so we are not dealing with simulcast of traditional, but services that are -- that originate, let us say on the Internet.
665. Perhaps you can just provide some additional clarification in terms of what type of service would fall within an interactive and what type of service would fall within broadcast analogous.
666. And I guess a subquestion here is are you speaking only of services that are streaming audio exclusively? Or what types of services would fall within the broadcast analogous category?
667. MR. KOCH: I think the first thing to raise is that, or to address, is that line drawing is not easy. It is never easy. The Commission faces many challenges daily in drawing lines. For instance, the definition of broadcasting contains within it, as I already addressed, the concept of something that is predominantly. And so the Commission has to grapple with that.
668. And the other thing is that no language, of course, whatever language you put into an exemption order if you were to go down that road and think that this was a relevant basis for making a distinction, no language will ever capture every possible situation.
669. I think if we can come at it from the other end, I think it is also important when you read our submission to bear in mind what it is that we say primarily is riding on this distinction.
670. While we say that the question of whether or not something is broadcasting is riding on that distinction, what we are telling you, in effect, and Jonathan dealt with this, is that we feel the best approach for the Commission on a going forward basis is to issue a very broad exemption order which does not get into the splitting of hairs of what is interactive and, therefore, not broadcasting and what is broadcast analogous and, therefore, broadcasting.
671. So, in effect, the purpose with providing you with these categories, although we would adhere to them if he we descended into the legal analysis, the purpose is to give the Commission a good sense of what it is that is happening out there on the Internet today.
672. And when we first looked at the definition of new media contained in the public notice, we noticed that it was very broad and I think that was purposely done by the Commission so that nothing would be off the table. But I think it is a real challenge in the Internet environment to get your mind around what is out there and can it be categorized. And as human beings we have a desire to put round holes -- you know, round pegs in round holes and figure out where everything works.
673. I think it is important to bear in mind that we are not saying that anything you should do as a result of this proceeding rides on it.
674. Now, that said, I accept that are you not bound to accept our recommendation and you may have to engage in some line drawing. I think the key is that when we take, you know, when we go into the broadcast analogous services category that we talked about, as you say, we have two categories. One is CBC providing some of the same material that it provides over its traditional undertakings on a Web site. The other, and as I understand it you are a little less interested in that and more interested that we address the issue of Virtually Canadian, for instance, that has music available.
675. Now, what is it, I think you have to ask yourself that Virtually Canadian is offering to those who visit its Web sites? I am not that familiar with the Web site, but let us say it has classical music categories and it has -- and it has pop music categories and you can choose.
676. Now, I think that type of music does fall within the nature of the definition of programs. And so then we say: Well, this is a broadcast analogous service.
677. In Call-Net's view, the fact that the user has a long list of programs, and that is the point, these are programs within that service, and chooses different programs at different times than other people might choose them sole the issue of whether they are on demand or not or the issue of whether or not this is a point to point communication because there is only one user getting it, I think from Call-Net's perspective, that is not the essence of it.
678. The essence of it is accepting in that example of Virtually Canadian that not everyone is going to choose the same music. And so there is also there an element of people not getting the same thing.
679. On the other hand, when they choose the music, there are programs within the Virtually Canadian service which are the musical works which do have a beginning, middle and end. And I think, when you go over to the other side and look at the travel type of Web site that I was describing, other than asking about the totality that is on there, there is no program within that site.
680. I don't know whether Jonathan may have something to add to that. I apologize, it is a very long answer to your question. But it is a thorny issue and we are not trying to downplay the difficulty of line drawing. In fact, that is why we try to get you away from the line drawing, as it were, in our solution to your dilemma.
681. MR. DANIELS: I guess the only thing I would add is that what helped us and we hope you as well in creating these two categories of broadcast analogous as distinct from interactive services, was it really made us look at what is out there, what is going on, how much of this is broadcasting, whatever we define.
682. And we find that the vast majority -- I mean, the vast, vast majority of material or different content, whatever you want to call it on the Internet is interactive. It is not what we have term broadcast analogous services.
683. The reason why we put in that distinction is both for, one, what is broadcasting under the act but also to look at the question that Commissioner McKendry was thinking about before which is how does this affect our traditional regulatory approach, what is at issue here.
684. So we broke it down to say: Look, there is some broadcasting on the Internet and we do not deny that and we agree that the fact that it is point to point or that it is on demand, that does not change the characterization of it being broadcasting.
685. But what is those -- what is that type of broadcasting? And we said it is mostly broadcasting analogous services. And, furthermore, it can be broken off into two areas. One is the traditional type of broadcasting, simulcast, or maybe not simulcast you can go and hear it later; and the other might be unique to the Internet.
686. My brother-in-law has created a radio program as a student at Ryerson for an hour that he has put on the Internet. Instead of going around and handing this tape to prospective employers he refers them to this Web site.
687. Is this broadcasting? We might acknowledge that is a broadcast analogous service if it meets the definition of program. Is this the type of thing that the commission is interested in regulating? Is this the type of thing that is a threat to its existing broadcast regime? We do not believe so.
688. So from that context that is why we divided and created or characterized it into those two categories. And then from -- we -- I acknowledge that drawing a line and I think Mr. Koch or Michael has described this well that it is really hard to figure out exactly where the line is. And we can talk about different cases as to where does it fit in when it is between -- when it is on the line, how do we treat it, where does it fall in, is it a broadcast analogous or is that interactive?
689. I mean, that is an area where we might not be able to -- we will not be able to give definitive answers and I would suggest that you would be able to on an individual case. But the real question it comes back to is do we need to, do we actually need to make this distinction.
690. And for our reason that is why we come back to -- we acknowledge there is broadcasting but we do not think at this point it requires Commission intervention because it is not a threat to the existing regime. And as such a broad exemption order where you do not have to get into categorizing it is what we call the safer route.
691. MR. SCOTT: Just a closing sort of policy point related to that. From the broad perspective of how this affects Commission regulation, I think our view is that at the end of the day those three baskets that we have created, three descriptive categories, there is frankly very little going on on the Internet that affects today or for the foreseeable future what the Commission does with respect to the regulation pursuing its regulatory mandate under the Broadcasting Act.
692. Quite the opposite is true on the telecom side because that is where we think the fundamental changes are going on.
693. The change in the nature of the traffic, the growth of the Internet, the growth in data is fundamentally altering the telecom environment which in turn puts tremendous pressure on some of the traditional arrangements, contribution being an obvious one that we have recently raised or others have raised with the Commission. So we think that is, in fact, where the pressure on the regulatory system is, much more so than on the broadcasting side.
694. MS PINSKY: Thank you very much. Those are all my questions.
695. Well, thank you very much, gentlemen, we appreciate you participation in our proceedings today.
696. MR. SCOTT: Thank you.
697. PRESIDING MEMBER: Okay. We will take a five-minute break and then we will hear from B'nai Brith.

     --- Short recess at / Courte suspension à 1445

     --- Upon resuming at / Reprise à 1450

698. PRESIDING MEMBER: We will return to our proceeding now. Madam Secretary.
699. MS SANTERRE: The next presentation will be by B'nai Brith Canada, Mr. Friedman.
700. MR. FRIEDMAN: Merci, beaucoup. J'aimerais de la part de B'nai Brith Canada de remercier la commission pour nous avoir donner la possibilité de vous adresser la parole et de parler de notre position sur les questions importante que pose l'épanouissement de l'Internet.
701. B'nai Brith Canada is here today represented by myself. We have also asked the National Capital Alliance on Race Relations, which is a local coalition on race relations to accompany us. Sonia Brereton, to my left, is the executive director of that organization. And they also have a lot of experience in dealing with the issue of hate with respect to the respect for human rights.
702. On my right is Jonathan Calof, who is an associate professor of business at the University of Ottawa, who is a well known specialist in the area of the Internet, has given extensive training and presentations on the use of the Internet to obtain commercial intelligence and has also worked with our organizations and others on the issue of hate on the Internet.
703. Now, for a number of years, B'nai Brith has been highlighting the major challenges that the Internet poses for the enforcement of Canadian law and the fact that it also strengthens hate groups. We have done this in our annual audits on anti-Semitic incidents, through conferences and public education on this issue.
704. We are organizing a second international conference on the hate on the Internet from March 21st to the 23rd, 1999, in Toronto.
705. National Capital Alliance on Race Relations, who is with us today, has appeared before parliamentary committees on the issue of regulation of hate and we are pleased to present our submission with their support now that the CRTC has undertaken a major review of its policy under the broadcasting and telecommunications acts and has asked for input on hate on the Internet specifically.
706. We are very glad that the CRTC has taken this step. We feel there is a lot of misunderstanding still today about the nature of the Internet, about the nature of Canadian law and how it does or does not apply to the Internet.
707. Later on I will make a comment on the question you asked about the relevance of American jurisprudence to the Canadian situation and we have to understand that this gives us an opportunity to spread awareness of these issues and to engage broad sectors of our society in understanding and debating the centrality of these questions to the future of our country and to our capacity to live together in a specifically Canadian collectivity which I think is of great interest to the CRTC and to all of us.
708. I would now like to ask Sonia Brereton to give you an outline of the nature of the challenge that we face as we see it.
709. MS BRERETON: The Internet is rapidly becoming an instrument of mass communications with the reach it extends around the world and the capacity to send information, images and sounds to over 50 million users worldwide in every country where there are computers and telephone lines connecting them.
710. The power of the Internet has been amply demonstrated. The leader of the rebellion in Chiapas, in Mexico, was able to send out his version of events with the aid of a lap top and an e-mail account his federal troops were trying to hunt him down. Rumours spread even faster than ever through Web sites through news groups and through public and private e-mail lists.
711. Thus, an unsubstantiated claim that Israelis doctors had injected 300 Palestinian children with the AIDS virus spread rapidly around the world and was cited by racists and ordinary people alike while the withdrawal of the claim received almost no publicity. Goebbels' big lie technique can still work.
712. Hate groups with well designed Web sites report thousands of visitors every month. While many identified hate sites on the Internet are too obvious to influence great numbers of people, they nevertheless increase the reach of each hate monger from the local neighbourhood to all Internet users around the world.
713. Through the judicious use of rumour, the capacity of any individual to influence others has increased and finally through the Web and the Internet, previously isolated hate mongers can now share strategies and develop solidarity.
714. With continuing improvement in software, it is possible to have interactive real-time contact with people, with videos, with audio and with computer generated animation.
715. Individuals selling or promoting products or points of view have been quick to take advantage of these possibilities. Interactive chat lines with accompanying video, permit the sale of online sex talk and live sex videos.
716. At the current pace of growth in software improvement, the day is approaching where individuals will have the same reach as stations and networks in sending out information, cultural products or any other communication which is currently possible over television, radio or telephone.
717. With the growing involvement of cable television, and the digitization of all forms of electronic signals, the time is almost here where the transition from television to satellite to cable to Internet will be seamless. The potential for good and for harm is growing exponentially.
718. At the same time, our reaction to this new technology as societies has been both hesitant and slow. The Internet has been dominated by those who see it as a separate universe, independent of government and intended to totally empower the individual. Hate mongers have rallied many in the Internet community by appealing to the absolute value of freedom of expression. Because of the individual nature of the communication made possible by the new technology, existing legal frameworks become difficult to enforce at the source. Efforts to deal with hate on the Internet in Canada have centred on the use of the Canadian Human Rights Commission's power to issue injunctions against individuals and organizations using telephone lines to promote hatred and on public education through the Internet.
719. Finally, the Internet has the potential for broadening a number of cracks in our society into deep chasms between youth and their elders, between the computer literate and others, between those with online access and those who cannot afford it, between those who value freedom of expression above all else and those who see freedom of expression as one value which must be balanced against others.
720. Indeed, many Canadians may be unaware of the fact that according to the Supreme Court of Canada, it is the latter approach which prevails under Canadian law.
721. MR. FRIEDMAN: That brings me in part to the reference I made to the American jurisprudence. The parts of the decision which refer to the American Constitution which has freedom of speech as the first amendment and has it placed in a way that Congress cannot pass any law which interferes with freedom of expression, that decision and that reasoning does not apply to Canada.
722. In Canada, the first amendment of our Constitution is that the rule of Parliament is supreme and that Parliament has the power to decide and to balance between rights that exist in our charter.
723. The question of Internet as a broadcast medium is now becoming more urgent. If computers spread rapidly and software is improved, we would even see the time when programs, videos and so on are available, as we mentioned. Perhaps all you have to do is automatically debit your credit card and you can down load a video, sort of making a visit to the video store less necessary.
724. You could develop your own program, as someone has just mentioned, put it on the Internet, on a Web site, advertise the heck out of it and get 500,000 hits on your site.
725. How would it be possible to regulate all the people in the world who might do that on an individual basis?
726. There are close to 50,000 sites already listed on Yahoo! in Canada. Canada, the United States, Australia, New Zealand, all these countries are leaders on the Internet and one thing we should notice about that is that they all speak English as a major language.
727. The Internet is often said to be global. It is global in one sense, but in another sense it is limited right now and the limit is basically linguistic.
728. While we see the Internet as blurring the distinction between public and private communication, we see a pragmatic difficulty in asking the CRTC or any other agency to take a licensing approach to every Web site in the country.
729. The recent experience with trying to regulate the content of the "Howard Stern Show", I think highlights the difficulty we would have if we were trying to regulate the content of about 50,000 Web sites and that is just in Canada.
730. So, from our perspective, should the Internet be regulated? We do not really think anyone should be taking a licensing approach to the content of the Internet. However, there are other legislative and regulatory initiatives which we think are required to deal with the issue of hate on the Internet.
731. First and foremost, we think that a complaints-based mechanism is essential. In other words, people should be allowed to make complaints about specific sites which can then be dealt with. We do not believe that the CRTC is the appropriate vehicle for this mechanism, however. We do not believe the CRTC has experience or expertise in the evaluation of hate propaganda and the promotion of hatred.
732. We think that the organization that is best suited to deal with that is the one that currently deals with the promotion of hate over the telephone, namely, the Canadian Human Rights Commission.
733. The Canadian Human Rights Commission is currently proceeding with a tribunal hearing against Ernst Zundel and the Zundel site which is located in California. And the League for Human Rights at the B'nai Brith has standing at that hearing.
734. During that hearing, we have become somewhat concerned that the current law, the Canadian Human Rights Act, is too narrowly focussed on the use of telephone wires to communicate the Internet. As I said before, it is theoretically possible to communicate the Internet over cable. I mean, practically we know it is possible. You can do it using satellite transmission.
735. So we are concerned that the act needs to be updated just to be sure that the Human Rights Commission will be able to deal with the Internet no matter how it is transmitted.
736. Finally, we are pleased to hear of the agreement among the federal and provincial justice ministers on the need for a law against the possession of hate material for distribution. This would be an effective additional tool to combat hatred at the individual level in the same way that such laws are effective to some extent in combatting child pornography.
737. Now we come to the area where we would like to say those are the legislative -- basic legislative and regulatory initiatives that we think are needed. But we think that they are not sufficient. There are other things that need to be done.
738. I would like to ask Jonathan to expand on those.
739. MR. CALOF: Thank you, Rubin. And just to add to what Rubin said, he mentioned the 50,000 sites at Yahoo! As you well know, Yahoo! is a fraction of what is on the net. If you it can take a look at a search engine like Alta Vista, with anywhere from 150 million to 400 million items indexed versus the 2 to 5 million on Yahoo!, you are going an exponential 500,000 Canadian documents, add to the fact that only 30 to 40 per cent of the Internet is actually indexed in these medium and you see what you were talking about in terms of the number of items that would be looked at and regulated to make this come true.
740. Now, when I saw those numbers, and I must tell you I was giving a presentation to a board of education on the issue of how do we deal with the positioning of books in the library. And I said: "What is a library?" And they looked at me like I had three heads.
741. I said: "Let me explain."
742. I teach kids now that are from grade 8 to executives. I said: "Your students are spending more time on the Internet getting information than in the library."
743. And I think we have to promote Internet literacy in general. We have to become aware of how the Internet shapes our perception that when the kids and when the adults, when the people are reading these documents, it shapes their belief in a group.
744. For example, on Yahoo!, there used to be something called "Jew Watch" which was under the, well, the Jewish section. Now, it sounds like a good research section on Judaism, except it is an example of something that is very anti-Semitic. It tells you what Jews to watch, including in Canada, a list of influential Canadian Jews.
745. We have to increase the awareness of children and others as to how and why to protect privacy to promote the Internet safety. And there is some exciting work going on in Canada in that respect, curriculum materials development and media awareness networks.
746. What is far more important, however, is that we are going to have to teach people -- and frankly this does not just apply to Internet, it applies to all media. We must be able to search out and evaluate critically information available through the Internet. They have to be able to know how to be able to assess where is it coming from, who put it out, given the numbers that can easily put it out there, what is the basis of it. And we can deal with more of that later on.
747. So we are going to have to assess rumours directly against these identifiable groups. And I am seeing more and more of this on the net. We are going to have to promote wider awareness and understanding of Canadian values and the Canadian law. And that ties back to what Mr. Friedman was saying.
748. What I would like to see is an effort being supported by the industry and government through Web sites, through school curricula, through public education programs. This is systematic and cultural.
749. We all have a stake in ensuring the users of the Internet have the tools to assess the information coming at them and have the opportunity to spread and use a Canadian approach to a major human rights issue and to promote Canadian culture and values.
750. And I have to tell you at this point it is very difficult enforcing this on the net without the training. I ran a program with students and I gave them a very simple inquiry to put on the net, to find directions between Miami and Ottawa, a driving map. They put in a search term that sounded quite straightforward and out came porno material intended for people who wanted to do a travel porno route. They thought it was cute, but it certainly underlies the sort of problems I have been talking about.
751. Every country with active participation on the Internet is automatically playing a role on the international stage. And this is something that we have reputation and experience with and we can build on and we are being sought out.
752. To summarize the recommendations that come from the B'nai Brith, there should be no blanket regulation of the Internet by the CRTC. Rather, the Canadian Human Rights Act should be updated to ensure that the Canadian Human Rights Commission can deal with complaints about hate on the Internet.
753. And we are saying there are reasonable laws at play right now that need some tinkering to make sure they apply to what is on the net. And certainly we could talk a little bit about enforcement as well.
754. The ministers of justice should proceed with laws against the possession of hate material for distribution of material, whether this material is hard copy or on one's computer. We have to recognize the new environment.
755. The industry should have its own self-regulating mechanisms for review, complaint and the mechanisms should have sanctions. And finally, federal and provincial governments as well as industry should support the development of curriculum materials about the Internet and using the Internet to first, teach analytical skills in using the Internet and evaluating material from it and also promote understanding of Canadian values and diversity and in particular Canadian law in hate and hate propaganda.
756. MR. FRIEDMAN: Thank you, Jonathan. With that, I would like to close our presentation.
757. I would just want to mention that we have attached a discussion by our senior honorary legal counsel David Mavis. And to mention that both he and Marvin Kerrs, the senior legal counsel for the League for Human Rights, helped us to understand the legal issues involved in dealing with hate on the Internet and were unfortunately unable to be with us today.
758. And now we would be pleased to answer any questions.
759. PRESIDING MEMBER: Thank you, Mr. Friedman, Ms Brereton and Mr. Calof.
760. Just a couple of little questions of clarification. First, in your submission here this afternoon, at page 4, when you said should the Internet be regulated, at the end of the sentence you say it would not be practical at this time.
761. I take it your view would be not unlike many of the others here that we have heard and I probably should read instead of at this time, as at any time?
762. MR. FRIEDMAN: Because of the developments in technology I guess I did use a weasel word. But basically I do not know what the future holds in terms of technology. Looking at it right now, I do not see how you could possibly do it.
763. PRESIDING MEMBER: Okay. Considering your views here, I was somewhat struck at the outset that you said that you were glad that the CRTC has undertaken this initiative. Given the views that you have, what is the particular role that you would see here? I guess it is provided an opportunity for you to express these concerns but largely they are -- I take it your view is that either through better education, better awareness, industry self-regulation, industry codes and then the specific recommendations you have just gone through here at the end, that is the way to best deal with this problem.
764. MR. FRIEDMAN: That is our view. Our view is that it would not be possible, it would be counter productive to try to regulate the content. And, again, we are speaking from the content side of things rather than the technology side. It would be difficult to regulate this phenomenon.
765. We are not convinced whether everything on the Internet is or is not broadcasting. We have the feeling that you could probably make an argument either way. And that you would have to -- if you tried to do that, you would have to make your arguments in front of a judge and we have no idea what the final decision would be because there are arguments for saying this is broadcasting, there are arguments for saying it is not broadcasting.
766. Our view is that, regardless, you are going to end up with an impossible situation if you deem it broadcasting and deem it subject to the Broadcasting Act.
767. PRESIDING MEMBER: Setting aside the issue of whether or not it is broadcasting, let us assume for a second that it is not and that we made a determination that it is not. In the context of being glad that we are undertaking this initiative, how do you see the CRTC as being helpful in the context of the recommendations that you have made and in this whole notion of the industry self-regulation codes and so on. What is it that you think we can do to help facilitate that?
768. MR. FRIEDMAN: I now understand. I guess what we are looking for from you is recommendations that will come out at the end of this process which you will forward to the government. You have a policy role with respect to proposals that come before you and we would encourage you to pass those proposals on.
769. I would not underplay the importance of giving people the opportunity to hear arguments about the Internet, to hear about what it is we are dealing with, to hear about the issues of access, the issue of the social phenomenon which is the Internet.
770. I think that since nobody else is doing it, I think it was a great thing for the CRTC to move forward with it.
771. PRESIDING MEMBER: I would presume, given the nature of your organizations, that the three of you represent, you have probably undertaken a fair bit of work already in advancing these issues before with respect to the committee Canadian Human Rights Act, making the ministers of justice aware of these kinds of concerns; is that the case?
772. MR. FRIEDMAN: We have made the ministers of justice aware of these concerns. We have made parliamentary committees aware of these concerns and now we are doing it again.
773. PRESIDING MEMBER: That is fine.
774. Mr. Calof, you, in reading the recommendations, I think you added a little editorial comment there on the second one about enforcement. And I was wondering whether you want to elaborate on what your point was.
775. MR. CALOF: The other group had two lawyers on the table which would have certainly helped for this sort of discussion.
776. PRESIDING MEMBER: Well, I am not a lawyer, so.
777. MR. CALOF: Yeah, well. Basically in dealing with some of the aspects of hate and the hate laws, I also was dealing with this in my capacity as community relations chair for the Ottawa Jewish Community and with other groups.
778. What we found were several situations where enforcement was a problem due to what is required at the Attorney-General level of approval to go forward in any one of these cases. And sitting in Ontario, for example, are several scenarios where it simply cannot be prosecuted because it has not been approved at the Attorney-General level.
779. So there is legislation on the table that exists dealing with hate crimes and dealing with hate propaganda but it is a very arduous process. And, in fact, the citizen had some interesting features on it not that long ago where they were talking about the issue of people writing in. Do we go under hate crime or do we go just under general crime and the argument is this is a very different type of crime, the hate crime, than the general type of crime.
780. Because it is so difficult to prosecute under hate crime it really is playing a deterrent in people coming forward with the charges. So that is where I was coming from on that perspective.
781. MR. FRIEDMAN: If I may add one thing, it is not necessarily in the mandate of the CRTC, but there are many issues that relate to enforcement, law enforcement that the nature of the Internet poses challenges for where there are issues of harassment, threats, liable, copyright, many, many such issues which we are trying to deal with and trying to help the police and the justice officials with.
782. I think, for instance, police have to get used to the idea that one can issue a threat in Edmonton against someone who lives in Victoria and that the Edmonton police still have to do something about it, that they have jurisdiction. And these are the kinds of questions that come up just by the nature of the Internet which we hope also to be advancing. I am not sure if it is of specific relevance to the CRTC except insofar as people take programs that have been broadcast and rebroadcast them from a Web site.
783. MR. CALOF: See, one of the possibilities that exists and we have seen that is the ability to take material and edit it. Wonderful digital environment that we are in now, to result in a program that is very different from the originating program.
784. When they were talking earlier about the interactive technologies, what we can now do with media and then broadcast that, and I do not want to use that term too loosely, over Internet or other media that is where these things start coming into play as well.
785. PRESIDING MEMBER: Given the concerns that you have about the Internet and its capability to convey misinformation lies about any group, what do you think about the potential of it to overcome that problem by the very nature of it as well to, in fact, then convey the truth about a given situation like the AIDS example that you gave?
786. MR. FRIEDMAN: This depends partly on human nature and partly on what we as human beings find interesting and what we look for when we go to a library, go to the newspaper, go to the television set or go to the Internet. What do you tend to look at what do you tend to look for? What constitutes news?
787. Is it news when someone claims that some horrendous thing has happened? Darn right it is, it is covered all overall the world. Is it news when the person who made the original claim one year later writes a quiet letter to the Secretary General of the United Nations and says: "Oops, I guess I made a mistake"? No, it is not news.
788. So, that does not relate to the nature of the Internet. The Internet helps spread it. It is like the global village is here, except the global village also contains global idiots. You know, it also contains global gossip mongers. It is a global village but it is not just factual information and scientific information which gets communicated.
789. MR. CALOF: Just to add to that, if you go through the range of electronic media and you start off with the pay data basis like dialogue and Lexus that you can access, you are talking about New York Times validated information. And when you talk about the stuff that is on the net, you are dealing with anyone can put anything on that they want to.
790. So what you are saying is that there is a way of spreading the information, absolutely, there is no question about it. It is a way to educate the masses with correct information. But it is also a way of spreading misinformation through the discussion groups which are now archived as well as your own personal page.
791. And that is why part of the recommendations at least from the part that I was talking about is let us teach people how to critically assess the information they see in front of them. So that the right opinions and attitudes are formed.
792. I could apply that to the newspaper, I could apply that -- there is a course that I give that looks just at that, at radio and television. That is the problem in dealing with the net. The net doubles every 100 days in terms of pages. So whatever you are talking about in terms of putting out in that media, it is going and going and going.
793. How do we teach someone, for example, that a site, I don't know if you remember during the election, there was something "Bill dot Clinton dot Gov" which was the Republican site. And then "Clinton dot Bill dot Gov" which was the Democrat site. How do you teach people to critically assess?
794. PRESIDING MEMBER: A couple of more points. In your original written submission, and the pages aren't numbered, it would be on the last, page 3, I guess. You made this statement:

     "The CRTC must begin now to examine the nature and feasibility of regulations that will apply to the use of new media to broadcasting."

795. And you put those two terms "new media", "to broadcasting" in quotes. And then you went on:

     "Will it be possible to identify broadcasters by other than the size of their business?"

796. MR. FRIEDMAN: Basically what I said, it comes back to my answering -- our answering that yes which was this is too difficult to do at this point in time. The notion there is, since every individual could theoretically -- I could go home and make a home video, put it on my Web site, advertise it on the Web and I could get more viewers than some Canadian programs of my home video. Would I then qualify as a broadcaster? What would I need to do in order to qualify as a broadcaster, make more videos which I could easily do?
797. That was what we were trying to get at, that the only criteria that we could see that would make sense in looking at such things would be, you know, the budget, the size of the company, whether they make a profit and so on.
798. But after hearing some of the previous submissions, our conclusion is that this was going to take a lot more work and it is going to take a lot more study before anyone is able to make -- to draw the kinds of lines which the previous presenters were talking about. We do not think we are ready to do that. We do not think we are at the right stage to do it and we do not think you can regulate it in any case.
799. So, which sort of brings back the question of why try to make those distinctions since when you -- at the end of the line, you are not going to be able to do much with it.
800. PRESIDING MEMBER: Okay. I take your point. But then taking a similar vein, but switching acts, attached to your written submission was the symposium on hate on the Internet. And one of the recommendations that came out of that symposium was that, in Canada, all relevant acts -- and you used as an example telecommunications, customs tariff -- should update the language to include new technology. And I was wondering with specific reference to the Telecommunications Act, what particular change you think we should be making there?
801. MR. FRIEDMAN: In terms of the Telecommunications Act, we are basically concerned about any reference in it -- and I do not think -- that allows people to have access to pursue harassment cases and so on.
802. That may not be in the Telecommunications Act, it may be in the Criminal Code. That was a broad brush recommendation and I think it included acts just to make sure we are not missing anything.
803. But at this point in time, unless you are aware of a specific regulation which under the -- which under the Telecommunications Act which would prevent police or justice officials from pursuing people who send messages over it, I am not sure there is any particular application.
804. PRESIDING MEMBER: Okay. So just to conclude, then, going back to your recommendations at the conclusion of your presentation today, you think it would be helpful for the Commission to include in whatever public notice or report comes out of this proceeding those recommendations to other government departments or agencies as appropriate?
805. MR. FRIEDMAN: Yes. And, again, with respect to content, in your final conclusion, you might want to talk about the difference between a regulatory approach or a facilitative approach or a supportive approach. And we are encouraging the government, in so favour as it starts to deal more with the Internet to take the second approach rather than the first.
806. PRESIDING MEMBER: Okay. Well thank you very much, appreciate you appearing here today.
807. MR. FRIEDMAN: Thank you.
808. PRESIDING MEMBER: Madam Secretary?
809. MS SANTERRE: Thank you, Mr. Chairman. So the next presentation will be by TELUS Communications Inc.
810. PRESIDING MEMBER: Whenever you are ready Mr. Grieve.
811. MR. GRIEVE: I am, Mr. Chairman. Good afternoon, Mr. Chairman, members of the Commission panel. My name is Willy Grieve. I am vice-president of regulatory affairs at TELUS Corporation.
812. Joining me today on my far left and closest to you is Dr. John Carry. Dr. Carry is an affiliated research fellow at the Columbia Institute for teleinformation and an adjunct professor at the Columbia University Graduate School of Business in New York City. His area of research is the adoption of new media services in homes, businesses and schools.
813. Seated next to Dr. Carry is Mark Kolesar. Mr. Kolesar is director of regulatory services at TELUS. To my immediate right is Ms Silvie Courtemanche, our counsel in this proceeding.
814. Seated to her right and furthest from you is Mr. Israel Switzer. Mr. Switzer is a professional engineer and he has considerable experience in the cable television industry and has assisted TELUS with assessing the evolution of new media technologies.
815. TELUS is pleased to be here today to share its perspectives on the effects of new media on the broadcasting and telecommunications industries in Canada and the regulation of those industries.
816. At this point in the hearing, it is almost trite to say that new media is having and will have a profound impact on the telecommunications and broadcasting industries in Canada and globally.
817. The factual underpinnings upon which these industries have been built are quickly falling away. Indeed, many of the companies in these industries no longer consider themselves telecommunications or cable or broadcasting companies. We are all communications companies and we all recognize that the way of the future is to provide a broad range of services to our customers.
818. In preparing our submission in this proceeding, we examined the emerging trends in consumer behaviour, industry trends and technology trends.
819. We were not particularly surprised by what these trends revealed, but when we examined them more closely and with Dr. Carry's perspectives on the adoption of other new media throughout history, it became apparent to us that all of the new building blocks for the new world are here.
820. As Dr. Carry will attest, the observed patterns of consumer adoption and industry responses in new media reveal a compelling and predictable chain of events that has repeated itself in the development of many new media throughout history.
821. What is different this time is the speed at which it is occurring. One need only look at the exponential growth of the Internet. In early 1994, when TELUS began working on the issues that would have to be resolved to introduce local competition, the Internet was barely on our radar screen.
822. Now that we finally have the beginnings of local competition, the Internet and Internet protocol technologies are part of our business plans and we expect Internet service providers to be new competitors in the telecommunications market.
823. In broadcasting, the rapid growth of the Internet and the developments in Internet protocol technologies are already having an effect on the amount of time people spend watching TV.
824. As the technology develops and is rolled out, services offered through the Internet will increasingly draw consumer time away from traditional broadcasting services.
825. As the Internet begins to offer direct substitutes for traditional broadcasting services, even more consumer time will move from traditional broadcasting to new media.
826. In time, we believe that new media will become the primary source of information and entertainment for consumers.
827. The implications for broadcasting regulation could not be more profound. The regulatory tools available to the Commission are limited to licensing, including exemptions from licensing. These tools will be ineffective in achieving the cultural policy objectives of the Broadcasting Act.
828. You have heard time and again that if you attempt to regulate ISPs, they will move. But Canadians will still have access to them and the content they provide.
829. So when is all this going to happen? You have heard many parties talking about five years or seven years. You have even heard 15 years mentioned. But the question, when is all this going to happen cannot be answered without first defining what "this" is. The meaning of "this" is crucial.
830. When we say this is going to happen, we mean there is going to be sufficient substitution by consumers of new media for old. So that the Commission will be unable to effectively pursue the Canadian broadcasting objectives using the regulatory tools available to it. This is quite different than what you have heard to date. That is the regulatory issue.
831. But the good news is that a diversity of Canadian content is already available on the Internet because Canadians genuinely want it. Of course, our definition begs the question: When will sufficient substitution occur?
832. We cannot give you a definitive answer but we believe that five to seven years is a reasonable estimate. So with that kind of estimate, why would TELUS recommend that the Commission initiate a proceeding as early as next year to consider how it can withdraw the regulatory requirements currently prescribed for the Canadian broadcasting system?
833. There are a number of reasons. First, sufficient substitution could occur sooner. In order to get a good feel for the factors we need to consider, we will have to hear from many parties. For example, we need some quite rigorous analysis of the trends in advertising spending. How much, what drives it and many other questions.
834. Dr. Carry can explain the historical trends. As consumers go, so goes the advertising and in patterns that are instructive and predictable.
835. The second reason we are recommending a broadcasting hearing next year is the need to give the production and programming sectors every opportunity to transform themselves to be strong and active in the new media world.
836. Their focus now should be to move their strength from the traditional broadcasting world to the new media world. These transformations of industry take time, attention and resources. If time, attention and resources are focused too heavily on the requirements of traditional broadcasting regulations and funding sources, our programming and production sectors risk being passed by.
837. These are sectors you have nurtured and helped to grow. They are strong now because of your policies and the policies of the federal government. They can be strong in the new media world if they are given a clear signal that you recognize the need for them to transform and that they cannot rely on the current regulatory structure in the future.
838. The already strong Canadian presence on the Internet and the diversity of Canadian content currently available can be even greater if the Canadian programming and production sectors are given a solid chance to firmly establish a new media presence in the next two to three years to establish brands and to respond to the demands of Canadian consumers for Canadian content.
839. So what should next year's public broadcasting public notice look like?
840. We have a preliminary list of suggested questions to be addressed. We have three of them in here, but we will give you these three. How long will the transformation to new media take industry sector by industry sector? How long will it take each of these industry sectors to transform themselves to actually figure out how to get there? At what points determined by time and events should the commission withdraw specific regulations and how will we fund distinct Canadian content that might not otherwise be created in that market? And, of course, there would be many other issues that parties believe are relevant and by that time there may be many more.
841. As you know we have also recommended that the Commission initiate a telecom proceeding next year to rationalize all interconnection and unbundling arrangements and to specifically include ISP interconnection. This is not the first time we have asked for this proceeding. Along with the other Stentor companies, we asked for such a proceeding in the reply comments filed with respect to the finalization of wireless service provider trunk side intersection arrangements.
842. You will recall that the Commission issued its first competitive interconnection order in decision 79-11, interexchange private line interconnection almost 20 years ago. Since that time we have had numerous interconnection and unbundling decisions each made on the basis of the factual assumptions, technologies and prevailing perceptions of the market. Throughout this period, one underlying assumption often implicit was that the whole local network was a natural monopoly. In other words, there was and could only be one local network.
843. Technological advances brought changes in the economics of network provisioning. Then in decision 97-8, you finally put to rest the notion that the whole local network is a natural monopoly. You found that, of the physical network elements, local loops in bands C and D, the more rural areas are the only essential facilities or in other words, the only natural monopoly supplied facilities.
844. So now that the natural monopoly assumption has been laid to rest, what are we left with? Well, we are still left with all of the old interconnection and unbundling orders all based on different circumstances and different times. This makes it very difficult and confusing for us in the industry to know how to respond. There is really very little certainty. What other principles which are to be consistently applied? What are the regulatory rules you will apply? That is why the industry needs the proceeding we have requested. We believe the principles are straightforward, they are the fundamental competition and economics principles that you applied each time you made an interconnection or unbundling decision from 79-11 to 97-8.
845. So why are we rehashing all of this stuff in a new media proceeding? Because of the Internet and ISP interconnection.
846. In the public notice initiating this proceeding, you quoted the government's four principles to guide the information highway strategy. The third one is competition in facilities, products and services. In decision 97-8, you firmly adopted a facilities based model for telecommunications. You recognized that if you mandated overly generous access to telco-infrastructures, competitors -- CLECs in that case -- might not have sufficient incentives to invest in their own facilities and would remain in the market primarily as resellers. Then you stated:

     "The Commission is of the view that efficient and effective competition will be best achieved through facilities based service providers. Otherwise, competition will only develop at the retail level with the ILECs retaining monopoly control of wholesale level distribution."

847. We could not agree more.
848. So what we have on the telecom side is a firm commitment to facilities based competition. On the broadcasting side, we have BDUs who own their own distribution networks. There are strong facilities based competition commitments on both sides. But now, coming up the middle, are the ISPs positioned to compete with both the Telcos and the broadcasting distribution undertakings but claiming to be neither.
849. In our view, the danger is, once again, the widespread unbundling for ISPs will entrench monopoly, or in this case perhaps duopoly, networks in the new media world. This would be inconsistent with your policies and with the policies of the federal government.
850. Despite all of this, we understand that it would be disruptive for a number of market participants, including the ISPs, for a rationalization of interconnection arrangements to occur overnight. That is why we are recommending a proceeding for next year.
851. We will support a facilities based competition model, and we will support transitional policies such as the five-year rule you have for unbundling non-essential loops, for all current interconnection and unbundling arrangements.
852. So that all market participants can adapt to the rationalized rules and to respond to the incentives for a facilities based competition.
853. This does not mean that all CLECs or ISPs or anybody else must necessarily build their own networks. What it means is that market forces must be allowed to drive investment innovation and research and development in facilities.
854. So what TELUS is recommending in this proceeding is quite simple. We are asking you to send a signal to the broadcasting industry that the regulator rules upon which it is flourished will be unsustainable in the new media world. We are asking for a broadcasting proceeding to plan the transformation of the industry to the new media world and we are asking for a telecom hearing to rationalize all interconnection arrangements and to establish facilities based competition across the entire communications industry.
855. In closing, Mr. Chairman, and members of the panel, you could not have picked a better time to conduct this proceeding. Instead of running the catch up with events, you are out in front. And you focus the attention of all of us on the very complex and important issues ahead.
856. Thank you. And now, of course, we would be pleased to answer any questions you might have.
857. PRESIDING MEMBER: Thank you, Mr. Grieve, for a compliment, and what a relief that we have at least two more proceedings in front of us. We were getting worried.
858. MR. GRIEVE: You know, Mr. Chairman how much I like hearings.
859. PRESIDING MEMBER: I do. And I know that is the truth.
860. I will turn the questioning over to Commissioner Wilson.
861. COMMISSIONER WILSON: Good afternoon, Ms Courtemanche, gentlemen. Nice to have you with us this afternoon. You have quite a pedigree of experience on your panel this afternoon, and I want to assure you that we will certainly take advantage of that.
862. It explains to me, actually, something that I would like to compliment you on which is the fact that your have presented us with a very forward-looking snapshot of what you think the future is going to look like in this country with respect to the evolution of the new media industry.
863. And I have to tell you that I was really appreciative of the extent to which you have researched the issue in order to flesh out your vision and to present us with some interesting food for thought. It was a very helpful submission. Both submissions were very helpful.
864. And I would like to say, too, that with Mr. Switzer on the panel, I will get around to asking him about the dial up access and the high speed access and default home pages. Because if anyone can answer that question, he is in the room this afternoon.
865. I would like to begin our discussion by asking you a fair number of questions of clarification about statements that you have made throughout your two submissions. Then I would like to take a look at what I consider to be the two major issues that you raise, the issue of the deregulation of the broadcasting industry or the broadcasting regulatory regime, rather, and the rationalization of unbundling or interconnection policies.
866. So what I am going to do is just take you quickly through these questions of clarification. I think we can go through them fairly quickly and I go through them in order so if you want to flip through your presentation, feel free to.
867. On page 7 of your Phase I submission, you state that:

     "For a definition of new media to be useful in considering the issues we have raised, it must fulfil a number of basic criteria..."

868. And then you list five criteria. And it is three of these that I would like to clarify with you. The first one reads:

     "The definition must be broadened to have not only activities undertaken over or through the Internet but also current and future activities beyond those activities currently referred to as the Internet."

869. And I was wondering if you could just clarify if you meant by that current and future activities beyond those activities currently referred to.
870. MR. GRIEVE: What we were concerned about -- and I may ask Mr. Kolesar to speak a little bit more to this -- but we found that most parties when they discuss new media went straight to the Internet and did not consider other alternatives or other kinds of new media. There might be other kinds of networks, perhaps even IP based networks that might not be connected to the Internet but might still provide the same kinds of new media in different places. And I do not think that this proceeding should limit itself only to the Internet even though the Internet is primarily the focus of many people and is what has caused the Commission to initiate this proceed. But I do not think we should limit ourselves to that. That was the reason for that in there.
871. COMMISSIONER WILSON: Okay. The third criteria states that the definition should be technologically neutral but should assume that new media content is transmitted via two-way real time communications medium including wire line, wireless, spectrum or satellite technologies.
872. A number of parties have suggested that we should actually introduce the concept of digital into the definition. And I am wondering what your views are on that.
873. MR. GRIEVE: It was analogue yesterday. It is digital today. It may be something else tomorrow. And if it is going to be technologically neutral, I would be reluctant to make a definition technologically dependent in any way.
874. So you can carry analogue over a piece of wire and you can carry digital over a piece of wire and whatever comes along next, who knows. I just think from our perspective, much of the difficulty in writing any kind of regulatory rule or piece of legislation is in getting a definition that is lasting.
875. COMMISSIONER WILSON: The words.
876. MR. GRIEVE: That is exactly right.
877. COMMISSIONER WILSON: The words, a lot of words floating around here this week.
878. MR. GRIEVE: So you can add digital, but when someone comes up with digital 2, then you are going to have to many come back and change it. So I would encourage anyone who has to write rules in the communications industry to try to make them as technologically neutral as possible.
879. COMMISSIONER WILSON: Okay. Thanks for the point.
880. Your fourth criteria states:

     "The new media definition must clearly distinguish new media from traditional cultural media delivered by traditional means, including broadcasting undertakings, programming undertakings, books, music magazine and music publishing and the like."

881. Setting aside the publishing aspects of this criteria, as you know, one of the areas that we have been exploring and one which you talk about in your Phase I comments is the possibility that at some point traditional media and new media could converge. And you have also recommended that we dismantle the current broadcasting regulatory regime after which market forces would virtually force this convergence.
882. So why is it necessary to clearly distinguish new media from traditional cultural media in the definition, as you state on page 9, that:

     "... in the foreseeable future new media service providers will deliver content that is indistinguishable from traditional media, including traditional broadcasting content"?

883. MR. GRIEVE: Well, first of all, the Commission asked the parties to provide a definition.
884. COMMISSIONER WILSON: We did, that is true. However, that does not mean we cannot ask you about it.
885. MR. GRIEVE: I understand. We talked about this at length. And the difficulty for us was how we define every time we said new media in the paper. Because other parties defined it as the Internet.
886. What we wanted to do was, you know, you used the expression new media in the public notice. We said, "Well, that means there must be some old media. So what is the old media?"
887. Well, the old media is books, printing presses and television, radio, cable all that sort of stuff. So now we have a circle, old media. And then we have new media which is a whole bunch of stuff out there that includes CDs, and things that would not be things that the Commission would concern itself with in a proceeding like this. So what is it that the Commission would concern itself with?
888. It would be things that would be new media that provides or will provide a substitute or a reasonable substitute in the consumer's mind for things that are defined as broadcasting and are offered by cable, television, radio.
889. So when we defined new media, what we were trying to do was to start with the old media circle, cut it in half, and have radio and television. And then we had this big universe and we tried to circumscribe a space there of what things we thought you would be interested in from a broadcast policies perspective. That is what our definition was meant to do and then we move on from there.
890. COMMISSIONER WILSON: I actually realized when I was just looking over this while you were talking and explaining it to me that you really cannot cut traditional cultural media off from delivered by traditional means. You have to take that whole thing.
891. On page 8, in paragraph 9 of your submission, you talk about the non-commercial personal communications which you feel it is important to eliminate from our definition of new media content under the two acts and you exclude Internet telephony.
892. Is that because in the packet switched environment we would not be able to distinguish it from anything else? Or is there some other reason?
893. I noticed further on in your submission on page 37, at paragraph 98, you say it is becoming increasingly difficult to determine the nature of the traffic being carried on the network or the proportion of revenues attributable to certain types of traffic. So I am just wondering if that is why you suggested that Internet telephony be excluded.
894. MR. GRIEVE: I do not think it was because we -- because we thought it could not be distinguished, it is because we were trying to come up with the definition and address in our comments those things that would be substitutes for traditional broadcasting.
895. The Internet -- the telephone service, even though you can offer telephony over the Internet, it is not the kind of media that we were focusing on. We were trying to focus on things that were substitutes for radio and television content.
896. We talk about Internet telephony in the sense that ISP are actually more properly ISP sort of access providers can become substitutes or can provide a substitute for telephone service. But we did not include Internet telephony itself in the definition of new media. Because it is not the technology from our perspective that is the new media that we are talking about, it is the content that is the new media and it can be delivered over IP technology or over the Worldwide Web or over, as I said before, any other kind of local network or network designed to deliver programming for Internet types of service, dial up types of services. Click and choose.
897. COMMISSIONER WILSON: Okay. I guess when I read through this particular paragraph, it said -- you start this paragraph by talking about traditional broadcasting transmits a one-way controlled stream of content. And then you say:

     "However, in this proceeding, the commission is interested only in those new media applications that have implications for the continued achievement of the Commission's public policy objectives under the Broadcasting Act and the Telecommunications Act."

898. So that is why I did not relate your Internet telephony thing directly to the broadcasting act because it is preceded by that sentence saying it is the two acts that we are looking at are public policy objectives.
899. I mean, there has been some discussion about whether or not you charge contribution on Internet telephony.
900. MR. GRIEVE: Well, the sentence says new media applications that have implications for the continued achievement, et cetera, and what we were thinking about when we mentioned the Telecommunications Act in there, and we have mentioned it other places, is that the Commission does have objectives under the Telecommunications Act as well.
901. The carriage of new media, because we define it as content. The carriage of new media has implications especially in the dial up world for network costs. And because of that, new media applications through a dial up kind of system has implications for some of the Commission's objectives under the Telecommunications Act.
902. So that is why, you know, I can understand why it is not as clear as it should be, so I apologize. But our concern is on the telecommunications side is a carriage concern, carriage of traffic, the competition of networks. Our concern on the broadcasting side is quite a bit different, it deals with the content and the substitution by customers of one type of services that are substitutes for current broadcasting services substituting the new services for the old.
903. COMMISSIONER WILSON: Okay. And how are you defining the word "non-commercial" in that paragraph? Because you refer to non-commercial in Internet telephony on e-mail and video mail. How are they non-commercial services?
904. MR. KOLESAR: What we were trying to get at there and probably the best way to do it is to relate it to a phone call. In the event that I call you --
905. COMMISSIONER WILSON: So it is a local call?
906. MR. KOLESAR: It does not have to be. But in the event that I call you up and I have a conversation, that is not a commercial transaction, as such.
907. So things like a note sent to you via the Web is not a commercial transaction. I am simply substituting what I would have done in a phone call.
908. So what we were trying to do was to take those types of new -- well, I hate to use the word "new media applications" because we have not included that in the definition, but those types of actions out.
909. COMMISSIONER WILSON: But those kinds of transactions do cost the consumer money. I mean, I pay for my phone service, I pay for my Internet access. So every time I conduct one of those transactions, I am paying for it. So it is not really non-commercial because you guys are making money off that, right?
910. MR. KOLESAR: It is commercial --
911. COMMISSIONER WILSON: Unless I am mistaken.
912. MR. KOLESAR: It is commercial in the sense that somebody is paying for the medium that we use to talk, but it is non-commercial in the sense that the conversation itself is not for commercial purposes. You are not trying to sell me anything and I am not trying to sell you anything. We are just going to talk.
913. COMMISSIONER WILSON: What about all those telemarketing calls I get when I am home having dinner?
914. MR. GRIEVE: They are not selling the words to you. The content of the message in e-mail and voice telephony is not what is being sold.
915. COMMISSIONER WILSON: Okay. I take your point.
916. On page 9, you cite an industry analyst as saying:

     "The future will not be one of 50, 500 or 5,000 channels. Much worse, it will be a future of only one channel, a personalized for each individual."

917. I though Rogers and their Me-TV package, they must have read this same quote before they picked the name for it and they thought: "We are going to get a jump on everyone."
918. You go on to say that what Dr. Nome said in 1995 is coming true today. And I am just wondering if you can tell me in what way is this coming true today? I am not sure I understand.
919. MR. GRIEVE: Well, we looked at the Internet and we looked at all the operations for clicking and choosing. We looked at the fact that there is radio over the Internet now and that the idea of this is: I do not have to buy 500 channels from a cable company and then sort of surf around to pick them. I have my computer or I have my, you know, television set/computer/whatever else it evolves into. And I find that I get to choose what the programming is. I become the programmer because I get to go wherever I want. So there is one channel, it is me, it is my channel. And I can exchange it anytime I want to. I can put my book marks up, I can put my favourite sites up.
920. And while today a lot of it is text, as we move forward we have radio now and video will follow. And that is why, that is the whole idea of the Me Channel is it is coming true today. I can get radio today and I can get all sorts of other things. I have my favourite sites on the Internet, as I am sure you do. I have CRTC and FCC.
921. COMMISSIONER WILSON: Of course you have the CRTC.
922. MR. GRIEVE: Perhaps we could have Dr. Carry talk a little bit about this because he does work with Dr. Nome, as well.
923. DR. CAREY: Let me just add a word about the television context for the one channel. It is sort of where television is probably going. And it is the notion that television, instead of being transmitted on a real-time basis would sit on servers. And essentially you could eliminate all channels, you could simply have all sorts of programming on servers and you could choose from that. So in that sense there would not be programs or channels, there would be programs in a sense really like you use the Internet today. This is basically how video on demand works. And in some of the interactive television trials, many of them worked that way. So we have some experience of it now and there is some evidence that we may move to it reasonably quickly in the future.
924. COMMISSIONER WILSON: I will pursue this somewhat. I was going to go to this a bit later, but one of the things that Call-Net said this morning was that in their view it is important not to confuse technological possibility with business reality and consumer behaviour.
925. Have you done any research into whether or not consumers are really hankering for the possibility to be able to create their own channel with all their own favourite programming and just ignore the cable companies and the satellite providers?
926. DR. CAREY: I have done a lot of research on this.
927. If you look at a lot of the trials whether it is video wave, the full service network in Orlando, a lot of people say these trials are a failure. What is really happening is they tend to be ahead of their time and there are technological problems and business problems.
928. If you look for a moment at the consumer side of the results consumers, A, like this and, B, are willing to pay for it. But they are only willing to pay a modest amount. The other point I would make about this is that if you look at consumer behaviour over the last 20 years, it is not that this is something in the future, this model is in place in a way right now. It began with the remote control and the notion of controlling what you watch, it continued with multiple sets where you could watch different things from other family members. So it was sort of personalized to you. Then the TV got larger. Like the average TV now is 27 inches. So you could have multiple boxes on the TV and like a little channel logo or in the sports they have like little commercials in boxes.
929. So this is a movement towards interaction with television. Like, I dispute the notion -- many people have said there is this notion of broadcast as passive, sitting back. Two-thirds of people say they frequently are doing something else while watching television. Channel changing is very common.
930. So all of these behaviours have been in place for quite some time. You may like those behaviours or not, whether you are sitting with someone who does that.
931. COMMISSIONER WILSON: No one changes the channel in my house.
932. DR. CAREY: This is what McLuhan argued when he said the medium is the message.
933. COMMISSIONER WILSON: He talked about the hot and cold, because the hot was the passive.
934. DR. CAREY: Yes. As you develop these habits, you now are ready for more of it. And that is what I would argue broadcast is right now. It has moved actually quite a ways towards consumer appetites for these services. The next step is when these can be fulfilled because of servers and because of the vertical blanking and all of these other technological solutions which will really make it interactive.
935. COMMISSIONER WILSON: Which is what Stentor talked about when Ms Reardon spoke about the length of time that it takes to download a movie. The technology is not there to meet what you think consumers will demand.
936. DR. CAREY: Yes. But both the Internet and call it the broadcast world, they are both evolving fairly rapidly in terms of the knowledge available to them. Two years ago it was unheard of radio or telephony on the Internet. You just think of where we were two years ago, we have moved forward quite a bit technologically.
937. The consumer is there. The evidence is very strong that consumers are interested in all of these things at a reasonable price.
938. MR. GRIEVE: I can speak to the price.
939. I will give you the prices in the future, but I can give you the prices today of what consumers are paying today. $20 a month for basic telephone service and then $20 a month ballpark for flat right total calling, certain times of day. But let us just stick with basic telephone service. Somewhere around $20 for decent Internet access.
940. And in cable, $30 a month, $70 a month consumers are willing to pay $70 a month. So, how far are we away from a world where the consumer goes: "Gee, I am spending an awful lot more time on the Internet getting the radio off the Internet now I am starting to get some video off the Internet. And I am looking over here I am not spending very much time on my cable. So maybe I will drop that so I can get a higher speed modem or something."
941. This is what consumers do. And then they: "Gee, why am I paying for basic telephone service when I can get that from the ISP, too?"
942. So pretty soon maybe they are paying less for all three of those things and maybe they are not getting anything but they are going to the video store more. Who knows what they will do. When you talk about price and everyone says they are going to roll out this really expensive network and everyone thinks that I am going to roll out the network. And everyone things that they are going to roll out the network and it means that just one of the things that consumers buy today is going to go up and they are still hang on to the rest of the stuff they have got. They are not going to.
943. So the price point we are looking at when we say willing to pay a modest price is not $20 a month, it is like $70 or $80 a month.
944. That is the point here. That is part of the point of our presentation. This is not a question of affordability of $20 a month or $15 a month for basic telephony. This is a question of what customers pay for all of these things. These piece parts they buy in different places now they put them together. That is where the economics is. That is the price point you are looking at to get started.
945. COMMISSIONER WILSON: And have you looked at whether or not -- I mean, when you get all these different bills and one is $20 and one is $30 and one is $40, I mean it kind of breaks it down that maybe it is not quite as hard to swallow as a consumer that you are paying a total of $70 or $80 a month. What happens when you put it all on the same bill, anything?
946. MR. GRIEVE: I have heard evidence on this before. I am trying to remember what it was. I don't know. Perhaps Dr. Carry could help us with this.
947. DR. CAREY: I have actually done some research on this.
948. Basically, consumers like bundling of services. They like simplicity. Right now they are getting multiple billings. Many would prefer one bill. And they like very much the notion, sort of a marketing point, that if you take this service and this you get 10 per cent off this. Some notion of in some way you are saving. But bundling services, putting them together for simplicity of payment and simplicity of understanding of what you are getting is attractive to consumers.
949. COMMISSIONER WILSON: Thank you. I want to go now on page 10, where you say:

     "As new media develops globally, the Canadian production of broadcasting sectors must be allowed to respond to changing consumer demands in order to remain viable in a market that will be increasingly dominated by players beyond Canadian borders. Co-incidentally, the pricing implications for Canadian carriers delivering new media through their networks will fundamentally change the basic assumption on which broadcasting in networks have been based."

950. I am just wondering if you could explain to me how the pricing implications will change the investment assumptions. I noticed further on and again maybe I am pulling something together that does not belong together, but on pages 16 and 17 you talked about Quest Communications and IXE Communications in level 3, and about, you know, the amount of money that is being put into building their IP networks. I am just wondering if those two things were tied together in some way how the investment assumptions will change.
951. MR. GRIEVE: What we were talking about in paragraph 15, and we actually talked about this the other night that it could have been written far more clearly. But what we were talking about there was the kinds of things that we are running into especially with dial up access -- and, by the way, ADSL was not dial up -- but things we are running into with dial up access where you get people staying on a lot longer on a network and part of the reason for that is flat rate pricing. And we saw it --
952. COMMISSIONER WILSON: For unlimited access?
953. MR. GRIEVE: For unlimited access.
954. And we saw it in the toll business obviously with Sprint and the responses to Sprint's long distance plan. All of a sudden our network in Alberta we were having trouble and we had to reinforce the network.
955. So those, the pricing -- the fact that consumers like flat rate pricing, the implication of that is that we have to go there. But it has implications for your network design. And so when you put together flat rate toll and flat rate Internet and flat rate local service, then you have to start worrying about --
956. COMMISSIONER WILSON: How much traffic you have got.
957. MR. GRIEVE: How much traffic you have got.
958. But the advantage of IP networks is that not all the bits go in the same place to get to the destination.
959. So, you know, the pricing affects it and then pricing affects it and that is what we were talking about here.
960. COMMISSIONER WILSON: Okay. I guess we will go back to Dr. Carry on this one, but on page 13 of your Phase I submission, in your section on consumer trends, you talk about the enormous investment required to build the infrastructure that will be required to deliver true broadcast quality interactive and real-time services.
961. And you go on to say that no such investments will occur in the absence of convincing evidence that market demand for the service to be provided will indeed unfold.
962. And in the very next sentence and, again, maybe it is just the phraseology, but in the end it is the expectation of consumers' demand for and willingness to pay for content that will drive widespread proliferation of more advanced new media applications.
963. So I just need a little help understanding if what you are saying is if in the end it is the expectation of consumers' demand that will be the convincing evidence or do you have convincing evidence? I mean, based on the amount of time that the Internet has been around so far.
964. DR. CAREY: All right. One way I like to put this, because I think it addresses this. Technology essentially determines what is possible. But what actually is going to happen is a combination of technology and regulation and consumer demand and investment. Now, the consumer demand is a really important part of it. And there is a lot of evidence that with video on demand trials, the amount of usage has been doubled and tripled.
965. COMMISSIONER WILSON: I read that.
966. DR. CAREY: The other thing I think it may be in your packet, this notion of an S curve. If you look historically at the adoption of many different technologies, it is sort of a big S. It rises slowly and then some at point it really goes up and then it levels off.
967. Now, from a consumer demand side, how do you get to the point where it all of a sudden rises dramatically? In the case of the Internet, the first question is how long, when did we start with the Internet? Was it four years ago or was it 20 years ago with the other online services?
968. You have a certain period of slow growth and I think everyone would agree we are in this big ramp up period now. And that suggests consumer demand. Millions of people, and it is doubling pretty much every year, but it will -- that will level off. They are paying money to get these services. So there is clear evidence that on the Internet side there is a demand.
969. If you look on the broader new media scope, what about video on demand? What about these other services? I would argue that we have also been experiencing a slow growth in -- over about a 20-year period especially in terms of behaviour and that the demand is there.
970. What is going to push it, both on the Internet side and I think on the broader new media world will be things like advertising dollars. Because advertising dollars will change the amount of money that goes into the equation for content and other things.
971. There is a very interesting quote in the Stentor submission about Procter & Gamble. And Procter & Gamble, the world's largest advertiser, said in 1950 they had no advertising dollars in television, zero. Five years later it was 80 per cent. I would argue that this is 1950 or 1951 with advertising. You were talking about advertising before, about it seems to be slow in Canada. In the U.S. they are saying the same thing, that it seems to be slow and yet it has been doubling or more each year. Advertisers always follow, they do not lead. They wait for the audience to show its flag, if you will. And it is clear they are on the Internet side and I think the advertisers will follow.
972. In terms of the broader world, I think they will follow also when they see the demand. But the research suggests there is a demand. It is a question of putting all these pieces together.
973. COMMISSIONER WILSON: Perhaps we can go to Mr. Switzer for a question now on the dial up access and the high speed access and whether or not you have can change your default home page with high speed access. Because there was -- there has been some suggestion -- Torstar, yesterday actually said that in dial up you can set your defaults, you can set hot buttons, you can do whatever you want. But with high speed access, you have no choice. You have to take as your default home page the home page that you are service provider gives you and that is it.
974. MR. SWITZER: The first question, the dial up. Dial up is technically limited to something approaching 56K and that is set by the nature of the dial up.
975. What you do when you dial up is you are setting up a telephone call through the network that is originally optimized for voice. And you may remember when modems had little cups that went on the microphone and the ear phone and that is how you connected your computer then.
976. COMMISSIONER WILSON: Everyone is saying how old we are. Well, I am too young to remember that.
977. MR. SWITZER: I probably have some put away somewhere or direct you to the museum.
978. But dial up then squeezes data through a voice channel and voice channels in the telephone system have severely restricted band width, only 3.2 kilohertz in band width. And that is absolutely -- in fact, the filters that set them are called roofing filters.
979. So if we tried to send data through it, there is a law called Shannon's law from Dr. Shannon out of Bell's lab, which strictly relates the maximum data you can put through a limited band width channel and assuming also you have limited power, which is the effect. And we are up against that Shannon law ceiling now for dial up.
980. So dial up will not exceed 56K. And, in fact, 56K modems do not in practice yield 56K. Most people get something in the low to middle 40s or something like that.
981. High speed access uses access technologies which completely bypass the conventional switched telephone system. On --
982. COMMISSIONER WILSON: And they are on all the time, right?
983. MR. SWITZER: They are on all the time.
984. COMMISSIONER WILSON: You do not dial up high speed access.
985. MR. SWITZER: Sorry, they are on all the time because they are continuously talking to a server. And so that is another advantage of them, but they bypass the switch telephone network, that is the advantage to the telephone company.
986. Telephone companies are choosing to implement them now by using the DSL technology that the Stentor people talked about. Cable companies use an alternative technology. They, in effect, operate wireless technologies in the cable. That is what cable is, it is a spectrum in a pipe; it is synthetic spectrum.
987. So there are two examples. Both of them bypass the conventional telephone system. Both of them have substantial -- have very high speed capabilities. The speed is probably -- the speed limitation usually ends up in the bottle neck in offices and in the Worldwide Web itself.
988. The question of the default home page, that is a function of the browser. And the ordinary browser supplied by Microsoft and Netscape is very easy to change the default page. I think this was demonstrated to a judge in the current Microsoft proceeding.
989. I don't know with absolute certainty, but could find out very quickly whether the browsers that are supplied with the current high speed access systems provided by cable codes and by telcodes have been doctored in some way to affect the ability of the user by a simple two or three clicks away from substitute defaults.
990. Even if they use a conventional browser, it is conceivable that the service provider could, in effect, hack that browser so as to restrict it, to lock up the home page on it.
991. Sorry, I cannot say with absolute certainty that they have not done that. But the ordinary browser as is usually supplied, you are free to select your default home page.
992. MR. GRIEVE: You will recall yesterday, I think you heard someone talking about the need to ensure that they did not block access to anything on the Web because the customers would basically revolt and leave and go somewhere else. This is not something customers would accept.
993. So even if it is technologically possible, the practicality of it from even the market point of view is just not there.
994. COMMISSIONER WILSON: Sprint got that message, too, The Most On-Line home page available on the net.
995. Mr. Switzer, you were here this morning when Ms Reardon was talking about the convergence of traditional media with new media and whether or not broadcasting would ever end up on the Internet and that would be our sole-source of information and entertainment which is essentially what TELUS is suggesting. I mean, what does your crystal ball tell?
996. MR. SWITZER: Certainly broadcasting will change. The audiences for conventional broadcast are being reduced. There was just an announcement of recent sweeps yesterday, I think, results in the U.S., that network audiences in the U.S. have declined yet again another year.
997. I believe there will always be a form of conventional television.
998. It will be substantially less important economically than today and a great -- and to a degree that will have affected significantly the nature of television.
999. That is what this brief is saying that substitution will significantly impact conventional television. I believe the radio will be less impacted because radio is essentially a mobile medium.
1000. I do not think that in your car, driving home, or to or from the office or your workplace that the availability of Internet radio will have much impact on radio audiences.
1001. But radio, although, I guess in its own right important, is economically a small part of the broadcasting system. Television will be severely impacted. It will be feasible. I disagree with Ms Reardon on the time scale on which broadcast quality services will be available by Internet and there will also be non-Internet new media that will also perform that substitution function very economically.
1002. And I direct you to U.S. West's current project in Phoenix where they are providing what amounts to a full-scale cable TV service using DSL technology on their present telephone lines. It is not Internet, but it is not conventional broadcast, it is not cable TV. Is it a new medium? It is in the sense that it is chronologically newer than the old media. And it is, to a very high degree, completely fungible with cable TV and conventional broadcast services. It is broadcast quality TV.
1003. COMMISSIONER WILSON: So what time line would you put on it? She would not say anything beyond five years, she said three to five years.
1004. MR. SWITZER: We have in mind five to seven years before -- in the five to seven year time period there will be a significant substitution by the public using various new media, not just Internet, for the old media that is conventional broadcast television.
1005. DR. CAREY: If I could just add one point which is role of advertising in this. If you look historically, I mentioned first, advertisers tend to follow. But when they move over, they tend to -- it is like a dam breaking. They tend to wait and then they jump.
1006. And we saw this in the movement from AM to FM radio. FM was here for 30 years slow, slowly, and then the advertisers jumped in a quick thing. It is the same thing with the mass market magazines at the end of the '50s. They were losing some audience and then the advertisers jumped to television. So this can have a dramatic impact in terms of advertisers quickly moving.
1007. The other side of this is production costs with traditional broadcasting if the traditional broadcasters lose even 10 or 20 per cent of their advertising revenue, it has a significant impact on what they produce and what the medium is like.
1008. I mean, when TV replaced in a sense what was radio programming, radio did not go away, but it changed dramatically into a very different media and that may happen here as well.
1009. COMMISSIONER WILSON: Is -- I just want to go down a path with you and you just made the comment about mass market, with reference to traditional broadcasting, radio or television.
1010. When you look at the Internet, I mean everyone talks about the unique nature of it because it is an one-to-one, point-to-point communication. You do not have like a mass audience, you know, sitting somewhere watching the same computer screen -- or maybe you do in some places.
1011. How does that -- I mean the word "mass" as it pertains to the word "public" in the definition of broadcasting kind of underpins Canadian public policy. How does the Internet really define that term?
1012. I mean, is there any element of the Internet experience that is mass? Even though everyone is receiving things at different points in time, maybe receiving the same thing at different points in time, maybe even if it is a nanosecond.
1013. DR. CAREY: I think you touched on an absolutely fascinating point. I think we are all struggling for new words and new terminology because the old terminology and the old way of thinking doesn't work.
1014. The Internet is a mass medium in the sense that it is used by a mass public at this point and content reaches very large audiences. But it is not a one-to-many mass market in a traditional sense.
1015. So we probably need some type of new terminology in the sense that it is mass niche services. It is reaching --
1016. COMMISSIONER WILSON: Mass individual.
1017. DR. CAREY: It is personalized, it is customized. So it is mass in a collective sense that it is very large, but the experience is not like what traditional mass market media were like.
1018. COMMISSIONER WILSON: Kind of makes you wish that someone like Marshall McLuhan was still around.
1019. DR. CAREY: He is, he is. Great scholars are with you forever.
1020. COMMISSIONER WILSON: We need the kind of person who could pronounce on this stuff, although we might not get it for a few years.
1021. I would like to turn to the Phase II submission. I just have a couple of quick questions on that. On page 6 at paragraph 7, under Phase II comments, you quote some Internet Canadian content statistics from CAIP which state that the actual number of Canadian sites has been estimated to represent roughly 5 per cent of the world's Web sites. And considering that Canada represents only 0.5 per cent of the world's population, this is a remarkably strong presence of Canadian voices which it would certainly seem to be, based on the population as the point of comparison.
1022. However, I would be curious to know, for example, if you came across, when you were doing your research for your submissions which, as I said was quite extensive, if you came across any numbers for other countries like American, Australian, Japanese, German, British. I am trying to place this whole notion of Canadian content on the Web or whatever in context.
1023. As you know, the numbers are hard to come by. And with the rate of growth of the Internet, they change quite rapidly.
1024. I mean, if you do not have -- if you have something, that is great. If you do not have it here, that is fine, too. You can always send it.
1025. MR. GRIEVE: I know we have something.
1026. COMMISSIONER WILSON: You could e-mail it.
1027. MR. GRIEVE: We might have to use a really old technology and fax it.
1028. If you like, I know undertakings are not normal in these type of proceedings, but we would be happy to take an undertaking to provide that to you.
1029. COMMISSIONER WILSON: Okay. That would be really useful.
1030. Finally, in terms of -- you know what, I already asked that. So we can forget that question and we can move on to the whole notion of the deregulation of broadcasting.
1031. You said in your submission and here today that really the only logical thing for us to do in view of the emergence of this new world in which traditional and new media will converge is to deregulate the broadcasting system in order to facilitate the transformation of the traditional media companies.
1032. On page 8 of your Phase II comments, you talk about the experience with TELUS multimedia trials and the opportunity your subscribers have to choose à la carte programming packages and you state that everyone chose at least some Canadian channels. On average, a subscriber selected 26 Canadian channels as compared to 13 foreign channels. And then you say that it appears that a market for distinctively Canadian content will survive in the media world.
1033. I want to make a couple of statements about what you said and then allow you to respond. First of all, 853 subscribers out of a total cable universe of more than 8 million subscribers is a pretty small sample group in which to extrapolate that conclusion. And, second, that Canadian content cannot be measured simply by adding up the number of channels since content really operates on two levels. The second level being the content of the channel itself.
1034. And as we all know, there are -- well, most Canadian conventional broadcasters carry mostly American programming in prime time. And there is also a selection of American or other foreign programming sort of sprinkled throughout the schedules of the other Canadian services.
1035. So I am not 100 per cent sure that this is, to use one of your earlier phrases, convincing evidence that a market for Canadian content would survive. And I was just wondering what more you might say to convince me that if we decided to dismantle the regulatory regime, that there would be a market for Canadian programming?
1036. MR. GRIEVE: Well, there are many things that you touched on in your comment.
1037. I will let Dr. Carry speak in a moment to the statistical significance of something like what we have put in here.
1038. However, I think first I would like to clarify what exactly it is that we have said. We have not said do a New Zealand on Canada.
1039. COMMISSIONER WILSON: Oh, I know that.
1040. MR. GRIEVE: And it is important and you will recall I said at the end of our opening statement that you could not pick a better time to do this because you are out in front.
1041. How many times have you heard regulators are behind? You are not behind, you are at the front.
1042. COMMISSIONER WILSON: Maybe we are not as old as everyone is saying.
1043. MR. GRIEVE: Now you have an opportunity.
1044. So what if you have a proceeding next year and someone says: "Oh, well, we have looked at the advertising trends and all those kind of things and we think you are all right for two or three years." Great. But if you do not start, like, what if you do not have a proceeding next year and you say: "We are going to wait until we start seeing some erosion of advertising." That is like the little Dutch boy saying: "I am going to put my finger in the dike until I run out of fingers and then when the whole thing starts to go, I am going to run like crazy back and say, 'Gee, there is something wrong with the dike.'" That is the problem.
1045. That is why we thought it was so great that you had this proceeding now, because you are out in front.
1046. You know, the leaks are starting to appear, but you can do something about it. You can help the broadcast industry transform itself. But we are not saying do a New Zealand on it, we are saying have a proceeding, figure out how you are going to get through this period in some smooth fashion rather than the kinds of upheavals that occur when you try to transform an industry. And you might say five, seven, ten years that is a long way down the road. But Dr. Carry will tell you just how long it takes industries to transform themselves and the stages they go through.
1047. The purpose of our submission here is not to say deregulate tomorrow the way they did in New Zealand.
1048. COMMISSIONER WILSON: I understood that quite clearly.
1049. MR. GRIEVE: It is not to say just deregulate for the sake of deregulating.
1050. What we are saying is you cannot regulate the Internet because it is just not regulatable. Okay. You have started in advance of when it is going -- of when you are not going to be able to use the current Canadian broadcasting system the way it is as a tool to pursue cultural policy. But we are telling you at the same time that the cultural policies that you pursue, diversity and all of those things, those section 3 objectives, they are happening on the Internet. That is what you have been told throughout this hearing, that they are happening on the Internet now.
1051. So it is not a bad news story, it is just --
1052. COMMISSIONER WILSON: Oh, no.
1053. MR. GRIEVE: It is just that what you want to do, what we think you want to do is just make sure that when you are applying, as you go through this transition, you are balancing, you still want to pursue your objectives on the television and radio side through the cable system. As you are pursuing those, you know that this industry that you are pursuing those objectives through has to transfer over -- has to go over to the other medium in order to really establish a Canadian presence there. And there is already one there. But, you know, think of the strength of this industry that is here.
1054. All we are saying is you need to figure out how to do this balance. And we are not saying it is easy. It will be tricky to do this balance to get from here to here in the kind of, you know, I hate to use the word "orderly" because peace, order and good government and all that sort of stuff, but some kind of smooth transition. That is all we are saying here.
1055. So when you read "deregulate" I can understand you are going: "Deregulate?" But the thing is what we are trying to do is say to you, you are out front, you have a good opportunity to do this and get a good strong Canadian presence over there.
1056. Now, I think it is important when we talk about transforming an industry that we give Dr. Carry an opportunity to talk about historical evidence about how long it takes industries to transform and we can talk about the statistical significance of the 853 if you want.
1057. COMMISSIONER WILSON: You know, I think I got your point. I think what you are saying is that it is your intuition or inclination that given the right transitional period that things will be okay.
1058. That is a grand simplification of what you have said.
1059. MR. GRIEVE: I think we have to then define "okay" as well. Because on the Internet, the section 3 objectives, diversity and Canadian culture and all those things, it is already happening. But the okay that we think that you need to turn your attention to is making sure that the broadcasting industry does not continue to have all sorts of funding obligations that it cannot meet because the advertising revenue when it goes, goes. It does not sort of trickle off and you can gradually reduce it. And by the time it goes it is too late, by the time you see it, it is too late.
1060. So we think there is a way to make these predictions. That is why we mention rigorous analysis of the advertising trends because we think this is something that you can do. We think you can really provide a valuable to service to the industry as we are moving.
1061. And as Dr. Carry has said and Mr. Switzer, there will probably always be some sort of television. But the kind of television where you can say: "We know what is going into Canadian homes is this many services and these services have to provide Canadian content", those days are gone.
1062. So the industry will be there, but it is just a question of balance and care and how you do it and that is what we are talking about in our evidence.
1063. DR. CAREY: A couple of quick points. The size of the trial, 850 -- as trials go, that is a very big trial. If you were doing a survey of 1,000 people, you might have, you know, a margin of error of 3 or 4 per cent.
1064. Now, it is not a random survey, but what you get in a trial that you do not get in a survey is you get longitudinal data. People are doing it over time, so you get strength in your findings. So this is actually reasonable.
1065. But to your point, I think you do not rely on just one measure. You look at Web usage and you look at lots of other trials and lots of other usage. I cannot speak to the point of demand for Canadian content. What I can tell you is that in trial after trial, in research after research, local content comes up very strong as something that people want. And I think that would apply here as elsewhere.
1066. Just briefly on the issue of transforming an industry. And, once again, my thing is to look at historical trends and see if there are analogies. The initial response of most industries to change is denial and retrenchment, you know, it does not exist. And that goes on for a little bit and then panic sets in and then advertisers shift and then you start to get change. And it comes in many different forms. But typically this process takes about ten years. That is what it took for radio to change. Movies went through this fascinating period in the '50s where they panicked and they had Smell-o-Vision and all these wild things.
1067. The problem was they could not get the smells out of the movie theatre. But at the end of the ten-year process, they had changed the movie industry from multiple movies to more spectacular movies. They had sort of found their new selves. And you have got to free people up or in a sense put the fear of God in them that they need to start to look towards the future and that takes a while.
1068. COMMISSIONER WILSON: When I posed that question to you about Canadian content, Mr. Grieve I was not expecting you to go where you went. So I want to come at this cultural stuff another way.
1069. To me, what I guess I have seen emerge over this first week of the hearings is that maybe there is -- I mean, Canadian content, if you look at it in terms of broad policy objectives, is a way of defining a national identity.
1070. And I guess what I am hearing from the people who are in this industry is that there is a possibility that in the new media world there is another way of defining national identity.
1071. And, you know, we have had a lot of discussion about the characteristics of the Internet that make it distinct from traditional broadcasting and other media. And one striking characteristic about it is that people are in much closer touch with each other, both locally and globally.
1072. So I am wondering if you think it is possible that the Internet or new media might change our understanding of what it means to be Canadian, Dutch, American, Australian or Japanese and to what extent we would see the creation of a more global culture but one in which your sense of nationhood or even pride in nationhood becomes stronger because you are interacting in a much larger context?
1073. MR. GRIEVE: I will say some things about your question. But it occurs to me, when I have thought about this issue of globalization and I have thought about how you create a national identity and the sovereignty issues that are at stake here. Many times when I have gone through this in my mind, trying to work it out, it has occurred to me I do not have the tools to do it. I am not an academic who is a specialist in nationalism, or anything like for that matter, but a specialist in nationalism and cultural change and those kinds of things. It is a very important question. I looked at the Broadcasting Act, the, you know, the use of the word "sovereignty" and I thought, you know, how do you create something that binds in a world with the Internet?
1074. In one sense -- and, you know, this is just my thoughts on it -- in one sense you could have what could be a truer reflection of culture, because culture is sort of the amalgam of all these sort of individual local things and the more local stuff you get on and the more you get on to the Internet and the people are accessing --
1075. COMMISSIONER WILSON: Especially in a country which is as geographically diverse as Canada with the population spread as it is.
1076. MR. GRIEVE: Right. So there is a possibility that you will get an even stronger Canadian culture. Obviously, consumers want Canadian content. They want in the United States local content. And that is why they want Canadian content, they want to be able to identify with something.
1077. So I agree with that and I have read stories in journals and in newspapers and magazines. But, you know, this is the kind of question that really Industry Canada should be thinking -- sorry, Heritage Canada should be thinking about in terms of its policy going forward in how it is going to -- I mean, if it is dealing with Canadian heritage, Canadian culture, this is an important issue for it to consider.
1078. I will give you the complete opposite end and I do not mean to -- I hope this example is taken the right way because I just love the example. In the old days when someone staged a coup, they took over the radio station owned by the government. In the world of new media, in the world of the Internet, they cannot do it. It cannot be done any more. So just as that example tells you that --
1079. COMMISSIONER WILSON: It is the most democratic medium.
1080. MR. GRIEVE: Just as that example tells you that it is difficult to use government policy to tie a country together, the Internet is --
1081. COMMISSIONER WILSON: Well, you have talked a little bit about Canadian content. And I am asking that question not because I think you are an academic who has studied national identity or anything, but just because the whole thrust of your submission was, as I said, quite forward-looking and I thought it would be interesting just to get your views on that.
1082. On the notion that there is, maybe, another way in this new world of defining what national identity is and of defining the notion of Canadian content.
1083. Those are just concepts and ideas that we are ting around.
1084. DR. CAREY: I think it is a fascinating question you have raised. Just a couple of quick points. One, with television, 20 or 30 years ago they said television was going to wipe out languages because it would cross borders. And that hasn't happened.
1085. With the Internet, there has been this notion that, you know, it was overwhelmingly in English. But you look at from two years ago to today non-English content as a percentage of all content is increasing.
1086. Culture is very strong and it tends to assert itself. One way to look at this is to start to examine it more closely, what exactly is going on on the Internet in terms of Canadian content and usage. I think it is probably a question mark at this point.
1087. If I had a bet between technology and culture, I would always bet on culture in terms of being there for the long term.
1088. COMMISSIONER WILSON: I was going to the whole rationalization of bundling and network policies, but I think you have been clear in your written submissions and your oral comments today about what your views are on that. So I think maybe I will wind up on that.
1089. Thank you for your views and your insights and it was an interesting discussion.
1090. PRESIDING MEMBER: Thank you, Commissioner Wilson.
1091. Just a couple of questions. I appreciate your suggestions in your opening comments today about us perhaps initiating two proceedings one on the broadcasting side and one on the telecommunications side.
1092. If we look at the broadcasting side, I guess I would like to consider the issue of the urgency or the timing of the proceedings. And I am asking this question sort of bearing in mind a couple of things. I mean, we were looking at the whole structure of the cable broadcasting industry in the early 1990s with the presumed threat of the Deathstar hanging over the heads of the cable and television industry.
1093. And I guess also, Dr. Carry, bearing in mind that for years we heard that radio was going to kill records, television was going to kill radio, satellites and radio were going to kill television, Internet is going to kill all of the above. In fact, thus far, every one, I think you have even suggested this, has found its own niche. And while I have not studied these as carefully as you have or indeed at all, what we found, it seems to me, is not that overnight advertisers vacated one of the mediums and went to the next one, some advertising dollars went to the next one. In fact, the Procter & Gamble case, their advertising budget grew enormously over time, to cater to some of it still is in radio, some of it is still in television. And while we are seeing a lot of fragmentation in the advertising dollars in the U.S. and in Canada, even in the old media, we have licensed a whole lot of what you call cable channels we call specialty channels. And so we have had a whole wealth of new channels grow up there and that has fragmented the audience. And it has fragmented the advertising dollar a bit, but it hasn't driven us, at least not yet, to say: "Well, we have got to crater all of our existing rules because some of the advertising dollars are moving to a new medium."
1094. I do not have a sense from the discussion that we have had about -- I take your point about the finger in the dike, but I am not sure it is a particularly good analogy -- of where we might be in terms of the Internet actually being what one might characterize as a threat to conventional television, to the advertising that goes to that medium.
1095. There is not much doubt in my mind that we probably at some point in time need to undertake the kind of proceeding you are looking at here, but if I look at the three points that you have suggested that we should consider, the final one, how will we fund distinct Canadian content that might not otherwise be created in the market, we just finished a few weeks ago a proceeding to take a look at our whole television policy. And that is one of the fundamental underpinnings of that proceeding is to look at that.
1096. I am worried about in looking at the first point how long with the transformation to new media take industry sector by industry sector, that this could well be somewhat premature to be taking a look at that issue notwithstanding the fact that the Internet is going to grow and we are going to have a lot more of the recurrent sort of activity that we have got on there continuing to grow and that sort of activity. But considering its considerable limitations in terms of the technology I absolutely agree with you that we are going from the 500 or 5,000 channel universe to really the one channel. But I also believe, from a technology point of view, in terms of being able to virtually replicate what I would get on my television screen, we are a long ways away from that and we are a long way away from those advertising dollars I think moving away.
1097. And I guess, I wonder, would you agree with that? And given that, what would you see of the urgency of doing this sort of a procedure? Because the danger is that we do away with all the rules and you lose what you have gained from that. And the other effect, in fact, does not take place and then how do you get it back?
1098. MR. GRIEVE: And that is what I was talking about with the balancing is that you do not want to lose what you have got, but you want to give it a chance to grow.
1099. The difficulty here and the reason that we spent a little time in our opening comments with the word "this" is that you do not necessarily have to have consumers -- I do not think this is a technological question alone.
1100. I think it is, as Dr. Carry talks about, there is also a strong consumer substitution effect issue here. And when we talk about the time -- just the time spent on the Internet today, people are replacing their television time with Internet time. So there is an issue there. Advertisers are going to discover that whether or not consumers have on the Internet broadcast quality video within five, seven, ten, whatever the number of years is, is not really the issue.
1101. I mean, sure the technology is important and the better the technology the faster the consumer will do this 20, 20 and 30 analysis that we spoke about before.
1102. But the question is, when are they going to move? When is the money going to go out of the system into something else? That is the issue. The technology has been focused on a lot here and I think it is important but that is not the issue and that is why we recommended the proceeding.
1103. Now, I have said you are out in front. We have said next year. We got your attention. But I don't know if you waited until the next year after that, what would happen if all of a sudden you got there and you discovered that because the Internet was growing at 100 per cent every whatever number of days, that all of a sudden the advertising dollars were going a lot more quickly than you thought and then you -- then all of a sudden you get the specialty channels who are getting advertising dollars they did not in the past saying: "Well, we need more money from the cable companies." And the cable companies have to start raising their subscriber rates and then customers go: "Wait a minute, now this $70 bill is an $80, $90, $100 a month. I will dump this I will go to the video store."
1104. There are a lot of things going on here and we have only just started to think through them at TELUS, those of us who worked on this proceeding and other people in the company who are working on this about all of this sort of -- I hate to use the word, the expression "domino effect", because I do not think it is one domino, I think it is a series of little things going on.
1105. Those are the kind of things that need to be examined in a proceeding and you really need some rigorous evidence on it and people like Dr. Carry work with the stuff and get the data and put it together.
1106. You know, maybe it is a job for Heritage to commission someone to actually go out and do this. Maybe it is a job for the Commission. Maybe it is a combination of the two. But as I have said a number of times now, and you are going to get tired of hearing it, we are lucky because you are out in front and you are not running to catch up like regulators are often criticized for doing.
1107. MR. KOLESAR: I would like to share some perspectives on why we think that advertising is going to move. And it is basically because advertising new media presents the marketer with opportunities that they do not currently have in any other medium.
1108. Let us suppose that I want to get you to buy whatever product I have got. The purpose of my add is going to be, A, to let you know that I am here. Then I want to move you from that to an understanding of what the benefits of my product are. Then I want to motivate you to seek out my sales channel which means I will either tell you where to come to me or I will send someone to you. And then fourth, what I ultimately want you to do is actually buy it.
1109. The advantage for the marketer in moving to a new media world, an interactive new media world really comes from the fact that he gets to combine the advertising and the marketing with E-commerce applications.
1110. So that now I can combine all four of those parts of my sales or marketing model into one thing where I can get you to go through all four of those steps fairly instantaneously and probably cut out a big piece of my sales channel because I can sell you my product right through the new media channel.
1111. And what we are seeing, at least, is a lot of advertisers really starting to test it out because they recognize it.
1112. For instance, what we are seeing is that 32 per cent of all advertisements on the Web today are for consumer brands. And one really interesting fact that actually shocked me, and I talked to Dr. Carry and he was quite shocked as well, is 12 per cent of all advertisements today on the Web are actually local. And these are the exact customers that the broadcasters are going after for their ads and they are already testing out the net.
1113. And if you think back to the early days of television, what advertisers did is they would sponsor a particular show. And what we are now seeing on the net is advertisers sponsoring a particular Web site. So what we are very likely going to see is advertisers trying to entice customers over to the Web because they know there is a value chain advantage for them once they get the customer to actually move.
1114. So just think of the number of advertisements you see on television that show you what the Web site is. Why? Because they want the consumer to start to spend more time there.
1115. So I think there is a lot of very telling forces at play right now from the advertisers and from the advertisers' and the marketers' perspective because they recognize the advantage of marketing to people through a new media approach.
1116. So that is in part why we are quite convinced that this advertising is going to actually move, maybe even in advance of the sort of technological advances that we are all suggesting are ultimately going to occur.
1117. DR. CAREY: I think you made a lot of good points. First, I think that the fragmentation of the advertising is much more complex. And the first step is that much of it has gone from the large, over the air broadcast to the specialty channels. But what that does is it puts pressure on content production for the over the air and they are starting to change some of their production as a result.
1118. And I would argue that there is a dam to be broken in terms of moving over to new media in two forms. One to the Internet because of a generational issue that the audiences that advertisers want the most likes the Internet. If you look at surveys of the teenagers and it is some of the submissions, a majority prefer, they say any way, they prefer the Web to television as an entertainment medium. That is kind of compelling to me.
1119. But also, in the sense that the roots of the over the air and the cable world are changing and, as Mr. Switzer said, I expect that it is not going to be all just a jump to the Web, as such. It is going to be a jump to new forms of cable services because the same technologies are available to them. And that five years from now, specialty channels on cable can be interactive and may well look much like the Web and may well be very much like the Web.
1120. So the distinction at that point -- there will be multiple Webs, if you will, one of which is what has been traditional broadcasting.
1121. MR. SWITZER: Mr. Colville, just from this end of the table, briefly, I think you seriously underestimate the state of technology as it applies to new media. We are entering now into a golden age of technology in terms of enabling all of these media. Everything is in place: Low cost fiber, computer power chips, algorithms, everything is set to go now.
1122. PRESIDING MEMBER: I do not disagree with you. I guess my concern was trying to get a handle in my own mind about what empirical information we are likely to have next year that will help us make those kinds of decisions.
1123. I mean, I am trying to think of it in the context of the kind of information we are hearing here, not just your presentation, but all of this, as it would relate to us being able to come to grips with how do we deal with that today for rules that work tomorrow? I mean tomorrow, not the next day sort of thing.
1124. And I understand your point about a transitional regime. And on that point, switching over to the telecom side, when you have suggested that we have a proceeding, and just to take by way of example, when you said "we also support transitional policies such as the five-year rule", I take it you are not talking about the current five-year rule which we are part way through now, but an example of a rule when you take a look at the telecommunications in its broader context that you have suggested we should, that it could be that particular model or a similar one that we might want to put in place.
1125. So when you are suggesting we have a proceeding to take a look at the broader sort of interconnection network of networks kind of thing, if you will, that those are the kinds of issues we should be looking at and not just sort of fitting it into the '98 whatever or '97 -- whatever decision it was, you know all those numbers better than I do -- sort of regime.
1126. MR. GRIEVE: Yes, I agree. I think the, you know, looking at the -- the reason I went back in the opening statement to 79-11, and you must have been wondering where is this guy going, but the reason for going there was to say we started in 79-11 with the assumption of natural monopoly in the local network. And people have argued natural monopoly in other parts of the network, too. People have argued the directory is a natural monopoly, as you know.
1127. But each time an interconnection order was made, or even resale, which is, you know, like there is this sort of tie in between resale as being a sort of transition to facilities based competition or being there because facilities based competition is impossible. But there is all this interrelation between all these things and each time you made an order, you will remember in 84-18, there were the orders about -- I think it was 84-18 -- there were the orders about unbundling underlying bottleneck components for enhanced service providers. Well, that is all the old ONA stuff.
1128. Well, all the old ONA stuff from the U.S. was based on the assumption of natural monopoly in the local network. It is not there any more, but those rules are still there. And we see now sometimes when we file a tariff notice or something like that, an ISP or enhanced service provider coming in and asking for the unbundling of an underlying bottleneck component and asking for an essential facilities rule to be applied to it which was something that was done in 97-8.
1129. Now, I would make those arguments, too, but the fact is that what you do is you look at it and I think it was Greg Cane said earlier this week when someone asked, well, what is an Internet service provider? Well, an enhanced service provider, well, there is another label.
1130. So I am an enhanced service provider. I go to a decision in the 1980s for a series of decisions there. I say I am a reseller, I am entitled to do this, but I do not have to do this. I am a CLEC, I get all this stuff. I am a WSP, I get this but I don't like it; I would like to get what the ISP has got over there and what the CLEC has got over here and what somebody else has got over here and put it together and cherry pick it.
1131. Well, that is all very well and good and I think we can make it through for a while. But my point is that I think there is a fundamental underlying rule or series of rules that can be established and then everything else can fall out from those and then we can say: Okay, the IXCs have relied on something, the enhanced service providers have relied on something, the WSPs, how much time do they need to transition to this new world?
1132. And I think we will have lots of competition and facilities as you have heard many times and I just think we need a proceeding to do that so we make sure we are not stepping on our toes and trying to get facilities based competition. I hope that answered your question.
1133. PRESIDING MEMBER: Yes, it does. I think those were all our questions.
1134. We particularly appreciate this presentation today because it underscores that we still have some work to do ahead of us.
1135. MR. GRIEVE: As I said, I love hearings, you know.
1136. PRESIDING MEMBER: Again, thank you very much.
1137. That concludes our work for today and for this week. And I think it has been an extremely productive and interesting week for us.
1138. I think I must say, speaking for all the Commissioners, as we chat out back, it has certainly helped to shape our understanding and our thinking about a lot of these issues. And we are looking forward to an interesting week next beak when I am shower we will hear from the other side and I imagine some of the first parties up next week will probably be referring to some of the comments you made today.
1139. In any event, we will close for the day and for the week and we will see you here Monday morning at 9 o'clock.

--- Whereupon the hearing adjourned at 1705, to resume

on Monday, November 30, 1998 at 0900 / L'audience

est ajournée à 1705, pour reprendre le lundi

30 novembre 1998 à 0900