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                       SUBJECT / SUJET:


HELD AT:                               TENUE À:

Place du Portage                       Place du Portage
Conference Centre                      Centre de conférences
Outaouais Room                         Salle Outaouais
Hull, Quebec                           Hull (Québec)

December 3, 1998                       Le 3 décembre 1998

                          Volume  9
tel: 613-521-0703         StenoTran         fax: 613-521-7668



Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.

tel: 613-521-0703         StenoTran         fax: 613-521-7668

                 Canadian Radio-television and
                 Telecommunications Commission

              Conseil de la radiodiffusion et des
                télécommunications canadiennes

                  Transcript / Transcription

              Public Hearing / Audience publique

                  New Media / Nouveaux médias


David Colville                         Chairperson / Président
                                       Telecommunications /
Françoise Bertrand                     Chairperson of the
                                       Commission / Présidente du
Martha Wilson                          Commissioner / Conseillère
Cindy Grauer                           Commissioner / Conseillère
Joan Pennefather                       Commissioner / Conseillère
David McKendry                         Commissioner / Conseiller


Carolyn Pinsky /                       Commission Counsel /
Karen Moore                            Avocates du Conseil
Ted Woodhead                           Hearing Manager / Gérant de
Daphne Fry                             Manager of Convergence
                                       Policy / Responsable de la
                                       politique sur la
Diane Santerre /                       Secretaries / Secrétaires
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)

December 3, 1998                       Le 3 décembre 1998

                          Volume  9
tel: 613-521-0703         StenoTran         fax: 613-521-7668



Presentation by / Présentation par:

CATAAlliance                                              2308

Information Technology Association                        2329
of Canada / Association canadienne de 
la technologie de l'information

Internet Advertising Bureau of Canada /                   2375
Bureau de la publicité internet

Association of Canadian Advertisers                       2440

Canadian Marketing Association /                          2472
Association Canadienne du marketing

Directors Guild of Canada /                               2510
La Guide Canadienne des réalisateurs

tel: 613-521-0703         StenoTran         fax: 613-521-7668


 1                                Hull, Quebec / Hull (Québec)
 2     --- Upon resuming on Thursday, December 3, 1998,
 3         at 0900 / L'audience reprend le jeudi
 4         3 décembre 1998, à 0900
 5  9895                 THE CHAIRPERSON:  Good morning,
 6     ladies and gentlemen.  We will return to our proceeding
 7     now.
 8  9896                 Madam Secretary.
 9  9897                 MS BÉNARD:  Thank you, Mr. Chairman.
10  9898                 The first presentation will be by
11     CATAAlliance, Mr. David Paterson.
12  9899                 THE CHAIRPERSON:  Good morning, Mr.
13     Paterson.
15  9900                 MR. PATERSON:  Good morning, Mr.
16     Chairman, ladies and gentlemen.  Thank you for the
17     opportunity to make our presentation here this morning.
18  9901                 The CATAAlliance has more than 1,000
19     members, in all aspects of the high-tech sector.  Most
20     are in information technology and communications, but
21     biotechnology, aerospace, and advanced manufacturing
22     technology are also well represented.  We do not
23     believe that we have a single member who does not use
24     the Internet in some aspect of their business. 
25     Internet use ranges from simple e-mail through Web


 1     sites, to products and services which are totally
 2     dependent on the growth of the net for their success. 
 3     All of our members will be affected if the CRTC takes
 4     any steps which in any way handicap their use of the
 5     net.  Rather than address the concerns of particular
 6     Internet players, we wish to present the views of the
 7     broad range of industries which CATA represents.
 8  9902                 The scope of this proceeding extends
 9     well beyond the CRTC's traditional purview.  The
10     Internet is a global phenomenon, not Canadian.  It is
11     not broadcasting, it is an entirely new way of
12     communicating.  It affects the entire economy, not just
13     the broadcasting industry and its suppliers.  It is
14     evolving at tremendous speed.  A previous intervenor
15     suggested that a new vocabulary is needed, that the old
16     one does not serve when discussing the net.  We agree
17     entirely.  Attempting to apply the terminology of the
18     old media to the new ones will only lead to problems. 
19     Even apparently simple concepts like time are different
20     on the Internet.  Time is measured in Webyears, which
21     are only two or three calendar months long.
22  9903                 CATA members' initial response when
23     these proceedings were announced in July was to express
24     extreme concern that the CRTC wanted to regulate the
25     Internet.  They view regulation as something which


 1     would be extremely damaging to Canada's position in the
 2     burgeoning world of the global Internet.  Anything
 3     which interferes with the pace of technological change,
 4     prescribes Canadian content, or raises costs handicaps
 5     Canada in the race for success on the Internet.  We are
 6     grateful that the CRTC has addressed the implications
 7     of the new media through this open forum, which allows
 8     intervention by concerned parties from all sectors of
 9     the economy.
10  9904                 As a first principle, CATA members
11     question the need for CRTC intervention.  They do not
12     perceive any shortage of Canadian content on the net. 
13     There are hundreds of sites offering Canadian content
14     and products of all kinds.  Many of these products are
15     regarded as world leaders, the best in their class. 
16     Access is not a problem, as Web sites are easy for a
17     content provider to establish.  Success is dependent on
18     the creativity of the provider, on the attractiveness
19     of their product to the consumer.
20  9905                 Some content providers report that it
21     is difficult to finance development of new media
22     content.  The situation resembles that of the software
23     industry a decade ago.  There is a learning curve in
24     investment, as in all professions.  Until investors
25     become sufficiently familiar with the dynamics of a new


 1     business, it is hard to raise money.  Once that
 2     happens, money begins to flow, to sound management
 3     teams backing business plans that promise a solid
 4     return to investors.  The Canadian software industry is
 5     now awash with money.  Providing public funding is not
 6     a panacea, it will not confer success on content for
 7     which there is only a tiny market.  As Dennis Bennie,
 8     the co-founder of Delrina, has pointed out, "There are
 9     thousands of great ideas, but only a few great
10     companies."
11  9906                 Our members' greatest fear is that
12     the CRTC will decide to tax the Internet.  Content
13     providers have suggested a scheme similar to that which
14     prevails in broadcasting, a 5 per cent tax on ISPs'
15     revenues which would go into a fund for the development
16     of Canadian content.  That would raise the cost of
17     access for everyone doing business on the net.  The
18     current taxes on broadcasting affect only a small
19     fraction of Canadian companies.  A tax on the Internet
20     will affect the fastest growing part of the economy. 
21     It will be a further competitive handicap, atop the
22     higher communications charges Canadian users face,
23     compared to their American competition.  There are
24     already several government programs to fund new media
25     development, most prominently the $30 million


 1     Multimedia Fund launched by Heritage Minister Copps in
 2     June.  The need for further support from an Internet
 3     tax is not obvious.
 4  9907                 It would also contradict government
 5     policy.  In a speech at ITAC SOFTWORLD '98 in
 6     September, the Prime Minister said, "A revenue neutral
 7     taxation regime will ensure that you are not taxed
 8     twice."  On September 29, Revenue Minister Dhaliwal, in
 9     responding to his Advisory Committee on Electronic
10     Commerce, said, "We're not interested in creating new
11     taxes that will create new barriers for electronic
12     commerce."  To protect the integrity of the existing
13     tax system and ensure full compliance, four technical
14     advisory groups have been established to assist the
15     Minister.  Canada will also consult other countries, so
16     that Canadian tax policy harmonizes with policies
17     around the world.
18  9908                 There are a host of practical
19     questions about regulating the Internet.  One is simply
20     whether it is technically feasible to apply Canadian
21     regulations to a global system.  The other is speed, as
22     the Web evolves at warp speed.  Between the
23     announcement of these proceedings at the end of July
24     and the presentation of your report in April, three
25     Webyears will have elapsed.  Regulating anything that


 1     moves that fast appears beyond the resources of any
 2     organization.
 3  9909                 CATAlliance's key concern is the
 4     potential impact of CRTC regulations on electronic
 5     commerce.  We are all familiar with the forecasts of
 6     phenomenal growth for e-comm.  IDC predicts that global
 7     electronic commerce will grow from U.S. $33.5 billion
 8     in 1998 to U.S. $435 billion in 2002.  The Gartner
 9     Group reports that 70 per cent of Internet traffic is
10     business to business.  Canadian businesses are anxious
11     to participate in that growth.  Several of the leaders
12     in e-comm are Canadian.  Canada has an export driven
13     economy.  Among our members, it is not unusual for more
14     than 90 per cent of revenues to come from foreign
15     markets.  Internet taxes and regulations which places
16     Canadians at a competitive disadvantage in global
17     e-comm will slow the growth of the entire economy.
18  9910                 While the CRTC is examining the
19     situation of new media in Canada, many countries have
20     set out to attract Internet businesses to their shores. 
21     Ireland, Bermuda, The Bahamas and Barbados have been
22     cited by previous intervenors during your hearing.  The
23     United States, the leader of the Internet, has a
24     natural attraction for Web businesses.  Any obstacles
25     placed in the paths of Canadian new media businesses


 1     will make these venues more attractive.  They will
 2     divert creativity, investment and employment away from
 3     Canada.  A Web site can be moved with a click of a
 4     mouse and the impact is not trivial.  The Gartner Group
 5     reports that the cost of a passive Web site is U.S.
 6     $3,600 to $7,200 per year, basic e-comm Web sites U.S.
 7     $40,000 to $96,000, and full blown transaction
 8     processing sites U.S. $200,000 and up.  E-comm can
 9     create many jobs.
10  9911                 I know of a Web site which was
11     recently moved from Vancouver to Bellingham,
12     Washington.  Many intervenors have cited other
13     examples.  While some policy analysts dismiss such
14     reports as anecdotal, statistically invalid.  In the
15     world of Webyears, by the time a statistically
16     significant longitudinal series of anecdotes is
17     compiled, the game is over, and it is too late to
18     correct the problem.
19  9912                 In your deliberations you must never
20     forget that any action representing the Internet will
21     affect the entire economy, not just the broadcasting
22     business.  Phenomenal growth is forecast for the
23     Internet and electronic commerce.  Canadian businesses
24     of all kinds are positioning themselves to seize a
25     share of that growth.  To do so, they must have a level


 1     playing field.  Taxes or regulations which handicap
 2     Canadian businesses on the Internet will reach far
 3     beyond the CRTC's traditional constituency.  They will
 4     affect almost all parts of the economy.  Jobs and
 5     investment will flow to other countries.  It is
 6     essential that the CRTC lift the cloud of uncertainty
 7     that has formed since these proceedings were announced. 
 8     It must be made clear that nothing will be done which
 9     will damage the competitive position of the Canadian
10     industry.
11  9913                 The Prime Minister announced the
12     Canadian Electronic Commerce Strategy on September 22. 
13     Its objective is:  "For Canada to be a world leader in
14     the development and use of electronic commerce by the
15     year 2000."  We respectfully submit that the CRTC can
16     support this objective by accepting the advice of many
17     of the intervenors who have appeared here, and
18     concluding that regulation of the Internet is beyond
19     the scope of the Broadcasting and Telecommunications
20     Acts.  Thank you.
21  9914                 THE CHAIRPERSON:  Thank you, Mr.
22     Paterson.
23  9915                 I will turn the questioning to
24     Commissioner Grauer.
25  9916                 COMMISSIONER GRAUER:  Thank you, Mr.


 1     Chairman.
 2  9917                 Since you have made your views very
 3     known with respect to the role of the CRTC and the
 4     jurisdiction of the Broadcasting Act with respect to
 5     the Internet I don't need any questions of
 6     clarification there.  So, in not using our time going
 7     through those things, it's not a lack of interest on
 8     our part, but your views are on the record and well
 9     known.  I am very interested in exploring some other
10     areas in your submission.
11  9918                 Could you give me an idea of who some
12     of your members might be, just so I have a larger and
13     smaller?
14  9919                 MR. PATERSON:  The largest members
15     are IBM, Bombardier, Pratt & Whitney.  It extends
16     through -- well, you could no longer classify
17     Newbridge, of course, as a medium-size company.  But it
18     extends across the information technology sector
19     through newer companies, like Entrust Technologies. 
20     The ones that are of particular interest in the e-comm
21     business, for example, are Entrust Technologies,
22     Impacta Media in Montreal and then it goes on
23     through -- down to we have a newly formed effort to
24     attract people in the SOHO business, the small
25     office/home office, the individual practitioners, which


 1     is building up at a rapid pace.
 2  9920                 All of these people, without
 3     exception, are users of the net in their business.
 4  9921                 COMMISSIONER GRAUER:  We have heard
 5     from some.  IBM was here last week and made a
 6     presentation to us.
 7  9922                 Just so you understand, part of what
 8     we are doing in this proceeding as our Chair Colville
 9     said on the opening day, is that we also need to be
10     looking at how the Internet will impact on traditional
11     broadcasting and telecommunications, so that we have a
12     sense of how to monitor those developments.
13  9923                 Secondly, in having a public forum,
14     we will be looking at recommendations we can be making
15     to government in ways that they can also be helping in
16     the development and support of these new emerging
17     businesses.  So that's the framework in which I would
18     like to pursue some questions.
19  9924                 One of the things that IBM talked
20     about when they were here is they referred to a Boston
21     consulting group report on e-commerce.  The Boston
22     consulting group was not able to include Canadian
23     transactions or e-commerce in their report because
24     there isn't enough activity taking place here.
25  9925                 Now, I know you have referred to the


 1     size of the e-commerce market in the United States or
 2     the total of it I guess by OECD estimates, and then you
 3     refer to high broadband costs already handicapping
 4     Canadian industry, on the second page of your report.
 5  9926                 So, I have two questions.  First, do
 6     you have any explanation for why Canada is lagging the
 7     U.S. in the development of e-commerce, and if you think
 8     the high broadband costs might have anything to do with
 9     it?
10  9927                 MR. PATERSON:  Basically, I believe
11     that the reason that Canada has lagged behind the
12     United States, there are areas in the economy where we
13     are ahead.  There are, unfortunately, much broader
14     areas where we are behind.
15  9928                 The banking industry, the financial
16     industry in Canada has a very highly regarded position
17     in the world of e-commerce.  The Canadian banks have
18     made much more progress in the use of the net than
19     their American counterparts have.
20  9929                 In the broader area of business to
21     consumer Internet activity, we have definitely lagged
22     behind.  There are not the attractive Web sites, there
23     are not the efficient business models in Canada that
24     there are in the United States and it's hard to explain
25     that, except I think in the context that we have --


 1     Canada has often lagged behind the United States in new
 2     retailing ideas.
 3  9930                 I can't picture this happening in the
 4     United States either, but a lady who was interested in
 5     collecting Pez packages started a company called E-Bay,
 6     which has just exploded.  It is this sort of an
 7     imaginative thing where the Americans tend to be a
 8     little bit ahead of us and that I think is the
 9     explanation for that.
10  9931                 On the question of the higher costs,
11     it has been identified to me as the reason why Canadian
12     Web sites -- Canadian companies operate Web sites in
13     the United States.  It's simply cheaper to do it down
14     there.
15  9932                 COMMISSIONER GRAUER:  I see.
16  9933                 MR. PATERSON:  The example -- the
17     Vancouver example which I quoted, the site was moved to
18     Bellingham because the broadband communications was
19     available down there.
20  9934                 COMMISSIONER GRAUER:  So it was
21     directly related to the cost of the broadband
22     facilities?
23  9935                 MR. PATERSON:  Right.
24  9936                 COMMISSIONER GRAUER:  We have had
25     some suggestions, in fact from some of the large ISPs,


 1     U-Net, Internet Direct, the ISP Group I think they call
 2     themselves, and others that we should look at -- I
 3     don't know how familiar you are with the
 4     tele-communications regulations, but that we might
 5     allow ISPs access to unbundled loop rates and
 6     co-location.
 7                                                        0920
 8  9937                 They have argued that in fact their
 9     inability to access these networks the last mile has
10     really inhibited -- has kept the costs high and has
11     inhibited the development and application of
12     technologies, fax, Internet, telephony and some other
13     products which might in fact really contribute to the
14     further development of e-commerce.
15  9938                 I am just wondering if you have any
16     comments on that.
17  9939                 MR. PATERSON:  I am not intimately
18     familiar with the telecom's regulations and I don't
19     believe I am qualified to answer that sort of question.
20  9940                 COMMISSIONER GRAUER:  Okay.  I think
21     you are the first that has told us that the Canadian
22     software industry is now awash with money.  I am
23     interested in that and I appreciate your point on
24     public funding.
25  9941                 We have had many recommendations here


 1     which talked about broadening the existing tax
 2     incentives, stimulating R&D and encouraging investment
 3     in Canadian new media companies.
 4  9942                 We heard from IMAT, we heard from
 5     Torstar.  I can read you the recommendations, but I
 6     wonder if you have any comments on that?  Do you want
 7     to know what they said?
 8  9943                 MR. PATERSON:  I have read a set of
 9     transcripts which have followed the proceedings as they
10     went along.
11  9944                 COMMISSIONER GRAUER:  So you are very
12     familiar.  Wonderful.
13  9945                 MR. PATERSON:  Basically, our view is
14     that there is an absolutely enormous market out there
15     which ought, we feel, to be a sufficient incentive. 
16     Certainly it has been a sufficient incentive for some
17     of the intervenors who have reported here.  It wasn't
18     Ms Hoffman herself, but her company was represented
19     here and made it very obvious that in their opinion,
20     there is no need for support.
21  9946                 I have had a decade in dealing with
22     the software industry when I was with Industry Canada
23     until recently.  Basically the problem is that unless
24     the entrepreneur can put together a decent business
25     plan backed by an adequate management team, the funding


 1     will not be available.
 2  9947                 The idea itself may appear
 3     attractive, but there has to be a certain level of
 4     business knowledge in the package to get it going. 
 5     There is a small scale funding problem at the less than
 6     $2 million level venture capital.
 7  9948                 Two million dollars of venture
 8     capital can be had for any decent deal right now.  It's
 9     when you are in the transition stage from your basement
10     to your first office in the back of the mall that you
11     need a quarter of a million dollars.  That's where the
12     problem is.
13  9949                 No one has ever been able to organize
14     that little market there.  The Business Development
15     Bank of Canada has an active campaign under way that
16     was recently, in the last budget, given a substantial
17     piece of money to focus on precisely that area of the
18     market, but essentially it is a commercial decision. 
19     It is based on sound financing principles.
20  9950                 The question of incentives especially
21     designed for new media content producers, there are
22     numerous ones already available, as I cited.  On the
23     tax side, not Revenue Canada but Finance Canada has an
24     extremely gloomy view of incentives based on the Income
25     Act.  They quickly demolished the ones that sprang up


 1     when some of the traditional film financiers tried to
 2     use the same scheme to finance software companies.  I
 3     don't think you should anticipate anything from there.
 4  9951                 I don't believe that new media
 5     content development passes the rules for the SR&AD tax
 6     credits.
 7  9952                 COMMISSIONER GRAUER:  I don't believe
 8     so.
 9  9953                 MR. PATERSON:  I think that given the
10     great difficulty which the high tech industry of all
11     varieties has had with that whole program for the past
12     couple of years that either Finance or Revenue Canada
13     would be willing to -- they might be willing to look at
14     it, but I doubt very much if they would be willing to
15     launch something like that in the immediate future.
16  9954                 The high tech associations have a
17     major program on under way with Revenue Canada right
18     now to try to straighten out the problems in the SR&AD
19     program.  I think until that is dealt with, they might
20     be a little reluctant to look at another class of
21     applicants.
22  9955                 COMMISSIONER GRAUER:  We look forward
23     to hearing from them.
24  9956                 What we are trying to do here in this
25     kind of an exploratory forum is look at a number of


 1     issues, part of which is the health of this industry
 2     and its potential for future development.
 3  9957                 As someone has said here earlier, we
 4     need to ensure we have a climate of innovation.  So in
 5     looking at these things, I think what we want to hear
 6     is what are the kinds of things that people out there
 7     in the business world think the government should be
 8     doing to ensure we have a climate of innovation and a
 9     climate in which these businesses can thrive and
10     develop.
11  9958                 I am less concerned, frankly, at this
12     point about how the government would respond as opposed
13     to whether we come up with some suggestions from
14     industry that we think makes sense to pass on.  That's
15     the context in which I was soliciting your views.
16  9959                 MR. PATERSON:  Our view on that issue
17     would be that the appropriate climate is one where
18     there is the absolute minimum of barriers to Canadian
19     companies in whatever business having an opportunity to
20     compete in the marketplace, whether it be the Canadian
21     market or the global market, that the incentives in
22     terms of the potential returns on investment, the size
23     of the markets, the broad scope.
24  9960                 If you go online, you immediately
25     open yourself up to business opportunities around the


 1     world.  The incentives are there.  The mechanisms for
 2     achieving success are open to any entrepreneur who
 3     wishes to seize the opportunity.
 4  9961                 We don't see any great advantages
 5     conferred on Canada by special measures designed to
 6     meet the needs of individual sectors.  We are looking
 7     for a level playing field where everyone has an
 8     opportunity to compete and perform.
 9  9962                 COMMISSIONER GRAUER:  With respect to
10     any recommendations we might make to government or in
11     fact with respect to any of the regulations that are in
12     place, our regulations now, are there any barriers that
13     you think should be removed?
14  9963                 MR. PATERSON:  Beyond encouraging you
15     to recommend you encourage the greatest possible
16     competition in the telecommunications services, we
17     believe that things should be left alone as they stand
18     now, that no effort should be made to regulate the
19     Internet or attach conditions to the Internet or to use
20     the Internet as a source of funds.
21  9964                 COMMISSIONER GRAUER:  I just have one
22     more question.  Our Chair, Commissioner Colville, asked
23     one group if we at the CRTC should consider as a policy
24     to pursue a policy of universal access or ubiquitous
25     access to broadband or high speed.  Should this be a


 1     policy goal for us?  I would just like your comments on
 2     that.
 3  9965                 MR. PATERSON:  I think it's an issue
 4     which you should be examining as you go forward.  It
 5     isn't available now.  There aren't a lot of providers
 6     of services and products at this time which require it. 
 7     It does focus very much on your traditional
 8     constituency, the entertainment world.
 9  9966                 I have not personally seen WebTV, but
10     I gather it's not exactly an inspiring experience if
11     you are getting it over a modem, but it works
12     reasonably well on cable.
13  9967                 The very high speed access is an
14     issue which affects that part of the world that uses
15     the Internet.  It is an issue which I don't think is
16     going to go away because as progress is made in
17     Internet technology, it will become more widely
18     demanded.  It's an issue that needs to be pursued.
19  9968                 COMMISSIONER GRAUER:  I guess I
20     should have been a bit more specific.  I was actually
21     referring on the telecom side, as we move forward with
22     a competitiveness agenda if this as a policy which
23     informs our decisions and regulations will be wise.
24  9969                 MR. PATERSON:  Yes.  I believe that
25     it would.


 1  9970                 COMMISSIONER GRAUER:  Thank you very
 2     much.
 3  9971                 I don't know if you have anything
 4     else to add.  I appreciate you taking the time to come
 5     here today.
 6  9972                 MR. PATERSON:  Thank you.  I enjoyed
 7     the opportunity.
 8  9973                 THE CHAIRPERSON:  Mr. Paterson, just
 9     on the very last line, just to clarify for me a little
10     bit of the questioning that Commissioner Grauer did.
11  9974                 When you say regulation of the
12     Internet is beyond the scope of the Broadcasting and
13     the Telecommunications Act, picking up a point that
14     Commissioner Grauer raised with you that in fact some
15     of the Internet service providers themselves suggested
16     that in many jurisdictions around the world they are
17     treated as telecommunications carriers for the purpose
18     of having the opportunity to interconnect with former,
19     incumbent telephone companies or cable companies or
20     whatever.
21  9975                 In view of that aspect, would you
22     still take the view that Internet or ISPs should be
23     considered beyond the scope of the Telecommunications
24     Act?
25  9976                 MR. PATERSON:  I think that it's


 1     essentially a different type of business than regular
 2     telecom companies pursue.  I think you would want to be
 3     extremely cautious about rolling them into it.  I
 4     understand that they are considered telecom carriers in
 5     some parts of the world.
 6  9977                 THE CHAIRPERSON:  Including the
 7     United States.
 8  9978                 MR. PATERSON:  I wasn't aware that
 9     the United States was one of those countries.
10  9979                 THE CHAIRPERSON:  If that activity
11     was to overcome the problems that resulted in this
12     company moving from Vancouver to Bellingham, would you
13     see that as a positive thing that should be looked at?
14  9980                 MR. PATERSON:  If that approach would
15     solve the problem, that would definitely be a plus.
16  9981                 THE CHAIRPERSON:  Okay.  Thank you
17     for your views here this morning.
18  9982                 Madam Secretary.
19  9983                 MS BéNARD:  Thank you, Mr. Chairman.
20  9984                 The next presentation will be by the
21     Information Technology Association of Canada,
22     Association Canadienne de la Technologie de
23     l'Information.
24  9985                 Mr. Duncan.


 1  9986                 THE CHAIRPERSON:  Good morning, Mr.
 2     Duncan.
 3  9987                 MR. DUNCAN:  Good morning, Mr.
 4     Chairman.  As you are well aware, I am unaccustomed to
 5     be sitting on this side of the hearing room.
 6  9988                 Good morning, Chairman and
 7     Commissioners.
 8  9989                 ITAC is grateful for the opportunity
 9     to contribute the views of Canada's information and
10     communication technology industry to this important
11     proceeding.
12  9990                 You should know that from the very
13     day of the announcement of your hearing we have
14     supported this.  We believe you have finally provided a
15     forum where this issue can be publicly debated.
16  9991                 ITAC is the voice of the Canadian
17     information and communications technology industry. 
18     Together with our partner organizations, we represent
19     more than 1,300 companies in the computing,
20     telecommunications, hardware, software, services and
21     electronic content sectors.
22  9992                 This network of companies accounts
23     for more than 80 per cent of the 418,000 jobs, $70
24     billion in annual revenue, $3 billion in annual R&D
25     expenditure and $20 billion in annual exports that IT


 1     contributes to the Canadian economy.
 2  9993                 We would like to begin our
 3     presentation this morning with a very, very short video
 4     clip from the recent Canadian Information Productivity
 5     Awards.  It features the company that not only won in
 6     its class but was judged best in show.
 7  9994                 We believe that it provides a
 8     succinct answer to the first question this proceeding
 9     has posed and that was what kinds of new media services
10     are either currently available or can reasonably be
11     expected to emerge in the future.
12  9995                 Video, please.
13     --- Video Presentation / présentation vidéo
14                                                        0935
15  9996                 MR. DUNCAN:  Thank you.
16  9997                 Bid.Com is a Canadian success story
17     that effectively bridges the emerging domains of new
18     media and electronic commerce.  It competes head-on in
19     the dynamic world of on-line auctions with rivals from
20     around the world.  Over the past two weeks, it has been
21     the volume leader on the TSE, where its share prices
22     have quintupled since October 19.  The Bid.Com home
23     page is one of the most frequently visited on the
24     Internet.  As the clip showed, 30,000 visitors per day. 
25     It employs 35 Canadians and engages the expertise of


 1     Canadian-based system partners such as Media Serve.
 2  9998                 Bid.Com is just one of many Canadian
 3     companies who are early adopters of the exciting new
 4     possibilities of electronic commerce.  And e-commerce
 5     is just one of many applications of the new media.
 6  9999                 I am now going to, I guess, disagree
 7     with some of the comments that were made by the last
 8     witness.  E-commerce is a world in which Canada is
 9     currently demonstrating significant leadership.  This
10     leadership is manifest in major policy forums, such as
11     the recent OECD Ministerial Conference hosted by
12     Industry Minister Manley in October.  But it is also
13     manifest in our economic activity.  IDC, which does
14     survey Canadian e-commerce numbers, shows that Canada's
15     share of the $13 billion global e-commerce market in
16     1997 was 5.3 per cent, double our share of the world
17     GDP.
18  10000                We are world leaders in this area and
19     one of the reasons is that Canada has been able to
20     assert its leadership is from the fact that we enjoy a
21     relatively free and unregulated environment for
22     e-commerce to flourish.  And more generally, this
23     relatively unfettered approach is serving Canada well
24     in other domains of the new media.
25  10001                New media companies are an


 1     extraordinarily dynamic force in the new Canadian
 2     economy.  ITAC believes that unnecessary regulations
 3     would only hobble their potential.  They would have the
 4     unintended and unfortunate consequence of holding back
 5     the introduction of leading-edge services into the
 6     Canadian and global market.  And this in turn would
 7     inhibit customer choice and restrict the potential for
 8     wealth and employment creation.
 9  10002                This Commission has wisely elected to
10     forebear on regulation of the Internet up to this
11     point.  Mr. Chairman, we are encouraged by your opening
12     statements that you are not looking to apply old
13     regulatory models to new media.  This is indeed a wise
14     point of departure.  The Internet and the rest of the
15     new media are like nothing else in our current frame of
16     reference.
17  10003                For example, the Internet is a
18     global, democratic forum for the exchange of
19     information of all natures and descriptions.  It
20     embraces everything -- from teenagers complaining about
21     their parents in chat rooms, from parents complaining
22     about their teenagers in chat rooms, to astrophysicists
23     debating the nature of neutrinos.  It is a chaos
24     system, as rich, diverse and inscrutable as humanity
25     itself.  And it is dynamic, changing and expanding in


 1     functionality with each passing day.  We have no way of
 2     knowing what it will look like a year from now.  We
 3     only know it won't be identical to what we have today. 
 4     This mercurial quality makes regulation challenging, if
 5     not impossible.
 6  10004                The Internet presents other
 7     challenges to regulation.  It carries everything from
 8     text -- in a multitude of languages -- to interactive
 9     games, audio programs and video.  And this, of course,
10     creates a puzzle for this Commission.
11  10005                Shouldn't a program carried to a
12     viewer on his PC be subject to the same scrutiny as one
13     brought to his television set?  Repurposed content,
14     such as the many radio and television programs that
15     currently populate the home pages of Canada's
16     broadcasters, is already caught within the net of
17     regulation under the rules that govern broadcasting. 
18     In other proceedings, this Commission must ponder
19     whether or not even this level of regulation is
20     appropriate.
21  10006                However, we do believe that
22     programming uniquely created for the Internet should
23     not be subject to the same regulatory scrutiny as
24     programming designed for broadcast.
25  10007                We believe that Canada's regulatory


 1     regime must keep pace with developments in the
 2     marketplace of ideas and services.  It must also keep
 3     pace with the convergence of technologies.  This pace
 4     is far more rapid than anything we have experienced in
 5     the past.
 6  10008                Recent decisions taken by this
 7     Commissioner reflect your deep understanding of this
 8     imperative.  In the face of globalization, you have
 9     elected to forebear on many aspects of
10     telecommunications and cable television distribution. 
11     The result of this enlightened approach is that
12     Canadians today enjoy and profit from one of the most
13     open communications markets in the world.  Consumers
14     benefit from a wider choice of service and price
15     options.  And the companies that deliver these services
16     are faster and more innovative than they were when they
17     were burdened by regulation.  Over the past decade,
18     this Commission has made many positive advances toward
19     a regulatory regime in keeping with the demands of a
20     global, information-based economy.  To regulate the
21     Internet or any other aspect of new media would be a
22     huge step backward on this progressive path.
23  10009                I said earlier that the Internet and
24     new media are as complex as humanity itself.  This
25     means, of course, that not every message will be


 1     salutary or useful.  Hate infects it as it infects
 2     mankind.  But anyone who's ever witnessed the speed and
 3     ruthlessness with which hate is "flamed" in news groups
 4     or chat rooms can be encouraged by the prospect of a
 5     new standard of tolerance among net-heads and
 6     cyberpunks.
 7  10010                Nevertheless, there is offensive
 8     content on the Internet and in new media.  But Canada
 9     has laws that address hate and pornography and those
10     laws are as applicable to new media as they are to
11     traditional media.  New regulations uniquely applicable
12     to new media are unnecessary.
13  10011                It is our job in the information and
14     communication technology industry to act responsibly as
15     we develop this dynamic new resource.  It is our
16     responsibility to ensure that the solutions and the
17     services we develop protect privacy, respond to the
18     legitimate concerns of individual consumers and user
19     and provide effective avenues for redress.  We believe
20     that no one has a greater stake in ensuring that the
21     new public spaces provided by Internet and other new
22     media are hospitable, non-threatening environments for
23     users.
24  10012                We support the call for a voluntary
25     code of conduct expressed by the Canadian Association


 1     of Broadcasters and others.  ITAC was a major catalyst
 2     in the movement for light-handed privacy legislation
 3     and consumer protection.  Our experience over the past
 4     decade strongly suggests that the best safeguards are
 5     those developed by the players themselves.
 6  10013                What, then, is the role of
 7     government, and this Commission in particular, in the
 8     exciting new world of new media?  There is a huge job
 9     to be done to ensure that this exciting new resource
10     reaches its potential.
11  10014                We believe that there are at least
12     seven actions that must be taken either alone or in
13     association with others to ensure a strong Canadian
14     share of voice in the world of new media.
15  10015                First and foremost, you must forebear
16     from regulation of new media.  Instead, we believe you
17     must focus on framework issues such as privacy and
18     consumer protection.
19  10016                Second, you must monitor the
20     marketplace to ensure that what we celebrate as a free
21     and open environment remains that way.
22  10017                Third, access to capital continues to
23     be a huge stumbling block for new media, indeed for
24     most information technology entrepreneurship.  This
25     should be your third focus.  Public funds, such as


 1     Ontario's recently launched Multimedia Fund and
 2     Heritage Canada's Fund, as well as private funds
 3     operated by the telephone and cable companies, help. 
 4     But they would benefit from additional support.  We
 5     would also benefit from some new thinking.  We would
 6     suggest that tax incentives, such as those directed at
 7     film production, would attract capital to new media.
 8  10018                Fourth, government can serve as model
 9     users of new media for delivery of government programs
10     and services.  They can seize more readily perhaps than
11     the private sector the opportunities that are apparent
12     in new technologies.  As model users they can lead the
13     way for the rest of us, improving the efficiency and
14     the effectiveness of service delivery.  The federal
15     government has shown leadership in the use of
16     technology to conduct its business.  The CRTC, with its
17     informative and up-to-date Internet site, is part of
18     this trend and this role must continue.  Introducing
19     and speeding the introductory date of digital TV would
20     be another example of model users.
21  10019                A fifth area for action is developing
22     the skills resource to continue to fuel Canadian
23     innovation in new media.  Centres of excellence in new
24     media, such as the Bell Centre at Centennial College,
25     the Rogers Centre at Ryerson, and at Sheridan College


 1     should be supported and emulated throughout Canada.
 2  10020                A sixth area for your focus has got
 3     to be the international arena.  The Canadian government
 4     must work to ensure a level playing field and
 5     consistency of treatment for new media in all
 6     jurisdictions.  We want to avoid a situation where the
 7     rules in Canada are inconsistent with the rules in
 8     Germany.  The world of new media is truly a world
 9     without borders and our government must continue to
10     carry that message around the globe.
11  10021                And lastly, and above all, the most
12     important role for government is to keep the vision
13     alive.  ITAC believes in and supports the vision of a
14     Connected Canada leading and prospering in a global
15     knowledge-based economy.  There has been considerable
16     progress toward this goal.  We can point to superb
17     initiatives like SchoolNet and the Community Access
18     Program as major advances that have been taken.  But
19     there have also been false starts as well.  The
20     industry has learned from them and continues to
21     advance.  This Commission must continue to champion a
22     more rapid progress toward the realization of the dream
23     of a Connected Canada.  Undue regulation of the new
24     media would simply not advance this objective.
25  10022                Thank you, Mr. Chairman.


 1  10023                THE CHAIRPERSON:  Thank you, Mr.
 2     Duncan, and welcome to our proceeding.
 3  10024                When I read your original letter to
 4     the Commission in the first round submission, you
 5     talked about the Association wants to see this enormous
 6     economic contribution enhanced, that being all the
 7     activity around us, by "the application of a forward
 8     look and policy framework for new media."  Would the
 9     seven points that you have highlighted at the end of
10     your presentation this morning, is that what you had in
11     mind when you talked about a forward looking policy
12     framework?
13  10025                MR. DUNCAN:  They would constitute
14     part of the framework.  I think expanding on the first
15     point, focusing on building the framework pieces, the
16     rules for privacy, the rules for consumer protection,
17     focusing on existing legislation and applying it
18     heavily to the new media, whether that's hate or
19     pornography.  Those are all pieces of the framework,
20     yes.
21  10026                THE CHAIRPERSON:  Maybe in a few
22     minutes then we will go down through those and see what
23     role we can play in this.
24  10027                I guess one of the -- you quoted the
25     comment at the outset of the hearing here and I notice


 1     a lot of the submissions that we received have talked
 2     about -- and you have used the phrases in your
 3     submission here this morning, unnecessary regulation or
 4     the burden of regulation.  I guess the Commission is
 5     looking at this whole proceeding and this issue from
 6     the point of view of trying to understand to what
 7     extent some of this content may well be captured by
 8     some of our existing rules.  But I think we are as much
 9     concerned about whether or not the current regulations
10     that we have might either do now or might inhibit the
11     development of the Internet and its content, whether it
12     be electronic commerce or other content and whether
13     that be broadcasting or telecommunications issues.
14  10028                So, I guess I am wondering whether
15     you have a sense of the regulations from that
16     perspective?  I know that a lot of people have
17     expressed the concern that there is a considerable
18     amount of uncertainty in the marketplace with respect
19     to the role of the Commission, and I believe you and
20     your members have voiced some particular concern in
21     that regard.
22  10029                I would like to get a bit of an
23     understanding about to what extent you think this
24     uncertainty has been a problem and what we should be
25     doing about that to overcome that problem?


 1  10030                MR. DUNCAN:  Uncertainty has affected
 2     investment by multinationals in Canada.  We have
 3     examples and, unfortunately, because they are member
 4     specific I can't name them, but we can, if necessary,
 5     dig them out for you, of multinationals who have
 6     decided not to invest in projects and products in
 7     Canada because of the uncertainty.
 8  10031                We have been quite specific about the
 9     degree of uncertainty.  There have been senior public
10     servants and members of this Commission who have in the
11     past voiced wonder as to whether or not the Internet
12     should be regulated.  That in and of itself was
13     sufficient to affect investment decisions.
14  10032                The issue of whether or not we
15     believe you are caught within your own rules as to
16     whether you must deem jurisdiction over multi-media,
17     new media, I guess goes back to the foundation of why
18     we started to regulate.  We began with the scarce
19     resource.  We had to regulate in order to allocate that
20     scarce resource.
21  10033                After we started regulating we began
22     to add additional hooks to the fact that we were
23     already intervening in the market and for just cause
24     regulation of scarce resources was justifiable, and we
25     added Canadian content rules.  We didn't start with


 1     Canadian content rules.  We ended there.
 2  10034                I look at -- sorry, now we are
 3     dealing with the issue of should the Internet be
 4     regulated and we are starting with Canadian content. 
 5     We are starting with the content issues.  I think we
 6     have backed our way into the problem.
 7  10035                Part of the difficulty that I believe
 8     you face and I believe is faced in the United States is
 9     that given the existing forms of regulation, it's
10     easier to solve it by regulating anew.  I believe that
11     is contrary to the position that this Commission has
12     taken for the last several years, decade plus, where
13     you have been going into the deregulation mode,
14     recognizing that competition in the marketplace was the
15     appropriate mode of control.
16  10036                THE CHAIRPERSON:  I guess it is
17     probably fair to say that originally the Commission,
18     the government, got into the business of regulating
19     broadcasting because of a scarce spectrum, but in more
20     recent times the concern was probably as much an
21     economic one in terms of the question of access of
22     Canadian product, which was referred to several times
23     yesterday here as long-form programming and the
24     economic disincentive for that product to get access to
25     broadcast distribution technologies, whether they be


 1     using scarce resources or not and, in fact, the
 2     Broadcasting Act, as you know, was changed in the early
 3     nineties to include other forms of technology, whether
 4     wire optical or -- and, in fact, I think the Act says
 5     "or other technologies".
 6  10037                Because of the economic problem
 7     facing content creators, Canadian content creators
 8     getting access to the distribution because the
 9     economics meant it was always cheaper for a purchaser
10     of content to buy American product and put it on.  And
11     so, the Parliament of Canada tried to overcome that by
12     making changes to the Broadcasting Act and providing
13     the Commission with the powers to deal with that issue.
14  10038                While it has often been characterized
15     I think as regulating content, it has been more a
16     question of trying to ensure that there is a Canadian
17     presence, whether it be recorded music or long-form
18     programming.
19  10039                I guess part of our concern has been
20     whether or not if you change the delivery technology
21     that economic problem with respect to that sort of
22     programming still exists, or whether by the nature of
23     the new technology you can overcome those problems.  I
24     am wondering whether you would have a view on that?
25  10040                MR. DUNCAN:  There are two aspects to


 1     the access issue.  The first is access by the user and
 2     the second is access by the content provider to a
 3     distribution channel.
 4  10041                In October of this year we
 5     commissioned a survey of Canadian adults over the age
 6     of 20 in terms of their access to the Internet. 
 7     Thirty-three point nine per cent of Canadian adults
 8     four years after the advent of the Internet now have
 9     access to the Internet; 23.8 per cent from their own
10     home.
11  10042                I think what we are seeing on the
12     Internet side is access by the user to this
13     distribution channel is growing faster than any other
14     technology that has ever been introduced in Canada.
15  10043                In terms of access by the content
16     provider, it is a whole new world.  Any content
17     provider can put up its own Web page at trivial
18     expense.  The cost is the production of the content. 
19     That has not gone down.  Internet content is as
20     expensive as producing a movie, producing a CD.
21  10044                I don't believe that trying to
22     regulate the distribution mechanism is going to have
23     any impact at all on the cost of producing the content. 
24     In fact, if you truly believe that regulating the
25     distribution mechanism is important, and I do believe


 1     your Act says, "and any other distribution medium,"
 2     Blockbuster Video should be licensed by you.  It's a
 3     distribution medium of content and it's heavily
 4     American.  Why don't you impose a requirement that the
 5     first 10 films that you see when you walk into
 6     Blockbuster be Canadian?  Because you recognize, I
 7     believe, that that is not a distribution medium that
 8     you want to get into the business of regulating.  I say
 9     the same thing with regard to the Internet itself.
10  10045                The problem you have posed, which is
11     a very legitimate and I refer to it in my testimony, a
12     very legitimate issue, is how do we produce and promote
13     more Canadian content?  That, I believe, is a
14     legitimate issue and should be addressed by government. 
15     I believe you should be making recommendations and some
16     of the points I have raised in my seven point action
17     plan address that.
18  10046                I think we need new creative thinking
19     on how we promote Canadian content, but I believe we
20     have moved away from the concept of protecting it.
21  10047                THE CHAIRPERSON:  Do you have a sense
22     of whether or not or when the Internet is likely to
23     have the capacity to be able to deliver broadcast-like
24     long-form programming?
25  10048                MR. DUNCAN:  The answer again is an


 1     access issue.  It can today on the canary backbone.  It
 2     will, even more so, on CA-Net 3, but that's restricted
 3     access.  At the moment that's academic institutions,
 4     research institutions, et cetera.  That is rolling out.
 5  10049                Can I put a time frame on it? 
 6     Probably -- I'm in the midst of a conflict.  It's
 7     rolling out as fast as the communications carriers can
 8     invest in the technology to deliver broadband to the
 9     home and not nearly fast enough from the point of view
10     of the new media industry.
11  10050                It's a market pressure.  The new
12     media industries need that broadband into the home and
13     the carriers have capital cost issues in terms of the
14     rate at which they roll it out.
15  10051                I think the move towards competition,
16     towards allowing all carriers to do that last loop is
17     going to speed up the rate at which it gets adopted. 
18     Do I believe it's in the next three to five years to
19     get to 50 per cent of Canadian homes?  No, I don't.  Do
20     I believe it's more than 10?  No.
21  10052                THE CHAIRPERSON:  So somewhere in the
22     five to 10 year time range.
23  10053                Getting back to this uncertainty
24     question and around this broadcasting question.  You
25     mentioned the video stores and we don't get involved


 1     with the video stores because it doesn't form a means
 2     of telecommunications in the delivery.
 3  10054                I guess one of the issues that has
 4     been raised in the proceeding is whether or not -- not
 5     so much whether or not we want to go out and grab this
 6     from a regulatory grab point of view, but whether or
 7     not with the current definition of program or
 8     broadcasting some of the material that is carried or
 9     might be carried over the Internet would be captured by
10     the current definition.  I am wondering whether you
11     have any thoughts on that with respect to this
12     uncertainty question and what the Commission could
13     specifically do to clarify that?
14  10055                I am mindful in asking this question
15     of a former life, that we worked together in commenting
16     on early stages of this Broadcasting Act when you and I
17     both worked for the Government of Nova Scotia, so you
18     are not unfamiliar with this.
19  10056                MR. DUNCAN:  The preferred conclusion
20     of this hearing would be that you do not -- or this
21     technology does not fall under the wording of the Act. 
22     That would be a very clear, strong signal.
23  10057                The wording in my testimony was,
24     well, if perchance technically some of the product does
25     fall under the Act, that you immediately forebear and


 1     announce that that is your intention.  That will send a
 2     second signal, not as good, but a better signal than
 3     the one that is out there now which is unclear.
 4  10058                I think we are caught in -- Mr.
 5     Paterson I think used some good language.  We are
 6     caught in definitions from the old technology and we
 7     are trying to move them to the new technology.  It's
 8     time for a mind warp.  New media delivered over the
 9     Internet is not broadcasting.  It's a different animal.
10  10059                THE CHAIRPERSON:  I guess some of the
11     concern that was raised yesterday is the concern that
12     old media delivered over the Internet may be broadcast.
13  10060                MR. DUNCAN:  But, as I said in my
14     testimony, the old media, if that is a program that has
15     been produced and is now put up on the Web page, has
16     already been regulated.
17  10061                THE CHAIRPERSON:  If it's being
18     delivered by an existing licensed broadcaster.
19  10062                MR. DUNCAN:  If it has been
20     broadcast.
21  10063                THE CHAIRPERSON:  Yes.
22  10064                MR. DUNCAN:  If it's CBC that
23     broadcasts -- does CBC do Canada A.M.?  CTV does Canada
24     A.M. -- I'm sorry if they are in the audience.  If CTV
25     broadcasts Canada A.M. and then puts that show up on


 1     its Web page, it has already been regulated.  Don't
 2     regulate twice.
 3  10065                THE CHAIRPERSON:  I guess the issue
 4     is that if you were able to do Canada A.M. without
 5     broadcasting it, just doing it on the Internet pipe is
 6     that still broadcasting?
 7  10066                MR. DUNCAN:  A new way.
 8  10067                THE CHAIRPERSON:  And I think that is
 9     what some of the parties were raising yesterday, and if
10     the definition then captures that, but that for
11     economic or other reasons there is no need to regulate
12     it, how do we treat the definitions in terms of
13     resolving this uncertainty problem and saying even
14     though it might be captured by the definition, we could
15     provide this interpretation.
16  10068                You mentioned the term "forebear". 
17     We have the power to forebear on the Telecom Act and i
18     the Broadcasting Act we have the power to examine. 
19     Some parties have suggested -- or the power to exempt,
20     but some parties have suggested that that wouldn't
21     necessarily relieve this uncertainty because you can
22     always lift that power in any event.
23  10069                MR. DUNCAN:  I'm sorry, I made the
24     point, fall outside the Act is the strongest possible
25     signal you can send.  Forebear and exempt is good,


 1     better than what we have today, but not as good as
 2     saying it's your conclusion that it's outside the Act.
 3  10070                I think we have to go back -- in
 4     terms of your first point, we have to go back and
 5     reconceive what a broadcaster is.  We entered the
 6     concept of broadcasting from the distribution point of
 7     view.  Broadcasters are really producers and buyers. 
 8     They are not distributors.
 9  10071                They are today, over the airwaves and
10     down the cable channel, but that's not where they are
11     evolving to.  If I was to look at CBC and link it to 10
12     years from now on the Internet, I don't know whether we
13     would have an engineering side to CBC, a distribution
14     side to CBC or the debt problems that we have with CBC.
15  10072                I do believe we would have a content
16     producer and buyer.
17  10073                THE CHAIRPERSON:  Switching over to
18     the telecom side for a minute or two, as I indicated
19     and Commissioner Grauer did with Mr. Paterson earlier,
20     and the issue came up last week from a number of ISPs
21     about this question of getting access to high speed
22     broadband capability, do you have a view on that
23     question about whether or not we should be using some
24     of the powers under the Telecommunications Act?
25  10074                Telus last Friday suggested we should


 1     initiate a proceeding following this one to take a look
 2     at that whole issue of how we could best ensure the
 3     development -- I'm paraphrasing what they said and I
 4     apologize if I am not quite capturing it correctly, but
 5     to take a look at the whole question of high-speed
 6     access and what we could do perhaps to encourage a
 7     faster roll-out, by allowing for perhaps, and these are
 8     my words, greater competition between the ISPs perhaps
 9     and the cable companies and the telephone companies.
10  10075                MR. DUNCAN:  I have a strong urge to
11     fall back into my prior role.  Why is there a problem,
12     Mr. Chairman?
13  10076                THE CHAIRPERSON:  I'm sorry, why is
14     there a problem?
15  10077                MR. DUNCAN:  Why is there a problem
16     with the ISPs?
17  10078                THE CHAIRPERSON:  Well, they claim
18     there is a problem in their inability to get access to
19     infrastructure, perhaps co-locate some of their
20     equipment in central offices of the telephone
21     companies, and again I am paraphrasing their position I
22     guess.  Largely they are seen as customers of the phone
23     companies, rather than, shall we say, co-carriers, more
24     as partners I suppose in developing this infrastructure
25     in this country.


 1  10079                MR. DUNCAN:  Co-carrier -- words like
 2     "co-carriers," "partners" and whatnot are market words. 
 3     They are not regulatory words.  If they haven't put
 4     forward the appropriate business case, why would we
 5     turn to regulation to force something?  And if they
 6     have a good business case, then why are the existing
 7     carriers not responding?
 8  10080                THE CHAIRPERSON:  Well, I guess the
 9     issue would be is this not unlike the situation of
10     either the interchange carriers or the local collects
11     getting access to the bottleneck facilities in order to
12     be able to compete and provide service?
13  10081                MR. DUNCAN:  And there are regulatory
14     reasons why they can't get access?
15                                                        1005
16  10082                THE CHAIRPERSON:  They are suggesting
17     there are.
18  10083                MR. DUNCAN:  Then let's deregulate
19     that part.
20  10084                THE CHAIRPERSON:  Let's deregulate
21     it?
22  10085                MR. DUNCAN:  Yes.  Let's let two
23     companies come together with a business case and
24     provide a unique new service.
25  10086                THE CHAIRPERSON:  Do you think if we


 1     deregulated the business the telephone companies would
 2     provide that access?
 3  10087                MR. DUNCAN:  I didn't say the
 4     telephone companies.  The providers will.  You have
 5     multiple companies out there now.
 6  10088                THE CHAIRPERSON:  I'm sorry.  Who are
 7     the multiple companies?
 8  10089                MR. DUNCAN:  We have cable.  We have
 9     telephone.  We have wireless.  We have electricity
10     which is now carrying signals.  Technologically, we
11     don't have an issue here.  We have market players that
12     are doing weird things, but that's also true in some of
13     the regulated areas.
14  10090                THE CHAIRPERSON:  So your view would
15     be that there is already enough competition in the
16     marketplace through having cable and the telephone
17     companies, LMCS, MMDS, satellite, that the ISPs should
18     simply present their business case to those various
19     players and there is no need to take any regulatory
20     action to ensure that they would have the sort of
21     access, say comparable access that we have ordered for
22     the CLECs to provide competition to local telephone
23     service.
24  10091                MR. DUNCAN:  We walk down a long and
25     dangerous road, Mr. Chairman.  I believe the framework


 1     is there.
 2  10092                Do I believe it's happening in the
 3     market yet?  No.  It's starting.  I understand the
 4     frustration from the ISPs, but do I believe you have
 5     produced a framework in which competition will begin
 6     and it has begun, is changing the market behaviour, is
 7     changing the availability of services to individuals. 
 8     Yes, I do.
 9  10093                THE CHAIRPERSON:  So it's your view
10     that the existing framework is enough to accommodate
11     the concerns of the ISPs.
12  10094                MR. DUNCAN:  I don't think I feel
13     comfortable saying that there isn't a technical issue
14     in the existing regulations that should be addressed,
15     but it should be addressed in the framework of we are
16     deregulating and we are letting market forces take
17     over, totally contrary to the entire discussion on
18     moving in to regulate the Internet.
19  10095                THE CHAIRPERSON:  When you use the
20     term deregulation, because it was used last week by Ms
21     Langford from IBM, and we had a bit of a discussion
22     about that.  She was using the term deregulation, I
23     think, when she was meaning we should create more
24     competition.  We should take whatever steps we might
25     need in terms of taking a look a look at our regulation


 1     of communications in order to encourage more
 2     competition.
 3  10096                Are you using the term deregulation
 4     in that sense?
 5  10097                MR. DUNCAN:  Well --
 6  10098                THE CHAIRPERSON:  Deregulation is
 7     often used in that sense.  Deregulation and
 8     competition, those terms are often used synonymously
 9     when I view them as being different.
10  10099                MR. DUNCAN:  Yes.  I'm having trouble
11     with the question.  Deregulation simply says that there
12     will be less government intervention in market forces. 
13     Market forces does not necessarily guarantee there will
14     be more competition.
15  10100                THE CHAIRPERSON:  Exactly.
16  10101                MR. DUNCAN:  It creates an
17     environment.  I do believe that we are seeing the
18     environment where more competition is coming in where
19     you have been deregulating, but they are not
20     synonymous, no.
21  10102                THE CHAIRPERSON:  Right.  We have
22     taken the steps to put in place a framework that will
23     provide for competition.
24  10103                MR. DUNCAN:  It allows for, but does
25     not guarantee.


 1  10104                THE CHAIRPERSON:  Exactly.
 2  10105                MR. DUNCAN:  That's correct.
 3  10106                THE CHAIRPERSON:  Here's where I draw
 4     the distinction between competition and deregulation. 
 5     I see putting in place that framework as being a
 6     pro-competition policy.
 7  10107                Somewhere down the road when we are
 8     satisfied that the former monopolist has satisfied the
 9     parameters for deregulation, we would then foreborn
10     from regulating tariffs of the former monopolist. 
11     That's deregulation.
12  10108                MR. DUNCAN:  I agree with that point. 
13     Unnatural market behaviour is captured under other
14     legislation.  The fact that you have deregulated does
15     not mean there may not be unnatural market behaviour.
16  10109                THE CHAIRPERSON:  Right.  If we look
17     at the seven components of the framework you have put
18     forward, seven actions that must be taken either alone
19     or in association with others to ensure a strong
20     Canadian share of voice in the world of new media, you
21     talk about first and foremost you must forebear from
22     regulation of new media.
23  10110                We have talked about this issue of
24     clarifying the uncertainty around the definition of
25     broadcasting and whether or not some of the activity on


 1     the Internet may be captured by existing framework.  I
 2     appreciate your position on that.  You may want to
 3     think about what particular action that we could be
 4     taking when you prepare your final argument for this
 5     proceeding.
 6  10111                When you go on to say you must focus
 7     on a framework of issues such as privacy and consumer
 8     protection, were there particular issues that you
 9     thought that the Commission should undertake in this
10     respect?
11  10112                MR. DUNCAN:  No.  I was hoping that
12     you would recommend in your final decision.  There are
13     other actors who have true jurisdiction there.  Justice
14     clearly on privacy, Industry Canada on consumer
15     protection.
16  10113                You are in the unique position right
17     now of being the only game in town.  You have an
18     opportunity to express a view of how this should evolve
19     that includes actors other than the Commission.  That
20     was why we supported this hearing from the very
21     beginning.
22  10114                THE CHAIRPERSON:  We know there are a
23     number of actions that are already under way with
24     respect to this.  I think Industry Canada -- I don't
25     know whether there's is seven point, but I think it's


 1     in that sort of range --
 2  10115                MR. DUNCAN:  Five.
 3  10116                THE CHAIRPERSON:  -- of initiatives
 4     that they have undertaken with respect to privacy and
 5     encryption and so on.  I presume you are reasonably
 6     satisfied with what's happening there with respect to
 7     those issues.
 8  10117                MR. DUNCAN:  I will refer to an
 9     article in yesterday's National Post where I responded
10     to a release by President Clinton and Vice-President
11     Gore to a new series of actions in the United States
12     dealing with e-commerce.  I said, and it was quoted so
13     I will stand behind it:
14                            "Welcome to the world, Mr.
15                            Clinton.  Canada has been there
16                            for the last two years.  We are
17                            very supportive of the existing
18                            framework that is coming out of
19                            Industry Canada under Minister
20                            Manley in the e-commerce
21                            strategy, the connectedness
22                            strategy."
23  10118                Yes.
24  10119                THE CHAIRPERSON:  The second point. 
25     You have said:


 1                            "You --"
 2  10120                I presume the CRTC.
 3                            "-- must monitor the marketplace
 4                            to ensure that we celebrate as a
 5                            free and open environment, that
 6                            what we celebrate remains that
 7                            way."
 8  10121                Did you have something in particular
 9     in mind here in terms of what we would be monitoring?
10  10122                MR. DUNCAN:  Yes, I did.  I believe
11     that this hearing has resulted in a significant
12     learning experience, not only for the Commissioners,
13     for the staff, but even for those of us who have been
14     testifying.
15  10123                There is a highly enhanced awareness
16     of what the current state of new media and Internet is. 
17     I don't believe that that is something that should
18     happen at another hearing two years from now.  I
19     believe that's something that should be an active part
20     of the daily life of all of the players.
21  10124                We must continue to be part of this
22     new media so that we understand how it changes, so that
23     we don't have a requirement to create a new forum to
24     start really from scratch.
25  10125                Looking for abuses, playing the role


 1     of monitor in terms of content, stimulating reaction by
 2     other government agencies when the wrong kinds of
 3     content appear, using the existing legislation that is
 4     available to them.  These are all, I think, very
 5     legitimate roles for the Commission.
 6  10126                THE CHAIRPERSON:  One of the issues
 7     that I don't think you have covered off here is the
 8     whole question of rights with respect to content
 9     creators.
10  10127                What's your view in terms of the
11     activity that has been under way dealing with those
12     issues?  A lot of the parties that were here yesterday
13     were expressing concerns about whether or not their
14     property is going to be protected from a rights point
15     of view if it is used on the Internet.
16  10128                MR. DUNCAN:  Would you like an eight
17     point plan instead of a seven point plan?
18  10129                We do have a position on the existing
19     copyright issues and the need to amend the Canadian
20     legislation to at least move up to the state of the
21     international agreements that we signed a year and a
22     half ago that dealt with databases.
23  10130                I think we have an additional new
24     challenge on how we protect copyright on the Internet. 
25     I don't have a solution yet.  I guess the one position


 1     we have taken is we are opposed to the concepts like a
 2     bit tax to go into a copyright collective.  That's not
 3     just not an approach that we favour.
 4  10131                I do admit there are increasingly
 5     more complex and difficult copyright issues on the
 6     Internet than there have been in all prior
 7     technologies.  Cut and paste is two buttons.  At least
 8     in the past we had to walk over to the Xerox machine
 9     and turn the pages.
10  10132                The concept of copyright in finding
11     tools, including the collectives' approach to protect
12     it, we are highly supportive of that.  We are just not
13     supportive of a broad based tax everything that goes by
14     approach.  I didn't help you with that answer.
15  10133                THE CHAIRPERSON:  Well, I guess we
16     have said on a number of occasions that copyright
17     doesn't fall squarely within our jurisdiction, although
18     as some parties have suggested kind of indirectly the
19     way we have dealt with broadcasting issues has
20     indirectly dealt with a number of issues.
21  10134                As has been pointed out to us, those
22     copyright issues are being addressed in another forum
23     in the government.
24  10135                MR. DUNCAN:  Not fast enough.  If I
25     was to ask you to make any statement on copyright, it


 1     would be that we speed up.  The government by its own
 2     admission has dealt with all modernizing copyright
 3     issues except new technology.  Well, it's time.  The
 4     new technology is here.
 5  10136                THE CHAIRPERSON:  The next few of
 6     your suggestions are pretty clear.  The sixth area you
 7     talked about was the international arena.  I'm
 8     wondering what particular role you would see for this
 9     Commission in the international arena in this respect.
10  10137                MR. DUNCAN:  This Commission is
11     already active in taking the lessons it has learned and
12     the experience that it has had into the international
13     arena and talking to other jurisdictions that are
14     wrestling with how do you regulate both telecom and
15     broadcasting.  That should continue.
16  10138                More importantly, the belief that
17     there should be a common open system at the core of
18     running and living in the Canadian new technology, that
19     belief should be spread into other jurisdictions.
20  10139                Whether that is consistency in
21     consumer protection, consistency in the treatment of
22     personal information, consistency in the access to the
23     technology, the messages are all the messages that we
24     are delivering here in Canada, but I believe should be
25     delivered and negotiated, if necessary, through


 1     international agreements internationally.
 2  10140                THE CHAIRPERSON:  Finally, you have
 3     said that the Commission must continue to champion a
 4     more rapid progress toward the realization of a dream
 5     of a connected Canada.
 6  10141                Is there anything beyond what we have
 7     talked about here that we should be doing in that
 8     respect?
 9  10142                MR. DUNCAN:  I think Minister Manley
10     has raised the bar.  He has taken this vision, taken a
11     technical type discussion and converted it into a
12     social policy vision, an economic policy vision and he
13     has taken it to the general public.
14  10143                This Commission is not generally
15     known for talking to the general public.  It's known
16     for talking to its licensees, to the government.  Yes,
17     I do believe this implies an additional step for the
18     Commission.
19  10144                I believe it means going out in a far
20     more public proactive way in talking about why the
21     decisions you have taken technically have an impact on
22     my life, both economically and socially.
23  10145                THE CHAIRPERSON:  I think we have
24     started to recognize that problem with the vision
25     exercise we went through about a year ago.  I take your


 1     point.  I think we have recognized that we have to do a
 2     better job of that than we traditionally have.
 3  10146                MR. DUNCAN:  You have a wealth of
 4     information, a wealth of experience, a view of how this
 5     piece of our life which is becoming a critical point of
 6     the Canadian economy, is evolving and how it can
 7     evolve.  Please deliver the message.
 8  10147                THE CHAIRPERSON:  Last point.  What
 9     about statistics?  Commissioner Grauer raised the issue
10     with Mr. Paterson about this study that was referenced
11     to us.  In fact, I think it was Ms Langford who raised
12     the issue last week about this study that the Boston
13     group has done.
14  10148                Canada's numbers weren't included in
15     that because our e-commerce numbers were so small that
16     we didn't show up on the radar screen.
17  10149                You on the other hand have provided
18     us with some numbers here this morning in your oral
19     presentation which suggest that we are 5.3 per cent,
20     more than double Canada's share of the GDP in terms of
21     global commerce on the Internet, I guess, the number
22     is.
23  10150                Is there a problem, particularly
24     given the newness of this business in terms of our
25     ability to get meaningful statistics so that one could


 1     then know where we stand and whether or not there are
 2     problems inhibiting the development and where one might
 3     take the look at focusing on resolving those problems?
 4  10151                MR. DUNCAN:  The absolute simple
 5     answer is yes.  We do have statistics.  I'm sorry the
 6     Boston group was referenced because they did not do an
 7     analysis of Canadian numbers.
 8  10152                IDC, International Data Corps, does. 
 9     I would be happy to provide you with additional
10     statistics to give you a feel for what's going on in
11     the market.  This is activities by Canadian adults in
12     the months of August and September of this year, very
13     recent data.
14  10153                The number one piece of e-commerce
15     that we did not survey is the use of the Internet for
16     sex, pornography.  The next two largest items are
17     hardware and software and related products.
18  10154                The next, and it should be of great
19     interest to this Commission, after the top three, is
20     fundamentally music.  It's actually listed under music,
21     games and movies, but when you break it down, it's
22     fundamentally music.
23  10155                In the months of August and
24     September, 150,000 Canadian adults purchased music over
25     the Internet.  The next largest, which was 100,000


 1     Canadian adults, purchased non-IT related publications. 
 2     The usual quote here is  The next go
 3     figure, the next, 90,000 Canadians in the months of
 4     August and September purchased clothing.
 5  10156                None of us when we forecasted what
 6     would happen on the Intenet had clothing ranked as
 7     number five.  It wasn't on the horizon.  That's true
 8     because in the months of August and September a year
 9     ago, about 5,000 Canadians purchased clothing, so from
10     5,000 to 90,000 in one year.
11  10157                We do have statistics on the Canadian
12     market, but we getting them by doing surveys.  Again,
13     if you can make a statement in your final report,
14     Statistics Canada is not providing us with this kind of
15     information.
16  10158                It's the only piece of the economy
17     where industry has to go out and survey to find out
18     what's going on and then come back and tell government.
19  10159                THE CHAIRPERSON:  A couple of points. 
20     The numbers that you have just given us, are they out
21     of this study that you referenced this morning?
22  10160                MR. DUNCAN:  They are, and I would be
23     happy to --
24  10161                THE CHAIRPERSON:  Could you file
25     those for the record?


 1  10162                MR. DUNCAN:  I will file.  This is of
 2     the Internet Growth and Security, A Joint Briefing by
 3     ITAC and IDC Canada.
 4  10163                THE CHAIRPERSON:  Okay.  Let me throw
 5     the ball to you then.  When you file your final
 6     comments on this, if there are particular statistics or
 7     a particular aspect of this that you think should be
 8     focused on rather than just kind of a blanket statement
 9     that Statistics Canada should do a better job in
10     arriving at these numbers, that might be helpful as
11     well.
12  10164                Commissioner Grauer.
13  10165                COMMISSIONER GRAUER:  Thank you.
14  10166                I just have one follow-up question on
15     this discussion on e-commerce.  I am trying to
16     reconcile these different reports.
17  10167                I read the Globe and Mail report this
18     morning, the OECD report on Canada, which cited
19     Canadians lagging in the adoption of new technologies. 
20     It didn't give any detail.  I have no idea what the
21     substance of the report is.
22  10168                I am just wondering for our purposes
23     as we move forward if there isn't some comparative data
24     that would be useful in some of these areas of
25     e-commerce.  You have given us some of the real


 1     numbers.
 2  10169                I think the questioning is not to
 3     suggest that there is anything missing in the
 4     government's agenda, but if in fact we are
 5     proportionately lagging some other countries, maybe
 6     there are some things we can be looking at in terms of
 7     prescriptions that aren't already under way.  Do you
 8     have any comment?
 9  10170                MR. DUNCAN:  I have not read this
10     morning's Globe.  I was busy reading my testimony for
11     you.
12  10171                COMMISSIONER GRAUER:  I understand. 
13     I was preparing as well.
14  10172                MR. DUNCAN:  I am puzzled by the
15     reference to the lagging adoption of technology.
16  10173                Canada is by all measures considered
17     an early adopter of technology and I would be happy to
18     try and find the various studies that have shown that
19     in terms of credit card, ATM, debit card, telephone, et
20     cetera.  I don't think the issue here is adoption of
21     technology.
22  10174                There is a concern over productivity. 
23     That's a real problem because we are still measuring
24     productivity under the total factor of productivity
25     measures that really were very appropriate in a bricks


 1     and mortar and primary industries economy, but don't
 2     seem to take into account any of the knowledge-based
 3     economy issues.
 4  10175                ITAC is worried about that.  We are
 5     talking internationally about how we find new measures
 6     that will allow us to gauge our economic performance
 7     against those of our new competitors as well as our old
 8     competitors.
 9  10176                I didn't answer the rest of what you
10     said.
11  10177                COMMISSIONER GRAUER:  I guess it's
12     just whether or not there is comparative data between
13     Canada and the U.S..  I don't know if it's there.
14  10178                MR. DUNCAN:  Okay.  There is
15     comparative data.  We will table the study done by
16     WITSA, World Information Technology Services
17     Association.  That showed numbers in terms of gross
18     expenditure.
19  10179                On that basis, Canada fairly
20     consistently ranked seventh in the world.  However,
21     that's the size of our economy so that's kind of where
22     we should rank.  WITSA is currently adjusting that
23     report to include per capita ratios
24  10180                When you switch to per capita, we
25     generally rank about third in the world.  If, for


 1     example, you take total expenditures on information and
 2     communications technologies in the economy, we are
 3     seventh.  Per capita we are third behind the United
 4     States and Japan.  Yes, we will get some of that
 5     comparative information for you.
 6  10181                The concern that we have at the
 7     moment, and it's early to get on a soapbox and talk
 8     about it but it's not too early to start seriously
 9     thinking about it, the trend is that our standing on a
10     per capita basis is declining.  It's tending down, not
11     up.  Early signals say that we may actually have a
12     problem, but at the moment no, we are ranked generally
13     about third in penetration rates and usage rates and
14     what not.
15  10182                We will get some of those statistics
16     for you.
17  10183                COMMISSIONER GRAUER:  Thank you very
18     much.
19  10184                THE CHAIRPERSON:  Commissioner
20     Pennefather.
21  10185                COMMISSIONER PENNEFATHER:  Thanks.
22  10186                I just wanted to clarify a couple of
23     things.  The list of uses of the Internet that you read
24     to us, those were transactions?  In other words, is
25     that an activity that using the Internet to purchase?


 1  10187                MR. DUNCAN:  That's correct.  These
 2     were purchases in the months of August and September by
 3     Canadian adults.
 4  10188                COMMISSIONER PENNEFATHER:  So the
 5     music reference was to the purchase of a disc or
 6     record, not listening to the music.
 7  10189                MR. DUNCAN:  That's correct, but I
 8     don't know that level of detail.  If there was the
 9     ability to purchase a soft copy, that would have been
10     included as well, but that was not listening.  These
11     were actual purchases.
12  10190                COMMISSIONER PENNEFATHER:  My other
13     question was in your written submission, you refer to
14     Canadian cultural materials on the Internet.  What did
15     you mean by cultural materials?  It is in reference to
16     the proliferation and success of Canadian cultural
17     materials of considerable importance to the culture
18     halls of Canada and the contribution.  You go on, as
19     you did this morning, to talk about the best way to
20     promote this material.
21  10191                I am just curious what you meant by
22     cultural material.
23  10192                MR. DUNCAN:  All forms of Canadian
24     content.  It includes access to the library, the
25     museum, to books, to literature, to music to what we


 1     will be getting, versions of live theatre, this.
 2  10193                COMMISSIONER PENNEFATHER:  Right.
 3  10194                MR. DUNCAN:  This.  Well, this is
 4     live theatre.  I would rank it also as entertainment. I
 5     don't think you come under music, games and movies.
 6  10195                COMMISSIONER PENNEFATHER:  Thank you
 7     very much for those clarifications.
 8  10196                MR. DUNCAN:  Okay.
 9  10197                THE CHAIRPERSON:  Counsel Pinsky.
10  10198                MS PINSKY:  Thank you, Mr. Chairman.
11  10199                As part of the framework that you
12     have proposed that government adopt, you have indicated
13     that you considered that the CRTC and/or various
14     government departments should focus on framework issues
15     such as privacy and consumer protection.
16  10200                Do you have any particular consumer
17     protection issues that you consider ought to be
18     addressed?
19  10201                MR. DUNCAN:  Yes.  It's a
20     jurisdictional issue.  It's currently a hot debate.
21  10202                On the Internet, if I purchase a
22     product -- let's pick from Cuba just to be difficult --
23     do the consumer protection laws of Cuba or of Canada
24     apply?  What are my rights of redress and what if the
25     product never arrives?  That's a framework issue.


 1  10203                There are arguments saying that
 2     Canadian consumer protection laws should apply.  That
 3     causes huge issues with the vendors.  There are
 4     arguments that the Cuban laws should apply and that
 5     causes equally huge issues with regard to consumers.
 6  10204                I don't have a solution.  I do
 7     believe internationally we have to negotiate and find a
 8     solution.
 9  10205                The other day I suggested that since
10     I am likely to be paying for that purchase with my
11     credit card, why don't we just foist the problem on to
12     the bank.  Not unreasonable.
13  10206                Livent went under the other day. 
14     There was a lovely large headline that said "If you had
15     purchased your tickets directly from Livent or
16     TicketMaster or anywhere else with cash, you were out
17     of luck, but if you purchased with Visa or MasterCard,
18     you got your money back".
19  10207                It seems to me that's a model for
20     saying the consumer protection issue really is a matter
21     between me and my credit card issuer and it's up to the
22     credit card issuer to figure out what jurisdiction it
23     rests with vis-à-vis the supplier.
24  10208                It's not an unreasonable idea.  It's
25     a little radical, but they have got deeper pockets than


 1     I do.
 2  10209                MS PINSKY:  Thank you.
 3  10210                When will you be in a position to
 4     file each of the IDC stats and the WITSA stats?
 5  10211                MR. DUNCAN:  The WITSA study we can
 6     deliver today.  The other statistics, please give me
 7     some time.  We will have to go back and do some
 8     digging.
 9  10212                MS PINSKY:  I think the Independent
10     Data Corps.
11  10213                MR. DUNCAN:  That's tendered.
12  10214                MS PINSKY:  You have them with you. 
13     Okay.  No problem today.  Thank you.
14  10215                The other ones you can perhaps
15     indicate to us a specific date when you would intend
16     them to file them so for the public record other
17     parties will know.
18  10216                MR. DUNCAN:  Okay.
19  10217                MS PINSKY:  Thank you.
20  10218                THE CHAIRPERSON:  Thank you, counsel.
21  10219                Thank you very much, Mr. Duncan.  We
22     appreciate your presence here today.
23  10220                MR. DUNCAN:  My pleasure.
24  10221                THE CHAIRPERSON:  We will take our
25     morning break now and reconvene at a quarter to eleven.


 1     --- Short recess at 1034 / Courte suspension à 1034
 2     --- Upon resuming at 1050 / Reprise à 1050
 3  10222                THE CHAIRPERSON:  We will return to
 4     our proceeding now.
 5  10223                Madam Secretary, the next party.
 6  10224                MS BÉNARD:  Thank you, Mr. Chairman.
 7  10225                The next presentation will be by the
 8     Internet Advertising Bureau of Canada, l'bureau de la
 9     publicite internet.
11  10226                MR. BOYD:  Good morning.
12  10227                Mr. Chairperson, members of the
13     Commission, my name is Ted Boyd and I am the Vice-Chair
14     of the Internet Advertising Bureau of Canada.  In
15     addition, I am the VP Director of New Media
16     Technologies at Young & Rubicam.  On behalf of the
17     members of IAB Canada, thank you for the opportunity to
18     appear before you today.  On my left is Gary Anderson,
19     General Manager, Internet Business Development at
20     Medialinx Interactive, and on my right is Graham Duffy,
21     President of CANOE.  Both Gary and Graham are IAB
22     Canada Directors.
23  10228                Let me begin by introducing IAB
24     Canada.  We are a non-profit volunteer organization,
25     comprised of advertisers, agencies and Internet


 1     publishers.  IAB Canada is the national advocate for
 2     marketing and advertising on the Internet.  We also
 3     aspire to bring structure and standards to the on-line
 4     advertising industry in Canada.  To this end, IAB
 5     Canada is the only body in Canada that has taken upon
 6     itself the task of researching the Canadian on-line
 7     advertising industry.  For the purpose of these
 8     hearings, the views of IAB Canada are significant in
 9     that they reflect shared opinions of a wide range of
10     stakeholders who frequently share differing views on
11     many other subjects.  This agreement stems from a
12     common recognition of the needs of on-line advertising
13     and the benefits it offers Canadian new media.
14  10229                Before proceeding further, it is
15     important to first describe what IAB Canada understands
16     new media to mean for purposes of this presentation. 
17     First, IAB Canada is only addressing the issue of
18     regulation of the Internet and is not to be taken to
19     have made any comments regarding new media content that
20     may be delivered by some other delivery mechanism such
21     as CD-ROM or DVD-ROM.
22  10230                Second, IAB Canada notes that the
23     development of the Internet results from the union of
24     two distinct sectors.  The first, new media
25     infrastructure, consists of the routers, protocols and


 1     transmission paths that make up the Internet.  In other
 2     words, it is the roadways and traffic signals that make
 3     up the information highway.
 4  10231                The second, new media content and
 5     services, consists of the video, audio, graphic and
 6     textual content that is carried over the new media
 7     infrastructure.  Using that familiar information
 8     highway analogy again, it comprises the vehicles that
 9     travel on the highway.  For purposes of these
10     proceedings, IAB Canada takes no position on the
11     regulation of new media infrastructure and my comments
12     here today should be understood to apply only to new
13     media content and services.
14  10232                Given this focus, IAB Canada observes
15     that new media and on-line advertising are
16     demonstrating a mutually supporting relationship.  As
17     the Internet grows it attracts an increasing number of
18     advertisers.  As advertising revenue is injected,
19     further growth of the Internet is encouraged.  IAB
20     Canada's latest research indicates that Web-based
21     advertising revenues in Canada continue to double from
22     $9.5 million in 1997 to $8.0 million in just the first
23     half of 1998.  This growth is forecast to continue with
24     revenues expected to total $20.7 million in 1998 and
25     $37.7 million in 1999.  Notably, this advertising is


 1     not being driven primarily by computer-related goods
 2     and services.  Traditional consumer goods and services
 3     companies are being drawn to this new medium, with
 4     companies from the financial services sector
 5     contributing the most.
 6  10233                I would like now to address the area
 7     of regulation of new media in general.  To appreciate
 8     IAB Canada's position on regulation, it will be useful
 9     to examine, in a very crude way, advertising dynamics
10     and Internet economic reality.  At its most basic,
11     advertising dollars will be spent where the message of
12     the advertiser can be communicated the most effectively
13     to the greatest number of people at the most reasonable
14     cost.  Therefore, as more people go on-line and as
15     technical improvements permit more creativity in the
16     crafting of messages, more and more advertisers are
17     being drawn to the Internet.
18  10234                Perhaps not unexpectedly, the sites
19     that attract the greatest number of visitors are also
20     attracting the greatest amount of on-line advertising
21     revenue.
22  10235                With respect to Internet economics,
23     as others have described and will describe in greater
24     detail, there are only a few ways to generate revenues
25     over the Internet; subscription, pay per use,


 1     e-commerce transactions, sponsorship and advertising. 
 2     Very few commercial Web sites are able to operate
 3     successfully without the assistance of advertising. 
 4     Any that seek to offer universal access to their site,
 5     other than purely transactional sites, must have
 6     advertising or sponsorship to be commercially viable. 
 7     That suggests that the healthy and competitive growth
 8     of Canadian new media is inextricably linked to a
 9     healthy and competitive on-line advertising industry.
10  10236                Now, let's consider the potential
11     impact of regulation on this dynamic relationship.  As
12     many others in these proceedings have observed, the
13     Internet is indeed a global medium.  It is not
14     technically possible to restrict Canadians from
15     accessing content that originates elsewhere.  It is
16     also not possible to keep content developers from
17     moving their operations to other jurisdictions or to
18     require service providers that cater to Canadians to be
19     based in Canada.  In addition, other jurisdictions,
20     most notably the United States, have taken a regulatory
21     hands off approach to the Internet.
22  10237                As a result, the imposition of
23     regulation in Canada that adds costs or administrative
24     burdens or that causes delays in implementing business
25     strategies will encourage content developers or


 1     distributors to establish operations elsewhere, most
 2     likely in the United States.  If this content is
 3     available from the United States, then Canadians will
 4     visit these American sites to locate the content they
 5     seek.  The more that Canadians visit these sites, the
 6     more attractive they will become to Canadian
 7     advertisers.
 8  10238                As a result, Canadian advertising
 9     dollars will flow out of the country along with the
10     content and distributors, making it difficult for
11     remaining Canadian sites to attract the necessary
12     revenues to operate.  Even in the existing environment,
13     almost 70 per cent of participants in IAB Canada's
14     Internet Advertising Survey are aware that Canadian
15     advertising dollars are being spent in the United
16     States.
17  10239                I don't wish to be seen as
18     overstating the case.  Even in light of regulation,
19     some companies will, of course, choose to remain in
20     Canada and, presumably, some will develop content that
21     is sufficiently attractive that Canadians will visit
22     and thereby attract some of the advertising budgets of
23     Canadians advertisers.  But this is not enough.  I
24     believe all of us participating in these proceedings,
25     including the Commission itself, are interested in the


 1     development of a thriving Canadian new media industry
 2     that materially contributes to the economic and social
 3     fabric of the country.  IAB Canada, and clearly many
 4     others in these proceedings, believe that this cannot
 5     happen if the regulatory environment actively
 6     encourages industry participants to operate elsewhere.
 7  10240                Accordingly, IAB Canada endorses the
 8     position that the CRTC not regulate the Internet.
 9  10241                I would now like to take a moment to
10     address the potential introduction of new regulations
11     on Internet advertising in particular.  However, rather
12     than explore the negative economic impacts of this,
13     which are similar to those just discussed, I would like
14     to turn this issue on its head.  Rather than ask "why
15     not regulate?", IAB Canada suggests that the proper
16     question is "why regulate?"
17  10242                Regulation should, of course, be
18     designed to address some perceived problem or abuse. 
19     To the knowledge of IAB Canada, nothing has been
20     introduced in these proceedings to suggest there are
21     any issues that cannot be addressed within the present
22     framework.  Existing legislation, such as the
23     Competition Act and the Trade-Marks Act, offer
24     comprehensive regimes that are directly applicable to
25     the Internet.


 1  10243                In addition, the advertising industry
 2     has been very effective in self-regulation and will
 3     continue to be so.  Codes of conduct, complaint systems
 4     and accepted dispute resolution mechanisms have been
 5     developed by the advertising industry and function very
 6     effectively.
 7  10244                As one example of the industry itself
 8     addressing important issues, IAB Canada is working with
 9     the industry to develop standardized measurement
10     criteria to ensure that ad performance can be
11     adequately analyzed and compared.  This will make it
12     far easier to advertisers to justify Internet
13     advertising expenditures and, thereby, attract the
14     revenues that the new media needs to grow.
15  10245                The last matter I would like to
16     discuss is the type of support needed to help the new
17     media industry and the on-line advertising industry to
18     grow.  I will not be proposing any specific mechanisms,
19     but, instead, will identify the kinds of support that
20     IAB Canada sees as necessary.
21  10246                At a very general level, IAB Canada
22     supports any initiative that encourages the production
23     of Canadian Web content.  Given what I have said
24     previously regarding the negative incentives flowing
25     from regulation, a clear policy statement from the


 1     government that it is committed to an unregulated
 2     environment would encourage investment in Canada. 
 3     Other types of support may be more proactive, including
 4     tax credits or accelerated depreciation periods,
 5     grants, loans or lines of credit.
 6  10247                Advertising on the Web, which, as I
 7     suggested earlier, is necessary to achieve universal
 8     access, would be encouraged by ensuring a level playing
 9     field with other media.  Some program to provide
10     on-line advertisers with the same encouragement as
11     offered in section 19 of the Income Tax Act would be
12     extremely beneficial.  Ensuring that appropriate
13     research is conducted will also be invaluable to
14     produces, publishers and advertisers.  Accordingly, IAB
15     Canada would greatly appreciate the assistance of
16     StatsCan or Strategis in performing such research.
17  10248                Finally, assistance is required in
18     the training and retention of competent personnel to
19     stem the costs of talent migrating to the U.S.  This
20     assistance should not be restricted to content creators
21     but also marketing professionals, since the success of
22     the industry is largely dependent upon its ability to
23     market itself to Canadians and indeed to the world. 
24     Programs that could encourage this might include labour
25     tax credits, tax incentives for training programs and


 1     funding or support for intern or mentor programs.
 2  10249                These kinds of support for new media
 3     are important.  As an industry in its infancy, it
 4     requires all the support possible to acquire the
 5     strength it will need to compete.  For that growth and
 6     strength to be acquired, and for new media to be
 7     universally accessible, new media must receive the
 8     support of a strong and healthy advertising community. 
 9     If the Commission has any questions about how IAB
10     Canada feels that can be accomplished in addition to
11     the comments I have made, I will be happy to answer
12     them.  We thank you for your consideration of our
13     comments here today.
14  10250                THE CHAIRPERSON:  Thank you very much
15     for your presentation.
16  10251                I will turn the questioning to
17     Commissioner Wilson.
18  10252                COMMISSIONER WILSON:  Good morning,
19     gentlemen.  Thank you for being with us this morning.
20  10253                As you probably are aware, there has
21     been a lot of discussion about the role of advertising
22     on the Internet in this new environment, not only from
23     the point of view of finding viable business models for
24     new media, but more importantly for us I think in terms
25     of the examination that we are doing here as an


 1     indicator of just how significant this medium will be
 2     for the country on a going forward basis.
 3  10254                What I would like to do is start by
 4     reviewing some of the information that you provided in
 5     your written submission, following by a couple of
 6     questions about the data that you presented which was
 7     prepared by Ernst and Young.  Then, I would like to
 8     pose some questions, some more general questions to you
 9     about advertising that have arisen out of submissions
10     made by other parties and just try and get your views
11     and solicit your expertise in that area.
12  10255                The first thing I want to do though
13     is ask you about your organization because I know that
14     you have said that it's a young organization.  When was
15     it founded?
16  10256                MR. BOYD:  In its current form,
17     December of last year.
18  10257                COMMISSIONER WILSON:  So almost a
19     year old?
20  10258                MR. BOYD:  That's correct.
21  10259                COMMISSIONER WILSON:  How many
22     members do you have?
23  10260                MR. BOYD:  We have 32 members now,
24     which while in absolute terms may seem small is highly
25     representative of the industry, in that we are a


 1     tripartite organization representing publishers,
 2     advertising agencies and advertisers.  We include on
 3     that list organizations such as CANOE, Simpatico, the
 4     Globe and Mail, Southam and agencies such as Young &
 5     Rubicam, McLaren and McCann, advertisers such as Molson
 6     and so on.  So, we are fairly representative of the
 7     industry and growing rapidly every day.
 8  10261                COMMISSIONER WILSON:  How did you --
 9     when you were in the process of setting up your
10     organization, how did you go about identifying who your
11     members should be?
12  10262                MR. BOYD:  It was really quite a
13     co-operative effort.  The genesis of the group really
14     arose from publishers and agencies sitting down and
15     discussing what they had in common and how we might
16     actually get knowledge out to the world in general here
17     in Canada about this marvellous thing called the
18     Internet and about how it can build brands and build
19     relationships with consumers.  It evolved from that
20     point on.
21  10263                COMMISSIONER WILSON:  Just out of
22     curiosity, since we have been having an ongoing
23     discussion about the vocabulary surrounding the
24     Internet, where did the term "Internet publishers" come
25     from?


 1  10264                MR. BOYD:  That's an interesting
 2     question.  I suppose you could say that that arose out
 3     of the fact that when one is coding HTML you are
 4     actually typing at a computer, so the natural analogy
 5     might be publishing, but I suspect that over time that
 6     term may evolve.
 7  10265                COMMISSIONER WILSON:  Yes.  I was
 8     curious because lots of other parties have talked about
 9     the new media in terms of audience.  They have applied
10     some sort of broadcasting terminology and this was the
11     first time I had seen this spin on it.
12  10266                MR. DUFFY:  If I can go a little
13     further, when we first started up most of the players
14     from the content side, if you like, were really the
15     print publishers out there and so, for instance, Sun
16     Media from the CANOE side, Canada.Com, Southam, the
17     Globe and Mail.
18  10267                In Canada, up until just recently, I
19     think you saw the announcement by CBC that they were
20     going to spend I believe 2 per cent of their operating
21     budget on new media, most of the broadcasters haven't
22     been heavily into this medium at that time, so a year
23     ago we were heavily into print and that's really just
24     the essence of it.  It will change over time.
25  10268                COMMISSIONER WILSON:  On page 2 of


 1     your submission you talk about the different types of
 2     advertising popular on the Internet and apart from the
 3     banner ad which you say is responsible for 59 per cent
 4     of the total industry revenues.
 5  10269                You talk about experiments with
 6     buttons, interstitials and advertorials.  I come from a
 7     TV background and I know what interstitials are in the
 8     TV medium, but what are they in the Internet
 9     environment?
10  10270                MR. ANDERSON:  Typically, banners, as
11     you know, are typically different in size. 
12     Interstitials tend to be full pages that appear all of
13     a sudden before content is actually loaded.  They tend
14     to be full pages, but they don't have to be.  So, it's
15     more than just a banner.  It's a full page that appears
16     before content is actually loaded onto the browser.
17  10271                Then there are sponsorships which is
18     again like traditionally, they are sponsoring content
19     that is already there or you are sponsoring new content
20     that is made for the advertisers.
21  10272                Advertorials, I don't think I have to
22     mention, are basically the same as what you would get
23     in traditional media.
24  10273                COMMISSIONER WILSON:  Okay.  Thanks
25     for that.


 1  10274                Also on page 2 of your submission you
 2     state that IAB Canada endorses the position that the
 3     Internet should be left to develop free of restrictions
 4     that may be imposed by domestic regulation.  You go on
 5     to say that many of your members have developed five
 6     year strategic plans respecting the Internet and that
 7     those plans have been predicated on an unregulated
 8     environment.
 9  10275                We have heard from many intervenors
10     about how rapidly the Internet is evolving under the
11     new media environment.  The ISP group, for example,
12     said that they revisit their business plan every six
13     months, and another intervenor suggested that the
14     growth rate in the Internet is similar to dog years,
15     one year equals seven years.  So I am curious about how
16     it is possible for your members to plan in five-year
17     increments with a medium that is growing so fast.
18  10276                MR. BOYD:  I think I would like to
19     ask the two gentlemen with me to field that question,
20     since it is probably more relevant to them.
21  10277                COMMISSIONER WILSON:  It just seemed
22     a little out of sync with everything else in terms of
23     the rapidity of the growth taking place.
24  10278                MR. DUFFY:  I suppose I can answer it
25     from the point of view of the company I work for.  This


 1     is a business for us.  We entered it as a business, not
 2     as a hobby or anything.
 3  10279                Our company, like a number of
 4     companies out there, has long-range projections, but we
 5     also have short-range projections.  When we first
 6     started with CANOE some two and a half years ago, we
 7     had some broad-range plans and some objectives and
 8     long-term goals.  We still have those long-term goals. 
 9     However, along the way we have certainly changed some
10     of the ways to get to those long-term goals.  We still
11     believe in advertising as the key medium or the key
12     revenue driver out there.  The way we get to it has
13     certainly changed and evolved over the past couple of
14     years.
15  10280                MR. ANDERSON:  If I could add to
16     that, this medium has been partially unfairly
17     criticized as being a medium where there is no business
18     cases to it and that is not entirely true.  There are
19     business cases and we have to look at where in this
20     medium we can start seeing some break-even points.
21  10281                So, for our site, for instance, the
22     Simpatico site, we looked at it and we do do five-year
23     forecasts.  What do we think the industry is going to
24     be in five years?  What is our percentage we think we
25     can take from that?  What is the work that we have to


 1     do and the personnel that we need to accomplish that. 
 2     Then, at what given point do we think we will be able
 3     to break even on our investment.
 4  10282                So, I think that we do -- I think
 5     what you are hearing is that absolutely the evolution
 6     is very quick and we do tend to change tactics on how
 7     we are going to reach these objectives very quickly and
 8     that happens in three and six-month increments very
 9     much so.  We do do business cases that are very quickly
10     six month business cases and then we revisit them after
11     six months, but the end goal as to what we want to
12     achieve and when we want to finally come to that
13     break-even point is something that we still maintain.
14  10283                So, I think when you are seeing these
15     five-year numbers, they are very - for all of us it's
16     something where we want to measure ourselves because
17     this is not an industry where you just keep throwing
18     money at it.  There is a time where each of us are in
19     our own P&L and there is a time when we are going to
20     have to start to make a profit.
21  10284                COMMISSIONER WILSON:  Okay.
22  10285                On page 3 at paragraph 9 of your
23     submission you state that:
24                            " the face of a 'hands off'
25                            approach in other jurisdictions,


 1                            the imposition of regulations in
 2                            Canada could have a detrimental
 3                            effect on the Canadian
 4                            industry."
 5  10286                We have heard a lot, as I am sure you
 6     are aware, about the potential effect of regulation on
 7     the growth of this new economy and you mentioned it
 8     this morning in your opening remarks about what kinds
 9     of things could happen if regulation were introduced. 
10     But I am curious about what other jurisdictions you are
11     referring to.
12  10287                MR. BOYD:  I would think in
13     particular we are referring to in some cases print.  I
14     am just trying to find the paragraph here.
15  10288                COMMISSIONER WILSON:  Sorry,
16     paragraph 9:
17                            " the face of a 'hands off'
18                            approach in other
19                            jurisdictions,...."
20  10289                I assumed that what you meant by that
21     was that other jurisdictions around the world had taken
22     a hands off approach to the whole notion of regulation
23     of the Internet.  I am just wondering if you could tell
24     me what other jurisdictions you were talking about?
25  10290                MR. BOYD:  Specifically, the U.S., as


 1     I think we referenced in our speech as well.  They
 2     generally have taken a fairly hands off approach in the
 3     development of new media and the Internet in general in
 4     terms of regulation.
 5  10291                So the jurisdiction we would be
 6     referring to in that case would be the United States
 7     primarily.
 8  10292                COMMISSIONER WILSON:  Okay.
 9  10293                Also on page 3 of your submission,
10     you indicate that 68 per cent of the respondents to
11     your survey believed that some Canadian advertising
12     revenues flow to the U.S. in the present environment. 
13     As part of the survey that you did with Ernst & Young
14     did you gather any empirical evidence of this, or I
15     mean did any of your member agencies or advertisers
16     tell you that they are placing advertising on U.S. Web
17     sites or is this just sort of an instinct that you
18     have?  They said that they believed that there is
19     advertising going there.
20  10294                MR. BOYD:  I appreciate your point.
21  10295                I think when we were having a
22     conversation yesterday Gary raised the point that he
23     was at Yahoo two days ago and there was a banner ad up
24     for a large financial institution of Canadian origin. 
25     So, if one examines popular properties in the United


 1     States, one does come across --
 2  10296                COMMISSIONER WILSON:  And that wasn't
 4  10297                MR. BOYD:  No, it was not 
 5     It was
 6  10298                We do not have empirical evidence
 7     that would measure that quantity.  That is something we
 8     are looking at for a 1999 initiative, but it is not
 9     something we have in hand right now.  But again, if one
10     looks at properties in the U.S. it's --
11  10299                COMMISSIONER WILSON:  I was actually
12     just going to ask you if that was the kind of
13     information you might gather in future surveys from
14     your own members to find out.
15  10300                MR. ANDERSON:  It is actually -- in
16     future surveys we want to go more in depth and that's
17     one thing we would like to talk to you about, you know,
18     helping get more involved in some of these things.
19  10301                In terms of remembering who the
20     people are that are answering and that took part in the
21     survey, in the Ernst & Young survey, is people that
22     really live this industry.  It is the Web publishers
23     that are making -- they are betting that they are going
24     to make a business on this industry.  So, we tend to
25     live not only in the industry, but look very much as to


 1     what is going on with advertisers, where are they
 2     placing their messages.  Now, are they placing them on
 3     American sites, so though we don't have absolute data,
 4     in accordance with the Ernst & Young survey that was
 5     just the 70 per cent of the people that answered the
 6     survey said, "yes, we know that there is money going
 7     down south."
 8  10302                COMMISSIONER WILSON:  I think that
 9     would be really useful for us, I think for anybody who
10     is interested in new media, if you were to gather that
11     kind of information.
12  10303                MR. ANDERSON:  You know, Martha, you
13     are bringing up a great point and this all comes down
14     to research.  I think we had this question in earlier
15     comments about research and said it's quite amusing
16     when you look at research on the Internet because the
17     numbers that seem to be flying around seem to be from
18     one side of the fence to the other and you just don't
19     know who to believe any more at certain times.
20  10304                We as publishers, we are very
21     competitive on one side, but on the other side for us
22     to grow our business we had to get together with the
23     agency people, with the advertisers and say what is the
24     market in Canada?  What is the real market and what is
25     the real potential?


 1  10305                We really would look towards having
 2     the government -- having the CRTC provide assistance,
 3     provide incentives to do more research and more
 4     Canadian research.  That is, it is absolutely necessary
 5     that we have more and more Canadian research.
 6  10306                Right now this research is being
 7     funded by volunteer organizations, where we are getting
 8     together and we are privately funding this type of
 9     research.  It is vital that any help that we can get to
10     expand this research and to be able to have our own
11     research and not have to rely upon American research,
12     because that's what we have today, and we are taking
13     American research and we are trying to figure out what
14     the Canadian number is.  Is it 1 per cent?  Is it 10
15     per cent?  Is it 5 per cent?  In this medium there is
16     no way you can do that.  There is no right or wrong
17     percentage to take.
18  10307                So, that's why you are seeing so many
19     different numbers coming out, where, you know, is
20     e-comm $700 million in 1997 or it didn't make the
21     charts on another survey.  You have to balance it
22     somewhere in the middle.  We would, as an industry,
23     look for support in helping this grassroots environment
24     really take off by really working on the research more
25     in Canada.


 1  10308                COMMISSIONER WILSON:  You said this
 2     morning and you said also in your submission that you
 3     would really like to be able to get StatsCanada and
 4     Strategis involved in doing this kind of research. 
 5     Have you yourselves made an approaches to either of
 6     those organizations and talked about what the needs,
 7     what the developing needs are of this medium?
 8  10309                MR. BOYD:  As yet we have not made
 9     any direct contact, but that is something we have
10     discussed as an executive committee and the research
11     committee of which Gary is the co-Chair, along with
12     Rocco Rossi of Torstar will be actively investigating
13     in the year ahead.
14  10310                There is one particular research
15     project on the books for 1999 that I think is critical
16     to the success of the industry in general and that is
17     the efficacy of on-line advertising in general.  So, in
18     other words, what is the effectiveness of on-line
19     advertising?  How effective is a banner in terms of
20     building brands and awareness?  That is something we
21     would very much look to StatsCan and Strategis to help
22     with.
23  10311                The only data, as Gary pointed out,
24     we have right now is of U.S. origin and it's important
25     to have a Canadian context there.


 1  10312                COMMISSIONER WILSON:  Certainly, we
 2     are in a position to make suggestions to government
 3     about the kinds of initiatives that we think would be
 4     important, but I think that it helps for them to hear
 5     directly from the stakeholders as well.  So, I was just
 6     curious about whether or not you had had any
 7     conversations with them.
 8  10313                A number of parties to this
 9     proceeding, including yourselves, have supported
10     amendments to the Income Tax Act under section 19 to
11     provide incentives for Canadian advertisers, but others
12     have actually suggested, I think it was ITAC and AT&T
13     Canada Enterprises, that this type of initiative could
14     be at odds with commitments made in the context of the
15     GATTs.  I am just wondering if you had explored that
16     notion as a group at all, or if it was just sort of
17     a -- you know, maybe we could do this.
18  10314                MR. BOYD:  I don't think any of our
19     members would profess to be Income Tax Act experts.
20  10315                COMMISSIONER WILSON:  Or
21     international trade experts.
22  10316                MR. BOYD:  Of international trade
23     experts.  We have enough on our plates just trying to
24     build a business currently here in Canada, but I will
25     say that to the extent that incentives can be offered


 1     for Canadian advertisers to advertise here in Canada
 2     with content that is of world stature, if I can put it
 3     that way, we are fully behind that and to the extent
 4     that section 19 does that we fully endorse it.
 5  10317                I think there are a number of complex
 6     issues that would have to be examined prior to
 7     introducing these kinds of incentives and we would love
 8     to work with you in that regard.
 9  10318                COMMISSIONER WILSON:  Okay.  I take
10     your point on that.
11  10319                In your section in your written
12     submission on the regulation of on-line advertising on
13     page 3, you state:
14                            "IABC is of the view that the
15                            Internet should be as
16                            universally accessible as
17                            possible."
18  10320                Then, on page 4 you state:
19                            "...IABC supports the
20                            introduction of mechanisms that
21                            encourage the production of
22                            Canadian Web content, that will
23                            create additional opportunities
24                            for the on-line advertising
25                            industry.  As noted earlier,


 1                            this will in turn promote
 2                            universal access."
 3  10321                Now, there have been a couple of
 4     different kinds of access discussed during these
 5     hearings, both access by individuals to the Internet
 6     and by new media creators to portals or whatever term
 7     you want to apply, content aggregators.  I am just
 8     wondering if you could, as the first part of my
 9     question on this, explain to me what you mean by
10     access?
11  10322                MR. BOYD:  We, as an organization,
12     the IABC is not directly concerned with access.  Our
13     various members have positions that in some cases
14     differ quite dramatically, many of whom have presented
15     at separate times in front of this Commission, so we
16     tend to leave the question of access to our individual
17     members.  I think our mandate here today is really to
18     talk about building a vibrant on-line advertising
19     industry and we would restrict I think our mandate and
20     our remarks to that field.
21  10323                COMMISSIONER WILSON:  Except that you
22     do make the point in your submission, and I guess the
23     point that is made in your submission is that there is
24     some kind of a link between a robust Internet
25     advertising market and universal access and what I am


 1     trying to do is understand what that link is, what you
 2     think that link is.
 3  10324                MR. BOYD:  We are actively
 4     encouraging in the context of those remarks Canadians
 5     coming on to sites such as Simpatico or CANOE or
 6     Torstar and building traffic levels that would actively
 7     encourage the increase of on-line advertising revenue. 
 8     I think access in this case is probably aimed more at
 9     driving traffic and raising traffic levels on those
10     sites, not specifically in terms of perhaps the context
11     you mean it.
12  10325                COMMISSIONER WILSON:  Okay.  I was
13     trying to think if there was some kind of an
14     opportunity there because we have been talking about
15     connecting individual Canadians to the Internet and
16     Industry Canada has a number of programs that they are
17     running in terms of support and access.  So, I was
18     curious about that point.
19                                                        1120
20  10326                You have provided some interesting
21     information and we have seen it before as well from
22     some other parties comparing the advertising revenues
23     from the Internet in Canada versus those revenues
24     generated in the U.S.
25  10327                Of course, the revenues in Canada are


 1     much lower.  I think they are about 1 per cent of the
 2     revenues in the U.S.
 3  10328                I am just wondering if you have done
 4     or if you have seen any comparisons vis-à-vis the level
 5     of Canadian and U.S. revenues proportionate to
 6     population or proportionate to the revenues in
 7     traditional media.  How do they line up?
 8  10329                You can put a graph together as you
 9     did that shows, you know, the bar chart with the bar
10     way up there for the U.S. and the bar almost
11     non-existent for Canada and say "This is not a good
12     story".  You have to look at it and place that in
13     context.  I'm just wondering if you have done that.
14  10330                MR. DUFFY:  In traditional media, it
15     is running around 5 to 6 per cent traditionally, the
16     total Canadian advertising market to the total U.S.
17     market.  We are right now on the online side of only
18     around 1 per cent, as you stated, so we are behind the
19     U.S.  It is very clear.
20  10331                It is really a big part of the
21     overall investment down in the U.S.  I mean the
22     Internet and a lot of very bright, talented people in
23     the U.S. that started really the Internet and drove it
24     very heavily.  There are a lot of investment dollars
25     that are going into the U.S. venture capital funding


 1     and that.  They are well ahead in this whole market.
 2  10332                As a result, they are driving more
 3     advertising dollars.  We feel by creating a vibrant
 4     Canadian industry, really building a commercial market
 5     for advertisers here if they can sustain that, if they
 6     can drive a real business, it will feed on itself
 7     further and we can close that gap, as it were, and
 8     increase it to 2, 3 per cent basically there.
 9  10333                COMMISSIONER WILSON:  In what time
10     frame?
11  10334                MR. DUFFY:  Time frame.  It's going
12     to take a period of time.  I don't know if we will ever
13     close the gap, quite frankly.  The U.S. market, the
14     amount of funding that they have there and the amount
15     of mass that they have in this market -- it is a global
16     market that we play in here.  We may never close that
17     particular gap.
18  10335                Certainly I think right now as it
19     stands when you look at our market at 20 million that
20     we are projecting this year versus their market which
21     is over a billion, we have got a long ways to go.  We
22     have only just really scratched the surface there.
23  10336                MR. ANDERSON:  I think when you look
24     at a traditional, we have to put things in relative
25     context as to numbers.


 1  10337                The advertising market in the States,
 2     depending again on who you believe, you are looking at
 3     about $190 billion U.S. marketplace and in Canada the
 4     advertising market is somewhere about $9 million. 
 5     That's bringing back Graham's point of being somewhere
 6     around that 5 per cent ratio in traditional media.
 7  10338                It's very easy to say "Ya, but you
 8     are not doing so good in online.  It's only 1 per
 9     cent".  In absolute terms, the thing when you really
10     get down to it, it's only a $20 million market in
11     Canada.  It's very small.  We are only forecasting to
12     go to 37.7.
13  10339                We would love to see that percentage
14     increase obviously.  We would love to see more
15     advertising dollars spent in Canada by advertisers.  We
16     wouldn't even have -- I just want to point out that
17     without bodies like this, these tri-party organizations
18     like the AIB, we would not even have those numbers.
19  10340                We probably would be sitting here
20     today and saying we are 5 per cent, that the Canadian
21     market is 5 per cent of the America online market and
22     that would be wrong.  This brings me back to my
23     research question.
24  10341                The more research that we can do in
25     this marketplace, the more that we can understand where


 1     we as an organization, tri-party organization, with
 2     government involvement, as Canadians how can we grow
 3     this marketplace?  What programs, what incentives can
 4     we put into grow the marketplace.
 5  10342                That I think again is what we have to
 6     focus on.  What is the Canadian market?
 7  10343                COMMISSIONER WILSON:  That actually
 8     brings me to my next question and that's about your
 9     forecast advertising revenues.
10  10344                You have quoted in your oral remarks
11     this morning and it appears in your Phase II submission
12     the update that Ernst & Young did for you.
13  10345                What I was curious about was that in
14     your Phase I submission you forecast for 1998 $22.9
15     million and for 1999 you forecast $56.9 million.  Then
16     in your Phase II submission, after Ernst & Young did
17     their update on the previous survey, you have revised
18     these forecasts downward.
19  10346                The first number really isn't that
20     significant.  You go from 22.9 to 20.7.  But, the
21     second one is quite significant.  You go from 56.9 to
22     37.7 million.  What happened?  What accounts for that
23     drop?
24  10347                MR. BOYD:  I would like to ask the
25     co-chair of the research committee to field that one.


 1  10348                MR. ANDERSON:  It is quite a job.  It
 2     was actually quite surprising to all of us.  But it was
 3     surprising in one way and not surprising in another.
 4  10349                Again looking back at our five year
 5     plans, we were doing five year plans and we had
 6     anticipated this marketing moving at a certain pace per
 7     year, doubling, tripling, those types of things.  These
 8     are Web publishers that have gotten together and this
 9     is how they have seen the marketplace and how they see
10     it evolving.
11  10350                The dollars just have not appeared as
12     fast as we thought.  We were hoping that we would have
13     more money and the more money would be spent on
14     Canadian sites.  The dollars and what are not as big as
15     we thought.  We are still very much in an experimental,
16     an exploratory stage.
17  10351                Advertisers that are advertising
18     today are not coming out with big, large, six figure
19     plus campaigns.  They are experimenting.  They are
20     experimenting on different ways of advertising.  They
21     are experimenting on spreading their dollars around. 
22     They are experimenting on Canadian and American sites.
23  10352                We are very much in a very embryonic
24     stage of this whole industry.  What you are seeing is
25     you are seeing a readjustment of numbers from Web


 1     publishers.  Though we still have that long term
 2     forecast, what you have just seen is the first step
 3     where we said let's get more realistic about how fast
 4     this is really growing.
 5  10353                COMMISSIONER WILSON:  While we are on
 6     the subject of numbers, I am just wondering if you
 7     could tell me.  I think you said in your submission
 8     that advertising accounts for the lion's share of the
 9     revenue that Web publishers bring in.
10  10354                What are the other sources of
11     revenue?  Are any of them involved in e-commerce in a
12     meaningful way?
13  10355                MR. BOYD:  In the short term,
14     advertising and sponsorship have been driving the vast
15     majority of publishers' revenues, but I think it's fair
16     to say, and Graham and Gary can certainly comment as
17     well, that e-commerce will become an increasingly
18     component of publishers' revenues.  That is something
19     that is unfolding before our very eyes.
20  10356                In fact, Gary, you may want to share
21     some thoughts on that as well.
22  10357                MR. ANDERSON:  E-commerce has not
23     taken off as fast as we even thought it would, but the
24     multiple revenue streams, like any business, we must
25     have multiple revenue streams.


 1  10358                Advertising seems to be the first
 2     revenue stream because it makes the initial sense.  You
 3     have a lot of people.  You have good content and an
 4     advertiser wants to put his message beside that.
 5  10359                We want to get into more e-commerce
 6     and e-commerce has to really start flourishing in
 7     Canada.  It has not yet.  We need to get more and more
 8     in depth in more sites out there, such as the Globe
 9     Chapter sites, such as the Indigo site, these types of
10     e-commerce sites on line that are Canadian sites where
11     there is Canadian delivery of products and where people
12     aren't ordering there books off of Amazon and our
13     Canadian dollars are not flowing to U.S. sites.
14  10360                I think we need to see a lot more of
15     that.
16  10361                COMMISSIONER WILSON:  Were you here
17     when the previous intervenor was here?
18  10362                MR. ANDERSON:  Yes, I was and he
19     mentioned about amazon.
20  10363                COMMISSIONER WILSON:  He also talked
21     about the numbers for e-com in Canada.
22  10364                MR. ANDERSON:  Right.
23  10365                COMMISSIONER WILSON:  He said that
24     they were very good in fact.
25  10366                MR. ANDERSON:  I find it very


 1     interesting, the numbers, because if you took his
 2     percentage, it worked out to something like -- my quick
 3     calculation was somewhere around $700 million.  I think
 4     what he meant with the IDC, and we would love to go
 5     through the report, was that $700 million was spent by
 6     Canadians on sites in the world.  That's what was
 7     happening.
 8  10367                It's not $700 million being spent on
 9     Canadian sites.  I think the $700 million is an
10     interesting figure, but I don't think that he meant
11     that $700 million was spent on Canadian sites, because
12     if it is, then Graham and I are going to go back and
13     really take a look at what is happening with our
14     companies.
15  10368                MR. BOYD:  I would also like to
16     comment that we have to draw a line between the
17     consumer based e-commerce and business to business
18     based e-commerce.  I think that the vast majority of
19     e-commerce to this point, if you will, it has been
20     driven successfully.  If you look at the case of Dell
21     or other such organizations, it has been very much
22     business to business based.
23  10369                Dell is now on the consumer side,
24     claiming $600 million U.S. a day in online sales which
25     is a pretty significant number.  I think that will be


 1     going forward.  I have some data as well from A.C.
 2     Nielsen that we just got in last week that indicated 17
 3     per cent of Canadians claim to have made some kind of
 4     online purchase.  This is fresh data from their most
 5     recent survey.
 6  10370                That's a 60 per cent year over year
 7     increase, 1998 from 1997.  Again, how do we define
 8     e-commerce?  This is not necessarily using a credit
 9     card over the Web.  This is perhaps ordering over the
10     Web and then paying by cheque and then calling in a
11     credit card number or perhaps even ordering by fax.
12  10371                I think there's a lot of hyperbole
13     and we have to be very careful about how we throw the
14     term e-commerce around.
15  10372                MR. ANDERSON:  Just to finish up on
16     my point about multiple revenue streams, let us not
17     forget that e-commerce and advertising are just two
18     revenue streams.  There are multiple revenue streams
19     that can be taken into effect in this.
20  10373                They just haven't appeared yet.  They
21     haven't been successful yet.  Premium content, charging
22     for content, for access to content, besides -- you
23     heard of the porno sites that are in the marketplace
24     and the gaming sites that are out there.
25  10374                You have the Wall Street Journal, the


 1     New York Times.  These sites have been very good at
 2     charging for content.  I think you are going to start
 3     seeing that more and more.  I mean we are building.  A
 4     lot of stuff is free but free will only last for so
 5     long.  As there becomes more interesting content, you
 6     are going to start seeing premium content or content
 7     being paid for.
 8  10375                I think we will also start seeing
 9     other types of revenue streams coming in.  Some of them
10     we don't even know about today.  Just by limiting
11     ourselves and saying it's just advertising, it's just
12     transactions, I think we need to keep an open ears and
13     eyes as to what is happening on this medium because the
14     consumers right now are getting a pretty good ride.
15  10376                They are getting a lot of this
16     content for free.  They are getting a lot of access
17     that's free and it's very good, but you are going to
18     have to see multiple and more revenue streams coming in
19     because no company can sustain on just one revenue
20     stream only.
21  10377                COMMISSIONER WILSON:  That is
22     certainly I think the great appeal of the Internet,
23     that there is so much available for nothing.  I am just
24     curious if people start developing business models that
25     are charging for premium information, will people just


 1     go some place else where they don't have to pay?
 2  10378                MR. ANDERSON:  That information needs
 3     to be unique.  If the information is unique and people
 4     want to -- the beauty of this medium is that it is not
 5     a broadcast medium.  It is not a push medium.  The
 6     beauty of the medium is that it is a pull medium.  It
 7     is us, the consumers, the people that are at the
 8     household, we go out and we pull down the information
 9     that we want.  That's the beauty of it.
10  10379                If there's something there that I
11     really, really want, I may pay for it.  I may choose to
12     pay for it.  It's my choice as to whether I want it or
13     not.  That's what makes this medium so unique.
14  10380                MR. DUFFY:  The essence of IAB Canada
15     or most of the members focused in and came together
16     really from an advertising perspective in all of this. 
17     There are a number of members that are looking at
18     alternate revenue streams, but for the most part, a lot
19     of our focus and time and attention over the last year,
20     it has been a very short time and we have a lot to do,
21     but we very much focused in on the whole area of
22     advertising and driving advertising.
23  10381                We feel that is the key market for us
24     because that is a lot of our roots and where we come
25     from. There are other members and non-members out there


 1     and there are other groups out there like the big .coms
 2     that are doing very well trying to build a commerce
 3     that we haven't focused heavily in on that one.
 4  10382                COMMISSIONER WILSON:  One other quick
 5     question on your survey results.  You state that of all
 6     of the advertisers on the Internet, financial services
 7     by far outweigh all of the other advertisers.
 8  10383                I'm just wondering if you have any
 9     theories about why this is the case.  Is there some
10     kind of natural fit?  I think the previous presenter
11     said they have very deep pockets.  Maybe they just have
12     more money than everybody else.
13  10384                MR. BOYD:  I think that's probably a
14     little simplistic to say it's just that they have deep
15     pockets.
16  10385                COMMISSIONER WILSON:  I was just
17     joking.
18  10386                MR. BOYD:  I understand.  From an
19     advertiser's point of view, the Internet offers a
20     really unique double-edged whammy, if I can put it that
21     way.
22  10387                Firstly, it is a great place to build
23     brands, but it's also a great place to acquire
24     customers and to build customer loyalty.  The financial
25     services industry right now is in a variety of ways


 1     experimenting with changing the relationships that they
 2     have with consumers and the Internet is a very good way
 3     for them to reach consumers through another channel.
 4  10388                I think what we are seeing is a fit
 5     that is really quite unique.
 6  10389                MR. ANDERSON:  Not to pick on the
 7     financial industry, the top three sectors were finance,
 8     automotive, technology.  Those three sectors and those
 9     three industries are going through the biggest change
10     in their traditional business because of the Internet.
11  10390                Because of the Internet, being able
12     to banking online, trade stocks online, research cars
13     online --
14  10391                COMMISSIONER WILSON:  Online banking
15     actually saves them a lot of money.
16  10392                MR. ANDERSON:  Absolutely.  What I am
17     saying is their industries are going through such a
18     complete turnaround because of the Internet they are
19     the first ones that have to be on the Internet, that
20     have to be exposing themselves to the people and to
21     changing their business models.
22  10393                Technology, we have companies like
23     Aighead, which was a retail software distribution house
24     in the States with over 80 locations, that closed down
25     all their locations and now has opened up on the


 1     Internet.  Software distributed by retail just doesn't
 2     make sense when you can do it via this new medium.
 3  10394                The reason that these three
 4     industries have come out first and foremost as the
 5     biggest spenders is because they are going through the
 6     most radical change.  Their distribution models are
 7     changing.
 8  10395                COMMISSIONER WILSON:  Finally, in
 9     your Phase II submission you filed only the Executive
10     Summary of your update.  Do you have the entire survey? 
11     Would you be willing to share it with us?
12  10396                MR. BOYD:  Absolutely.  We would be
13     happy to provide it to you.
14  10397                COMMISSIONER WILSON:  Okay.  That
15     would be great because I would be interested to see
16     some of the detail on that.
17  10398                Now I want to go to the more general
18     questions about advertising stemming mostly from the
19     Telus submission which was last week.
20  10399                One of the recommendations that Telus
21     made in its submission was that the traditional
22     broadcasting regulatory regime should effectively be
23     dismantled because as advertising migrates to new
24     media, traditional broadcasters will lose sufficient
25     revenue that they won't be able to fulfil their


 1     regulatory obligations.
 2  10400                The point that Telus stressed to us
 3     was that the Internet gives advertisers opportunities
 4     that they don't have in other media.  For example, the
 5     opportunity to combine not only the advertising part
 6     but the commerce equation, the actual buy or point of
 7     purchase part of the commerce equation.
 8  10401                How strong a driver do you think this
 9     factor will be, that sort of unique feature of
10     advertising on the Internet?  How strong a driver do
11     you think that will be in moving advertiser dollars to
12     the Internet?
13  10402                MR. BOYD:  Let me point out that the
14     direct television advertising business is a pretty
15     lively and growing business as well, the 1-800 call to
16     action that one sees on a television commercial, so the
17     Internet is by no means the only medium where that can
18     take place.
19  10403                I think the fact that the dual nature
20     that I referred to in my last answer of the Internet,
21     that one can achieve branding and this call to action
22     or customer acquisition, and then build relationships
23     that are maintained on an ongoing basis is a very key
24     differentiator for the Internet.
25  10404                I think it's probably premature to


 1     suggest that it will be the death of any particular
 2     other medium, if I can put it that way.  In fact, it
 3     may turn out to be some kind of hybrid.  I think it's
 4     such a nascent industry with all due respect that it's
 5     very difficult at this point in time to gaze into a
 6     crystal ball with any kind of clarity whatsoever.
 7  10405                MR. DUFFY:  Can I just add I just
 8     supported the broadcast industry and the traditional
 9     print industry just recently because most of my
10     advertising goes into the traditional media as opposed
11     to the online medium right now.  It is such early days
12     right now.
13  10406                COMMISSIONER WILSON:  Just a couple
14     of other factors that I wanted to ask you about in
15     terms of driving advertising dollars.
16  10407                Another idea about the appeal of
17     Internet advertising is the notion that it provides a
18     unique opportunity to personalize advertising in a way
19     that is impossible in the traditional media.
20  10408                MR. BOYD:  Yes.
21  10409                COMMISSIONER WILSON:  Is that
22     appealing to advertisers and agencies when they are
23     looking at how to place dollars?
24  10410                MR. BOYD:  I think that is certainly
25     a key element.  Yes.  We are all very much in the


 1     learning process of how to take this personalization
 2     capability and continue to build relationships between
 3     manufacturers or products and consumers.
 4  10411                I think the publishers are also
 5     involved in that by allowing customization of personal
 6     home pages with stock feeds and news feeds and all that
 7     kind of thing.  I think that is certainly a key
 8     differentiator of the Web.
 9  10412                Given constraints that exist out
10     there in terms of being able to put large pieces of
11     video or audio down the pipe right now, personalization
12     is one thing that is very easily achieved in the
13     current environment and is, therefore, of great
14     interest, yes.
15  10413                COMMISSIONER WILSON:  In your oral
16     comments this morning on page 3 you said:
17                            "At its most basic, advertising
18                            dollars will be spent where the
19                            message of the advertiser can be
20                            communicated the most
21                            effectively to the greatest
22                            number of people at the most
23                            reasonable cost.  Therefore, as
24                            more people go online and as
25                            technical improvements permit


 1                            more creativity in the crafting
 2                            of messages, more and more
 3                            advertisers are being drawn to
 4                            the Internet.  Not unexpectedly,
 5                            the sites that attract the
 6                            greatest number of visitors are
 7                            also attracting the greatest
 8                            amount of online advertising
 9                            revenue."
10  10414                When Telus appeared, they brought
11     with them a professor from Columbia University, Dr.
12     John Carey, who is an expert in consumer behaviour and
13     market behaviour.  One of the comments that he made was
14     that advertisers follow audiences, that advertisers
15     don't lead.  They wait to see where the traffic is
16     going to be and then they go where the audience is.
17  10415                That is based on behaviour, I guess,
18     that he has looked at over a wide number of industries
19     and changes in media.
20  10416                Telus also expressed the view that
21     the shift of advertising dollars from traditional
22     broadcasting to the Internet won't be a gradual and
23     incremental one, which is what you are suggesting.
24  10417                They actually suggested that this
25     shift of advertising dollars will happen more quickly


 1     and dramatically than we expect or than may have been
 2     seen in other media transitions, that there is in
 3     effect a dam waiting to be broken and that all of a
 4     sudden, bang!, the dollars are gone from traditional
 5     media on to the Internet.
 6  10418                What's your view on that?  You just
 7     said it is a new industry and it's tough.  Everybody is
 8     trying to sort of crystal ball and figure out how it is
 9     going to evolve.  As advertisers and Web publishers,
10     what's your view?
11  10419                MR. BOYD:  I will cover it from the
12     advertiser's perspective and I think these gentlemen
13     will probably provide a valuable insight as well.
14  10420                We currently access several, if I can
15     refer to them inelegantly as buckets of dollars to come
16     up with an advertising budget.  I think broadcast is
17     possibly one bucket, but there are direct marketing
18     dollars that are applicable here that might not
19     otherwise be applicable because of the direct nature of
20     the medium.  There are publication dollars that are
21     applicable here because of the nature of the medium and
22     there are also promotional dollars because the Web is a
23     very good promotional tool.
24  10421                I think it's important to point out
25     that there are a number of other revenue sources


 1     besides broadcast dollars that offer themselves up to a
 2     unique Web campaign.  Secondly, I guess I would say we
 3     are hoping, frankly, that advertisers see value in all
 4     media and incrementally ramp up their spending.
 5  10422                I know the ACA is presenting after
 6     us.
 7  10423                COMMISSIONER WILSON:  Of course you
 8     would like that.  No self-interest there.
 9  10424                MR. BOYD:  Fair enough.
10  10425                COMMISSIONER WILSON:  I'm just
11     joking.
12  10426                MR. BOYD:  That's okay.  I can take a
13     joke.
14  10427                Certainly that would be the ideal
15     situation, that it wouldn't have to be a rob Peter to
16     pay Paul scenario.  It would in fact be an incremental
17     thing.  That is what we are actively trying to work
18     with in terms of advertisers.
19  10428                COMMISSIONER WILSON:  That actually
20     answers my next question.  I would like to hear Mr.
21     Duffy's and Mr. Anderson's views on the notion that the
22     dollars will migrate in a dramatic way.
23  10429                I was going to ask you about
24     alternate revenue streams in terms of putting the
25     dollars into advertising.  It's a non-traditional


 1     medium for advertising.  If you can use it to sell
 2     directly, maybe you would redirect some of your sales
 3     budget into your Web advertising because you no longer
 4     need to actually, you know, put somebody out there on
 5     the street.
 6  10430                MR. BOYD:  Absolutely.  I think
 7     creativity is really the key word here.  You look at a
 8     situation where dollars are always scarce.  It's a very
 9     scarce resource in terms of coming up with budgets for
10     new initiatives.  I think high creativity is required
11     to really come up with a method of doing that and also
12     to partner with publishers.
13  10431                I think publishers are probably more
14     motivated than others, speaking as an advertiser, to
15     sit down and look at the needs of the advertiser in a
16     really kind of special way.  I have got partnerships
17     currently going with these two gentlemen that are
18     really quite unique and offer consumers something that
19     they have never had an opportunity to do before
20  10432                I actively encourage all advertisers
21     and publishers to sort of think of it in those terms
22     because we are at a stage where cooperation and
23     partnership is very crucial for the success of the
24     medium and the industry.
25  10433                COMMISSIONER WILSON:  Mr. Duffy?


 1  10434                MR. DUFFY:  Yes.  I think there's
 2     also going to be other -- to say that revenue is going
 3     to migrate straight to the Internet in large volumes,
 4     there are going to be certain revenue streams that will
 5     migrate.
 6  10435                Certainly in the classified area for
 7     newspapers, we strongly believe, and I think you have
 8     heard earlier submissions from Torstar and others that
 9     will occur --
10  10436                COMMISSIONER WILSON:  Yes.
11  10437                MR. DUFFY:  As to whether it is the
12     death knell, back when TV first started, everybody saw
13     that as the death knell for radio.  Everybody saw that
14     as the ultimate death knell for newspapers and that.
15  10438                There are going to be niches that you
16     are going to find along the way that ultimately
17     advertisers are going to sort this out and say this is
18     the most effective way to reach the audience that I
19     want to reach.
20  10439                There will also, I think, be
21     opportunities out there.  It's not just looking at the
22     negative side.  There will be opportunities from the
23     fact that this medium is much more global than any
24     medium we have sort of gone through.  There are a lot
25     of opportunities out there.


 1  10440                I know, for example, just from our
 2     side on CANOE, we reach an audience that we had never
 3     reached before, right across the world now, because one
 4     of our strengths is hockey.  It's Canadian.
 5  10441                We are now reaching an audience there
 6     that are hockey fans across the world.  There is a real
 7     potential there for us to begin to access that
 8     particular market.  That's just one example out there.
 9  10442                Very early days, but there's both
10     shifts and there are opportunities that I think will
11     come along from this exciting new medium.
12  10443                COMMISSIONER WILSON:  Do you
13     advertise CANOE in traditional media?
14  10444                MR. DUFFY:  Yes, and that's what I
15     pointed out before.  I have advertised CANOE mostly in
16     traditional media, quite frankly, right now than online
17     medium there.  Again, it is very early days.  It is
18     just such a nascent industry there.  Still the place to
19     advertise is broadcast.
20  10445                COMMISSIONER WILSON:  Because of the
21     mass audience.
22  10446                MR. DUFFY:  The mass reach, yes.  If
23     you look at some of the big acquisitions that happened
24     down in the States that have really moved some major
25     players there.  CBS Sportsline.  We are a competitor of


 1     Sportsline effectively.  It's a very good sports site
 2     and CBS acquired it for some sizable dollars there.
 3  10447                The marketing potential of that has
 4     really moved that significantly along.  That is one of
 5     the major players down there.  The marketing reach
 6     through broadcast is very large.
 7                                                        1150
 8  10448                COMMISSIONER WILSON:  When I was
 9     looking through your submission and thinking about some
10     of the other things we have heard about advertising, I
11     was thinking if I had a Web site that I was using for
12     e-commerce or any other purpose and I wanted to drive
13     traffic to that Web site -- I mean obviously you would
14     go to a medium where you can tap into a mass audience
15     if you are just trying to communicate your existence
16     through the Internet, it's not good enough yet.
17  10449                MR. DUFFY:  There is a huge audience
18     to a number of major Web sites out there.  I mean
19     Yahoo, that is a brand that everybody understands
20     and --
21  10450                COMMISSIONER WILSON:  Get listed on
22     the major search engines.
23  10451                MR. DUFFY:  AOL and those, but what
24     we are also talking about here is that we are trying to
25     build brands here.  We are also trying to drive


 1     advertiser dollars here.
 2  10452                In trying to encourage advertising
 3     dollars a big play and an important part for publishers
 4     I think here is that that brand gets recognized out
 5     there as, "Oh, this is a brand I want to be associated
 6     with."  As advertisers learn about this medium, if they
 7     can see that that brand is appearing on traditional
 8     medium and is out there, there is an association with
 9     that that, hey, this is an important brand that I want
10     to be associated with because I can see it both in
11     traditional medium.  So, there is sort of a stamp of
12     approval on that brand.  It's like the birth of any
13     industry I think.  You have got to go through to build
14     a brand.
15  10453                You have got to not just build it
16     within the medium, but you have also got to look at
17     other methods to market that and that's what we do.
18  10454                MR. BOYD:  One comment I think would
19     be that this is another medium, but it is not going to
20     decimate, kill, replace any other medium, other than to
21     sort of offer consumers and advertisers another way to
22     talk to each other.  I think it is important to note
23     that radio and television and print and Web together
24     offer advertisers an excellent way to reach consumers
25     in different parts of their life and look at Outdoor,


 1     when they are driving home.
 2  10455                When we do a media plan, we would
 3     look at the entire landscape of somebody's life, if you
 4     will, and the Internet is certainly an important part
 5     of it, but it is never going to be the only part of it. 
 6     So, I think it is important to point that out.
 7  10456                COMMISSIONER WILSON:  What if
 8     though -- and one of the other things that we have been
 9     looking at over the last number of days is the notion
10     that ultimately broadcasting itself will move to the
11     Internet, that I mean certainly the broadcasters
12     themselves believe that the Internet could replace
13     them, if you look at the development of technology and
14     digital video compression and the ability to deliver
15     what is considered traditional broadcasting over the
16     Internet infrastructure, then what you say is not true
17     any more because there are all these different parts.
18  10457                Now, there may be -- and radio
19     itself.  Look at radio.  I mean, more and more people
20     can listen to the radio over the Internet and with the
21     evolution of the technology the better it gets, the
22     wider the bandwidth, then, you know, is there still a
23     radio industry?  Is there still a TV industry, or does
24     everything move?
25  10458                MR. ANDERSON:  I would have to say


 1     that there is no basis in history for any of these
 2     theories.  If you look at how different media has grown
 3     up, there is absolutely no basis for any of these
 4     theories whatsoever.
 5  10459                This is different.  Radio could be
 6     provided via the TV.  There were early TVs that came
 7     out with radio.  It didn't kill the radio industry.
 8  10460                The bottom line on this really is
 9     that any one of us can sit up here and we can make
10     projections.  We can guess at what is going to happen
11     and we can think about how it could possibly turn out,
12     but nobody knows.  Nobody knows.
13  10461                So, therefore, I would just say that
14     there is not a good answer to your question.  It simply
15     would be my personal opinion and Ted's personal opinion
16     and the next personal opinion and so what at the end of
17     the day.  The bottom line is that we've got to wait. 
18     We have got to wait and see how it evolves.  There is
19     no sense in any one of us just offering our personal
20     opinions because it is not going to help you try to
21     accomplish what you are trying to accomplish.
22  10462                I think what you are trying to
23     accomplish is something good.  It is figuring out how
24     can we help Canada really promote this Internet
25     experience.  How can we help Canadians promote this


 1     Internet experience, and how can we learn more about
 2     this environment and really grasp this environment.  I
 3     think that is what you as a Commission is trying to do. 
 4     Providing my personal opinion or Graham's or Ted's I
 5     don't think is going to help you on these issues.
 6  10463                MR. BOYD:  Having said that however,
 7     let me give you Steve Job's personal opinion.  Mr. Jobs
 8     is well known for his vision and he has had a few ups
 9     and downs in his life, but I read a fascinating quote
10     by him last week.  He said that look at the experience
11     we had with our television.  Our television is
12     fundamentally a one-way experience.  When we sit in
13     front of our television we like the fact that we don't
14     have to interact with it.  When we sit in front of our
15     computer we know and have known since the day that the
16     thing got turned on that we have had to interact with
17     it.  So, we will not consume Internet media through the
18     television possibly, is his argument, the same way that
19     we do through a PC.
20  10464                So, he is of the opinion, frankly,
21     that it just isn't going to happen the way that some
22     players are arguing.  So, the jury is out, but --
23  10465                COMMISSIONER WILSON:  Well, the
24     Senior Vice-President of Engineering from CBS said
25     exactly the same thing.  They are two fundamentally


 1     different experiences and technologically you may be
 2     able to integrate the two or the two will converge, but
 3     people may not.
 4  10466                MR. ANDERSON:  It's not about
 5     technology.  This is not about technology.  It's about
 6     the experience.  It's personal.  I mean it's a pull. 
 7     It's "I do."  I go out there and I actually do things. 
 8     So, I am using it.  It's not about something that is
 9     broadcast to my group of people and that's the
10     difference.  It's just inherently a different medium.
11  10467                MR. DUFFY:  There may be some things
12     that can help along the way here.  We have been talking
13     about is it a different medium and that when you look
14     at the advertising in newspapers versus the advertising
15     on TV versus the advertising on radio, there are
16     different advertising messages.  One has not completely
17     killed off the other.  Their type of advertising, the
18     audience that they attract, the style of advertising is
19     different.  The same will be of new media and on-line
20     medium.
21  10468                One of the studies that was done,
22     Forrester Research Inc. is one of the leading research
23     companies down in the U.S. and certainly we follow it. 
24     Most of the large players in the U.S. also follow it. 
25     The U.S. industry is ahead of our industry, the on-line


 1     industry.
 2  10469                Their prediction for 2003 is that
 3     on-line advertising versus total advertising in the
 4     U.S. will run at about 4 to 4.5 per cent.  They
 5     recently came out with a projection, the first time --
 6     they came out with a projection for the Canadian
 7     market.  They said that that market in 2003, the
 8     on-line medium would attract about 3.5 per cent.  3.3
 9     per cent I believe is the number of total advertising
10     dollars.  So, it isn't, based on their estimates,
11     certainly at this particular stage where we are at, we
12     are not talking about huge dollars that this medium is
13     going to take out of the advertising market.
14  10470                COMMISSIONER WILSON:  Thank you very
15     much.  Those are my questions.
16  10471                THE CHAIRPERSON:  Thank you,
17     Commissioner Wilson.
18  10472                Commissioner Grauer.
19  10473                COMMISSIONER GRAUER:  I just have a
20     couple of questions further to the areas explored with
21     Commissioner Wilson and in particular this last issue. 
22     If I can just approach it from a slightly different
23     perspective, which is that we do regulate traditional
24     broadcasting, if I can put it that way, and let's
25     assume for the sake of this discussion we are not going


 1     to be doing any regulating of the Internet and, of
 2     course, we don't regulate newspaper publishing or
 3     outdoor advertising.
 4  10474                So, should we in that situation be
 5     monitoring the impact of the Internet advertising or
 6     this new media on traditional broadcasting, so that in
 7     fact if we need to adjust any of the sort of existing
 8     regulations that we are in a position to do that.
 9  10475                One would assume that, for instance,
10     newspaper publishers who aren't regulated may have more
11     flexibility to respond to these challenges as they come
12     along.  So, if I can just put it to you that way and
13     get your comments on whether we should be monitoring
14     this impact and, if so, what are the things that we
15     should be looking at as we go forward?
16  10476                MR. BOYD:  I guess the fact that
17     research exists that quantifies the amount of
18     advertising through the Ernst & Young IAB survey, that
19     would be something you would certainly want to monitor.
20  10477                I would suggest working with industry
21     organizations is always a good thing to do in terms of
22     understanding how new media landscapes were unfolding,
23     but as for specific remedies, at this point in time I
24     think I would be taking a wait and see approach.
25  10478                COMMISSIONER GRAUER:  You know, I


 1     wasn't thinking of remedies.  I was thinking
 2     specifically of what to look at if we were monitoring. 
 3     Was it a good idea to monitor and, if so, what we
 4     should be looking at.
 5  10479                MR. DUFFY:  One of -- and really the
 6     principal reason why IAB Canada came into existence and
 7     before it IAB in the U.S. and some other bodies, there
 8     is because this industry is just only emerging and that
 9     the measurability and accountability of this whole
10     medium, that's one of the biggest problems that we have
11     with selling advertising.
12  10480                If you take my industry and where my
13     company comes from, the newspaper industry, we have
14     Nadbank there, so advertisers have a measure of the
15     system that they use and they feel comfortable with
16     that they can at least assess and say this is the
17     medium where I best want to place my advertising
18     dollars because it reaches this particular type of
19     audience, and these are the results that I should get
20     back based on those results.
21  10481                In magazines they have the Print
22     Measurement Bureau; in broadcast A.C. Nielsen.  In our
23     industry, and right now there is such inconsistency out
24     there between the way we measure and the various types
25     of measurements that people are after, I think that is


 1     one of the biggest problems that we face.  Until such
 2     time as we can come and establish some real consistency
 3     and some real standards which we are trying to work on
 4     here, and I think we are doing it the right way by
 5     making a tripartite arrangement because we are getting
 6     all of the bodies involved there.  Certainly when I
 7     look down at the U.S., they started out with just the
 8     publishers doing it, they have in fact done a
 9     turn-around and have said, "We have got to do a
10     tripartite type of arrangement."
11  10482                I think until such time as we can get
12     to that stage, I think it is very dangerous to say,
13     "Let's try and measure this and measure that," because
14     we are trying to get a handle on that.  The advertisers
15     are trying to understand that.  The publishers are
16     trying to get some consistency there and they are
17     trying to come together on that, so I would be
18     concerned.
19  10483                COMMISSIONER GRAUER:  Okay.
20  10484                My other question was, actually, we
21     heard from you this morning about the dearth of
22     statistical information and we have heard from some
23     other groups this morning.  Someone was here earlier
24     this week I think and said that they thought StatsCan
25     was beginning to assemble some of this data.


 1  10485                I was curious from you as to what
 2     particular information that you think should be being
 3     gathered that isn't being gathered and what remedies
 4     you might have.  I take it, if I can make an
 5     assumption, that what you are saying with respect to my
 6     question on monitoring is that we can't even properly
 7     assess the impact today because we don't have the
 8     information to really monitor even the impact anywhere
 9     at the moment.  So, is that --
10  10486                MR. DUFFY:  Yes, it is a very fair
11     comment.  One example of the data that we don't measure
12     here in Canada that is done in the U.S. and that I
13     think is critical, and not so much from the back-end
14     measurability that how effective was my ad, but who do
15     I decide to advertise with is just the front-end people
16     information, if you like.
17  10487                There are two companies -- there are
18     a number of companies down in the States, but a couple
19     of the larger players are relevant knowledge and
20     Mediametrix.  They are joined together.  What they do
21     is measure the performance of where people go to, much
22     like A.C. Nielsen in effect, but for the on-line
23     industry they hook up a certain number of people in the
24     on-line industry and they say based on that selected
25     sample here are the sites that those individuals are


 1     going to, and here is the type of audience that is
 2     going to those particular sites.
 3  10488                We don't have that in Canada as yet. 
 4     That is to me a very useful tool for advertisers and
 5     agencies to sort of say, "Okay, we know CANOE is a very
 6     large site, but how large is it and what type of
 7     audience is going to it?"  We don't know all of the
 8     stats there.  Some of those stats are dribbling out.  I
 9     read recently some stats that were on the Globe and
10     Mail there of some of the major portal sites out there,
11     but there is not a real dearth and wealth of that type
12     of information.  That's one part that we need.
13  10489                Certainly the research that Gary and
14     Rocco have done really is a key part of IAB Canada, is
15     measuring the advertising and where that advertising is
16     hitting is extremely important for advertisers making
17     decisions, is extremely important for me as a content
18     player, understanding where the market is going, so
19     that I can make sure that I build content that
20     addresses the advertisers' needs because they are
21     ultimately paying the dollars.
22  10490                MR. ANDERSON:  I think though that
23     you also did hit the nail on the head in terms of
24     understanding the problem that we do have, and that is
25     getting the information.  We have even -- going back to


 1     Graham's comment, from a research committee we have
 2     actually gone out and asked these players in the
 3     States, "When are you coming up here?"  "Can you come
 4     up here?"  "We need this type of information up here
 5     too," and we are such a small industry up here, that
 6     for them to even turn their attention it's just not
 7     feasible business-wise at this point in time for them. 
 8     However, we tend to think that is going to change.
 9  10491                But in terms of what you were
10     mentioning about understanding what to measure.  So, we
11     have a committee that is the Standards and Practices
12     Committee that looks at what are the terms, what's a
13     page view, what's a page impression, what's a visit, a
14     visitor and all these things that just confuses
15     everybody.  One of the things we should mention is the
16     IAB Canada.  This is an international organization, the
17     IAB.  There is the IAB in Europe.  There is the IAB
18     that started in the States and the IAB in the States
19     came out with their own standards in terms of
20     measurements, what they said here is how we measure ad
21     impressions and things like that.
22  10492                In Canada we didn't just take that
23     and say, "Yeah, that's how we are going to do it too." 
24     We actually modified that, their recommendations
25     because we were tripartite and we looked at it from


 1     different aspects.  We modified what they came out with
 2     and we said, "No.  This is what we believe a real ad
 3     impression was," and that was very important because
 4     what were able to do as a tripartite organization is
 5     say we all believe and we agree with these ways of
 6     measuring, but it is very baseline and we really --
 7     going back to your point, we really have to understand
 8     what to measure and what not to measure.
 9  10493                So, if you are looking at how can I
10     compare this industry to another industry, we have got
11     to look at this industry first and figure out what it
12     is that we are measuring and what are the terms because
13     as you are going through here last week and this week
14     and ongoing, and just coming up with the different
15     terminology that people are using, publishers, portals
16     and things like that, is enough to drive everybody
17     batty.
18  10494                So, let's come down with some certain
19     basic terms and measurements and then we can start
20     looking at how do we compare these in terms of
21     industry.
22  10495                COMMISSIONER GRAUER:  Thank you.
23  10496                THE CHAIRPERSON:  Thank you.
24  10497                Counsel.
25  10498                MS MOORE:  Thank you, Mr. Chairman.


 1  10499                You mentioned this morning that in
 2     your view the advertising industry has been very
 3     effective in self-regulation through various codes of
 4     conduct and complaint mechanisms.  Just to clarify,
 5     whether your members have undertaken to comply with
 6     those various codes and complaint mechanisms with
 7     respect to their on-line advertising activities, in
 8     addition to advertising in more traditional media.
 9  10500                MR. BOYD:  To the best of our
10     knowledge, yes.  We examine that on an ongoing basis,
11     but we are not formally involved in the screening of
12     advertising that is going out on the Web, but that code
13     certainly applies equally to us.
14  10501                MS MOORE:  Thank you.
15  10502                With respect to the Ernst & Young
16     update, could you please indicate by what date you
17     would be in a position to file that on the public
18     record?
19  10503                MR. BOYD:  We could get it to you
20     Monday of next week.
21  10504                MS MOORE:  Thank you.
22  10505                And with respect to the A.C. Nielsen
23     data, would you be in a position to file that on the
24     public record as well?
25  10506                MR. BOYD:  Yes.  I would be happy to


 1     provide a top-line summary of the numbers I quoted,
 2     certainly.
 3  10507                MS MOORE:  And that would be my
 4     Monday, presumably, as well?
 5  10508                MR. BOYD:  I would be delighted to
 6     have it to you by Monday.
 7  10509                MS MOORE:  Thank you very much.
 8  10510                Thank you, Mr. Chairman.
 9  10511                THE CHAIRPERSON:  Thank you.
10  10512                Thank you very much, gentlemen.  It
11     has been an interesting discussion.
12  10513                We will take our lunch break now and
13     reconvene at 1:30.
14     --- Recess at 1210 / Suspension déjeuner à 1210
15     --- Upon resuming at 1333 / Reprise à 1333
16  10514                THE CHAIRPERSON:  Good afternoon,
17     ladies and gentlemen.
18  10515                We will return to our proceeding now.
19  10516                Madam Secretary, the next party.
20  10517                MS BéNARD:  Thank you, Mr. Chairman.
21  10518                The next presentation will be by the 
22     Association of Canadian Advertisers.
24  10519                MS CURRAN:  Good afternoon.
25  10520                Mr. Chair, Commissioners, thank you


 1     very much for the opportunity to participate in this
 2     hearing.
 3  10521                My name is Joan Curran,
 4     Vice-President with the Association of Canadian
 5     Advertisers.  My colleague is Bob Reaume, a consultant
 6     working on this issue with the Association of Canadian
 7     Advertisers.
 8  10522                Our specific area of interest and
 9     expertise is advertising and, accordingly, our comments
10     today will focus on the new media and its impact on
11     advertisers.
12  10523                First, who are we?  Since 1914 the
13     ACA has been the voice of the advertiser.  It is the
14     only association in Canada that represents the
15     interests of advertisers across all product and service
16     sectors, including manufacturing, retail, packaged
17     goods, financial services and communications.  Our
18     members spend over $1.3 billion on advertising each
19     year in Canada.
20  10524                Before we provide our point of view
21     on the future of new media, I want to start with our
22     definition of the term.  Advertisers define new media
23     as the video, audio, graphic and textual content and
24     the interactive services that are carried on the
25     Internet.


 1  10525                We also want to make clear from the
 2     outset five points that provide some context to our
 3     positions.
 4  10526                As any new media have come along,
 5     including radio and TV in their introduction, they have
 6     benefited from the role and contribution of
 7     advertisers.
 8  10527                Advertisers want today's new media to
 9     be strong, vibrant and affordable.  Advertisers are
10     important stakeholders because they help reduce the
11     cost of access to new media for potential consumers.
12  10528                Advertisers have always supplemented
13     new media vehicles as they came along so that they
14     could communicate with their audiences.  Advertising on
15     new media is already self-regulated, so no new
16     regulations are required.
17  10529                We believe that any additional
18     regulation will encourage Canadian advertisers to use
19     out-of-country sites, thereby reducing their economic
20     contribution to Canada.  This would have negative
21     effects.  One, it would increase access costs and, two,
22     it would decrease household penetration of this medium.
23  10530                Bob.
24  10531                MR. REAUME:  Allow us now, if you
25     will, to elaborate on six key positions.


 1  10532                First, advertisers support rich media
 2     choice.  Consumers of the traditional media, print and
 3     broadcast, have benefited from advertising. 
 4     Advertising in the media enables consumers to have a
 5     wide range of choice among television programs,
 6     newspapers, magazines and so on.  This choice would not
 7     exist without advertising dollars.
 8  10533                Second, regulation would weaken our
 9     growing Internet industry.  Advertisers want a strong
10     and healthy Canadian Internet industry.  In fact, we
11     welcome any new vehicle through which advertisers can
12     convey their commercial messages.
13  10534                Advertisers need more mechanisms to
14     convey their messages as consumers become more
15     discerning and sophisticated in their reading,
16     listening, viewing and buying habits.
17  10535                Any regulations that would restrict
18     advertising dollars to the Internet is unacceptable to
19     the ACA.  With such restrictions, Canadian advertisers
20     would go outside Canada for their Web sites and the
21     Canadian Internet industry would be weakened.
22  10536                Any unnecessary obstacle to
23     advertising on the Internet in Canada will discourage
24     investment.  No investment will result in a stagnant
25     Canadian industry.


 1  10537                MS CURRAN:  Three, advertising's
 2     economic contribution keeps the new media affordable.
 3  10538                Advertising dollars keep the cost of
 4     television, magazines and newspapers affordable for all
 5     Canadian consumers, as they will the cost of the
 6     Internet.
 7  10539                The ACA recognizes that the new media
 8     will evolve with or without advertising support, but if
 9     Canada is interested in a new media industry that is
10     accessible to all Canadians, only advertising support
11     or heavy subsidies will ensure this occurs.
12  10540                Four, current regulations ensure
13     responsible practice.  When we audited our members' Web
14     sites, we found that in every case their sites and
15     advertising adhered to the Canadian Code of Advertising
16     Standards and to all other laws and regulations.  ACA
17     members, the leaders and exemplars of advertising
18     practice in Canada, are already behaving responsibly.
19  10541                In Canada, laws relating to
20     advertising already exist to ensure fair business
21     practices and consumer protection.  The Competition Act
22     covers misleading advertising and running consumer
23     contests.  The Packaging and Labelling Act and the Food
24     and Drug Act ensure proper labelling of all products.
25  10542                The Tobacco Industry Voluntary


 1     Packaging and Advertising Code, the Broadcast Code for
 2     Advertising to Children and the provincial guidelines
 3     for the advertising of alcoholic beverages are already
 4     in place.
 5  10543                The Canadian Code of Advertising
 6     Standards, first published in 1963, is an established
 7     comprehensive self-regulatory code.  It was developed
 8     to promote the professional practice of advertising and
 9     is administered by Advertising Standards Canada.
10  10544                The code's clauses set the criteria
11     for acceptable advertising and also form the basis upon
12     which advertising is evaluated in response to consumer
13     or trade complaints.  The code is endorsed by
14     advertisers, advertising agencies and media which
15     exhibit advertising and suppliers to the advertising
16     process.
17  10545                Recently, the Board of Directors of
18     Advertising Standards Canada broadened the scope of the
19     code to include advertising on the Internet.
20  10546                MR. REAUME:  Five, further regulation
21     will stifle innovation.  To ensure Canadian content on
22     the Internet, it is very important that no additional
23     regulations be put in place.
24  10547                As this is a borderless medium, any
25     further regulations will result in Canadian advertisers


 1     not producing and supporting indigenous sites but going
 2     elsewhere.
 3  10548                Advertisers are currently
 4     experimenting or learning how best to develop and
 5     deploy the Internet.  Regulation can only reduce
 6     innovation and reduce the learning curve of the
 7     marketplace.
 8  10549                The Internet is a powerful two-way
 9     communication medium, literally changing from day to
10     day.  To place any restrictions on it will only stifle
11     advertisers' use of this new medium at a time when much
12     innovation should be taking place.
13  10550                As stated earlier, historically the
14     growth of all new media has been nurtured and supported
15     by advertisers and advertisers have led, sponsored or
16     occasioned the evolution of new media, including media
17     measurement.  There is every reason to believe that the
18     historical precedent will unfold.
19  10551                Point six, before closing, I would
20     like to address the issue of taxation of this medium,
21     specifically section 19 of the Tax Act.  Other
22     submissions have stated that advertising expenditures
23     on non-Canadian new media should be disallowed as a
24     business expense deduction.
25  10552                Recognizing that taxation is not


 1     within the jurisdiction of this Commission but has been
 2     raised in other submissions, advertisers would like to
 3     express their disagreement with and opposition to this
 4     suggestion.  Specifically, we are opposed to any
 5     disadvantageous tax treatment that amounts to an
 6     unacceptable disincentive.
 7  10553                Advertisers would, however, support
 8     incentives that encourage business growth.
 9  10554                MS CURRAN:  In summary, Canadian
10     advertisers want all new Canadian media to be strong,
11     vibrant and affordable.  Canadian advertisers want to
12     continue to play a role in this new media.  Further
13     regulations that would restrict advertisers'
14     involvement in the new media would discourage economic
15     investment.
16  10555                There is no need to provide any
17     further regulations on advertising.  Our existing laws,
18     guidelines and self-regulatory codes ensure fair
19     business practices and adequate safeguards.
20  10556                Thank you for the opportunity to
21     contribute to this process.
22  10557                THE CHAIRPERSON:  Thank you, Ms
23     Curran, Mr. Reaume.
24  10558                Commissioner Wilson.
25  10559                COMMISSIONER WILSON:  Good afternoon.


 1  10560                MS CURRAN:  Good afternoon.
 2  10561                COMMISSIONER WILSON:  I would like to
 3     start our discussion this afternoon by going through
 4     some of the things that you have put in your written
 5     submission and I do want to ask you some questions
 6     about some of the statements you made today in your
 7     oral comments.
 8  10562                I would also like to ask you some of
 9     the same questions that I asked your colleagues at IAB
10     Canada, just with reference to sort of market behaviour
11     and advertising dollars and where they will go.  I
12     think you were in the room during that discussion.
13  10563                MS CURRAN:  Yes.
14  10564                COMMISSIONER WILSON:  You probably
15     had a bit of time to think about it over lunch.
16  10565                You said that your organization has
17     been around since 1914, which is a really long time, a
18     lot longer than anybody in this room has been alive
19     probably.
20  10566                What kind of research does your
21     organization conduct?  IAB Canada gave us the Ernst &
22     Young survey they had done.  They have only been around
23     for a year.  Do you conduct research on an annual basis
24     of your members?
25  10567                MS CURRAN:  The sort of research we


 1     do is really what our membership per se are interested
 2     in.  That may be one year, it may be a salary survey. 
 3     Most recently we conducted a survey on agency
 4     remuneration, how advertisers are paying their
 5     agencies.
 6  10568                Then we do surveys just among our
 7     membership when we are about to come before places like
 8     the CRTC, but we don't have a traditional annual type
 9     of survey that we produce for the industry.
10  10569                COMMISSIONER WILSON:  Have you talked
11     to your members in any way, either formally or
12     informally, about their activities in new media?
13  10570                MS CURRAN:  Yes.
14  10571                COMMISSIONER WILSON:  Their
15     advertising activity.
16  10572                MS CURRAN:  Yes.  In fact, that's
17     when we went and audited their sites just to see what
18     in fact they were doing.  That's when we were very
19     comfortable that they were applying the Advertising
20     Standards Code that was already in place, without
21     trying to get around it.
22  10573                It was really one of the reasons why
23     the ACA was founded, that whole sense of taking
24     responsibility for having the right to advertise and if
25     we don't do it responsibly, someone is going to tell us


 1     how we can do it.
 2  10574                COMMISSIONER WILSON:  Have you talked
 3     to them at all about how much money they are spending
 4     on advertising in new media?
 5  10575                MS CURRAN:  We know that the majority
 6     of them have an Internet site.  They are all
 7     experimenting with it.  Their biggest holdback, and
 8     it's what IAB was talking about, is there is no
 9     measurement tool out there right now to say if I put
10     money on this site or I advertise here, I know I am
11     reaching "X" number of my target audience.
12  10576                With that information not being
13     available, they are just sort of taking baby steps into
14     the market.  But they know they have to be there.  This
15     is the time for innovation.  They can't wait until it's
16     all there.
17  10577                COMMISSIONER WILSON:  What prompted
18     you to become a founding member of the IAB Canada?
19  10578                MS CURRAN:  The main reason was so
20     the advertisers would be heard up front about what
21     advertisers wanted.  What often happens in terms of
22     measurement or other things that happen to the
23     industry, it is the suppliers that often end up
24     dictating "This is the information that you will get".
25  10579                We wanted to be on the first, you


 1     know, at the beginning and saying "As advertisers,
 2     these are what our needs are, so listen to us now so
 3     that we not saying in two years from now you are not
 4     giving us what we need".
 5  10580                COMMISSIONER WILSON:  Okay.  On page
 6     2 of your submission you state:
 7                            "The role of advertising and
 8                            success of the new media will be
 9                            critical.  Affordability is the
10                            key.  Consumers will not pay in
11                            any significant way to access
12                            new media and governments will
13                            not fund them in any significant
14                            way and so once again
15                            advertising will heavily
16                            influence what will succeed or
17                            fail."
18  10581                I'm just wondering if you could
19     explain what you mean by these statements, for example,
20     what you mean by "consumers will not pay in any
21     significant way to access new media and governments
22     will not fund them in any significant way"?
23  10582                MR. REAUME:  Commissioner, I think,
24     as we have seen with if I can call them the old media,
25     newspapers, magazines, radio, TV, as we have seen with


 1     those, subscription rates to newspapers are quite low. 
 2     Subscription rates to magazines are still quite low.
 3  10583                Consumers don't actually pay a fee to
 4     watch television or listen to radio.  They will not pay
 5     other than their monthly access fee to the Internet,
 6     they will not pay a significant amount of money to
 7     access the new media.  I think that's what we meant.
 8  10584                COMMISSIONER WILSON:  You are talking
 9     about the monthly rate for an ISP.
10  10585                MR. REAUME:  Right, a service
11     provider.  That's right.  I think over and above that,
12     unless you can prove them that they will be a net
13     beneficiary of some kind of value, over and above that
14     I don't think that they are poised to pay large sums of
15     money.
16  10586                It is a new medium and advertisers
17     will financially support that new medium.  That's where
18     its fuel, if you will, will come from.
19  10587                COMMISSIONER WILSON:  And what about
20     the part of that sentence that says "and governments
21     will not fund them in any significant way"?
22  10588                MR. REAUME:  Well, we are just
23     presuming that there aren't large amounts of funds for
24      -- I mean some funds.  The CBC, for instance, have
25     suggested that they want to be leaders in this area. 


 1     We all know that the CBC in part are funded from the
 2     public funds.  There's one example.
 3  10589                In terms of a large national outlay
 4     for this kind of activity, we just don't see it
 5     happening.
 6  10590                COMMISSIONER WILSON:  Are you talking
 7     about, when you say governments will not fund them in
 8     any significant way, access for individual Canadians or
 9     are you talking about the creation of new media product
10     or --
11  10591                MR. REAUME:  I would think more the
12     creation of new media product, the technologies.  All
13     of that stuff that's necessary to get this -- to create
14     a big success out of this.
15  10592                COMMISSIONER WILSON:  Thank you.
16  10593                You go on to say:
17                            "Advertisers believe that it is
18                            paramount that we have complete
19                            access to the new media."
20  10594                I am sure you heard me say to the
21     IABC that there have been a number of different
22     definitions of access.  Actually, we were just
23     discussing one of them, the access by individual
24     Canadians to the Internet.
25  10595                What do you mean by that, that we


 1     have complete access to the new media?
 2  10596                MR. REAUME:  In the same way that we
 3     have unfettered access to radio as an advertising
 4     medium or television as an advertising medium, we are
 5     not restricted from commercial activities on these
 6     media.  I think we mean it in that way.
 7  10597                COMMISSIONER WILSON:  Are there
 8     current barriers to your participation in that medium?
 9  10598                MR. REAUME:  Very few.  I guess some
10     public broadcasting does not accept advertising in that
11     regard.  I think of CBC Radio, I am thinking of Ontario
12     and Alberta public access.
13  10599                COMMISSIONER WILSON:  You are talking
14     about in traditional media.
15  10600                MR. REAUME:  Yes.
16  10601                COMMISSIONER WILSON:  I am talking
17     about in new media.
18  10602                MR. REAUME:  No.
19  10603                COMMISSIONER WILSON:  Are there any
20     barriers to you advertising?
21  10604                MR. REAUME:  Currently, no.
22  10605                COMMISSIONER WILSON:  No.
23  10606                MR. REAUME:  We don't know of any.
24  10607                COMMISSIONER WILSON:  Okay.  In your
25     oral comments -- let me just find the reference -- you


 1     say under point No. 5 "Further regulation will stifle
 2     innovation".
 3  10608                I just went through and sort of
 4     highlighted all of your references to additional
 5     regulations, further regulations.  I am just wondering
 6     what are you talking about, which regulations are you
 7     talking about?
 8  10609                MS CURRAN:  Speaking in terms of
 9     advertising, we don't want there to be any additional
10     restrictions put on what the advertisers can say, the
11     content of the commercial.
12  10610                COMMISSIONER WILSON:  Additional to
13     what?
14  10611                MS CURRAN:  To all the codes that are
15     currently in place.
16  10612                COMMISSIONER WILSON:  Okay.
17  10613                MS CURRAN:  Like the Advertising
18     Standards Code.
19  10614                COMMISSIONER WILSON:  So you are not
20     talking about regulations that we have created.
21  10615                MS CURRAN:  No.
22  10616                COMMISSIONER WILSON:  Also, on page 2
23     of your written submission at paragraph 9 you state:
24                            "Any attempts to regulate the
25                            Internet would be difficult, but


 1                            that is not to say, however,
 2                            that anything should go."
 3  10617                Are you suggesting with that
 4     statement there are some types of restraints that you
 5     think are appropriate or necessary?
 6  10618                MR. REAUME:  Well, certainly anything
 7     that's illegal in the land should also be illegal on
 8     the Internet.  I guess that's what we were trying to
 9     get at there, there are certainly legal activities. 
10     Just because it's an international borderless difficult
11     to regulate medium, it doesn't mean that anything
12     should go.  The criminal law and certainly advertising
13     law should pertain to the activities on the Internet
14     also.
15  10619                COMMISSIONER WILSON:  You talked
16     earlier during your oral comments and you talk in your
17     submission about the problem that you face, that
18     advertisers face, in terms of accurate and
19     comprehensive audience measurement.
20  10620                You mentioned that there are several
21     companies currently offering independent third party
22     auditing.  IABC also mentioned that there were
23     independent companies.  Who are these companies and
24     what kinds of measurement are they doing?
25  10621                MS CURRAN:  A.C. Nielsen does an


 1     audit.  That's the key one that I know of in Canada
 2     that is doing it.  The rest are places in the U.S. 
 3     Again, it's sort of taking their data and extrapolating
 4     it for Canada.
 5  10622                As AIB was saying, we are still
 6     struggling with the definitions and is that the
 7     appropriate definition and does that mean anything to
 8     advertisers.  You may have 400 hits, but if it's a hit
 9     that's a flash and no one is actually staying and
10     reading your message, that's not very valuable to an
11     advertiser.
12  10623                COMMISSIONER WILSON:  When you made
13     the statement that you think the CRTC has an important
14     coordination role to play, you were quite serious,
15     especially because it is difficult to define right now
16     what the audience measurements might be.
17  10624                MS CURRAN:  That's right.  You don't
18     want one group coming up with definitions and then
19     another group coming up with a different set of
20     definitions.
21  10625                There should be some coordination of
22     all these definitions that everyone can agree to. 
23     Therefore, we can come up with a form of measurement
24     that will give everyone the statistics and information
25     that they are looking for.


 1  10626                COMMISSIONER WILSON:  Let me just ask
 2     you about point No. 6, starting on page 7, where you
 3     address the issue of taxation under section 19 of the
 4     Income Tax Act.  You refer to:
 5                            "Other submissions that have
 6                            stated that the advertising
 7                            expenditures on non-Canadian new
 8                            media should be disallowed as a
 9                            business expense deduction."
10  10627                I can't tell you that I am completely
11     familiar with the Income Tax Act myself.  Why would
12     advertising on non-Canadian Web sites -- why do you
13     think it should be allowable as an income tax
14     deduction?  If you are not spending the money in
15     Canada, why should you be able to deduct it?
16  10628                MR. REAUME:  A lot of business
17     expenditures take place out of the country and they are
18     still deductible as a business expense.  If you
19     purchase an airline ticket in the United States, you
20     don't lose that as a business deduction.
21  10629                Our point here is that consumers
22     choose where they want to consume media.  To tax any
23     medium in order to force them to consume Canadian media
24     is a regressive measure, an anti-growth measure.
25  10630                We understand the social policy


 1     behind it, but we think that perhaps an incentive
 2     rather than a disincentive is the proper way to
 3     encourage that kind of behaviour, not a regressive
 4     measure like taxes.
 5  10631                COMMISSIONER WILSON:  So you would
 6     stake out the same position then with respect to
 7     advertising in traditional media, television for
 8     example.
 9  10632                MR. REAUME:  Yes.
10  10633                COMMISSIONER WILSON:  If Canadian
11     companies want to advertise on stations in the U.S.,
12     that should be an allowable business deduction.
13  10634                MR. REAUME:  Yes.
14  10635                COMMISSIONER WILSON:  What I would
15     like to do now is ask you some of the same questions
16     that I asked IABC flowing out of the Telus submission. 
17     I will just sort of repeat them.  You probably don't
18     remember them in detail.  I will just go through them
19     again.  I would like to hear your views.
20  10636                One of the recommendations that Telus
21     made in its submission was that the traditional
22     broadcasting regulatory regime should be dismantled
23     because as advertising migrates to new media, their
24     revenues will fall and they won't be able to fulfil
25     their regulatory obligations because they won't have


 1     the money.
 2  10637                The point that Telus stressed to us
 3     was that the Intenet gives advertisers opportunities
 4     that they don't have in other media, that that would be
 5     very appealing to them and that's what will drive this
 6     migration.
 7  10638                For example, the opportunity to
 8     combine the advertising and the buy with the click of
 9     the mouse.  You can have the ad in a click-through and
10     you can purchase the good, whatever it is, right away.
11  10639                How strong a driver do you think that
12     characteristic of advertising on the Internet is going
13     to be?
14  10640                MS CURRAN:  Well, it will certainly
15     be a factor, but until there is measurement, that will
16     hold that migration back.  I think if we look again
17     historically, when television came along, they said
18     that's the end of radio and it wasn't the end of radio
19     and it wasn't the end of newspapers.
20  10641                I think what advertisers are happy
21     about is it has now added another medium.  It's not
22     that it has taken the other ones away.  It has created
23     an addition, giving them more opportunities.  As the
24     target audience gets more fragmented, some will be
25     using the Internet, some will be watching television,


 1     some will be reading newspapers.  They can reach them
 2     all.
 3  10642                It's a bonus.  It's an addition. 
 4     It's not going to replace anything.  That's really how
 5     I would say advertisers are feeling about it right now.
 6  10643                MR. REAUME:  I would like to add on
 7     to that.  It's preposterous I think first of all to
 8     suggest that broadcasters should no longer be regulated
 9     because there's competition in town.
10  10644                As a matter of fact, there are two
11     characteristics of the Internet.  One is when we get
12     this all worked out, it will have more precise and
13     greater measurability.  It has by its technological
14     nature that potential.  We will be able to measure
15     things better.
16  10645                The second characteristic is that it
17     will be priced.  At some point in the future, marketers
18     and advertisers will be able to pay for exactly what
19     they get.  There will be results oriented pricing. 
20     Perhaps the almighty cost per thousand or cost per
21     ratings that we use on television will go by the way.
22  10646                What marketers will pay for will be
23     so much per lead generated, so much per sale made,
24     results oriented.  Those two things, greater
25     measurability and results oriented pricing, will I


 1     think do the opposite for television.  That is it will
 2     raise the expectation for television and for all other
 3     media.
 4  10647                Now the Internet will set the
 5     standard and all those other media will have to come up
 6     to that kind of performance level.
 7  10648                COMMISSIONER WILSON:  We talked this
 8     morning about the notion of the mass audience and how
 9     important that is for advertisers, in addition to which
10     it is quite measurable because all of that has been in
11     place for a long time.
12  10649                When you look at what is there now,
13     when you look at the kinds of traffic that you see
14     through some Web sites, do you consider that a mass
15     audience?  Does it change the way that you think about
16     a mass audience?  It's a niche audience.
17  10650                MS CURRAN:  I think mass audience
18     means you can still reach the masses, but it's through
19     different vehicles.  You are reaching some of them
20     through the Internet, some of them through television,
21     some of them through radio.  It's not going to
22     necessarily become the new mass media.  The advertisers
23     want all of those different choices.
24  10651                COMMISSIONER WILSON:  TV would still
25     be the most popular.


 1  10652                MS CURRAN:  At this point, yes.
 2  10653                COMMISSIONER WILSON:  And the most
 3     powerful medium.
 4  10654                MS CURRAN:  At this point it's the
 5     best at building brands which is the whole image thing
 6     that advertisers want, the cache they want around their
 7     product.
 8  10655                MR. REAUME:  May I add to that
 9     television is also splintering away from mass
10     executions.  We have in this country, as you know, many
11     specialty channels that cater to niche markets, so that
12     medium itself is becoming a niche market.
13  10656                On the Internet, I can think of
14     several sites that are mass sites and I can think of
15     several hundred sites that are niche sites also. 
16     Here's a new medium that is starting out with
17     everything, isn't building from a mass base and
18     splintering, but starting out with lots to offer.
19  10657                COMMISSIONER WILSON:  Thank you for
20     your thoughts on that.
21  10658                On page 2 of your submission you
22     state:
23                            "Advertising is taking a hand in
24                            launching and sustaining a new
25                            media system."


 1  10659                You make a similar comment on page 7
 2     of your oral remarks where you say:
 3                            "-- historically the growth of
 4                            all new media has been nurtured
 5                            and supported by advertisers and
 6                            advertisers have led, sponsored
 7                            or occasioned the evolution of
 8                            new media --"
 9  10660                When Telus appeared before us, they
10     brought with them Dr. John Carey who teaches at
11     Columbia University.  He said, and you probably heard
12     me say this morning, that advertisers follow audiences,
13     they do not lead, that they go where the eyeballs are.
14  10661                MS CURRAN:  Yes.
15  10662                COMMISSIONER WILSON:  Is that
16     consistent -- I mean from what you have said about your
17     members waiting to see how the whole environment
18     evolves with respect to measuring how many people are
19     going to which sites, would that be consistent with
20     what you know of their behaviour?
21  10663                MS CURRAN:  I think it's true for
22     advertisers.  They are not going to go where they are
23     not going to reach any of the people they want to buy
24     their product.  In that sense they do follow the
25     eyeballs, but it is the measurement that lets you know


 1     where the eyeballs are.  We don't have the measurement
 2     right now on the Internet.
 3  10664                They are out there doing innovative
 4     things, moving beyond just banner ads and trying
 5     different things.  They are doing this  because they
 6     know that this medium is here to stay.  They are not
 7     sure what they are getting out of it yet.
 8  10665                COMMISSIONER WILSON:  Then the idea
 9     that the advertising dollars will shift from
10     traditional broadcasting to the Internet in a dramatic
11     way, that it will happen all of a sudden, what's your
12     sense?
13  10666                MS CURRAN:  I have never gotten that
14     sense that that is what is going to happen.  I think
15     they will either get incremental dollars -- if they can
16     justify that they will get incremental sales out of it,
17     it will be incremental dollars or they will shift
18     probably the dollars they have.
19  10667                Advertisers have limited budgets. 
20     They don't all of a sudden say "Oh, new media, I'm
21     going to come up with another million dollars to spend
22     in it".
23  10668                They probably look at what their
24     budget is and then allocate it accordingly to where
25     they are going to get the biggest bang for their


 1     dollar.
 2                                                        1400
 3  10669                MR. REAUME:  I might add also, and I
 4     believe this morning you used the term "a dam that's
 5     ready to burst."  This is personal, but I don't see a
 6     pent up hydro-electric project that is going to burst
 7     its dams here.  I think that there will be very
 8     significant revenue flows over the next 10 years to new
 9     media, significant and profound revenue flows to the
10     new media, but I don't think it is going to be that 25
11     per cent of broadcast revenues in two years are going
12     to migrate to the Internet.  It is just not going to
13     happen.
14  10670                As the gentleman from IAB did say
15     though, we are all sort of looking into our crystal
16     balls and so no one really knows what is going to
17     happen.
18  10671                COMMISSIONER WILSON:  Finally, I
19     would just like to ask you your opinion about the whole
20     notion of the advertising pie and this relates to the
21     idea that the dollars will migrate from one medium to
22     another.
23  10672                Several of the intervenors to this
24     process have talked about advertising dollars being a
25     key indicator of whether or not the Internet or new


 1     media are a direct competitor to the traditional media. 
 2     And implicit in this suggestion is the notion that the
 3     advertising pie stays the same, that it doesn't get any
 4     bigger, so that when the dollars move away from the
 5     traditional media to new media they are gone from there
 6     and now they are over here.
 7  10673                One of the things that we talked
 8     about this morning was the idea that there will be new
 9     sources of money, that the advertising budget will be
10     used very much the way it is used, but because you can
11     do things with new media that you can't do in
12     television in terms of personalizing your delivery and
13     combining the advertising with the point of sale, that
14     other line items in the budget will be used for the new
15     media activity, the new media advertising activity
16     because they will be performing functions through that
17     advertising that are traditionally performed in other
18     ways.
19  10674                It's an interesting idea because it's
20     another indication of how new media will transform
21     traditional business models.  So, you might take money,
22     for example, out of your sales budget and put it into
23     advertising on the Web because you are going to be
24     selling something, like a computer or a fishing rod or
25     dog food or whatever.  I just wanted to get your view


 1     on that.  Do you see that the advertising pie would
 2     stay the same size or would additional dollars be
 3     injected?
 4  10675                MS CURRAN:  If they made a business
 5     case that they would get incremental sales by adding
 6     advertising dollars, then they would add advertising
 7     dollars is historically how they develop their budget. 
 8     I mean, when new channels came on, when it made sense
 9     some of them increased their budget because that was
10     where their target audience was.  It was a niche, but
11     they got value out of those incremental dollars and
12     that would be the same case, I would think, for the
13     Internet.  They might rejig them, but they may also
14     spend more and as Bob has said, once that gets
15     measurable that will make all the other media have to
16     rise to the occasion.
17  10676                COMMISSIONER WILSON:  I think Mr.
18     Boyd said this morning that you might take dollars out
19     of sales, out of marketing, out of public relations and
20     not out of your advertising budget, that your
21     advertising budget would remain, but you would take
22     money from other areas and funnel it into your Web
23     activity, just because you are performing a lot of
24     those functions.
25  10677                MR. REAUME:  Yes.  I can see that.  I


 1     must admit I hadn't thought of that up until now and I
 2     didn't hear Mr. Boyd's comments this morning, but I can
 3     see that happening certainly.
 4  10678                Now that I think of it, if you look
 5     at marketing expenditures, not just advertising
 6     expenditures, but total marketing expenditures in
 7     Canada, almost three-quarters of marketing expenditures
 8     are done in trade promotion.  These are payments to
 9     distributors who distribute manufacturers products and
10     services and that's a lot of money.
11  10679                It has been suggested that the
12     Internet will occasion a lot of disintermediation and
13     will we need car dealerships when people can purchase
14     cars on the Internet?  Will we need travel agents when
15     they can go directly to the tour operators, et cetera,
16     so a lot of that disintermediation happens.  A lot of
17     those trade promotion dollars perhaps could flow
18     towards the Internet.  I can see that.  I can see that
19     happening.
20  10680                COMMISSIONER WILSON:  I want to ask
21     you one final question.  I raised this this morning
22     with IAB about the notion of the link between a healthy
23     advertising market in new media and accessability of
24     the Internet to Canadians.  I think what you said
25     during your oral comments today was that advertising


 1     allows the cost of service to individuals to be kept
 2     within an affordable range.  The more affordable it is,
 3     the more Canadians will be able to hook up or wire
 4     themselves.
 5  10681                MS CURRAN:  Yes.  To us as time goes
 6     on it is no different than if something is sponsored by
 7     an advertiser or there is advertising on it, that keeps
 8     the cost down for the consumer.  I mean, the consumer
 9     isn't paying to watch a particular TV show or pay more
10     for one than another.  It's the advertising dollars
11     that enables the consumer to turn on the TV and watch
12     whatever they want to watch.
13  10682                Historically, there is no reason why
14     that would be different for the Internet than it has
15     been for any other media.
16  10683                COMMISSIONER WILSON:  Thank you very
17     much.
18  10684                MS CURRAN:  Thank you.
19  10685                THE CHAIRPERSON:  Thank you.
20  10686                I think Counsel Pinsky has a question
21     or two.
22  10687                MS PINSKY:  Thank you, Mr. Chairman.
23  10688                In response to some of Commissioner
24     Wilson's questions, I believe you noted that there are
25     relatively few mass sites in comparison with niche


 1     sites.  I wondered if you could describe what you would
 2     consider to be the characteristics of a mass site
 3     versus a niche site?
 4  10689                MR. REAUME:  In simple terms, you can
 5     take the presentation that was just previous before us. 
 6     There was a gentleman from CANOE here, or any of the --
 7     that would be a mass site, pardon me.
 8  10690                Any of the search engines, like Yahoo
 9     or Excite or Alta Vista would be mass sites.
10  10691                A niche site would be General Motors,
11     Hershey, Royal Bank, Campbell's Soup and that would be
12     a smaller site where someone is going specifically to
13     search information about those particular products.
14  10692                MS PINSKY:  You are referring both to
15     the audience, the scope of the audience, the viewers
16     that it would attract and the end users as well as -- I
17     guess that would relate as well to the scope of the
18     subject matter?
19  10693                MR. REAUME:  Yes.
20  10694                MS PINSKY:  Thank you very much.
21  10695                THE CHAIRPERSON:  Thank you, counsel.
22  10696                Thank you very much, Ms Curran and
23     Mr. Reaume.
24  10697                Madam Secretary.
25  10698                MS BÉNARD:  Thank you, Mr. Chairman.


 1  10699                The next presentation will be by the
 2     Canadian Marketing Association, l'association
 3     Canadienne du marketing.
 4  10700                THE CHAIRPERSON:  Good afternoon.
 5  10701                MR. GUSTAVSON:  Good afternoon.
 7  10702                MR. GUSTAVSON:  Thank you, Mr.
 8     Chairman, Commissioners.  I appreciate the opportunity
 9     to make this presentation.
10  10703                My name is John Gustavson.  I am the
11     President and CEO of what is now the Canadian Marketing
12     Association, most recently the Canadian Direct
13     Marketing Association.  I will come back in a minute to
14     that change of name and perhaps what it indicates about
15     our very rapidly changing marketing world.
16  10704                I am accompanied this afternoon by
17     our Vice-President of Public Affairs, Amanda Maltby, on
18     my right, and the Chairman of our Interactive Marketing
19     Council, Brian Bimm, on my left.  Brian is also
20     President of a direct response agency that has a number
21     of clients dealing in new media.
22  10705                What I would like to do is just spend
23     a moment taking you through our brief, highlighting it
24     for you and some of the key points that we would like
25     to present to the Commission.


 1  10706                Certainly, this Association with 750
 2     corporate members and some 3,000 individuals is now the
 3     largest marketing association in the country.  Our
 4     members use all sorts of media to present offers to
 5     consumers, receive their responses and then fulfil the
 6     orders that they place.  It is a fully integrated
 7     medium and one of the characteristics, of course, is
 8     that the offers may be presented to the consumer in one
 9     medium and they choose a totally different medium to
10     respond.
11  10707                Our members include the larger
12     Canadian financial institutions, publishers,
13     cataloguers, retail organizations, charitable
14     fundraisers, relationship marketers and those engaged
15     in supplying those with goods and services, those
16     companies, including fairly heavy exposure in
17     electronic commerce.
18  10708                We have seen over recent years an
19     explosion in the ability of marketers to communicate to
20     customers through a variety of new medium.  The new
21     technologies and consumer demand have shifted marketing
22     practices significantly from mass communications to
23     consumer-specific messaging.  Interactive media in
24     particular has allowed us to acquire customers, build
25     relationships, create databases, provide services and


 1     of course in the end sell those products and services
 2     to consumer.
 3  10709                We have seen a convergence of
 4     marketing technologies and techniques, so that we can
 5     now reach what was previously a fragmented audience on
 6     very much a one-to-one basis with personalized offers. 
 7     We believe this has been good both for business and for
 8     consumers.  For business, obviously, it is a very cost
 9     effective way to market and sell to a greater audience. 
10     For consumers those offers can more closely reflect
11     their personal tastes.  They can get quick product
12     information, price information, quality comparisons and
13     do so at any time of the day or night.
14  10710                I am sure that having read the
15     transcripts I know that you have had a lot of
16     statistics thrown at you over the past couple of weeks. 
17     The one thing about the Internet, it is becoming very
18     much affordable and open to most Canadians.  There are
19     very few financial barriers to accessing the new media
20     for consumers, as prices increasingly drop with
21     economies of scale.
22  10711                Certainly, some of the estimates that
23     well over 30 per cent of Canadians now have access to
24     the Internet and it is growing rapidly, and billions of
25     dollars in transactions by early in the next


 1     millennium.  But we would suggest to you that it is
 2     important to recognize that the full potential of this
 3     new medium, the various new media, have not been
 4     realized.
 5  10712                Some have been very quick to jump
 6     into electronic commerce and have been successful. 
 7     Others have jumped in and found it not particularly
 8     worthwhile or successful.  And many, many others are
 9     simply sitting back and observing, assessing the value
10     and watching the success or failure of their
11     competitors and the patterns particularly of consumer
12     response.
13  10713                Financial services, I would suggest,
14     is one exception.  Canadians have embraced that with
15     open arms, using new media to conduct their financial
16     transactions.  I would certainly be prepared to explore
17     that in some detail during questioning if you wish.
18  10714                It is our belief that those who wish
19     to benefit from the Internet for commercial purposes
20     should lead in its development, but that is only going
21     to take place in an environmentally friendly regulatory
22     atmosphere.  Certainly the growth of the Internet has
23     been, we would suggest, connected to regulatory freedom
24     and that is something that we think will continue to
25     promote its growth.


 1  10715                However, there is, in our view, also
 2     a very proper and necessary role for government
 3     intervention in the marketplace -- intervention that
 4     will encourage confidence and understanding by
 5     consumers and using the new media and promoting
 6     commercial success and economic growth.
 7  10716                We think that the proper role of
 8     government in that context is to ensure that the
 9     existing regulatory and legal framework for commerce in
10     Canada applies equally to new media.  That would
11     include such things as security of payments, protection
12     against fraud, protection against misleading
13     advertising, protection of privacy of personal
14     information being extremely important.  Things such as
15     the children advertising regulations under the
16     Broadcast Code should equally apply to the new media.
17  10717                We also believe that any new
18     regulatory moves must be made in the current context of
19     both the international as well as the domestic debate
20     on such issues as self-regulation, competition and
21     taxation.  And there are lots of examples of what is
22     going on in other forums.
23  10718                In October, Canada hosted the OECD
24     Ministerial Meeting on Electronic Commerce and some of
25     the major initiatives there included taxation and


 1     privacy.
 2  10719                Bill C-54 is currently before
 3     Parliament.  That will regulate the use of personal
 4     information in all commercial transactions, not just in
 5     the federally regulated private sector, but after three
 6     years in the provincially regulated private sector as
 7     well.
 8  10720                Bill C-20, now before the Senate,
 9     dealing with amendments to the Competition Act and
10     misleading advertising, the ability to use wiretap and
11     telemarketing fraud -- there are numerous areas where
12     consumers, governments and business are already
13     discussing ways to encourage the growth of new media,
14     but in a responsible manner and a proper regulatory
15     framework.
16  10721                So our suggestion is with all this
17     other activity going on it is necessary to proceed
18     cautiously with any regulations that would affect the
19     private sector's ability to growth, contribute to job
20     creation and the economic growth of the country.
21  10722                The new media is sometimes hard to
22     define, also conceptually.  It does functionally
23     certainly perform some broadcast functions.  It
24     certainly can be live voice interaction in a
25     tele-communications service.  Certainly all of these


 1     are used together to establish a dialogue with
 2     customers and potential customers as far as marketers
 3     are concerned, and certainly the new media consist
 4     collectively as an ability another route to communicate
 5     with your customers and hear their communications back.
 6  10723                But we would also suggest that there
 7     are many unique characteristics and that perhaps is why
 8     we have sometimes conceptually some difficulty getting
 9     our heads around this.  It certainly has its
10     international aspects and it has relative anonymity. 
11     It has an immediacy.  It can have a real time dialogue
12     with consumers.  All of these suggest that there is
13     something more and above what has traditionally been
14     described as broadcaster telecommunications.
15  10724                On the way up here I was thinking
16     that -- and it occurred to me as an analogy that, and I
17     haven't fully explored this in my mind, but it occurred
18     to me that when the automobile came along it was for a
19     long time described as the horseless carriage because
20     those were the terms we were used to using and the
21     concepts we used to have.  It took some time before the
22     full concept of a brand new industry and a brand new
23     concept, although it still delivered people from point
24     to point, it came along and we understood there were
25     some unique characteristics and we needed different


 1     rules and regulations to govern it.
 2  10725                So we do not suggest that this
 3     collectively new media should be defined in its
 4     traditional terms, or that the regulatory roles of
 5     governments can as well.  And, in fact, the borderless
 6     nature of the media means that if Canada does certain
 7     things in terms of unnecessary domestic regulation, it
 8     is going to damage the role and growth of new media and
 9     the contribution it can make to this country because
10     not only will it develop elsewhere, Canadians will have
11     full access to it on an international basis.
12  10726                We believe that the role of
13     self-regulation should not be underestimated.  It is a
14     good and effective tool to achieve public policy
15     objectives in many cases and combined with appropriate
16     government intervention can effectively help the new
17     media drive commercial growth in the country and still
18     protect consumers.
19  10727                We have had a code of ethics and
20     standards of practice in place for several decades now. 
21     It became compulsory for our members in 1993 and has
22     been amended several times, including to add practical
23     standards for our members in Internet marketing.
24  10728                I would like to stress, however, that
25     it is mandatory.  This is not a model code.  These are


 1     not guidelines for our members.  All of our members
 2     must sign a commitment every year to comply with our
 3     code of ethics.  It governs the full range of marketing
 4     activity and fair business practices, privacy,
 5     misleading advertising and governs our members'
 6     activities no matter what medium they happen to be
 7     using.
 8  10729                This is because we believe that it is
 9     in the commercial self-interest of those using the new
10     medium for business purposes to self-regulate to build
11     consumer confidence and any marketer today will tell
12     you that the key to commercial success is consumer
13     confidence and trust.  Ethical marketers these days
14     want you to come back and buy again and again and again
15     and they intend to treat you properly during the
16     process of making your buying decision and after you
17     place your order.
18  10730                I indicated earlier we believe the
19     new media have some unique aspects and, in fact, we
20     have added some media specific rules to our code of
21     ethics.  We have banned the unsolicited sending of
22     marketing e-mails, sometimes known as spam, so our
23     members cannot communicate with you using that medium
24     without your consent.
25  10731                You may not collect information about


 1     a consumer without their permission.  You must tell
 2     them what you intend to do with that information and
 3     you must have their consent to proceed.
 4  10732                Recently we have also considered the
 5     issue of establishing specific guidelines to marketing
 6     to children using the media.  However, we discovered
 7     that in fact when we consider those issues they seemed
 8     equally applicable to whatever our members were doing,
 9     whatever medium they chose to use and, therefore, we
10     have developed a full new set of marketing to children
11     guidelines that will apply not only to electronic
12     commerce, but also to the more traditional medium and
13     those will be announced publicly in January.
14  10733                In conclusion, I would simply say
15     that we believe that there is a good opportunity to
16     provide a regulatory framework for the growth of
17     electronic commerce and the use of new media, and it
18     has been considered in many different forums, both
19     internationally and domestically at the present time
20     and that any decision by this Commission should
21     complement that ongoing debate and various discussions
22     that include consumer groups, business and the
23     government.
24  10734                Thank you very much.
25  10735                THE CHAIRPERSON:  Thank you, Mr.


 1     Gustavson.
 2  10736                I will turn the questioning to
 3     Commissioner McKendry.
 4  10737                COMMISSIONER McKENDRY:  Thank you,
 5     Mr. Chair, and good afternoon.  Thank you for coming to
 6     share your views with us today.
 7  10738                Just let me start with an observation
 8     and I will get your comments on that.  One of the
 9     things that strikes me about your Association and your
10     members that's a little bit different from some of the
11     parties we hear from is that seemingly you are not
12     afraid to identify issues like children, marketing to
13     children, privacy, spam, identify them and deal with
14     them head-on.  In fact, I think your Association and I
15     think you say in your comments is supportive of the
16     privacy legislation that is in front of the House of
17     Commons now and you have put in place an extensive
18     self-regulatory process to deal with some of these
19     issues.
20  10739                What is it about your members that
21     drive you to be so proactive in these areas?
22  10740                MR. GUSTAVSON:  I would say,
23     Commissioner, that it is a great realization I think on
24     the part of marketers that you are in this for the long
25     run.  You are here to build consumer confidence in


 1     doing business with your company and there is this
 2     whole concept of marketing these days known as the
 3     lifetime value of a customer, that it is not just the
 4     initial purchase.
 5  10741                In fact, you may not make that much
 6     money on the initial purchase, but where you are really
 7     going to have value from the customer is the fact that
 8     they continue to wish to do business with you and that
 9     their good will will spread to others who may also
10     choose to do business with you because of your
11     reputation.
12  10742                As consumers face a plethora of
13     offers, and some of them quite complex, from all sorts
14     of different media, how do you sort that out?  Well,
15     you sort it out by people's reputation, their brand,
16     their image, the fact you know friends, relatives or
17     neighbours may have done business with this company
18     successfully.
19  10743                We believe that that consumer
20     confidence is the core to our members' economic growth
21     and that is what they believe.  So, strong
22     self-regulation, making consumers aware of that
23     self-regulation, making sure that they know that there
24     is a way of solving problems should they have them, to
25     us is simply makes good business sense.


 1  10744                We are not sitting here trying to be
 2     totally altruistic.  We are trying to build our
 3     businesses and we think that is an effective way of
 4     doing so.
 5  10745                COMMISSIONER McKENDRY:  One of the
 6     problems that has existed for the Commission and other
 7     regulators and governments is that not all members or
 8     companies in the private sector are members of your
 9     Association, or associations like your Association, and
10     that has always, it seems to me, caused a dilemma for
11     public policy makers and regulators.  On one hand you
12     have some companies, several companies in your case,
13     attempting to do the right thing and doing the right
14     thing.  On the other hand, some companies choose not to
15     be members of associations like yours and aren't doing
16     the right thing.
17  10746                As we go forward in all of this, do
18     you have any thoughts about how we can reconcile that
19     dilemma we face?
20  10747                MR. GUSTAVSON:  I think there are two
21     parts to it.  We dealt extensively with this issue most
22     recently in Bill C-20 in trying to combat
23     tele-marketing fraud and encouraging its passage
24     through Parliament.
25  10748                The reason in 1995 we came out


 1     publicly in favour of the federal government passing
 2     national privacy legislation was because we concluded
 3     that business in Canada was not going to
 4     comprehensively self-regulate on the issue, and we have
 5     some other precedents where we have gone before this
 6     Commission on the telemarketing industry several years
 7     ago in co-operation with Bell Canada and encouraged it
 8     to enact certain tariff provisions that would require
 9     those using the telephone for business purposes to
10     comply with our code of ethics.
11  10749                So there is a point in time where
12     there is a widespread societal issue which we believe
13     can only be handled by appropriate government
14     regulation and that does not have to be detailed codes
15     of conduct.  That can be basic principles.  The
16     government doesn't have to wade in and govern the
17     day-to-day conduct of its corporate citizens, but can
18     establish some principles by which all businesses can
19     be guided.  So that's the one aspect.
20  10750                The other aspect, however, is no
21     matter how many laws you pass, how many regulations you
22     enact, no matter how much activity governments or
23     regulatory bodies take, there are going to be people
24     out there determined to act illegally, to defraud
25     people and they are going to find victims.  It still


 1     astonishes me how many people call because they have
 2     sent either their credit card number off into
 3     cyberspace and have no idea where it has gone, or for
 4     that matter have dropped a cheque in the mail addressed
 5     to some Post Office box in Las Vegas, and now they want
 6     our help in trying to find out where their money went.
 7  10751                So, to me the number one defence in
 8     all of this is an educated, cautious consumer, who
 9     knows how to ask the right questions and it's not that
10     difficult.  There are some very simple rules consumers
11     can follow, but I really do believe that in this day of
12     rapidly changing technology, techniques, offers to
13     consumers, the ability to reach consumers and for
14     consumers to access these offers, that public education
15     on how to be a smart consumer is the number one defence
16     against some of these problems.
17  10752                COMMISSIONER McKENDRY:  In terms of
18     public education, particularly as it relates to the
19     Internet, where do you see the responsibility for that
20     lying, with the private sector, with government, with
21     both, with the CRTC?
22  10753                MR. GUSTAVSON:  I have always had a
23     laugh at my American colleague whose view is that the
24     least government is the best government and I have to
25     explain that in Canada we take a slightly different


 1     view, a little more co-operative approach on this
 2     basis.  So, I would select to your last option of a
 3     combination of both.
 4  10754                I think those who want to profit from
 5     the Internet have a clear incentive, a commercial
 6     incentive to go out and build consumer confidence,
 7     whether that's by display of a logo that stands for the
 8     membership in an organization such as ours, or another
 9     reputable organization, whether it is participating in
10     public education campaigns as we have done extensively,
11     or whether it is encourage government from time-to-time
12     to actually appropriately set up proper standards that
13     business has to comply with.
14  10755                I am not trying to be too vague in
15     the answer, but I really do think that it is a
16     combination of both.
17  10756                COMMISSIONER McKENDRY:  Has your
18     Association carried out any public education campaigns
19     specific to electronic commerce or the Internet?
20  10757                MR. GUSTAVSON:  Not specific.  We
21     have carried out a number of public education campaigns
22     in how to evaluate a company in terms of whether or not
23     you want to do business, but we are not media specific,
24     nor do we favour one medium over another particularly. 
25     We love it all.


 1  10758                We would encourage people to do
 2     business, whether it is responding to a 1-800 number in
 3     a television ad or something they see on the Internet
 4     or a telephone call they receive, these cautions apply
 5     to all media, not just the new media.
 6  10759                COMMISSIONER McKENDRY:  I was
 7     interested in your comment in your oral comments about
 8     the Internet becoming affordable.  One of the comments
 9     that is raised about the affordability of the Internet
10     is that, yes, the monthly subscription fee for access
11     to the Internet is affordable, but that a consumer has
12     to buy a computer and learn how to use that computer in
13     order to take advantage of those affordable rates.  To
14     what extent do you think that the price of the
15     appliance to use the Internet and the ability of people
16     to use it will limit the growth of the Internet and in
17     effect limit it as a marketing tool for your members,
18     or just to follow on that, is the demographic of the
19     people that already have them the demographic that you
20     are trying to reach and that's not an issue for you?
21  10760                MR. GUSTAVSON:  I suppose the
22     appropriate comment is we are still very much in the
23     early stages.  The widespread commercial use of the
24     Internet and the Web is only a few years old.  I would
25     disagree to some extent with one of your basic


 1     premises, that you have to go and buy a computer.
 2                                                        1435
 3  10761                There are appliances that you can buy
 4     at much less cost than a computer that will simply give
 5     you access to the Internet, not the other computing
 6     ability, but certainly access to the Internet.  In
 7     fact, you can have your television interact as well.
 8  10762                Increasingly we are going to see
 9     those new types of appliances become more affordable. 
10     I would take you back to the early days of television. 
11     If you took a percentage or some comparable cost in
12     society of buying a television in the early fifties, I
13     suspect it is already much cheaper to access the
14     Intenet than it was to buy a television in those days.
15  10763                With any new thing that you might
16     wish to have, whether it's a microwave or a VCR or
17     whatever, the price comes down over time.  That is the
18     historic norm.  It has been proven over and over again
19     and we are seeing it already.
20  10764                I don't think there are huge economic
21     barriers at the moment.  It's not obviously as
22     widespread as televisions or telephones, but prices are
23     coming down.  We don't see it as a mass medium yet. 
24     It's getting there.  But there are lots of other ways
25     of conducting a dialogue with a consumer than using the


 1     Internet.
 2  10765                COMMISSIONER McKENDRY:  Will there be
 3     a shift away from so-called traditional forms of direct
 4     marketing such as telemarketing and direct mail?  Are
 5     you anticipating a shift over time away from those ways
 6     to reach consumers?
 7  10766                MR. GUSTAVSON:  It's going to be led
 8     by consumer demand.  I have no question.  As usual,
 9     they are the ones with the money.  It's going to depend
10     on what they want and how the find it easy to make
11     their selections, look at offers.
12  10767                Our experience is that many consumers
13     get on the Internet, look through, do some comparison
14     shoppings for the qualities or features that are of
15     most interest to them, turn off the computer and walk
16     down and buy the product at the retail store.
17  10768                They still want to touch, feel,
18     smell, try on, whatever it happens to be before they
19     make the final decision or they would rather pick up
20     the 1-800 number because they are more comfortable with
21     that and actually complete the transaction.
22  10769                That we believe is quite normal as
23     consumers get more comfortable with a new medium.  You
24     see an explosion in dealing with financial transactions
25     over the Internet and by telephone banking.  Obviously


 1     Canadians have voted with their pocketbooks in that
 2     regard.
 3  10770                In terms of the shift, there will be
 4     a normal evolution as marketing dollars shifted to
 5     television from radio and so on, but we also see the
 6     whole marketing communications pie growing larger and
 7     larger.  Incremental dollars in marketing are flowing
 8     to information based marketing.  The use of personal
 9     information to present offers or tailor offers, whether
10     it is on your Web site or another medium, really
11     reflect what you believe a consumer's interest would
12     be.
13  10771                Incremental dollars are flowing
14     there.  People aren't going to abandon brand
15     advertising and image advertising altogether.  Rather
16     than an abandonment of some of the traditional
17     marketing expenditures, we would see incremental
18     dollars flowing to the new media and new marketing
19     techniques.
20  10772                COMMISSIONER McKENDRY:  Let me take
21     you back to your term information based marketing.  It
22     might be helpful for us if you could just elaborate
23     what that term means, at least in the context of direct
24     marketing.
25  10773                MR. GUSTAVSON:  Well, actually in the


 1     context of all marketing these days where people are
 2     finding their marketing dollars becoming most
 3     effective, or at least the incremental dollars, is an
 4     ability to speak to the consumer about what the
 5     consumer wants to hear.  In other words, making the
 6     message relevant and how do you do that.
 7  10774                Well, you analyze your marketplace
 8     and increasingly look at the demographics and personal
 9     interests of the individual.  We are not talking here
10     about going out and analysing any individual's buying
11     patterns particularly.  That doesn't make economic
12     sense because you have to deal with each individual,
13     but creating a model buyer and then through the
14     information that you can gather.
15  10775                A subscription list of 500,000
16     people, a recent purchase of a million people there,
17     some demographic information and putting it all
18     together, you can come up with a pretty finite list of
19     people who might be interested in your product.
20  10776                Then you choose the most cost
21     effective way of reaching that person.  It might be
22     advertising on a particular television program.  It
23     might be sending them a catalogue.  It might be placing
24     a phone call.  It might be putting up a Web site and
25     promoting access to it.


 1  10777                The market will make that decision
 2     purely on the basis of what's most cost effective to
 3     reach the most number of potential buyers that have
 4     been identified by this analysis of personal
 5     information.  That, of course, raises all sorts of
 6     public policy issues on privacy but that's another
 7     subject.
 8  10778                COMMISSIONER McKENDRY:  I think
 9     people understand that it is fairly easy to get lists
10     of phone numbers, names and so on, addresses, these
11     days.  How available are e-mail lists, people's e-mail
12     addresses?
13  10779                MR. GUSTAVSON:  Well, one of the
14     problems with e-commerce is that the economics are
15     somewhat different.  If I advertise more and more on
16     television, it costs me more and more.  If I put more
17     and more magazine advertising out, it would cost me
18     more.  If I send out 300,000, 3 million or 30 million
19     e-mail solicitations, it doesn't make a huge difference
20     to my cost.
21  10780                The whole economies of scale have
22     changed.  You need a very small percentage if you are
23     sending out 30 million offers to make money.  That's
24     one of the problems.  That's one of the reasons we
25     banned our members sending out unsolicited advertising.


 1     It was becoming such an annoyance and the economics
 2     really are different.
 3  10781                These lists are extremely easily
 4     available and they are very cheap.
 5  10782                COMMISSIONER McKENDRY:  I wanted to
 6     ask you a bit about unsolicited e-mail or spam.  I want
 7     to come back to your voluntary code and have you talk
 8     about that for a moment.
 9  10783                First I want to ask you a bit about
10     the Commission's jurisdiction in this area.  One of the
11     great subjects of debate during this proceeding has
12     been where the Commission has jurisdiction, where it
13     doesn't have jurisdiction, what's broadcasting, what
14     isn't broadcasting and so on.
15  10784                It seems to me, and I will put this
16     to you for your comment, that it's fairly clear that
17     unsolicited e-mail is an area where the Commission, if
18     it so chose, could exercise its regulatory authority
19     under section 41 of the Telecommunications Act.
20  10785                Is that your assessment of the
21     situation?
22  10786                MR. GUSTAVSON:  I am going to decline
23     to give an assessment.  Although a member of the legal
24     profession, I have no background in the specific
25     operations of the Broadcast Act, particularly section


 1     41.
 2  10787                COMMISSIONER McKENDRY:  The
 3     Telecommunications Act.
 4  10788                MR. GUSTAVSON:  Thank you.  Our point
 5     is somewhat different.  There is no need for the
 6     Commission to intervene in areas where others are
 7     already actively dealing with a subject and it may be
 8     counterproductive to do so.  In that I include the
 9     areas of privacy, security of transactions, taxation
10     regimes and so on.
11  10789                We would have no objection if the
12     Commission chose to exercise its authority in that
13     regard.  On the other hand, is the public policy
14     because of irritation because if it is simply
15     irritation, I'm not sure that's an appropriate exercise
16     of any jurisdiction that you might have, if I may be so
17     bold to make that suggestion.
18  10790                There is a difference between
19     intrusion into one's personal affairs and simple
20     annoyance.  We would also suggest that the misleading
21     advertising guidelines would apply from the Competition
22     Act as to the content of the message as opposed to
23     regulations on its delivery.
24  10791                COMMISSIONER McKENDRY:  Perhaps I
25     will just read to you section 41.  If you have a


 1     comment after I read it, go ahead and provide it to me. 
 2     If you want to contemplate it, perhaps it's something
 3     you could deal with in your final comments in the
 4     proceeding.
 5  10792                I will quote section 41.  It says:
 6                            "The Commission may by order
 7                            prohibit or regulate use by any
 8                            person of the telecommunications
 9                            facilities of a Canadian carrier
10                            for the provision of unsolicited
11                            telecommunications to the extent
12                            that the Commission considers it
13                            necessary to prevent undue
14                            inconvenience or nuisance,
15                            giving regard to freedom of
16                            expression."
17  10793                MR. GUSTAVSON:  I would simply say,
18     Commissioner, that if the CRTC feels it does have
19     jurisdiction, and it would appear to be from that
20     reading, it should be cautious about exercising that
21     jurisdiction unless it has appropriate public policy
22     grounds beyond simply preventing irritation of the
23     consumer.
24  10794                COMMISSIONER McKENDRY:  Perhaps we
25     could then talk about your self-regulatory practices. 


 1     I notice you have included with the kit that you have
 2     provided us today amendments to your code of ethics,
 3     standards of practice for Internet marketing.
 4  10795                There's a section in there that deals
 5     with consent with respect to unsolicited e-mail and
 6     talks about the different forms of consent, including
 7     implied consent.
 8  10796                Perhaps you could just give us some
 9     comments on how your self-regulatory code deals with
10     the issue of unsolicited e-mail.
11  10797                MR. GUSTAVSON:  Certainly.  We
12     believe it is in the self-interests of marketers not to
13     annoy consumers.  Therefore, as a result we have
14     required a second step.  An individual must have an
15     existing relationship and an indication from the
16     consumer that they are prepared to receive marketing
17     electronic communications.  That's one aspect of it.
18     There are others which I can deal with if you wish.
19  10798                We would say that there is plenty of
20     opportunity for people to encourage individuals who
21     wish to receive marketing communications to let them
22     know.  You often have a relationship with the
23     individual through another prior purchase, existing
24     communications methods to do so and make that offer to
25     them.


 1  10799                Many people find that very convenient
 2     and don't mind at all.
 3  10800                With respect to consent, we would say
 4     that there are at least three different types of
 5     consent.  The first is implied that you have referred
 6     to.  We would look on that as if somebody ordered a
 7     magazine subscription from you and you had their
 8     personal information, so you could fulfil the order.
 9  10801                We would take it that the marketer
10     has implied consent as the subscription expires to
11     approach you and invite you to renew.  If somebody buys
12     from your catalogue, electronically or otherwise,
13     implied permission to send you more editions of the
14     catalogue to see if you would like to buy more.
15  10802                Negative option consent is a
16     fundamental one for us.  We require that before any
17     personal information is transferred to a third party,
18     before you transfer information to a third party you
19     have to make it clear to a consumer that you intend to
20     do so.
21  10803                From time to time we make our
22     marketing list available to another company that may
23     have goods or services of interest to you.  We give
24     what our code calls a meaningful opportunity to
25     decline.


 1  10804                Our view and our experience is when
 2     people don't like something to happen, they are more
 3     likely to take action than when they are content. 
 4     Normal inertia, if you are content, would say I am not
 5     going to bother doing anything.
 6  10805                We think that is quite sufficient if
 7     information is going to be transferred to a third
 8     party.  Where it's fairly innocuous, name, address,
 9     phone number, nature of a list that's not sensitive, we
10     think that negative option consent in that regard is
11     fine.
12  10806                Let me just pause there to make a
13     clear distinction between what became, quite frankly,
14     mislabelled in a controversy over a cable company's
15     attempt to add new services without permission and
16     charge consumers for it.
17  10807                A lot of people called that negative
18     option.  It was not.  It was an unordered service.  No
19     consumer should have to pay for an unordered service. 
20     Certainly consumers in every province in this country
21     do not have to pay for unordered goods.  In many
22     provinces, they have amended their legislation to
23     include services.
24  10808                We are not talking about unordered
25     goods or services when we talk about negative option. 


 1     I am simply talking about a method of giving consent
 2     for something to happen.
 3  10809                If the information to be transferred
 4     is in any way sensitive, our code requires that you get
 5     positive consent, express consent from the consumer. 
 6     That could be a magazine subscription, depending on
 7     what magazine subscription should be, or health
 8     information or otherwise.
 9  10810                We are very pleased to see these
10     concepts embodied in the new federal privacy
11     legislation.
12  10811                There are different types of consent
13     that can be given, but when it comes to electronic
14     commerce and some of its unique nature, we simply
15     banned the unsolicited sending of information and the
16     collection of information, if I could deal with that
17     for a moment.
18  10812                A lot of marketers requiring
19     information from consumers, and many of them intending
20     not to act unethically or improperly, but as people had
21     click stream data, you can identify an individual from
22     where they are clicking about your site.  They were
23     starting to use that for marketing purposes.  We felt
24     that was inappropriate if the consumer did not know
25     about it and did not have an opportunity to say no.


 1  10813                A lot of companies found it very
 2     effective to operate chat rooms, almost instant focus
 3     groups, people talking about their products and
 4     services, giving comments, exchanging view.  That's
 5     fine, nothing wrong with that, but if you were
 6     collecting information about those individuals, that
 7     was inappropriate if they didn't know you were doing so
 8     and most inappropriate to use it unless they knew what
 9     you were going to use it for.
10  10814                Those are the types of things that
11     our amendments to our code tried to reflect in terms of
12     the unique nature of electronic commerce.
13  10815                COMMISSIONER McKENDRY:  How do you
14     enforce your code?
15  10816                MR. GUSTAVSON:  Well, like most laws
16     of this country are enforced.  We wait until there is
17     some evidence that something has gone wrong, there is a
18     complaint or something has come to our attention that
19     there may have been inappropriate conduct.
20  10817                We then have an Ethics and Privacy
21     Committee that investigates.  We will take action.  We
22     will hold a hearing.  We will take action.  For the
23     most part what we find -- marketers aren't trying to
24     annoy consumers.  They are trying to make them happy. 
25     If somebody is engaged in some conduct that may have


 1     been a mistake or conduct that they simply weren't
 2     aware was inappropriate, and a small committee of
 3     association members going and visiting will often
 4     correct the conduct.
 5  10818                Occasionally we have had to go a step
 6     further, but generally there's an investigatory and
 7     hearing process in place to react to complaints.
 8  10819                COMMISSIONER McKENDRY:  Are there
 9     outside parties involved in the hearing process?  For
10     example, the Cable Television Standards Council which
11     receives complaints, a self-regulatory body that
12     receives complaints about the cable television
13     industry, has a consumer representative on it.
14  10820                Is there any similar situation in
15     your association?
16  10821                MR. GUSTAVSON:  No.  We do not have a
17     consumer representative on the Ethics and Privacy
18     Committee of the association.  It's not an idea that we
19     have particularly rejected, just not one that has come
20     up and we haven't involved a consumer representative.
21  10822                COMMISSIONER McKENDRY:  I want to
22     take you up on your offer to expand on the -- embraced
23     by consumers by the banking and related investment
24     activities on the Internet.  I find that particularly
25     interesting because financial information is obviously


 1     very sensitive personal information and presumably
 2     consumers are feeling comfortable in transmitting
 3     financial information over the Internet.
 4  10823                If you could talk for a little bit
 5     about what has caused this in your view, where you see
 6     it going and the lessons that may be learned from the
 7     financial experience.
 8  10824                MR. GUSTAVSON:  Some of it comes from
 9     consumer behaviour, some of it remains a mystery.  What
10     seems to have happened is that somewhere through the
11     eighties Canadians started getting comfortable with
12     using automated teller machines and dealing with their
13     bank managers over the telephone.
14  10825                Over a process of time, as people got
15     comfortable with that interaction, not having to
16     dealing with a teller, not having to deal face to face,
17     although perhaps using the telephone with somebody they
18     knew, they got so comfortable that it became very
19     common and the convenience started to outweigh any
20     concerns they might have.
21  10826                When telephone banking came along,
22     the convenience alone of being able to pay your bills,
23     not having to bother to mail an envelope, to Canadians
24     seemed to outweigh any concerns they might have with
25     what is happening with their data or their information


 1     at the other end.
 2  10827                Then when the Internet came along,
 3     certainly the banks had developed some securities
 4     procedures.  That seemed to have assured people that
 5     their personal data is going to be as safe as it
 6     otherwise would be dealing with the bank through any
 7     other method.
 8  10828                Those security provisions reassured
 9     consumers, combined with the enormous convenience
10     consumers find, has driven a rapid increase in growth. 
11     It is certainly cost effective.  In fact, an Ernst &
12     Young study has recently suggested that banks are
13     estimating something like a 374 per cent increase over
14     the next couple of years in online and telephone
15     transactions.
16  10829                Certainly it is very cost effective
17     compared to a transaction at an automated banking
18     machine.  It has become cost effective for the banks as
19     well.
20  10830                For consumers, I simply say we are a
21     society that looks for convenience.  Somebody said the
22     other day we stand in front of the microwave now saying
23     "Hurry up".  We just want speed.  We want convenience
24     and we are willing to pay for it.  We are willing to
25     take some apparent risk for it in the security of our


 1     transactions.
 2  10831                COMMISSIONER McKENDRY:  Thank you.
 3  10832                You said in your oral comments and I
 4     think in your written comments as well that -- you
 5     refer to a necessary regulatory role for the government
 6     to encourage consumer understanding and confidence. 
 7     You cite examples, as you have today, of the privacy
 8     legislation and so on.
 9  10833                Do you have any thoughts with respect
10     to the CRTC and its mandate as to whether or not there
11     is any role for us in the areas that are of interest to
12     you?
13  10834                MR. GUSTAVSON:  I guess the analogy I
14     would have to put forward is when television came
15     along, the Commission did not go out of its way to
16     promote necessarily commerce by responding to
17     television advertising or marketing through television
18     or any other medium that has come along.
19  10835                At the time the Commission, of
20     course, quite appropriately dealt with a limited public
21     resource and made certain allocations of that resource
22     and who could use it.  In terms of the commercial
23     activity that resulted, I don't recall the Commission
24     intervening in promoting it or encouraging it.
25  10836                There seemed to be few economic


 1     barriers to the Canadian public accessing it.  In fact,
 2     I would suggest fewer than when television came along. 
 3     The problems that exist in terms of regulating the
 4     commerce that is conducted through the new medium are
 5     being dealt with in other forms.
 6  10837                In terms of the commercial aspect,
 7     not dealing with the Canadian content and other aspects
 8     which are more properly dealt with by other witnesses
 9     before you, it does not occur to me top of mind as to
10     what the Commission ought to do.
11  10838                COMMISSIONER McKENDRY:  Thank you.
12  10839                Let me just end up by asking you
13     about your comment with respect to the children's
14     advertising under the broadcast code.  You said on the
15     bottom of page 2 of your oral comments when new media
16     are seen in this light, regulations such as those
17     governing children's advertising under the broadcast
18     code could be applied to the commercial use of new
19     media.
20  10840                How do you see this being
21     implemented?
22  10841                MR. GUSTAVSON:  I would suggest --
23     again, it fits within the overall pattern that those
24     things governing marketing and advertising today,
25     there's no reason why those laws and regulations should


 1     not apply to the new media.
 2  10842                Exercising the jurisdiction of the
 3     Commission where it exists over the Internet to see
 4     that those things that are properly considered to be
 5     considered ethical conduct has chosen to regulate as it
 6     applies to the new media would be quite appropriate.
 7  10843                There is no need to create a full new
 8     regulatory regime for the new media as opposed to
 9     extending what currently exists to make sure it applies
10     there.
11  10844                COMMISSIONER McKENDRY:  Thank you
12     very much for answering my questions.
13  10845                MR. GUSTAVSON:  Thank you.
14  10846                THE CHAIRPERSON:  Thank you,
15     Commissioner McKendry.
16  10847                Counsel.
17  10848                MS MOORE:  Thank you, Mr. Chairman.
18  10849                I just have one question.  I see from
19     the privacy code that principle No. 4 states the
20     purposes for which personal information is collected
21     shall be identified by the organization at or before
22     the time the information is collected.
23  10850                Am I correct in understanding from
24     the commentary at page 7 of the document called
25     Internet Amendments to the Code of Ethics and Standards


 1     of Practice that this obligation can be fulfilled by
 2     including a link to the marketer's privacy policy at
 3     the place of collection and that a text reference must
 4     be included with that link that states something like
 5     "You may wish to access our privacy policy by clicking
 6     on this icon".
 7  10851                MR. GUSTAVSON:  I guess two points. 
 8     First of all, the identification of purposes is
 9     internal to the organization.
10  10852                Prior to usage of the information,
11     the purposes must be identified to the consumer.  There
12     was always the privacy policy clearly outlined.  What
13     could happen to your information at a point where you
14     still have a choice whether or not to submit it and
15     allow its use.  That would be sufficient.
16  10853                It clearly must -- for instance, if
17     you are going to transfer information to a third party,
18     that is a potential use.  (a) you would have to
19     identify that specifically as a specific possibility
20     and the purposes for which that transfer was going to
21     be made in order to be sufficient.
22  10854                The answer to your question is yes,
23     as long as that privacy policy dealt clearly with what
24     was going to happen with the consumer's information.
25  10855                MS MOORE:  Thank you.


 1  10856                Those are my questions.
 2  10857                THE CHAIRPERSON:  Thank you.
 3  10858                Thank you, Mr. Gustavson.
 4  10859                Just an interesting observation.  I
 5     hadn't thought of it until you were answering
 6     Commissioner McKendry's question.  You talked about
 7     when television came along the Commission didn't do --
 8     in fact, the Commission didn't exist when television
 9     came along.  It wasn't until 1968 that the Commission
10     was created, just about the time when cable television
11     was coming along.
12  10860                I think it's interesting to note that
13     in the context of all this talk about scarce resources.
14  10861                MR. GUSTAVSON:  Perhaps I should have
15     said it was not government policy to promote one medium
16     over the other.
17  10862                THE CHAIRPERSON:  Thank you very
18     much.
19  10863                We will take our afternoon break now
20     and reconvene at 3:15.
21     --- Short recess at 1500 / Courte suspension à 1500
22     --- Upon resuming at 1515 / Reprise à 1515
23  10864                THE CHAIRPERSON:  Good afternoon.
24  10865                We will return to our proceeding now.
25  10866                Madam Secretary.


 1  10867                MS BÉNARD:  Thank you, Mr. Chairman.
 2  10868                The next presentation will be the
 3     Directors Guild of Canada, la guilde Canadienne des
 4     réalisateurs.  Mr. Grant.
 6  10869                MR. GRANT:  Thank you.
 7  10870                Thank you, Mr. Chairman.
 8  10871                Before I begin, I should apologize
 9     for Alan King's absence.  He is in Australia as we
10     speak with a contingent from the Directors Guild and
11     they are in fact negotiating to create hopefully a
12     global organization to focus on director's rights.  So,
13     there are people at the meeting in Melbourne from a
14     number of countries around the world with common
15     interests.  One of the issues I know that is on their
16     agenda, you won't be surprised to learn, is the
17     implications of the Internet.
18  10872                So, I am here to present the
19     Directors Guild's views and to be of any assistance I
20     can to the Commissioner.  They have filed a brief which
21     I had a hand in helping them draft.  I don't propose to
22     go through it.  I assume you have seen it.
23  10873                What I thought I would do though is
24     just to put it in the context of what has been
25     presented to you in the last week or so, or two weeks.


 1  10874                I guess you can start as you evaluate
 2     this brief that it is implicit that the Directors
 3     Guild, like many others, considers that some Internet
 4     uses do stray into broadcasting.  Even now, streamed
 5     audio for radio stations is as close to broadcasting as
 6     makes no difference.  And as you imagine the Internet
 7     expanding into the high-speed uses, it will be more and
 8     more clear that some uses on it will fit within the
 9     technical definition of broadcasting in the current
10     legislation.
11  10875                That's implicit because the brief
12     then focuses on how does one then ensure that certain
13     of the cultural objectives of the Act can be advanced
14     in this new medium?
15  10876                Now, that being said, I think it also
16     comes clear if you examine most of the people looking
17     at this new medium that the impact on conventional
18     broadcasting is likely to be minimal for quite a few
19     years to come.  I say that because even for example
20     radio stations that are now on the Internet and, of
21     course, there is a wide panoply of them, I don't put
22     that in any different context that the availability of
23     radio stations from a variety of sources on shortwave. 
24     These are generally marketing add-ons for the stations. 
25     They are not sources of revenue.  They don't have their


 1     economics driven as stand-alone services.  They are
 2     really add-ons to existing stations and given the
 3     likelihood that no single foreign station on the
 4     Internet will ever get more than what people would call
 5     nickel and dime listening or viewing, they are there
 6     for very specific targeted interests of people who
 7     happen to be from a particular market, so it wouldn't
 8     be a vehicle that would compete really with
 9     conventional radio.
10  10877                Now, on the television side, we don't
11     yet have, of course, a broadcast quality video on the
12     Internet and we are a long way from it.  I think before
13     we get to there, and I think the general consensus is
14     that we are at least five, if not 10 years away from
15     broadcast quality video on the Internet, there are a
16     couple of technical and legal reasons why again it will
17     have minimal impact on conventional television, and I
18     include in there pay and specialty as well.
19  10878                The two issues which seem to me to
20     point to that direction is, first, that as an
21     engineering matter the delivery of high-speed access
22     will tend to be locally designed and administered and
23     that's just a function of the fact that storage is
24     cheap and transmission continues to be expensive and,
25     therefore, if you are going to have high-speed access


 1     it will have to be designed locally and the Web site
 2     will typically be local.
 3  10879                That of course -- there is also at
 4     the same time a very much high degree of likelihood
 5     that within the next five years the copyright sanctions
 6     will be sufficiently important that they will impose a
 7     discipline of territoriality on the Internet in respect
 8     to the transmission of entertainment-like programming.
 9  10880                I think you have heard from some of
10     the music industry here that they are not putting any
11     records on Web sites simply because of that issue, and
12     I don't know that you have any representatives from the
13     motion picture industry, but I can tell you from my own
14     information that the same conclusion has been reached
15     there.  There is no likelihood whatever that you will
16     see Seinfeld or Jurassic Park on a Web site anywhere in
17     the world legally until territoriality and copyright
18     concerns have been resolved and I see that as years
19     away.
20  10881                So, I put those issues from and
21     centre because I think the impact on conventional
22     broadcasting can be overdrawn.  I think it is less than
23     an urgency than some may have presented to you.
24  10882                Now, we are still though faced with
25     the question that the Internet in these new areas


 1     qualifies as broadcasting and there are legitimate
 2     public policy issues to be addressed.  The question is: 
 3     What do you want to do about it at this point, if ever?
 4  10883                Now, looking through the various
 5     briefs that have been filed, of course there is a stark
 6     contrast in them where they range all the way from you
 7     can't regulate, you shouldn't regulate, please don't
 8     regulate, or you don't have any choice but to regulate. 
 9     Where the Guild sits is a rather comfortable middle
10     ground, which is to say that you have time to think of
11     creative solutions and there is no need, given the
12     likelihood that the impact is not going to be strong in
13     the next few years, there is no reason why you couldn't
14     deal with it through a relatively low-key approach. 
15     The suggestion made in the brief is to focus on
16     crafting an exemption order that would narrow in on
17     some specific activities that would no doubt be
18     broadcasting and that might give rise to some
19     obligations that would be phrased in the exemption
20     order, and then essentially policed by self-help from
21     the industry.
22  10884                Now, that's the proposal in front of
23     you.  I guess in thinking it through in the light of
24     what has been said at the hearing, I would say that if
25     you were going to craft an exemption order you could


 1     very well say that the exemption order would apply on
 2     its face as of day one, which would in effect take the
 3     Internet outside the purview of your heavy regulatory
 4     mechanism, but you might have a time line on it and you
 5     might have a threshold on it, which might be tied, for
 6     example, to Nielsen or BBM numbers indicating the
 7     degree to which, for example, broadcast quality video
 8     services take a piece of the market.  If it was in
 9     excess of a certain number, 5 per cent, maybe lower,
10     maybe higher, suddenly it would trigger a particular
11     requirement of local ISPs.
12  10885                Now, I say local ISPs because all the
13     technology and the copyright issues point to the
14     premise that these kinds of services will be locally
15     driven.  It is very difficult for anybody to think
16     through a way that this technology will have an
17     offshore Web site delivering Jurassic Park in a
18     competitive way into Canada.  I say Jurassic Park as an
19     example of the sort of entertainment-driven service
20     that would clearly compete with the video on demand
21     services that you have already licensed or to a degree
22     with pay-per-view.
23  10886                I think though that you have a lot of
24     time before that will occur because you are not going
25     to see that until the copyright issues are resolved. 


 1     We are still quite a distance away from resolving them
 2     in Canada.  I will speak to that in a second.
 3  10887                But then, additionally, I think in
 4     the context of these movie-based services you are
 5     seeing a surprising degree of strength in what
 6     everybody was thinking was a dying industry, namely the
 7     mom and pop video market.  It is a function of a recent
 8     redesign of their delivery technique for movies, again
 9     driven by their industry reaction.
10  10888                I don't know if you are aware, but a
11     year ago Blockbuster was considered on the ropes and it
12     took a complete change of its theory of delivery to
13     bring it back to sustenance.  The new delivery
14     mechanism is essentially to cut the studios in for a
15     royalty piece on rental and reduce the up-front cost to
16     the store materially, so that they can have titles in
17     depth because it happens to be a function of that
18     market, which is the same as the video on demand and
19     pay-per-view market that 80 per cent of the volume is
20     driven by some very recent released titles, and the
21     queuing problem in video stores was even worse, if you
22     will, than the queuing problem on the Internet.
23  10889                They have solved the queuing problem
24     and Blockbuster's revenue has gone up.  All the
25     Canadian stores have had the same function and what has


 1     happened is, of course, they purchase these units at
 2     far less.  They provide the studio with enhanced
 3     royalty revenue now.  They never used to have any
 4     revenue from the rental and now they have a revenue
 5     stream from rental and the extra copies are then put
 6     into the sell-through market at essentially their
 7     wholesale price.
 8  10890                So, it's a system which has given new
 9     life to the home video market, to such a degree that it
10     would strike me as frankly counter-intuitive to suggest
11     that any transmission technology into the home is very
12     going to be able to beat the pricing from a wholesale
13     perspective to the studio of that technique.  So, it is
14     likely that that technique will continue to have a
15     month or two advance for some time over any access
16     technology in the broadcast sphere, and I am talking
17     pay-per-view and video on demand, let alone these
18     mechanisms that currently cannot be implied because
19     they have no territorial integrity like the Internet.
20  10891                Now, I guess I will conclude with
21     just a comment about the copyright issue.  It isn't
22     addressed in the brief.  Certainly you will be aware
23     that the Copyright Board of Canada is in the process
24     right now of deliberating on briefs with respect to
25     SOCAN's Tariff 22.  I recommend to you to read the


 1     pleadings on both sides because they are a remarkable
 2     education on to (a) the technology of the Internet and,
 3     (b) the application of our Copyright Act which we all
 4     thought was pretty recent and must be up to speed and
 5     we all know what that means.  But, as usual, you will
 6     find seven major law firms arguing on the head of a pin
 7     as to whether ISPs are or are not subject to the
 8     carrier exemption and all the other minutiae that make
 9     my life proud and give you more work to do.
10  10892                That being said, that is I think
11     equally important as a proceeding for setting
12     groundwork.  It's a proceeding that for whatever reason
13     Canada is the first in looking at those issues in a
14     considered way with relatively recent legislation.  I
15     am not going to prognosticate on the result one way or
16     the other.  I think though that the bottom line is that
17     no matter how the current legislation is interpreted,
18     there is no way that the Internet will be able to avoid
19     the strictures and disciplines of copyright.  I hope
20     that you can carry with you into your own deliberations
21     as you look at many of the other issues.
22  10893                So those are my preliminary thoughts,
23     Mr. Chairman.  I would be delighted to respond to any
24     questions.
25  10894                THE CHAIRPERSON:  Thank you, Mr.


 1     Grant.
 2  10895                I guess given all the legal issues
 3     that we get involved in I am hoping to be an honourary
 4     member of the Law Society of Upper Canada by the time I
 5     am finished this stint at the Commission.
 6  10896                I will turn the questioning over to
 7     Commissioner McKendry.
 8  10897                COMMISSIONER McKENDRY:  Thank you,
 9     Mr. Chair, and good afternoon, Mr. Grant.  Thank you
10     for coming today to give us your views.
11  10898                MR. GRANT:  Good afternoon.
12  10899                COMMISSIONER McKENDRY:  My questions
13     to you will be in the context of the submission from
14     your client, the Directors Guild, but please feel free
15     to offer us asides as you think they would be helpful
16     to the purpose of our proceeding.
17  10900                I am going to start with the general
18     and work down to the specific.  By the general I mean I
19     would like to discuss with you the Internet and some of
20     the things that may make it different from the type of
21     media that we are used to and then I want to talk with
22     you about whether or not programs are being broadcast
23     on the Internet.  I think you have told us it's
24     implicit in your client's position that some programs
25     are being broadcast on the Internet, so we will discuss


 1     that.
 2  10901                However, before I do that, I just
 3     want to ask you about a couple of points you made in
 4     your opening comments while they are still fresh in my
 5     mind.  You made the comment that Web sites will be
 6     local and I am wondering if you could expand on that. 
 7     What do you mean by local?  If I create the David
 8     McKendry Web site, I will have it hosted here in Ottawa
 9     as opposed to Sydney, Australia?
10  10902                MR. GRANT:  No.  I guess there might
11     have been a confusion there, Commissioner McKendry. 
12     What I was focusing on was that when you moved to
13     broadcast quality video applications, it is likely that
14     the Web site that people will access to get that
15     quality will be a local Web site, which is to say one
16     if it is not in the same city, it will be certainly
17     close by.  So, it is unlikely to come offshore and that
18     is simply a function that the costs of storage are
19     essentially zero and the costs of transmission,
20     particularly for high-speed data are material, so the
21     economics of the system drive the Web site to be as
22     close as possible to the serving area that might want
23     to access say video on demand.
24  10903                I don't say that, however, for
25     text-based services or low-speed services.  Although


 1     there are occasions when even those services break down
 2     when there is too high a demand on them.  I guess the
 3     best example was when so many hundreds of thousands of
 4     people tried to get the Starr Report off the Library of
 5     Congress Web site and I am told that local ISPs in
 6     Toronto mirrored that Web site, plus the CNN Web site
 7     in Toronto within 15 minutes, and then all the ISP
 8     queries that came to get a copy of the report would
 9     have seemed to have gone through to Washington, but
10     actually were responded to in the local file server.
11  10904                And ISPs take that strategy for any
12     highly visited Web sites, again to give the illusion
13     that you are getting right across the country at high
14     speed, but that is just an illusion.
15  10905                The technology, as I understand it,
16     is leading one into that direction, so as you increase
17     the requirement for high speed, which is to say
18     broadcast quality in the video side, it is more and
19     more likely that the Web site would be somewhere close
20     by.
21  10906                COMMISSIONER McKENDRY:  And what are
22     the implications of that for the matters that we have
23     under consideration here?
24  10907                MR. GRANT:  Well, I guess from the
25     standpoint of a lawyer the implication is it makes it


 1     more possible to regulate, but that doesn't mean you
 2     should.  I mean there is no question that if the Web
 3     sites that have any economic impact in that area also
 4     happen to be local, then it is possible to treat the
 5     ISP, if you will, as an equivalent to a BDU and
 6     subjected to regulation of that character.
 7  10908                That's not the proposal here, simply
 8     because this is a new medium.  The main delivery point
 9     of which has nothing to do with these high-speed
10     broadband.  I mean a lot of the benefits in the
11     Internet have nothing to do with that, an R-text base
12     or are types of applications which don't have the same
13     cultural dimension that I am describing if we are
14     talking about pure video on demand.
15  10909                COMMISSIONER McKENDRY:  When you say
16     make the ISP easier to regulate from our point of view,
17     are you suggesting that we would then impose a Canadian
18     content requirement on that ISP with respect to its
19     server?
20  10910                MR. GRANT:  No.  The proposal here is
21     much less heavy handed.  In essence, what it would
22     amount to is that you would test whether by some
23     threshold level whether the amount of such a broadcast
24     qualify video being delivered amounts to enough to
25     raise a concern.  Let me suggest that it may never come


 1     to that level, but if it does come to that level then
 2     you would deal with it through an exemption order,
 3     which is essentially the technique of saying that even
 4     if the service passes this threshold level and would,
 5     therefore, otherwise be a broadcasting undertaking in
 6     that respect, the Commission does not require it to get
 7     a licence, and doesn't require it to comply with
 8     anything except some specified terms and conditions and
 9     that's where you become creative.
10  10911                They could be very lightweight.  They
11     could be zero or they could have some cultural content
12     to them.
13  10912                COMMISSIONER McKENDRY:  You said
14     raise a concern.  Now, what is this concern that would
15     be raised?
16  10913                MR. GRANT:  I guess if we are
17     talking, for example, in the video on demand area, the
18     concern would be raised if there is a material impact
19     on your broadcast licensees.
20  10914                Again, I don't think that is likely
21     to occur because the broadcast licensee you have,
22     whether it is pay-per-view or video on demand, are
23     already in the market and providing broadcast quality
24     service with the high level titles on a convenient
25     level.  So, it is hard to imagine that Internet is


 1     really going to really compete with that, given also
 2     the copyright issues I described, which may just stop
 3     it dead before it becomes a competitive threat.  But
 4     that would be one of the issues of concern.
 5  10915                COMMISSIONER McKENDRY:  Although you
 6     say the likelihood of a material concern is not high, I
 7     take it that you are saying even if it is -- or even if
 8     it does take place, we would issue an exemption order.
 9  10916                MR. GRANT:  Yes.
10  10917                COMMISSIONER McKENDRY:  I mean the
11     question then in my mind is why bother?  There is a
12     problem, but we will ignore the problem.  We will issue
13     the exemption order.
14  10918                MR. GRANT:  Well, I take the point
15     that most lawyers in the game would concern themselves
16     that there is a potential to be regulated unless the
17     Commission were to speak on the matter because for
18     these certain services that are clearly broadcasting,
19     if the Commission does nothing it leaves it open for
20     someone to bring a complaint and even bring some kind
21     of action, an injunctive action to cease and desist
22     because you are carrying on a broadcasting undertaking
23     without a licence.  Absent an exemption order, the
24     defence would -- that would be a real problem.
25  10919                I think you do a service for the


 1     industry in effect by issuing an exemption order that's
 2     clear because it then sort of sets the groundrules and
 3     people know that there is a certain area in which the
 4     Commissioner has made it clear that they have no
 5     concerns.  And then there is an area in which there is
 6     a threshold concern, but even there there is not going
 7     to be a licensing requirement.  It will be a diminimis
 8     requirement of good efforts of some kind.  I mean
 9     that's of course, as I say, where one would have to be
10     creative.
11  10920                It goes to the old issue that from
12     the standpoint of people making an investment they
13     would prefer to be 10 feet away from the precipice,
14     rather than just a foot or two and having a clear
15     exemption order helps them in that regard.
16  10921                COMMISSIONER McKENDRY:  While we are
17     on the subject of exemption orders, we have had a
18     discussion with some of the other intervenors about the
19     Commission's ability to issue an exemption order to an
20     undertaking that was controlled by non-Canadians.  What
21     is your view on this issue?  Can the Commission issue
22     an exemption order to an undertaking that it couldn't
23     licence?
24  10922                MR. GRANT:  Yes.  I have always
25     thought that.  I know that's a view that is not held by


 1     some lawyers, but my reading of the Act is that there
 2     is nothing to stop you from exempting an undertaking
 3     that is foreign owned.
 4  10923                It is already of course been for many
 5     years the case that your master and tenant exemption
 6     order benefits apartments.  And apartment buildings --
 7     I can't imagine there is quite a few of them owned by
 8     people with banks in Geneva.  I mean the horse is out
 9     of the barn in terms of principle, but just reading the
10     Act the way it is I think reading into it a requirement
11     for a Canadian ownership for exempt services doesn't
12     need to necessarily fall and I would be quite liberal
13     on that.
14  10924                COMMISSIONER McKENDRY:  Let me now
15     take up one other point that I thought I heard you say
16     in your oral comments, you were talking about the
17     impact of the availability of broadcast quality, video
18     on the Internet and you said the impact would be low
19     because it would be some time before we would be able
20     to see this type of video legally.  Perhaps your
21     comments were in the context of feature films, I am not
22     sure.
23  10925                One of the issues that has come up in
24     the hearing, at least with respect to music, is the
25     fact that there is a great deal of this content, music


 1     content in particular, available on an apparently
 2     illegal basis.
 3  10926                MR. GRANT:  Yes.
 4  10927                COMMISSIONER McKENDRY:  And it is
 5     having an impact.  So, I guess what I would like you to
 6     comment on is if we wait for the legal threshold will
 7     everybody else wait, or will there be a grey market or
 8     a black market for video before then that could have an
 9     impact?
10  10928                MR. GRANT:  Well, I agree by the way
11     with the comment that the music that you are now seeing
12     on Web sites, if you are seeing it across a territorial
13     boundary is pirated.  I think that eventually that will
14     become clear in international jurisprudence.  It is
15     just a matter of time before the law makes that clear.
16  10929                It is interesting, in the United
17     States that law has already been made clear in respect
18     to trade mark protection and all kinds of Web sites
19     have been closed down to have their trade mark and
20     trade names checked and removed because of perceived
21     breaches of territorial integrity of trade marks.  It
22     is just a matter of time before that applies to
23     copyright, which means, of course, that what I would
24     call the branded Web site will close down.
25  10930                Now, there will always be the


 1     underground Web sites doing their own wonderful
 2     compilation of Beetles records and there will be a
 3     certain underground of that forever I suppose, but the
 4     bottom line is that if you were actually intending to
 5     have an economic impact with a Web site, the Web site
 6     has to be branded and a certain expenditure has to be
 7     there to build up the critical mass of hits for it so
 8     that it becomes self-sustaining.  As soon as that
 9     occurs, it becomes a target for copyright plaintiffs.
10  10931                So I think I am not -- I think,
11     frankly, the copyright area in the music field will
12     bring discipline to the field within a matter of years,
13     maybe even months, but certainly within years.
14  10932                Now, you pointed to the fact that it
15     is having an impact.  I think the impact is primarily
16     on record sales perhaps, but it is certainly not on the
17     economics of local radio which is what you regulate. 
18     If it were to have an impact on the economics of local
19     radio, then it certainly would raise a problem, but, as
20     I say, certainly the analysis I have seen is that the
21     traditional radio is not targeted by those kinds of Web
22     sites.  They are filling quite a different purpose and
23     they are not supporting or eroding local ads.
24  10933                From all accounts, the traditional
25     media that is most likely to be eroded by the Internet


 1     is classified ads in the newspapers, which is not a
 2     matter I guess we need to concern ourselves with at
 3     this hearing.  I shouldn't say that because I guess the
 4     newspapers appeared before you with a cri du coeur to
 5     create their own Web sites, so they could staunch the
 6     likely diversion of their classified ad revenue to
 7     those sites -- better operate themselves than see it go
 8     to the competition.
 9  10934                But again, just in terms of your
10     question, what is the impact of this piratical music? 
11     I would think it has had very little impact on local
12     radio at this point\.
13  10935                COMMISSIONER McKENDRY:  Thanks.
14  10936                Now I would like to talk for a few
15     minutes about the Internet and I would like to go over
16     with you some of the characteristics of the Internet
17     that have been put forward in the proceeding to date
18     that are making or we are told make the Internet a
19     unique new medium.
20  10937                But first of all, just let me put to
21     you an observation that AOL Canada agreed with at page
22     347 of the transcript.  They agreed with the
23     observation that the Internet is a unique and a wholly
24     new medium of worldwide communication.  I guess the key
25     words there are "unique, wholly new medium and


 1     worldwide communication".  Do you agree with that
 2     observation?
 3  10938                MR. GRANT:  Yes.
 4  10939                COMMISSIONER McKENDRY:  Just now
 5     perhaps we could go through, as I said, some of the
 6     characteristics that have been put forward to explain
 7     in the view of intervenors why that's the case. 
 8     Perhaps I could get some comments from you.
 9  10940                First of all, we have been told that
10     it is not a scarce, expressive medium and that makes it
11     a very unique characteristic of this new medium.
12                                                        1545
13  10941                MR. GRANT:  I would say that would be
14     applicable to text-based services but because of the
15     capacity crunch for broadcast quality and the need for
16     local Web sites, that's a different issue.
17  10942                I think the jury is out on whether
18     there wouldn't be to some degree some players that
19     would acquire a dominant position by virtue of their
20     access to the local high speed delivery last mile.
21  10943                There's also a feature now that is an
22     interesting problem for economists and that is the
23     monopoly characteristics of branding.  Again I think
24     the jury is out on what will happen on the Internet is
25     yes, there will be a myriad, in fact millions of Web


 1     sites, but for particular uses there will be critical
 2     masses develop around a particular Web site like
 3 for books and others for other types of
 4     purposes to the degree that you have niche monopolies
 5     develop.
 6  10944                Again, nobody knows whether that will
 7     occur or not.  There are lots of thoughts that as long
 8     as each country is proactive in getting exciting new
 9     Web sites out there in front, they will then establish
10     themselves as beachfront property.  It is very hard to
11     be the number two in these markets if you are
12     competitive and so forth.
13  10945                The technology, of course, you are
14     quite right points to complete openness and no limit
15     whatever to the channels or the Web sites that could be
16     accessed, but it's not necessarily the case that there
17     still wouldn't be some issues about dominant position.
18  10946                COMMISSIONER McKENDRY:  Did you say
19     that each country is trying to establish beachfront or
20     should try and establish beachfront by trying to get
21     Web sites that are attractive out front?
22  10947                MR. GRANT:  Yes.
23  10948                COMMISSIONER McKENDRY:  Now, is that
24     a role for governments?  Is that what you are
25     suggesting?


 1  10949                MR. GRANT:  That is an area that is
 2     uniquely that of the private sector.
 3  10950                COMMISSIONER McKENDRY:  One of the
 4     other characteristics that has been put forward to us
 5     is that the Internet is located in no particular
 6     geographical location, but is available to anyone
 7     anywhere in the world with Internet access.
 8  10951                Assuming you agree with that, what
 9     problems do you see that creating for the Commission
10     that we should take into account in assessing whether
11     or not we have a role or what our role should be in
12     cyberspace?
13  10952                MR. GRANT:  Well, that's a broad
14     question.  It is true that the Internet at a certain
15     level, and again I am focusing on the low text speed
16     uses that certainly are effectively borderless,
17     although there are some crunch issues that are imposing
18     territoriality even on text based services, we start
19     with trade marks but we are moving into other areas
20     such as copyright.
21  10953                Again, you are not seeing the
22     Internet yet as an effective tool for delivering
23     copyright material that is intended to be paid for. 
24     Until that occurs, you are not seeing it either as a
25     tool that competes with conventional broadcasting.


 1  10954                Then the question is when you do see
 2     the Internet starting to supply copyright material upon
 3     payment, will it continue to be borderless?  Now, the
 4     technology is borderless, but the laws are not
 5     borderless.  It may be that at that point you will
 6     suddenly discover that there is territoriality imposed
 7     on the Internet.
 8  10955                You already have it to a degree.  I
 9     was intrigued, for example, last summer.  I clicked on
10     to the New York Times Web site just to look at it and
11     to browse through the paper because I saw a little note
12     about it.  I discovered you first had to sign on and if
13     you were from the territory of the United States, the
14     service was free.  On the other hand, if ]you are not
15     from the United States, you had to give these
16     registration information and your credit card and you
17     would be charged a fee.
18  10956                Then I noticed last October that the
19     New York Times decided in a fit of, I don't know, a
20     gesture of good faith to eliminate the fee for those
21     outside the United States.  Now it happens to be
22     borderless, but up to that point it was sort of
23     interesting to me.
24  10957                Here was the Web site user itself
25     imposing a border.  They could have, of course, set the


 1     fee for people outside at essentially a punitive level
 2     which would have limited them access to that Web site
 3     for the insides of the Web site -- you can get the
 4     front page of it, but it's how to get into the
 5     stories -- to those that are from a particular
 6     territory.
 7  10958                We see there the burgeoning
 8     development of territorial disciplines on the Internet.
 9  10959                Put yourself in the position of a Web
10     site operator who may not have any interest in closing
11     off borders.  They want to serve the whole the world. 
12     They are then faced with a copyright injunction by
13     their program supplier that says "I only have the
14     rights to this country and I insist that you have this
15     discipline".  Then they will have no choice but to
16     institute a system like this.
17  10960                Again, just to complete the picture,
18     you can imagine all kinds of ways around that system. 
19     People using e-mail addresses that have phoney
20     accommodation locations and so forth to try and get
21     around it.
22  10961                The basic system though, once you are
23     talking about the delivery of copyright material into
24     the home for profit, will be to a degree
25     self-regulating.  In that area I have a high degree or


 1     a sense that there will be territoriality in the
 2     system.
 3  10962                COMMISSIONER McKENDRY:  The New York
 4     Times case, and maybe this isn't inconsistent with what
 5     you are saying, as I understand it, they wanted to
 6     fence out people from outside the United States who
 7     didn't pay a fee because they didn't want to
 8     cannibalize their subscriptions to the text based
 9     service around the world.
10  10963                People that were reading the New York
11     Times outside the United States generally subscribed to
12     it, text based copy, and if they provided it for free
13     on the Internet, they were worried that their
14     subscriptions would disappear.  Now, for some reason
15     they have decided they can't sustain that.  That was
16     the impression I was under.
17  10964                Another characteristic we have heard
18     is that there is no centralized point from which
19     individual Web sites or services can be blocked from
20     the Web.  Assuming again that you agree with that, and
21     if you don't I'm sure you will tell me, the question is
22     what problems does this create for governments or
23     regulators concerned about content issues such as
24     cultural relevance.
25  10965                MR. GRANT:  Well, you are quite


 1     right.  To the degree that you number the ISPs in the
 2     thousands as opposed to the hundreds or the hundreds as
 3     opposed to the dozens, you then have a much more
 4     difficult time in policing it.
 5  10966                The fact is that the last mile is
 6     supplied by a relatively limited number of people who
 7     are in the ISP business, and it's a capital intensive
 8     business which will shake out and probably devolve to a
 9     relatively small number of large companies, again, who
10     will be driven mostly by branding and bells and
11     whistles and packaged services and so forth.
12  10967                If that's how it shakes out, then
13     actually you don't have a long list of people to
14     regulate.  It's not going to be as long as your list of
15     BDUs potentially.
16  10968                Let's assume that you do have a long
17     list.  You probably are going to have still a short
18     list of the facilities providers who themselves provide
19     telecom facilities for those ISPs.  There I suggest you
20     might go back to the decision in the telecom book a few
21     years back where the Commission adopted a proposal, I
22     think it was Alarcom that made it originally, but it
23     was the thought that for high speed broadband tariffs
24     from the telecom carriers there should be included a
25     tariff provision which would require the carrier before


 1     furnishing service to the customer to get evidence that
 2     they have a broadcast licence or an exemption order if
 3     they are supplying broadcast services with that
 4     facility.
 5  10969                There are approaches that even if you
 6     have a great diversity of ISPs out there providing
 7     service that might make it possible to have an
 8     exemption order regime such as I described have some
 9     teeth.
10  10970                COMMISSIONER McKENDRY:  Am I to take
11     it that you feel blocking would be possible?
12  10971                MR. GRANT:  Yes.  Of course, that's
13     not how it would work in practice.  What would happen
14     is somebody would complain that an ISP is past the
15     threshold of a certain broadcast type of service but is
16     not fulfilling the conditions.  There is a variety of
17     means then by which to enforce the exemption order.
18  10972                One, of course, is to go straight to
19     the Commission and engage a section 12 proceeding.  The
20     other option would be to have the Commission send a
21     letter to the carrier that furnishes the facilities to
22     provide evidence that their tariff conditions have been
23     complied with.
24  10973                Then what happens is Bell threatens
25     to yank the lines unless they can furnish indications


 1     that they are complying with the applicable regulation.
 2  10974                Then I can imagine, frankly, that if
 3     the ISP server became a branded entity with some
 4     prominence and it was flagrantly abusing the rules and
 5     the Commission for its own budget reasons didn't want
 6     to spend any time going after it, I bet you we could
 7     craft some private self-help remedies by the injured
 8     parties.
 9  10975                That was done in the seventies, I
10     remember, against -- what was it -- Communicom Data by
11     a BDU licensee of the Commission in those days.  They
12     got an injunction.  It didn't cost the Commission a
13     penny.
14  10976                I just put it to you that even though
15     we are talking about a whole new sector that people are
16     working rather gingerly now to understand what the
17     rules are, once you do have the rules in place there
18     will be approaches that can be used to enforce them.
19  10977                COMMISSIONER McKENDRY:  Let me just
20     end up on my discussion of the characteristics of the
21     Internet that have been put in front of us so far with
22     one that was put to us by AOL Canada.
23  10978                At page 340 of the transcript they
24     told us that new media is fundamentally different
25     because it is a pull technology.  Individuals go out


 1     and access unique information and pull it in for their
 2     own purposes.
 3  10979                According to AOL, this is a
 4     fundamentally different proposition than the push
 5     technology of conventional media.  Do you agree with
 6     that observation?
 7  10980                MR. GRANT:  It certainly is true
 8     enough with respect to off-air television and pay and
 9     specialty services, but it wouldn't be true of
10     video-on-demand as licensed by the Commission.  That in
11     effect in terms of the technology that is proposed by
12     some of the licensees or applicants that came before
13     you a year or so ago was essentially the same pull
14     phenomena.
15  10981                You would click to a channel on your
16     screen.  You would have a number of optional program
17     genres to click on to.  You would click on to them. 
18     They would give you a menu.  You would go through the
19     menu and you would finally end up ordering the
20     pre-prepared program that's recorded and stored in the
21     file server.
22  10982                In technological terms, I don't see
23     any difference between that and what you would be
24     describing on the Internet.
25  10983                COMMISSIONER McKENDRY:  Let me read


 1     you something that was put in front of us by Stentor
 2     that I think deals with this point and is relevant
 3     probably to the video-on-demand example.  This is at
 4     paragraph 5781 of the transcript.  It's Mr. Courtois
 5     from Stentor speaking.  He says and I quote:
 6                            "The Internet mode of getting
 7                            it --"
 8  10984                Being programming:
 9                            "-- is interactive.  It is not
10                            necessarily simultaneous.  It is
11                            pull rather than push.  That is
12                            it is not being spewed out there
13                            all at the same time so that
14                            everybody lives the same
15                            experience and if you come a
16                            half hour into it you have
17                            missed the first half hour.  On
18                            the Internet is none of that. 
19                            It is more that the customer
20                            goes and gets the material. 
21                            Even when you use Webcasting
22                            technology, it is not like
23                            broadcasting."
24  10985                With respect to the vide-on-demand
25     case, the proponents of the pull would say "Well,


 1     video-on-demand is more like push because you would go
 2     and get it at the same time.  If you come into the
 3     program a half hour late, you are half an hour late".
 4  10986                MR. GRANT:  That's true enough for
 5     pay-per-view, but video-on-demand as proposed,
 6     certainly I was involved with the Alliance Shaw
 7     application.  They had 500 channels, 40 of which were
 8     pooled channels.  In that scenario, you would have up
 9     to a 15 minute delay.  It would pool people to watch
10     the same title.
11  10987                The other 460 channels were purely
12     VOD as, you know, the conventional thing.  Only one
13     channel would be used by that particular person because
14     nobody else in the time period had ordered that title. 
15     It would be sent directly to that home at the time of
16     their choosing.  They would be the only person to see
17     it.
18  10988                Technically, what Mr. Courtois would
19     have been referring to is either conventional
20     broadcasting which is scheduled or pay-per-view or
21     pooled channels.  Certainly video-on-demand as proposed
22     in that application, the great bulk of it would have
23     been provided only to the subscriber that sought it and
24     at the time of their choosing.
25  10989                It would not, I think, fit within


 1     what he is describing.
 2  10990                COMMISSIONER McKENDRY:  So the
 3     argument that because something is a pull technology it
 4     can't be broadcasting isn't an argument that in you
 5     view is a useful one.
 6  10991                MR. GRANT:  No.  I have given
 7     opinions in the past that in my view the requirement
 8     for simultaneity is not to be found in the Broadcasting
 9     Act and is not a prerequisite to constitute
10     broadcasting in a legal sense.
11  10992                COMMISSIONER McKENDRY:  Let me just
12     explore the interactivity aspect of this with you a
13     little further.  One of the aspects of interactivity
14     that has been put in front of us, and interactivity has
15     been used as an argument to say that what is going on
16     in the Internet isn't broadcasting.
17  10993                One of the dimensions of that is the
18     simultaneous viewing aspect of it.  Those arguments
19     have been put forward to us by at least the Canadian
20     Association of Internet Providers, Rogers and Stentor,
21     the interactive argument.  They make the point that the
22     Internet is not broadcasting because it is interactive.
23  10994                Looking at the record to date,
24     interactivity seems to have three characteristics.  Two
25     of the characteristics that were put forward by CAIP,


 1     and I am going to quote one of those characteristics,
 2     one is:
 3                            "Not simply sitting in front of
 4                            a computer and watching
 5                            something go by"
 6  10995                They used that position to argue that
 7     interactivity existed.  They also pointed out that two
 8     people have different experiences at the same Web site.
 9  10996                Rogers said, and this goes to the
10     point with respect to simultaneous, that:
11                            "--there is not simultaneous
12                            reception by individuals.  The
13                            transmission is individual
14                            streams of packets that do
15                            arrive simultaneously to
16                            individuals."
17  10997                They made that comment at page 518 of
18     the transcript.
19  10998                My reading of the transcript
20     indicates that these three characteristics are used to
21     demonstrate that in fact interactivity exists and that
22     if it's interactive, it's not broadcasting.  Let me ask
23     you for your comments on those views.
24  10999                MR. GRANT:  I think I mentioned to
25     you that the simultaneous issue to my mind is not


 1     relevant.  There is a degree in which interactivity to
 2     my mind would take the service out of broadcastings. 
 3     That would be if the program itself changes by reason
 4     of the interaction.
 5  11000                For example, I would generally tend
 6     to exclude video games from the Broadcasting Act simply
 7     because like playing chess, when you play one thing
 8     then there will be something different that will happen
 9     to you and your experience will generally be different. 
10     Whether it is based on algorhythms or not, it will be a
11     self-created experience, kind of like a private
12     experience, no different than e-mail which is
13     customized to the user and could never be broadcasting.
14  11001                That's not what video-on-demand does. 
15     I know it's true it's not simultaneous.  The suggestion
16     that it's not simply watching something go by, when you
17     think of it, once you click on to a video-on-demand,
18     you do get the video sent to you in real time.
19  11002                If it was a video that was itself
20     interactive and it had different conclusions and was a
21     game, I would think that might very well not constitute
22     a program within the Broadcasting Act because it
23     wouldn't be the same intellectual property going out to
24     other people.
25  11003                If it's just a wide screen version of


 1     Jurassic Park and this is just being used as the
 2     technology to deliver it, I can see no difference
 3     between that and video-on-demand of which I take the
 4     view is broadcasting.
 5  11004                The interactive issue I think the
 6     only way that takes something out of the Broadcasting
 7     Act is if the interactivity relates to the content of
 8     the program itself and not just to the mechanism by
 9     which you click to get it to be sent.
10  11005                COMMISSIONER McKENDRY:  So a key
11     element of your argument that broadcasting is taking
12     place is an argument I take it by analogy that if we
13     found video-on-demand to be broadcasting, then we have
14     to find that certain services available on the Internet
15     that share the same characteristics are broadcasting as
16     well.
17  11006                MR. GRANT:  Yes.  I find it on the
18     basis of first principles, not simply as an analogy to
19     VOD.  Going through the Act and asking the question is
20     it program intended for reception by the public, and
21     you recall it doesn't have to be received at the same
22     time, the question is to what is the public?
23  11007                As long as it's made available to the
24     public, which is made up of a variety of subscribing
25     individuals, the fact that they have required it to be


 1     downloaded at different times to their customers
 2     doesn't change the attributes.
 3  11008                COMMISSIONER McKENDRY:  Just looking
 4     at or considering for a moment what is a program and
 5     the definition of a program that is in the Act, when
 6     deciding whether something that is available on a Web
 7     site is or is not a program, what should we look at?
 8  11009                Should we look at the entire site? 
 9     Should we look at that page?  Do we look at a frame on
10     that page, an image on the page?  Where do we start and
11     stop in deciding what constitutes a program?
12  11010                MR. GRANT:  Well, I think it has to
13     be significant in length, but I suppose technically
14     under the Act, to give an example, a 30 second
15     commercial qualifies as a program.  To a degree then I
16     suppose the unit is in the eye of the beholder.  It
17     should be viewed as a real time unit because again it's
18     only when it's streamed to the public that in my view
19     it meets the test of being a program that is intended
20     for reception by the public.  So there would be a time
21     level to it.
22  11011                I think it has to be a coherent
23     program that -- let's see.  I was going to suggest it
24     would have to be stored in some way, but I guess that's
25     also too limiting because it excludes live programs


 1     which certainly would qualify under the Act as well.
 2  11012                I think it's very difficult to be
 3     precise about it.  I think that in the end it's one of
 4     those things where the Commission will have to be
 5     presented with a videotape of the Web site experience
 6     and then say to itself "Now, that particular area where
 7     they clicked on and then received a particular body of
 8     data in an audiovisual form", because it has to be
 9     both, or at least audio, "is that the equivalent of a
10     broadcast program?"
11  11013                COMMISSIONER McKENDRY:  If the site
12     was predominantly alphanumeric but the particular page
13     wasn't, what do we take into account?  The site or the
14     page?
15  11014                MR. GRANT:  Well, it's what's
16     transmitted.  Again I guess -- it's a fair question. 
17     Would you look into all of the clicks that go into it
18     and then time then and find out what is predominant.
19  11015                I think there will be pretty clear
20     cases where somebody will reach a Web site, click
21     through the menu to get to the streamed audio or video
22     and then the streamed audio or vide will take over for
23     a period of time and it will be such an extensive
24     period of time compared with how short it took to get
25     into it that you will realize immediately this is


 1     predominantly broadcasting.
 2  11016                I don't think you could have any
 3     slavish rules about it, except to point to the word
 4     predominant.
 5  11017                COMMISSIONER McKENDRY:  And from a
 6     practical point of view you think we would be able to
 7     examine the situations and come to a conclusion that it
 8     is or it isn't broadcasting.
 9  11018                MR. GRANT:  Well, yes.  In the end it
10     is always possible to do that.  Again, my thinking was
11     if you were to think of a laissez-faire approach to
12     this whole sector, you would create first of all an
13     exemption order for diminimis applications and you
14     could create a threshold in there that is a pretty high
15     level of delivery.
16  11019                You could, for example, if you wanted
17     to, exclude audio only and say that's exempt no matter
18     what it contains because you think to yourself the
19     copyright will take care of that.
20  11020                As to broadcast quality video, you
21     might say we are only going to have these obligations
22     or requirements click in when the threshold is exceeded
23     to a certain degree.  It could very well be looking at
24     how much usage of a typical ISP is not generated by
25     that that it would be unlikely in the next five years


 1     that that threshold might be reached.
 2  11021                At least you would have established
 3     the ground rules if it were.  I want to come back to
 4     one point I made in another submission to the
 5     Commission but I think bears repeating here.
 6  11022                I think it would be a real mistake to
 7     recommend that all of this stuff that is broadcasting
 8     just be taken out of the Broadcasting Act and defined
 9     away from the Act or out of the Act.  The result of
10     that will be for Canada to lose control ever of getting
11     it back.
12  11023                So much turns on our raw definition
13     of broadcasting in our international trade agreements
14     that it is very important to keep a pretty broad
15     definition in the legislation and have that hang in
16     there in terms of our international trade practice.
17  11024                COMMISSIONER McKENDRY:  Help me
18     understand how this would work in a practical sense. 
19     There's over 60,000 Canadian Web sites.  We would issue
20     a public notice with the minimum criteria in it that
21     you suggested and anything above that criteria or
22     benchmark I take it you are suggesting we issue an
23     exemption order.
24  11025                We would issue a public notice
25     setting out the criteria and we would instruct the


 1     operators of these Web sites who came above the
 2     benchmarks to come and apply to us for an exemption
 3     order.  Is that how it would work from a practical
 4     point of view?
 5  11026                MR. GRANT:  No.  My thinking was that
 6     you would craft an exemption order right away.  You
 7     wouldn't wait for that.  The exemption order or
 8     proceeding to create one would emanate from this
 9     proceeding.
10  11027                You would announce "We have decided
11     for a lot of purposes, even though they are ambiguous
12     or they are clearly broadcasting, in our view they do
13     not impact sufficiently and don't oblige us to have the
14     level of discipline that the Act requires.  Therefore,
15     we are today proposing to issue an exemption order for
16     any and all of that".
17  11028                It's a nice broad exemption order
18     that captures essentially 100 per cent of what is going
19     on today.  Then you would say "However, there is a
20     threshold.  If you ever do reach this threshold, which
21     would mean that broadcast quality video in a streaming
22     sense is quite prominent, is reaching a certain level
23     of market penetration, you will still have the benefit
24     of the exemption order, but the exemption order by its
25     own terms will require certain obligations about some


 1     funding as a proportion of the revenue from this
 2     particular activity to go into a fund or whatever." 
 3     That gives you the impression of supporting the system.
 4  11029                That's in brief how I would envisage
 5     it.
 6  11030                COMMISSIONER McKENDRY:  I want to
 7     come back for a moment to the enforcement particularly
 8     if the funding contribution was imposed upon the sites
 9     or the ISPs that qualified.  Assuming that a particular
10     ISP didn't make the contribution, just ignored the
11     whole thing, how do we get at that?  Do we wait for a
12     complaint?
13  11031                MR. GRANT:  You  wait for a
14     complaint.  The complaint would probably only target a
15     pretty high level player because there is no point
16     going after someone that is just going to go out of
17     business and start up again.
18  11032                It will be a pretty major proceeding. 
19     It will set some ground rules.  You have got all the
20     rights in the Act to, you know, have a person appointed
21     to look at it, give a report to you if you want.  You
22     don't have to do it as your own hearing.  You can
23     delegate it so someone.
24  11033                Alternatively, you can have it played
25     through as a request to the carrier to exercise its


 1     jurisdiction under the tariff.  There's a variety of
 2     methods that are there apply.
 3  11034                The bottom line is at the very end of
 4     the day that someone who disregards the Commission is
 5     subject to prosecution for carrying on a broadcasting
 6     undertaking without a licence or an applicable
 7     exemption order.
 8  11035                COMMISSIONER McKENDRY:  Let me ask
 9     you who is the broadcaster then in this scenario?  Is
10     it the ISP, the Web site or owner?  I take it in your
11     view it is the ISP because that's who we would issue
12     the exemption order to.
13  11036                MR. GRANT:  Well, I would see the Web
14     site operator as essentially being the equivalent to
15     the programming undertaking.  I would see the ISP,
16     unless it itself got into the area of replicating the
17     Web site on its own file server, would be probably a
18     broadcasting distribution undertaking.
19  11037                COMMISSIONER McKENDRY:  Just to make
20     sure I understand.  The broadcaster is the Web site and
21     the ISPs, the distribution undertaking, would both be
22     captured by this process.
23  11038                MR. GRANT:  And you would want to
24     exempt them both.
25  11039                MR. GRANT:  Let me ask you about


 1     something in paragraph 9 of your written submission. 
 2     In paragraph 9 you state:
 3                            "Canadian content quotas have
 4                            ensured that Canadians have
 5                            access to a minimum level of
 6                            Canadian television
 7                            programming."
 8  11040                In paragraph 16 you suggest:
 9                            "A solution to the access
10                            problem for new media is
11                            targeted financial support."
12  11041                You also suggest, as you have
13     mentioned earlier, that:
14                            " ISPs could be required to
15                            provide their customers with
16                            information on links to Canadian
17                            sites on their home pages."
18  11042                I would like to discuss with you why
19     you think an access problem exists with respect to the
20     Internet.  Just let me give you some of the information
21     that we have received so far in the proceeding.
22                                                        1615
23  11043                As I mentioned earlier, Maple Square
24     told us that they index over 60,000 Canadian sites. 
25     According to AOL, 5 per cent of all Web sites in the


 1     world are Canadian.  Rogers told us that Yahoo Canada
 2     can't keep up with the emergence of new Canadian sites. 
 3     They have two people working indexing them and they are
 4     always a little bit behind.  Rogers also told us that
 5     there is 14 million pages of Canadian Web site
 6     information and AOL and Yahoo Canada, through Rogers,
 7     told us that they don't charge for indexing and they
 8     don't charge for display.
 9  11044                So my question to you is in light of
10     all of this that it isn't obvious that there is an
11     access problem, so I would like you to comment on that.
12  11045                MR. GRANT:  This was drafted before
13     that evidence was heard, Mr. McKendry.  I agree with
14     you and I think the Guild in light of that experience
15     would take the view, as you may, that there is no point
16     in the Commission requiring it if it's happening
17     anyway.
18  11046                COMMISSIONER McKENDRY:  Thank you.
19  11047                I have a question now about paragraph
20     15.  Paragraph 15 has the statement, and I will quote
21     it:
22                            "The dramatic increase in choice
23                            brought about by new media
24                            technologies risks burying
25                            Canadian expression."


 1  11048                I guess what I want to understand
 2     here, is all of this choice a bad thing?  It has been
 3     put to us so far as a good thing and a positive
 4     development, but I take it you are saying we are
 5     putting Canadian expression at risk because there is so
 6     much choice?
 7  11049                MR. GRANT:  Well, I guess I would put
 8     this in the context of my earlier remarks, Commissioner
 9     McKendry, which did indicate that based on all
10     indications there is relatively little likelihood that
11     the Internet is going to materially impact on
12     conventional media that you regulate.  I mean, I accept
13     newspapers and classified ads and that sort of area,
14     but for conventional radio and television and pay and
15     specialty services there doesn't seem to be any
16     imminent threat to their livelihood or their existence.
17  11050                What we are seeing on the Internet
18     now is a genuinely new media and, yes, there are some
19     foreign sources, but their net impact is no different
20     in kind than having foreign stations available on
21     shortwave.
22  11051                Now, when we say here the dramatic
23     increase in choice risks burying Canadian expression, I
24     suppose it is possible down the road if one imagined a
25     system in which the copyright issues were resolved.  If


 1     the copyright issues were resolved to a degree where
 2     major copyright owners decided to bypass conventional
 3     media as a means for delivering their programming into
 4     homes, that would risk the viability of our existing
 5     means of Canadian expression.  But I have to say this
 6     was drafted really to just raise the issue to make sure
 7     that the Commission doesn't just give away the
 8     jurisdiction, but hangs in there with an exemption
 9     order that says, well, at this time we are not going to
10     take any steps to regulate, but we have established a
11     threshold which maintains our ability to relook at this
12     if the impact on conventional media turns out to be
13     material.
14  11052                I guess it is just because there is
15     some -- there is just not enough knowledge about how
16     this new media will end up that we came to this
17     conclusion.
18  11053                COMMISSIONER McKENDRY:  Thank you.
19  11054                I would now like to ask you a
20     question about your suggestion that ISPs should be
21     required by us, I presume, to provide customers with
22     information on links to Canadian sites on their home
23     pages.
24  11055                MR. GRANT:  I would actually, in
25     light of your comments, withdraw that proposal.


 1  11056                COMMISSIONER McKENDRY:  Thank you.
 2  11057                I won't ask the question obviously.
 3  11058                Let me finish up by asking you --
 4     well, if you are withdrawing that proposal then I am
 5     not going to ask you my next question because I had a
 6     question about how that related to the Charter of
 7     Rights and Freedoms and if you are withdrawing that
 8     proposal I will withdraw that question.
 9  11059                Those are my questions, Mr. Chair.
10  11060                Thank you very much, Mr. Grant.  It
11     has been very helpful and we appreciate the comments
12     ]you have been able to provide us.  It is in some
13     respects coming late in the hearing, you have to deal
14     with what other people have said before you, but it is
15     very helpful for us to be able to get your views on the
16     views that have been presented to us to date.  Thank
17     you.
18  11061                THE CHAIRPERSON:  Thank you,
19     Commissioner McKendry, and I agree.
20  11062                Just a couple of points that occurred
21     to me.  I like the way Commissioner McKendry took you
22     through the various issues and I guess given what we
23     have heard and when you consider the parallels that
24     have been drawn here by some people to ISPs and BDUs
25     and you think about the way the rules that we put in


 1     place in BDUs, rate regulation, it is probably not an
 2     issue here, simultaneous substitution for advertising
 3     is probably not an issue and even if it was I am not
 4     sure what you could do about it, tiering and linkage
 5     rules are probably not applicable.
 6  11063                When you strip it all way, we end up
 7     back to this, somehow or other we could levy a fee on
 8     these guys, which is actually even in the cable
 9     regulations a relatively new issue that we have adopted
10     only within the last few years.
11  11064                Based on your understanding of this
12     business now, is there any reason to suggest that we
13     need a fee?
14  11065                MR. GRANT:  Well, I think the
15     proposal that I put forward would not in fact lead to
16     such a fee, unless there was a pretty high threshold
17     passed in terms of broadcast quality distribution.  So,
18     I don't think in the end this would resolve in any new
19     money coming into the system for at least five years.
20  11066                But what it protects is your ability
21     to deal with it in a way that at least has some minimal
22     contribution from this sector to the degree that they
23     impact upon others and are clearly in the broadcasting
24     field.  That's how I would orchestrate this.  The
25     threshold could be high enough that it is not likely,


 1     given the technology and the copyright constraints,
 2     that it may ever be reached, but as a point of
 3     principle I think it is hard to argue that there
 4     shouldn't be some support from this, if it is going to
 5     have an impact on the rest of the sector and it is
 6     doing what clearly is broadcasting.
 7  11067                So, I think you can build from the
 8     record of this proceeding a case for a pretty open
 9     system for quite a number of years, but I am just
10     saying that I think the case here that I am putting is
11     that there may be a situation where certain aspects of
12     the sector warrant a requirement for a contribution for
13     the purposes of supporting Canadian expression and this
14     is a useful technique to do it.
15  11068                THE CHAIRPERSON:  On the point about
16     the exemption order and bearing in mind the comment
17     that you made with respect to -- I forget the exact
18     words you used, but the issue of sort of stepping out
19     of the Broadcasting Act, if you will, and then the
20     problems that might create in terms of international
21     trade agreements and in terms of getting back in again
22     should you find at some point in time it was
23     broadcasting.
24  11069                Yesterday I had a discussion with the
25     folks from Astral and in their submission, now mind you


 1     they changed their view when they got here, but in
 2     their second round submission they had suggested we
 3     look at this at three levels; one being that at least
 4     most of the material today is alphanumeric text, so
 5     that's clearly not a program, so it's clearly not a
 6     broadcast.
 7  11070                The second level would be programming
 8     that I think the words used were customized or altered
 9     by the individual user.  Now, it's not clear whether or
10     not, and you had a discussion on elements of that with
11     Commissioner McKendry, about whether or not some of
12     that might be broadcasting and you used the game
13     example, although Ms de Wilde yesterday talked about
14     the moving -- what was it, Clue I guess.  It was out a
15     few years ago that you could pick about four different
16     endings.  So, to some extent that can be altered by the
17     user.
18  11071                Then what was left, which would
19     perhaps be the long form programming I think was the
20     term they used, which would be the movie Jurassic Park
21     you referred to.
22  11072                Now, until they changed their view
23     yesterday, I guess it was their view that we could
24     interpret this programming that would be customized or
25     altered by the individual user.  We could interpret


 1     that as to be not for reception by the public and,
 2     therefore, not broadcasting and that you could have an
 3     exemption order for the long form programming that was
 4     left.
 5  11073                I guess this is a long-winded way of
 6     asking you what you think about this notion of the
 7     Commission interpreting that either some or all of this
 8     activity on the Internet, some could be that which is
 9     customized or indeed all of it, that we would simply
10     interpret that to not fit within the definition of
11     broadcast?
12  11074                MR. GRANT:  I have no problem with
13     that approach at all.
14  11075                THE CHAIRPERSON:  Then I am not sure
15     how that squares with the comment you had to
16     Commissioner McKendry's question about the problems
17     relative to our international trade agreements?
18  11076                MR. GRANT:  Yes, but I am saying that
19     that doesn't in my view narrow the definition of
20     broadcasting.  It interprets it simply in a way that I
21     think is consistent with how I would read it and how I
22     think a court would read it.
23  11077                Let's get away from the word
24     "interactive," but if it is a program that is
25     customized -- I think that is not a bad term -- so that


 1     the user itself has a role in making the program look
 2     what it looks like, then it is not a program that was
 3     ever intended for reception by the public because it
 4     was an individual thing.  I don't see that as within
 5     the Act now and I don't see any problem with you
 6     clarifying that in a public notice.
 7  11078                THE CHAIRPERSON:  Do you think it
 8     would be helpful if we did that sort of thing?
 9  11079                MR. GRANT:  I think so, yes.  I think
10     at the same time it would not make very happy people
11     that were hoping that the degree of interactivity
12     represented by pressing a button to send is not enough
13     to take it out of broadcasting.  They would love you to
14     have an exemption ruling that would drive a loophole
15     the size that a truck can go through, but phrased as
16     you have described it I don't see any problem with
17     that.
18  11080                THE CHAIRPERSON:  Thank you.
19  11081                Counsel.
20  11082                MS PINSKY:  Thank you, Mr. Chairman.
21  11083                I wonder if I could just clarify the
22     basis upon which you consider that an ISP would be
23     operating as a broadcasting undertaking.  We are
24     dealing here, of course, with the situation where a
25     customer of the ISP would be pulling, as you phrase it,


 1     a broadcast quality video.  What are the activities of
 2     the ISP in that situation that would render it into a
 3     broadcasting undertaking, as opposed, for example, to a
 4     telecommunication service provider?
 5  11084                MR. GRANT:  To start with I guess,
 6     you would have to just track the language of
 7     distribution undertaking in the Act.  You would start
 8     with the premise, I suppose, that the ISP receives the
 9     broadcasting from the Web site as an intermediary and
10     then switches it further down to the ultimate
11     recipient.  So you would be, I suppose, taking the
12     position that the file server operated by the ISP which
13     is the intermediate point and the access point by the
14     ultimate user to this panoply of Web sites is the
15     equivalent of a head end.
16  11085                Now, just as with cable, the
17     reception and the retransmission happens
18     simultaneously.  There is no recording or whatever and
19     it has to be sent by radio or other means of
20     telecommunications to more than one permanent or
21     temporary resident, or to another such undertaking.
22  11086                Now, I guess the point would be that
23     you are not saying that the retransmission of that
24     particular program has to be sent to more than one
25     permanent residence.  I would read that as meaning that


 1     the number of subscribers to the ISP has to be more
 2     than one.
 3  11087                I think the section is susceptible of
 4     that interpretation.
 5  11088                MS PINSKY:  So I take it then that
 6     the issue of whether or not the ISP is involved in the
 7     selection of the content or the packaging of the
 8     content or determining what content is ultimately
 9     delivered to the customer are not some relevant
10     considerations when determining what undertaking is
11     operating as a broadcasting undertaking.
12  11089                Some other parties have offered the
13     view that an ISP serves rather as a gateway, as opposed
14     to a gatekeeper and is preferred to the fact that they
15     are not engaged in these activities.
16  11090                MR. GRANT:  That is a view that is
17     expressed by the counsel for the ISP side on the
18     copyright issue because there is an analogous exception
19     under copyright for a party that is only furnishing
20     facilities and is not doing anything except the role of
21     a carrier.
22  11091                I would read the two as being
23     essentially the same.  I mean I have looked at the
24     pleadings back and forth on the Tariff 22 and the case
25     for the copyright side, which is interesting, it is


 1     essentially led by counsel for two organizations, one
 2     SOCAN, who you would expect to support this view, but
 3     the main supporter for them is the Hollywood studios
 4     through the CMPDA, who have put in a huge brief
 5     supporting the position of SOCAN, that everything on a
 6     Web site and what the ISPs do gives rise to this.  Both
 7     of those parties have put in extensive briefs arguing
 8     against what you have described, which would be, "Well,
 9     isn't the ISP just a carrier."  What they have pointed
10     to is a list of activities that ISPs typically do in
11     the way of marketing, packaging, other elements towards
12     the end user, that they in their view take it out of
13     the carrier exception.
14  11092                I am not going to express a view as
15     to which way the Copyright Board will decide, but it is
16     an interesting question to follow because essentially
17     the same arguments are being raised there.
18  11093                MS PINSKY:  Also, I take it that it's
19     your view -- first of all, just to clarify, I believe
20     as you sort of progressed through your discussion with
21     Commissioner McKendry that it was your view that the
22     ISP, insofar as the ISP is involved in the distribution
23     of broadcast quality video, would obviously require a
24     licence or an exemption order and it was only when the
25     threshold was met that certain conditions might kick


 1     in.
 2  11094                MR. GRANT:  Yes.
 3  11095                MS PINSKY:  Under those
 4     circumstances, and the threshold would relate more to
 5     the impact of the services that are being delivered, as
 6     opposed to the amount to the percentage of the business
 7     of the ISP involved in that.
 8  11096                MR. GRANT:  Yes.
 9  11097                I take it as a given, by the way,
10     that the exemption order to begin with prior to the
11     threshold already is intended to cover broadcast
12     activities.  So it is just a degree of how much and
13     what quantity and what impact.
14  11098                MS PINSKY:  Okay.
15  11099                Some parties -- several parties have
16     argued that, for example, in the case of an ISP if you
17     accept that they couldn't or in certain circumstances
18     operate as a broadcasting undertaking, that where the
19     ISP or let's say where the delivery of broadcast
20     quality signals involves such a small percentage of the
21     ISPs business generally because there are so few of
22     these services available, that the primary purpose of
23     that undertaking is not broadcasting and, therefore,
24     notwithstanding the fact that there are perhaps several
25     services being distributed that might constitute


 1     broadcasting, the ISP is not operating as a
 2     broadcasting undertaking because of the low number of
 3     services being delivered?
 4  11100                MR. GRANT:  Now, how do they argue
 5     around 4(3) of the Act because I would have thought
 6     that that's the kind of provision where it says that --
 7     it applies even if the broadcasting undertaking is
 8     carried on as part of or in connection with any other
 9     undertaking activity and read for that the
10     non-broadcasting activity.
11  11101                That certainly would have been a
12     viable argument in the pre-1991 days, when we had
13     Muldoon's obiter in the Launt case to support them, but
14     I think with the change in the Act in 1991 it's less
15     tenable.
16  11102                MS PINSKY:  Thank you very much. 
17     Those are all my questions.
18  11103                THE CHAIRPERSON:  Thank you, counsel
19     Pinsky.
20  11104                Thank you, Mr. Grant, for an
21     interesting discussion.  I think you said seven lawyers
22     on the head of a pin.  Nonetheless, we do have to come
23     to grips with some of these legal issues as part of
24     this proceeding.  Thanks again.
25  11105                That concludes our business for


 1     today.  We will resume tomorrow morning at nine
 2     o'clock.
 3     --- Whereupon the hearing adjourned at 1640, to resume
 4         on Friday, December 4, 1998 at 0900 / L'audience
 5         est ajournée à 1640, pour reprendre le vendredi
 6         4 décembre 1998 à 0900
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