ARCHIVED -  Transcript - Hull, QC - 1998/11/25

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Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 25, 1998 Le 25 novembre 1998




Volume 3


In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of


However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.





Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Public Hearing / Audience publique

New Media / Nouveaux médias



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



Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 25, 1998 Le 25 novembre 1998


Volume 3




Presentation by / Présentation par:


Canadian Association of Internet Providers 633

Independent Internet Service Provider Group 716

Netcom Canada Inc., PSINet Limited, 776

Internet Direct Canada Inc., and UUNET

IBM Canada Ltd. 855

Canadian Business Telecommunications Alliance 925

Hull, Quebec / Hull (Québec)

--- Upon resuming on Wednesday, November 25, 1998,

at 0900 / L'audience reprend le mercredi

25 novembre 1998 à 0900

  1. THE CHAIRPERSON: Order, please.
  2. Good morning, everyone. We will continue with our proceeding looking at the issues surrounding new media.
  3. I just want to mention that at leat one party that originally had been scheduled for today has dropped out from appearing at the hearing. Of course, their written submission will still form part of the record and our considerations.
  4. I don't know how the rest of the hearing will go in terms of perhaps other parties choosing not to appear. We may find that some of our days get a little shorter, depending on the length of the questioning and the numbers of parties appearing.
  5. I am saying this for the benefit of the people in the room and also the people who may be following the proceeding that we may be looking to advance some of the parties from one day to a little earlier than was earlier scheduled.
  6. I just sort of put people on notice to that effect. Our staff will be calling around to see if some people would be available to appear perhaps a day earlier than had been originally scheduled. We will, of course, try to do that at the convenience of parties and travel arrangements and do on.
  7. With that, I don't think there is any other preliminary matters we need to deal with.
  8. Madam Secretary.
  9. MS SANTERRE: Thank you, Mr. Chairperson.
  10. The first presentation this morning will be by the Canadian Association of Internet Providers.


  11. MR. KAWCHUK: Good morning.
  12. We thank the Commission for the opportunity to speak before you today. My name is Ron Kawchuk. I am the President of the Canadian Association of Internet Providers. The following CAIP members are with me to present and to respond to your questions.
  13. Rob Hall is CAIP's Vice-Chair and owner/operator of Echelon Internet, a local ISP in the Ottawa area. He will outline the nature of the ISP industry and give some small examples of what local ISPs have told us in the last week that they are doing to promote Canadian culture, Canadian content and Canadian commerce in their communities.
  14. Richard Cantin is Vice-President of UUNET Canada. He is going to outline the consensus points from our Phase II submission.
  15. Ken Engelhart from Rogers Communication is a member of CAIP as well. Ken, of course, is known to many of you and is going to provide us with any extra legal help that we may need because most of us are fairly new to this process.
  16. Margo Langford, behind us, is CAIP's Chair and Government Programs Executive at IBM Canada.
  17. John Nemanic is on CAIP's board as well.
  18. Rob, if you would like to take it.
  19. MR. HALL: Thank you.
  20. I would like to give you a brief overview of the ISP industry as well as what Ron said, some of what the local ISPs in the regions are doing.
  21. Statistics Canada recently surveyed all the ISPs in Canada. Over 400 ISPs responded to their survey. Seventy-seven per cent of the respondents were what we consider a local ISP or small ISP with less than $500,000 in revenue per year so these are the very small ISPs, sometimes a couple of modems up to, you know, hundreds of modems, but typically the small ISP.
  22. Twenty percent of Canadian households now have access to the Internet. That was up from 13 per cent the previous year.
  23. An interesting survey in the U.S. that we feel kind of mimics what we see here in Canada is 96 per cent of the population had access to at least four ISPs in the U.S., so there is a wide diversity of who you can choose your access from.
  24. It's very rare that you get into a case where there is just one ISP that tends to be a monopoly and you have no choice.
  25. What are ISPs doing? In the community it's the local ISP that by and large is the one that is in the community, has a presence in the community, has offices in the community and that tends to sponsor the community-related events.
  26. For instance, in Barrie/Orillia, as well as in most local ISPs, they will tend to waive the setup fees and waive some of the charges that a non-profit group or community based group would be charged typically for access. In other words, they are trying to promote within the community these non-profit groups.
  27. I notice Barrie Connex waives traffic fees for all children's base sites as well. If you are putting up a children's base site or a content aimed at kids, they are not charging for that type of thing.
  28. As well, they work closely with the stores and retailers and that type of thing in the community. They tend to go out and know who they are and meet with them.
  29. Certainly if you look at some of the other non-profit associations here in Ottawa that we support like the Humane Society and the Ottawa Heart Institute and the Hope Beach Volleyball Tournament, which is the largest sporting event in the world in terms of numbers of participants, these are all offered typically by the local ISPs and the small ISPs on free sites or sites on the Web site and certainly they are promoted heavily.
  30. Frankly, our users tend to want to find out what is happening in Ottawa at the Ottawa-Carleton Humane Society, not the Humane Society of Los Angeles.
  31. In other areas, the Northumberland County tourism site is an interesting example. Four years ago they put the site up. When they searched on the search engines of the world, they found six hits that were pointing to this site -- sorry, six hits which had the word "Northumberland" in it. If you do that same search today, over 14,000 pages would have that content on the Northumberland area.
  32. They work with the Canadian Association of Journalists, Fly Fishing Canada. Again, in our brief before you are so many detailed examples of how local ISPs are working within the community and providing content simply for that community.
  33. Then you get into the ONet. ONet was an interesting example. As you know that originally came out of the CA Net group of companies. ONet is probably the largest provincial organization left that supplies universities and research institutions and that type of thing. They have half a million users, 500,000 users. This is the students, tomorrow's generation of who is going to be producing content already on line with CAIP members and active throughout the communities.
  34. It tends to be the local ISP that is the one that is producing local content and the local content is the one that people want to see.
  35. MR. KAWCHUK: Richard Cantin is going to go through the consensus views that we believe came from the submissions during the Phase II.
  36. Richard.
  37. MR. CANTIN: Thank you.
  38. This is my first time appearing in front of the Commission, so I am going to read from the script. Nerves are a terrible thing when they catch hold of you.
  39. The characteristics of new media are unlike those of traditional media and, therefore, the problems resulting from the problems of traditional media and the remedies to solve those problems simply do not apply to new media.
  40. Many of the Phase I submissions make the point that new media characteristics differ significantly from those of traditional media.
  41. For example, there is no scarcity of spectrum in new media. Unlike broadcasting, new media does not have the pursuit of mass influence since it is a very interactive medium with the user choosing what information to view and when to view it.
  42. New media production does not share the characteristic of high production costs. Every Canadian can be a creator of high quality content.
  43. Canadians, unlike in traditional media, are not disadvantaged by our small size in that we have access to the same global customer base as do those from other countries.
  44. Given this stark contrast in characteristics, the conclusion reached by most is that the remedies designed to solve problems brought about by the characteristics of traditional media simply do not apply and should not be applied to new media.
  45. A second consensus view is that the global nature of the Internet makes its regulation impractical if not impossible.
  46. Leaving aside for the moment the conclusion that the characteristics of new media are not inherently the same as the problems of traditional media, even if a regulatory approach to new media were somehow deemed appropriate, there is broad agreement that such an approach would be impractical, if not impossible.
  47. Most agree, as the following excepts illustrate, a regulatory approach unique to Canada, even if it were determined that there were some problems which needed fixing, would not achieve its intended result.
  48. The third consensus point, Canadians will suffer a competitive disadvantage if saddled with regulatory burdens which do not apply to our global competitors.
  49. In addition to the practical difficulties of regulating new media, most agree that to do so would add regulatory burdens to Canadian participants which would not apply to competitors in other countries. Given the global nature of new media, this would have the effect of disadvantaging Canadians relative to their competition.
  50. The fourth consensus. Regulatory uncertainty and the prospect of restrictive policies discourage innovation and capital investment and the CRTC should therefore clearly state that restrictions such as licensing, foreign ownership limits, Canadian content rules and funding requirements will not be applied to new media.
  51. Investors like certainty. Investment capital will therefore seek out investments which provide the highest potential return with the lowest risk. Regulatory restrictions and uncertainty in Canada will drive investors away from new media or to jurisdictions where the policy framework is more well defined.
  52. CAIP believes what is needed, therefore, is a new media policy framework that clarifies this uncertainty and assures potential investors that the restrictive rules of the Broadcasting Act do not apply to new media.
  53. Restrictions such as licensing, foreign ownership limits, Canadian content rules and funding requirements do not have a role in new media and a clear message that they do not apply is needed to allay investor concerns.
  54. The fifth view, new media has and will continue to strengthen Canada's cultural identity.
  55. Unlike traditional media, Canadians are not at a disadvantage as a result of high production costs, limited spectrum or a smaller market and are competing very effectively in the creation of new media content. The overwhelming success of the Internet in Canada and the wealth of Canadian content are testimony to this fact.
  56. The sixth point, if financial incentives are deemed appropriate to promote certain types of new media, the source of the funding should not be a tax on the very infrastructure upon which new media depends.
  57. In "Preparing Canada for a Digital World", IHAC cautions that:

    "-- taxes specially directed at Internet services, however, could have a detrimental effect on the use of the Internet and discourage investment in new products and services"

  58. It goes on to recommend in 3.7:

    "With respect to taxation of the Internet, the government should avoid fiscal measures that may hinder the development of the Internet and its contribution to economic growth."

  59. CAIP strongly supports this view and urges the government to avoid any measures which would increase the costs for Canadians to participate in this important new global media.
  60. The seventh and final point, existing laws coupled with self-regulation, encryption and filtering mechanisms can effectively deal with illegal and offensive new media content at least as well as regulation could. Education is the key to success.
  61. Without a doubt, it was this point which generated the liveliest discussion. A large number of submissions, many from individuals, argued passionately against any form of censorship of the Internet.
  62. Most feel that existing laws apply equally to the Internet and believe them to be adequate to deal with illegal activities and, in fact, suggest that tracking down the source of illegal activities, once identified, can often be more easily accomplished in the network world than elsewhere.
  63. ISP industry maintains an ongoing dialogue and has conducted seminars with and for law enforcement officials. The police are in agreement that the current laws are indeed adequate.
  64. However, the ability of the legal system to address the issues in a timely manner is limited and frustrating to CAIP and to law enforcement. Both AOL Canada and CAIP have conducted police seminars. Over 75 law enforcement officials attended CAIP's most recent session on November 12.
  65. In conclusion, CAIP commends the Commission for undertaking this important proceeding and is extremely pleased with the broad consensus on the key issues being addressed.
  66. The Phase I submissions are loud and clear. The restrictive policy framework of the Broadcasting Act simply does not apply to new media and attempts to regulate would not only fail but in the process would put Canadians at a competitive disadvantage. The Phase I submissions are equally clear that the regulatory uncertainty and the prospect of restrictive policies discourage innovation and investment.
  67. What is urgently needed, therefore, is a forward looking policy framework which promotes market-driven solutions and voluntary codes of conduct as the most appropriate means to deal with any new media problems which may arise.
  68. One which acknowledges the significant contributions new media makes to Canada's cultural, social and industrial fabric and that clearly states restrictions such as licensing, foreign ownership limits, Canadian content rules and funding requirements will not be applied to new media.
  69. MR. KAWCHUK: That's your presentation?
  70. MR. CANTIN: Yes.
  71. THE CHAIRPERSON: Thank you very much.
  72. I will turn the questioning over to Commissioner McKendry.
  73. COMMISSIONER McKENDRY: Thank you, Mr. Chair.
  74. Good morning.
  75. Thank you for your presentation. I would just like to ask you a couple of questions about your oral comments this morning to help us better understand the nature of your industry.
  76. You noted that 77 per cent of the respondents in the survey that you refer to in the first paragraph are small providers. I'm just wondering if you could tell us the unique challenges that small ISPs face in today's environment.
  77. Are there challenges that are inate to the small provider that we should know about?
  78. MR. HALL: Yes. The small providers are few. One is that we are an industry that is very competitive and the margins are very small.
  79. Where we may charge $25 a month for an account, the raw costs of delivering the modem, the bandwidth and the phone line to that may be as high as $15 to $18 per user, so we are dealing with a very small profit margin to begin with to start the staff out of and that type of thing.
  80. We have those challenges that are economic. Certainly the large players in the industry are competition and we also have to buy from them as our supplier in many cases. They are well funded. They often sell at what we think is at or below cost to gain some other aspect of their business.
  81. They are very well funded. Funding is certainly is one of the large issues.
  82. The second issue of small ISPs is how to manage the growth. That was something a lot of them had to really wrestle with. How do you manage this explosive growth that happens? You go from having a couple of modems and a few dozen users to a year later having 6,000, 7,000 users and 30 staff.
  83. Most ISPs started either in their basement years ago, literally started out of their basement with a few modems and a computer, and kind of grew into what is now the large local or regionalized ISPs. Managing the growth certainly is one.
  84. Managing the financial aspects of it, trying to be profitable, certainly would be one of the largest challenges of the small ISP. To them it matters. They can't go out and borrow money. They want to run out of their own funding. They can't operate at a loss year after year after year like some of the large companies can.
  85. COMMISSIONER McKENDRY: With respect to the small ISPs and, of course, some of this is relevant to the larger ones as well -- please those of you that are there to speak on behalf of them, provide your comments as well.
  86. You said the costs are important. With respect to the telecommunications costs that you incur, are there ways that we regulate in that area that you believe that if we did differently it would facilitate your ability to have viable businesses?
  87. MR. KAWCHUK: I think Richard would like to answer that one.
  88. MR. CANTIN: Why are you smiling at me?
  89. There has been a split in the regulatory environment between the regulated and the non-regulated conditions which has created a situation that has some products going to market today from, say, a telco that are substantially below the cost of those products that would go to any other ISP in the country.
  90. What we have seen growing up from two or three years ago even is that we had pretty much a level playing field when we were all talking about dial-up and log access. Pretty well everyone got close to the same cost and it was a pretty level playing field for telcos, independent ISPs, small ISPs, large ISPs.
  91. As we grew into the digital and high speed world, those level playing fields have been disbanded. We are now facing a situation where a facilities based carrier has the ability, and it is already happening in a couple of instances, to take something to market at half to a third the price they would charge someone buying that and reselling that service to the marketplace. ADSL is an example of that.
  92. We are looking for a level playing field in the digital high speed world like what has existed to date in the analog dial world and that doesn't exist right now.
  93. MR. HALL: I would like to just further add, if I may.
  94. There's for ISPs another barrier which is other than the raw funding -- sorry, the funding to do it or the raw access to the facilities.
  95. In the recent StatsCan survey, 44 per cent of ISPs said that one of the barriers to growth and entry that they were seeing was simply the delays in obtaining the facilities that were required, whether it be dial-up lines or dedicated lines.
  96. I can give you a recent example. The local telco in Ottawa here, Bell Canada, is refusing to install lines in a building, saying that they do not have copper, not to the building but within the building, something that is clearly past their demarc point now but they won't even install into the building.
  97. Building management has gotten involved on our behalf and saying they have cleared to own those lines, but we wrangle for six, seven weeks just trying to get a phone line in. There have been ISTN lines ordered from them which they could put into a building and demarc in the basement, which we have asked them to, for over three months now that haven't been installed.
  98. These delays in facilities being p;ut in for whatever reason are also a large barrier to local ISPs.
  99. COMMISSIONER McKENDRY: And have you been provided with any reasons or explanations for the delays?
  100. MR. HALL: It's a regular comment and we have it in writing from them thankfully. It's no, they simply don't have the facilities within the building floor to floor, you know, so they won't provide the service to the building.
  101. That's not acceptable to us. We don't think that is a valid excuse. We are the ones responsible frankly for pulling within the building. They should demarc in the basement, however, they simply refuse until we pull these wires, at our expense of course.
  102. They gave us a quote to do it, but until we pull the wires at our own expense within the building, something building management clearly says we don't have to do, they are already there and existing, Bell refuses to put in the lines.
  103. We get an answer from them. I don't think it's acceptable but our recourse is very limited as a small ISP. We have no one else to turn to.
  104. COMMISSIONER McKENDRY: A couple of weeks ago I gave a speech to an association of condominium managers. In that speech I mentioned that the Commission will be issuing a Public Notice in the near future with respect to the demarcation point issues in buildings, so you may want to keep your eye out for that notice which we are expecting to issue, as I said, in the near future.
  105. MR. HALL: I will. Thanks.
  106. COMMISSIONER McKENDRY: I just want to ask you about unbundled local loop rates because we are on the telecommunications area. Unbundled local loop rates and the interconnection arrangements and co-location are only available to Canadian carriers. Would the ability of such arrangements assist any of your members?
  107. MR. KAWCHUK: We certainly believe that to be true. As IP becomes really predominant in the network, we are going to see a lot more companies being what I call DLX, companies that want to provide high speed data access that need the ability to do that.
  108. We are not going to duplicate the copper that is already in the ground. We are not going to duplicate the fibre. We are not going to duplicate the cable that is already there, but they would certainly need the right to use it.
  109. I think there was a presentation yesterday that talked about the ability of -- the decreasing bandwidths for high speed and the ability of the infrastructure to provide that.
  110. If that is not available through a wide range of suppliers in the next two or three years, we think there may be a lot fewer supplies on the Internet in a couple of years.
  111. I don't know if Richard would like to add to that.
  112. MR. CANTIN: There's a distinction here that I think needs to be made on the things the unit is used for. In one regard it's used to provide Internet access to the consumers in the home and the other is for businesses, for use as a basic underlying data communications architecture, if you will.
  113. The things that are needed for those two circumstances are different. For the residential access, as often as not there is a bundled service that is wanted to be purchased at a level playing field, equal access type basis, not as a CLEC because there are other obligations associated with a CLEC, but as an equal access type scenario, as was the equal access on voice to reseller.
  114. When we are talking about going for a business to business data communications connections, quite often in that case the existing or popular technology used for residential access is not appropriate for business and, therefore, there are times when it is necessary to have a co-location unit facility in order to provide the really leading edge or high speed data requirements.
  115. Both of those are needed for different reasons. In different scenarios, different things are required in my mind.
  116. COMMISSIONER McKENDRY: Let me relate to a followup question I had for you as to what justification would exist for giving these kinds of access arrangements to ISP resellers when we don't allow these arrangements in the local service market segment.
  117. Is the essence of your answer that you have to look at the reasons and that there are different reasons underlying a possible justification?
  118. MR. CANTIN: I think there are different reasons in different circumstances. As we go business to business, there are new technologies that are put in place that won't be popular and won't be available or won't even be cost effective for a residential access for quite some period of time.
  119. There's also a good solid reason for equipping an ISP industry in Canada to be able to play a competitive lead in this field. The ISPs both in Canada and worldwide are the group of companies that have lead the Internet. The unit was in Canada in 1991, the first commercial provider. They have been in the U.S. since 1987.
  120. Many other on the CAIP panel have been in business many, many years. The telecom providers have been in the Internet seriously for maybe three years.
  121. Most of the new leading edge technologies have been prompted for and introduced by the ISP community. If it was left to a non-ISP, non-innovative or traditional community to come up with some of these new technologies, I do believe Canada would start falling behind in the pace of innovation.
  122. We live in an industry, and I have been in many high speed industries before but this one takes them all -- our bandwidth usage doubles every four months. Imagine selling twice as many products as you did last year in four months of this year. That continues to go.
  123. Our revenue doubles, a 100 per cent increase every year. I haven't been in an industry where that happens before. Product life cycles, if you get nine months out of them, you're lucky.
  124. That is the kind of pace that this industry is facing and, quite frankly, the ISP community is the best one equipped to do that because that was its genesis.
  125. What we are asking for is an ability to equip that industry to continue the innovative pace that they have had and to continue to equip Canadian businesses and residential with the new technologies.
  126. MR. HALL: If I may follow up. I think there's a key issue as well that not only is access important to it, but the costing of such access is very important.
  127. You mentioned the current regulation that you impose upon local exchange carriers. We have got 77 per cent of the ISPs in Canada making less than $500,000 a year. If you say great, you can have access to these facilities and we are going to charge you a quarter million dollars every time you want to get access to them, none of them can.
  128. To say that we will give you access but then price it away out of your reach doesn't make any sense either, so there needs to be a double solution. Both we have to be able to get access to the facilities in the first place and we have to be able to afford this access.
  129. We see a monopoly carrier come out and say we are going to charge the ISPs $250 a month for something that we are going to sell at retail at $70. That doesn't make any sense to us. There is no competition in that area. We can't compete. We are too small. We don't have the big funding behind us.
  130. MS LANGFORD: If I could just add to this. This is a computing business. It's not a resale model of telecommunications services.
  131. It's very much about the applications on top of the access and what the ISP can do on that side of it that makes this a quite unique circumstance and not quite the same as anything else you have dealt with.
  132. I just wanted to emphasize that what he is talking about when is talking about innovation is the applications. Each new application doesn't come out of a box. It requires a lot of configuring at the building-out phase of these things.
  133. That's really what we are getting at here. There's a lot of value-add by ISPs after you get the basic infrastructure in place.
  134. COMMISSIONER McKENDRY: Thank you.
  135. Just following up on the innovation and your comments this morning, in the fourth point you made you said, and I will just quote from the top of page 7:

    "Regulatory uncertainty in the prospect of restrictive policies discourage innovation and capital investment."

  136. I'm just wondering if you can expand on that a bit. Can you give us some examples of where innovation and capital investment have not occurred where it would have occurred had there been more certainty.
  137. MR. CANTIN: I can give you two examples for us specifically as a company. I know this can probably come forward as well.
  138. The uncertainty around the contribution laws being applied are not applied to Internet protocol. One of the major contributing factors has caused us in Canada to not introduce in Canada faxing on Internet or voice over the Internet.
  139. Those products are being employed in other regions across the world. It is providing cost effective, a lot of cost savings to other countries around the world, especially for international faxing and things like that and yet that kind of new technology is not being introduced here in Canada in a major way because of the uncertainty.
  140. If we introduce it, next year we are about to get hit with a 3 per cent on all revenues surcharge or something like that, so some clarity on things like that is probably very helpful.
  141. There's other things. If there is a potential threat that a hosting site that is resident in Canada might have some content rules applied to it that wouldn't be applied if it was in Chicago or if it's got some other parameters held to that hosting site because it's physically resident here, it doesn't take much to say the heck with it, move that site to Chicago or the Bahamas or whatever.
  142. If there's even an uncertainty about whether or not it will happen here in Canada, why invest in putting it here in Canada in the first place? Just put it in Chicago. The bandwidth is there to serve the customers fairly readily in Canada as well.
  143. The uncertainty has the potential and is actually holding back some of the technology here in Canada.
  144. COMMISSIONER McKENDRY: Do any of the other panel members have any comments on the innovation being discouraged?
  145. MS LANGFORD: Yes, particularly on the broadcast side.
  146. If you deem that streaming video, for instance, is broadcasting. Right now we are seeing people who may want to get into those applications holding back, even in the case of, for instance, educational content. Is that a broadcast when it has video in it? There's a lot of questions.
  147. There are some things that are outside the purview of the Commission that is holding people back in electronic commerce too, the uncertainty about whether or not we are going to have consistent rules on taxation and privacy and so forth.
  148. When we hear from our sales forces why aren't more Canadians getting on-line, and quite frankly we are quite far behind the United States in particularly bringing merchants on-line, a lot of it is about their confusion about liability. In Canada we worry about that I guess more than they do in the States. They are just getting on with it, but here there is a lot of concern about jurisdictional issues and others.
  149. COMMISSIONER McKENDRY: Implicit, I suppose, in your comments is that there is more certainty in the United States than there is here. Is that what you are telling us, that that's a certain environment and this is an uncertain environment?
  150. MS LANGFORD: Yes. The administration has made some very specific statements. Some of them have been misinterpreted, for instance. They have said that there is a moratorium on taxes. What they really meant was there wasn't going to be any transactional taxes on the Internet. They didn't mean that tax won't apply.
  151. There is still uncertainty about consumption taxes, but U.S. merchants don't see that. They see it as U.S. law applies to them and they just get on with it. The administration has encouraged that sort of thinking.
  152. In Canada, we are still toying with will the law of the consumer apply regardless of location, these kinds of things that percolate up into the merchant when he asks the question "Whose law do I have to worry about? Am I liable for product safety laws in Botswana", et cetera.
  153. In the States they just have the assumption, and I believe this is somewhat through anecdotal research, that U.S. law is going to apply to them and the administration uphold that.
  154. COMMISSIONER McKENDRY: Some of the areas you mentioned, for example tax and so on, would appear to fall outside our jurisdiction.
  155. I take it you are asking us to act in the area that we do have jurisdiction, but you are making a plea or you would like us to recommend to government that steps be taken to ease the uncertainty that you are referring to.
  156. MS LANGFORD: Some very creative work has already been done at Revenue Canada involving industry working groups and there's some more consultation groups now established in four key areas. There is some good work happening in Canada trying to sort this out and internationally as well, of course. We are plugged into the OECD tax regime and trying to harmonize at that level.
  157. The same can be said for a lot of the other areas of concern. It's not a plea so much to the government. I think they do know what has to be done. The real route to you guys is that this is an international medium and whatever we do is going to have, you know, a pass-through effect.
  158. Again, clarifying broadcasting rules is going to have an impact on what goes on internationally as well. They are going to look to Canada to see what we are doing.
  159. MR. CANTIN: If I could add one thing. Most of our competitive comparisons are with the U.S. because they are our closest neighbour and a lot of things happen there.
  160. This is a community, though, that cannot just be compared to the U.S. It is just as easy to host an e-commerce site in London, England, or in the Bahamas or in Chicago. I use Chicago as a convenient example, but it could easily be applied elsewhere as well.
  161. If there is a place investment capital can go that has a lower risk or perceived risk than Canada, odds are it will it go there. That is a risk to us.
  162. MR. HALL: I would like to give you the classic example of where we have seen this already. I will use the .ca domain. For those of you that aren't familiar, the .ca domain had very restrictive policies on who could register a .ca domain name.
  163. The majority of Canadian companies went to the .com domain which is based out of the U.S. simply because of these restrictive policies. The community is working very hard to remove these policies. We find that the majority of Canadian companies and entities want the .ca domain and would prefer to be branded as .ca, however, because of the policies that were so restrictive in place at the time, they couldn't get it.
  164. The industry is moving to remove these restrictive policies and these prohibitions as quickly as possible so that people want to do business in Canada. To put more regulatory burdens on them in other areas would just further increase the burden and the possibility of them saying "Why would I bother, let's just go somewhere else".
  165. COMMISSIONER McKENDRY: Thank you.
  166. I would just like to come back now to your oral comments again. You give us quite a bit of detail here about the importance of your members and local communities and so on. I just wanted to get your comment on the role of the Internet, at least in the residential area.
  167. I think a lot of people think of the Internet and the power of the Internet as their ability to be in Perth and go and visit the Louvre on the Internet, but I sense from what you are saying that a key role is the ability of people to meet with each other within their local community, within Perth.
  168. Am I getting that right? Perhaps you could just talk about the role of your small companies in these areas.
  169. MR. HALL: Sure. I think that's key. What the Internet is, what you hit on it, although it gives us the ability to go and visit the Louvre and see things we may never see and gain information from around the world, it primarily is a communications vehicle. It gives us the ability to communicate locally.
  170. Sure. My previous example was the Humane Society of Los Angeles. I'm sure it has a site on-line, but do the people in Perth care? Maybe, but they want to see their local content.
  171. There have been many attempts at making a grocery store that would ship you groceries internationally. By and large they all fail. I want to buy groceries from my Loeb down the street. Now, if they are on-line and I can do it locally, I am probably going to buy from them as opposed to Loeb in Vancouver.
  172. It is the local content that is starting to come that people want to see. It's the local ISPs that have the presence that the businesses locally turn to because they can touch them and feel them and say hey, I'm going to go there. They have a solution for me and there's a community network I can get on.
  173. Maybe we will post the results from the Little League that we sponsored last night. We get those results on-line. We get the local community happening, almost like the community newspaper type events that are happening on-line.
  174. I think you will see more and more as more people get on-line in the communities, you will see more and more community pages. Certainly they are appearing now.
  175. MR. KAWCHUK: Because it is a competitive market, you have to provide -- the customer is king. The customer is the one who says what they want to see.
  176. Communities aren't just local. One of our members is IPO On-line in Richmond Hill. Their home page serves their community, but I can't read it. It's in Chinese. There's a lot of community interest. They picked a particular niche market. There are lots and lots of examples of that where there is virtual as well as physical communities on-line and ISPs are specializing in those areas.
  177. MS LANGFORD: If I could just add to that. Although Rob Hall mentioned that 400 companies responded to the Industry Canada survey they sent out, they had on their list some 700 companies they thought were providing access to the Internet.
  178. We had some suppliers of service access, services to the Internet, who say they have a list of 1,200 different companies that provide access to the Internet in Canada.
  179. What I think you are seeing is basically the provision of access to the Internet is a business activity in and of itself. It doesn't necessarily all look the same. The access provision is a part of other businesses, for instance. It doesn't necessarily mean that they are going to provide residential access.
  180. In fact, they might be supplying it within a community of interest. For instance, all art collectors of a particular group. It might be within a company, within a chain of companies, within a chain of suppliers and so forth.
  181. There are really many different business models and not all of them obviously are represented by CAIP or any of the other groups that are appearing this morning. There are companies out there that might fund to your Net if you just used the provision of access as some kind of a criteria.
  182. I just wanted to highlight that.
  183. COMMISSIONER McKENDRY: Thank you.
  184. My last question about your oral comments is on page 8 on your seventh point. You talk about or you state "Education is key".
  185. I guess I would like to know a little bit more about what your industry, what your association is doing in that area to educate your customers and consumers about the issues that you feel can be dealt with effectively through self-regulation.
  186. I have looked at your privacy code and some of your other information that you have in that area. Are you reaching out beyond those to educate people and do you think there's a role for other parties in the education function as well?
  187. MR. CANTIN: There's definitely a role for a lot of parties in that function.
  188. Education isn't just for the recipients of the content that happens to traverse across the Web. There's also education required for some of the enforcement bodies across Canada.
  189. The example I gave earlier, let's say you have a host site in Toronto with some material on it that we really don't want to see any place, let alone on the Web. If we have got a problem with that site or our customers have a problem, they can identify the problem.
  190. We have an acceptable use policy that we publish, as do many of the other members. That site can then be taken down as long as the law supports us in doing that and it is not a freedom of expression issue or anything like that.
  191. However, what happens if the owner of that site anticipated a potential problem so has a site in Toronto and a backup site in Ottawa, let's say. In the event that he sees something happening to the site in Toronto, all the pointers just go immediately to the Ottawa site and he is in business in a half a second as soon as you shut down the Toronto site.
  192. That requires some co-ordination between the enforcement agencies that doesn't have a facility to happen today. This business is so fast and so widespread and so redundant, I mean the nature in it was such that it was designed to withstand a nuclear attack.
  193. One person taking down one site doesn't stop the Internet and it can quickly come back to life in another form you never even anticipated. So the agencies themselves have to have some co-ordination themselves and fast-act mechanisms that don't exist today. That's what I mean by education as well.
  194. From the point of view of education of the user groups themselves, there are tools out there that can help minimize and in some cases potentially eliminate a lot of the risk of seeing not good material. There's education required of the tools. There's education required, quite frankly, of the parents.
  195. I have got a daughter at home. When I set her up, I simply disabled her ability to look in certain sections of the Internet. I don't want her when she's home sick, which was yesterday, and she is playing with the computer and I'm not there, I don't want any ability to get something that quite frankly I wouldn't let her read if it was in a magazine at home.
  196. I also want those things in place, but I want to make sure it's done in a way that's most effective as opposed to finding the quickest person we can blame for it. We need to make sure that whatever we work out works as opposed to having somebody to go to with a problem.
  197. MR. HALL: CAIP is working to educate law enforcement agencies. We already mentioned the 75 law enforcement officials that I spoke to in Toronto last week.
  198. You know, I meet with the law enforcement of Ottawa-Carleton on a regular basis. I would say every two or three weeks we get together and talk about what's happening. In fact, they have formed a group called the High Tech Prevention Association which has a lot of ISPs in it.
  199. Law enforcement is wrestling with this problem, but you have to realize that the ISP is also the educator for our clients. I'm amazed at how many text support calls come in from our clients that have certainly to do with the Internet problems, but often -- we handle client's problems from "How do I copy a file in Windows 95?".
  200. We are the first contact for the client that has a question about the Internet, whether it be content they found, how do I use it, you know, how do I do something or how do I even do something more general on my computer.
  201. We educate our customers. That happens every day with every text support phone call. CAIP is a body that is trying to educate other entities, you know, the intellectual property people that have concerns, certainly the police forces, but I don't think that we are by any means saying -- I mean, I'm a fan of everybody educating.
  202. The Internet provides the best tool to communicate and educate. Certainly other bodies should be involved in education, but CAIP members as well as a body is involved every day.
  203. MS LANGFORD: I just want to add to that because CAIP also sits on a number of working groups. One of them is with consumers' groups. We are certainly working with them to figure out some consumer education programs and that might be a joint consumer group, government, industry initiative.
  204. We are also working with the OECD internationally on content and conduct. We actually presented the CAIP code of conduct to the OECD as a model of how self-regulation might work.
  205. Self-regulation internationally in the two years that CAIP has been involved in it has moved a great deal. In fact, the awareness network just published a report that said many of the things that were started a couple of years ago are now actually in place and practically being done.
  206. In many ways we were on the leading edge of that. I'm not saying that we are by any means finished, but this is an industry and we are working every day to try and improve our education. As Rob said, the follow-on to the police thing last week. We got an e-mail saying that the RCMP now want to do a videoconference of the same presentation Rob did. That's going to touch officers from across the whole country.
  207. As Rob also mentioned, we have had one of the first of hopefully many meetings with the various rights collectives interested in enforcing against illegal material on the Net.
  208. Many individual ISPs do a lot to promote particularly the safety tools that are available. There's been campaigns, cross-country speaking tours, those kinds of things, but again, a big role for government to play and they do have some excellent brochures too about what business in particular, what their obligations are when they are on-line, in particular in relation to consumers.
  209. It's an everybody task and one that we take very seriously at CAIP.
  210. COMMISSIONER McKENDRY: Thank you.
  211. I wanted to ask you a question about your written submission in Phase I. The reason I am asking this question is I want to be sure that we understand what you are seeking in this area.
  212. I think I understand from your oral comments, but there's a statement in paragraph 29 of your Phase I comments and I will quote it:

    "CAIP urges the Commission to place the emergence of a strong Internet and new media business base among its highest priority regulatory objectives across both broadcasting and telecommunications areas."

  213. I had the sense from listening to you this morning and the sense from reading other parts of your submission that essentially you were asking for a hands off approach by the Commission when it comes to regulation. I just want to make sure that I understand what you would like us to do.
  214. MS LANGFORD: No, it's about the hands on and the hands off. The hands on part is that we need the deregulation of telecommunications services to be accelerated.
  215. You heard this morning about some of the access issues. These are critical if we are going to get to the point where even new media has a chance and all the wonderful applications that we hear about. In particular if video and audio streaming are to take off, we need high bandwidth access in the last mile in particular where we have at the moment, as you heard, some major problems.
  216. That's the acceleration that we are looking for.
  217. The hands off part is obviously a lot of what you have heard already in the last couple of days. From a content perspective, it's basically the preponderance of the use of the Internet.
  218. (a) It's not broadcasting and, therefore, this whole exercise we hope is more about does Canada win in the new media world, not about what can we do to restrict a very, very narrow application that is part of the bigger scheme.
  219. I would be happy to have other people comment.
  220. COMMISSIONER McKENDRY: Thank you for clearing that up.
  221. I would like to ask you now about broadcasting because it goes directly to what we have to consider as a result of the proceeding that we have under way. We have yourself and Mr. Engelhart here, so I am going to take advantage of this opportunity to discuss the broadcasting issue again with you.
  222. We have heard, it seems to me, up until now, I guess it's probably wrong to say conflicting opinions, but different opinions about whether or not there are programs being transmitted, programs being transmitted for reception by the public and, therefore, broadcasting taking place on the Internet.
  223. I think Mr. Johnson, counsel for NetStar, felt that there was broadcasting taking place. Yesterday Mr. Cain, counsel for AOL Canada, at least in the context of his client felt that it was clear there wasn't broadcasting taking place.
  224. I take it from paragraph 147 and your Phase I comments that you would come down on the side of Mr. Cain, but is it your view that there are no programs on the Internet?
  225. MR. CANTIN: Let me try and --
  226. COMMISSIONER McKENDRY: I mean programs in the context of the Broadcasting Act.
  227. MR. CANTIN: Right. I am sure we will all have a piece to add on this one.
  228. Does the fact that you can send video and/or audio over the Internet make it a broadcast medium? It can go over, but is it a broadcast medium? We don't think so.
  229. I am going to go back a few years. When I was with Apple, we launched a product called hypercard. We didn't do a very good job of it, but we launched a product called hypercard.
  230. One of the problems we faced with our product was that it didn't meet any traditional metaphors or reference points of the day. Some people thought of it as a database tool. Some people thought of it as a tool for programmers to use for authoring the new scriptware. Some people thought of it as a user interface to get access to other computer systems around whatever.
  231. We couldn't give it a reference point. There was nothing to say "Ah, this is the product and it's like this, so now you understand it". If we were talking to one person, they might want to use it for this, so we would talk to that, but if we were talking to a hundred people, it could be a very split audience.
  232. What we are facing today is a similar thing with the Internet. It defies pigeonholing in the sense that -- and even the fact that we are at a hearing called new media, quite honestly, I think is part of the problem. Maybe it should be called "new medium" because what the Internet is is a vehicle to connect a sender and a receiver, whatever those two things are.
  233. In a consumer environment, it could be a sender which is a host site that has content that the receiver is asking for and it gets back and forth. In a business to business scenario, it could be a computer system talking to a computer system, exchanging data back and forth.
  234. All it is is that thing in between carrying that stuff. Can it carry video, can it carry audio? Yes. But each time it does that, if it's the residential thing with the host and a receiver, it is carrying something specifically requested by that receiver. This receiver going to the same host site will get something unique compared to that receiver going to the same host site because they have asked for something.
  235. On that sort of a definition, my understanding of what broadcasting is intended to mean, if you are getting a legal definition and Ken can give a better one than I can, but what I understand broadcasting to mean and I think most people on the street would say, broadcasting is something that is sent out to the public at large and you receive it whereas what we are talking about is a very personal interactive experience.
  236. Pieces may go to different people, but it won't be the same thing for any two people signing on.
  237. MR. HALL: I will let Ken and Margo speak more to the regulatory aspects of what broadcasting is but just quickly.
  238. Technically, certainly the Internet by definition is not broadcasting. It's a one to one communication, as Ken said. I can give you ten good reasons why it's not.
  239. The fact that it's interactive. If you and I go to the same site, we will have two different experiences there. It's not simply sitting in front of a computer and watching something go by.
  240. I have also heard mentioned, and I don't pretend to understand all the complexities of the Broadcasting Act, but certainly there is this debate of is it graphical at audio or is it text based? Text based may be exempt, but Web sites are mostly about graphics now. I will challenge that too.
  241. Try and go to a Web site that is in a different language and see how far you get. It is still a very heavily text-based component and a message that people are reading as opposed to just watching images fly by.
  242. I think if you asked the layman today, you know, on the street what is broadcasting and is this broadcasting, his answer would be no. No matter what the legal definition of the Act is, typically this is not what we think of as broadcasting, sitting on my couch and watching TV or listening to a radio and someone else choosing content.
  243. The joy of the Internet is I get to choose the content interactively every second I'm there. I never have to put up with something I don't want to.
  244. COMMISSIONER McKENDRY: Surely you aren't suggesting we should take a common sense approach to what is broadcasting.
  245. MR. HALL: Very much so.
  246. MS LANGFORD: Just to touch on the licensed traditional programming undertaking criteria. This, of course, is not mass appeal, as both gentlemen have just mentioned. It is not one way. It is not point to multipoint. It is not scheduled.
  247. There are instances that there are scheduled concerts, for instance. Some elements of this definitions sometimes occur, but they occur in a one to one communication in the bits and bytes that are being sent down, as Richard described, one computer to the other, which could be of course connected by a wire on this table.
  248. That is the main sort of legal technical distinction. The other part of it, of course, if you wanted to get into exemptions, in terms of contribution materially to the policy objectives, you would have to do an analysis of site by site. That brings us then to the undertakings themselves.
  249. Certainly the Internet service provider is not the undertaking that is communicating to the public. That is an absolute. They are merely a facilitator of that wire, if you will, between the two computers.
  250. You might want to individually look at Web sites. We could go through that.
  251. MR. KAWCHUK: Actually, listening yesterday I concluded maybe we could make the Internet look like broadcasting. We have billions and billions of IP addresses. I don't know, two to the 30 second or something like that averages.
  252. What if we restricted that, that there is only a 500 channel universe perhaps that you could click on your screen and get that content and only that content and some of them, okay, you would click and you would actually pay for extra because that would be the pay-per-view portion.
  253. That would be the Internet with 500 channels. If you wanted to add 500, you would have to go before a hearing, et cetera, et cetera, as opposed to mount something on your Web site and away you go.
  254. I think you see there is a huge difference in our common understanding of what broadcasting is versus the Internet has many more characteristics that -- yes, you could configure it to look like that, but it would eliminate a lot of the functionality of the Internet and a lot of the capability.
  255. COMMISSIONER McKENDRY: I think you are making the point that Ms Garcia with AOL made to us yesterday, that we are talking about an entirely new medium in her view, something that is a different animal. Is that consistent with the point of view you would take?
  256. MR. HALL: Yes. What the Internet does is it gives every individual now the power to publish or the power to create his own broadcasting channel. It's growing at a fantastic rate. Now you have the power to go home, I will use the term broadcast, but you have the power to go home now and publish information in whatever form, whether it be text or you record your voice and put it up on the Internet with a speech.
  257. Whatever it is, you have the power individually now and more and more individuals are getting this power worldwide, so it's not the same thing where you regulate a large entity and they have the power because we only have a limited spectrum of 500 channels or however many channels we have to very carefully control that.
  258. There is no such criteria that will hinder the growth of the Internet at this point. Regulation may hinder it, but there's no technical reason why you can't get on-line if you have never been on-line before and start publishing whatever you want.
  259. COMMISSIONER McKENDRY: Just following through on the broadcasting discussion, if the Commission found that some of the services offered by ISPs and on-line services are within its jurisdiction under the Broadcasting Act, could the Commission issue an exemption order that would apply to a non-Canadian entity?
  260. MR. KAWCHUK: I believe our Phase I submission suggests that.
  261. Margo?
  262. MR. ENGELHART: This is, of course, one of the great unanswered questions in Canadian communications law. The Commission's exemption orders to date with one exception have specified that one of the conditions of exemption is that you be a Canadian.
  263. The SMATV exemption order, of course, doesn't have that specification and there are exempted SMATV fees that are part of -- there are SMATVs that are foreign owned that are operating under the exemption order.
  264. That has never been tested in court. There is certainly a number of Canadian communications lawyers who believe that you can't exempt what you couldn't license. There are others who take the contrary view. That issue is uncertain.
  265. Similar to what I said yesterday on behalf of Rogers, the CAIP position is that if anyone is broadcasting and, as you have heard, CAIP's position is no one is, but if anyone is broadcasting, it's not the ISP. The ISPs' position in this thing at most is as a reseller of telecom services or perhaps, as I said yesterday, as a customer.
  266. If someone is there broadcasting, that would be the provider of the Web site. The Perth Humane Society would be the broadcaster if there is one.
  267. COMMISSIONER McKENDRY: Thank you.
  268. In paragraph 32 of your written comments you state:

    "The relatively low cost entry and lack of barriers to entry have assured Canadian new media producers access to distribution channels."

  269. We have heard some parties, not all parties, earlier this week say that access to content aggregators may be compromised by an emerging fee structure and unfairness.
  270. For example, AOL yesterday said they don't charge and they don't see that as a problem, but we have heard from content producers that they see it as a potential emerging problem.
  271. I wonder if your association has thought about this and has any comments on that point.
  272. MR. CANTIN: There are things that will be charged for and things that won't be charged for, at least if history follows into the future.
  273. Advertising will be charged for. That is what gets the most attention today. If I want to put an advertisement about my company on somebody else's Web site and by doing that bring the people who visit that Web site to mine, I pay for that right, be it on AOL or be it on any other popular portal. That's why it's another medium. It's another way of getting advertising out there.
  274. If what you are looking for is a connection from your place to mine, i.e. if it's a search engine and they want to know about Internet and we tell them the units are provided, they listed it free.
  275. From an informational point of view, from a directional point of view, from a content point of view of who is out there as Internet providers, it is up to the person who wants to be listed in the search engine to list themselves and they get listed.
  276. From an advertising point of view, you will pay for it in the future on this medium just like you would have paid for it in any other medium as well.
  277. MS LANGFORD: May I just add that media producers, of course, are our hide in the hand by our industry itself. I mean, the same people who might be producing their own CD-ROM or some kind of multimedia product, whether it's a computer game or whatever it is they are making, are also some of the same people that are creating Web sites that we need to create other software and do some programming and so forth for.
  278. It's hard to sort of segment that they somehow would have a need to have a special site, for instance. Their products themselves can easily be distributed on-line.
  279. The question is, you know, who sells it and where is it sold. Will they be able to sell it through, will they be able to sell it through Chapters and so forth. We can certainly help new media companies find channels and we can also help them, if they have their own site, find links appropriately so that eyeballs find them.
  280. I don't really see their concerns. At least, I don't think they have articulated them in a way that they understand the marketplace. It's wide open for anybody to exploit. In fact, if they haven't got work right now, boy, we should be connecting with them because we have a shortage the same way they do of good people to produce some of the content.
  281. I guess that's my challenge in understanding even this hearing. Content is vast on the Internet. It has many, many different components and interactive multimedia content is one small again portion of the content that is needed to be created out there. The same companies, as I say, that do corporate videos for AGMs are the ones who are producing this other material.
  282. There is no shortage at all either of distribution channels or of a need for their services.
  283. MR. HALL: In the nature of the Internet, charging for a service I don't think would make sense. The very successful sites and people in portals on the Internet have given away their product for free and tried to get money either out of advertising or something else.
  284. If you wanted to search for a bookstore, and I will use Yahoo as an example, they were sponsored by, and the only bookstore that you were ever going to find if you did any search there was because they paid the big fee, you probably wouldn't use that search engine.
  285. The same thing goes if you had to pay to use that search engine as a user and there were others that were free, I mean the second anyone starts being restrictive with their products, competition springs up right away and says "Well, I will do it for free".
  286. You can take the classic example of Microsoft and Netscape. Netscape started putting out a product and charging for it. Microsoft came out and said "Hey, it's free". They gained entry into the industry right away.
  287. To think that these portals will start charging the users to get a listing, that's the service they offer. If they make it restrictive so that you don't want to use it, others will happily offer that service for free and make the money off the advertising.
  288. COMMISSIONER McKENDRY: Thank you.
  289. I mentioned AOL told us that they didn't charge. I should have also mentioned that Mr. Engelhart's company told us the same thing as well with respect to their new media services and Yahoo.
  290. Those are my questions for you.
  291. Thank you very much for answering them.
  292. THE CHAIRPERSON: Just before I turn to counsel, Ms Langford, I would like to understand better one answer you gave to one of Commissioner McKendry's questions.
  293. You said on the hand we would like -- I'm paraphrasing here -- no regulation, I take it with respect to the broadcasting and particularly a clarification of the Commission's future role with respect to that, but on the other hand on the telecommunications aspect you said you want deregulation accelerated. I think those are the exact words you used. I wrote them down when you said it.
  294. I have often said in public that there seems to me, and maybe this is just semantics but I think it is important to clarify this, there is a difference between deregulation and competition. I have often found that the term deregulation is inadvertently used in the wrong sense.
  295. My understanding from the discussion that you had is it's not deregulation you are looking for. If you want deregulation in this area, we could deregulate the entire business tomorrow. My guess is from the discussion we have had, you would be worse off than you are today.
  296. I would like to better understand what it is you meant when you said you want deregulation accelerated, or any others on the panel for that matter, if you want to chime in.
  297. MS LANGFORD: There is a lot in that bundle. I apologize for lumping it together in kind of a generic misnomer.
  298. There are a lot of aspects obviously to competition, some of which probably belong in front of the Competition Bureau, that we are certainly concerned about. There are some things that you have oversight of now that are before you that obviously we won't discuss today, but where you are a guiding hand in making sure that third party access, for instance, happens for ISPs.
  299. Those are how I was sort of lumping the acceleration of competition issues as an essential for the infrastructure to be effective and take off.
  300. Deregulation internationally certainly is an issue and really our efforts through the WTO have to also be accelerated. To whatever extent the Commission is involved in those activities, certainly the Internet worldwide will not take off until there's telecoms competition in many of the countries where it doesn't exist today.
  301. To the extent that you have any influence there, that is also welcomed by ISPs in Canada and abroad.
  302. THE CHAIRPERSON: But to be more specific in terms of the activities that you would want us to undertake, setting aside other competition issues that you may want to take before the Competition Bureau, I would take it you are not looking for deregulation from the Commission on the telecommunications side.
  303. MR. CANTIN: In the continuum of a completely deregulated market condition or a fully regulated market condition, we are kind of betwixt and between in the ISP industry today. The actual ISP portion is in some cases under-deregulated, but the telecom facilities carriers are under-regulated.
  304. The ADSL centre we are seeing today is one of those fall between the cracks that causes us an industry a great deal of grief.
  305. If we went all the way to an open market, no foreign ownership restrictions on common carrier facilities and all the rest, then we believe we could be very competitive here in Canada. I don't get the sense that's where we want to go today, so in that sense we do need to have the industry itself in a competitive environment which probably means additional involvement on some aspects, either have the whole thing wrapped or go to the other extreme which I don't think we are going to talk about today.
  306. I think you are right. What we are asking for is a competitive landscape, be that through complete deregulation or an additional involvement on the regulatory side.
  307. THE CHAIRPERSON: I will be pursuing some of these issues later on this morning, but I would take it that you would want the regulator to take a proactive role with respect to dealing with some of the high speed local access issues.
  308. MR. HALL: In my mind, you control them now. You control these access issues now through your regulations. Yes, I would want you to raise --
  309. THE CHAIRPERSON: That's exactly the point I am making. You are not looking for deregulation.
  310. MR. HALL: I don't believe so. I'm not sure what the term is what we want, but essentially the new media we don't think should be regulated and the services that you regulate now have to be made more available to the small ISP.
  311. Is deregulation throwing a totally hands off the answer? Probably not for the small ISP because the larger players will predominate then. You have to open up more than is being done on the areas that you do regulate because it's not working.
  312. THE CHAIRPERSON: Well, one of the main reasons I raise this is because my suspicion is, having been involved with this industry somewhat for the past number of years, is that the telephone companies and the cable companies would have quite a different view of deregulation than you would characterize that view here today.
  313. I think it's important I understand that in terms of dealing with those issues. Otherwise, as I say, you could be potentially worse off than you are today if we took their view of deregulation.
  314. MR. HALL: I agree. If you said Bell Canada now decides what happens with local loops, they decide whether they want to sell to me or not and there is no regulation whatever, I am not in a better position than I am today. I agree if you totally throw it open because they could simply refuse or price it prohibitively.
  315. They have done that in some cases already, even with the regulation, but I think opening the regulation up where it makes sense to help the small or mid-size ISPs compete with the large ISPs and not overburden them with more regulation on the new media aspects of it.
  316. THE CHAIRPERSON: Okay. Right.
  317. Counsel?
  318. MS MOORE: Thank you, Mr. Chairman.
  319. Could you just tell me your views on where you see the ISP business heading in terms of moving towards more of a content aggregation and organization type role or even an AOL type of content creation role?
  320. MR. CANTIN: I will start that. One of the things we are facing right now is this thing called ISP that everybody is lumped in together and it's all called the same thing.
  321. There are different types of ISPs out there. My company particularly is predominantly an access provider. We actually have programs such that we will offer to local or even regional or even in some cases large ISPs in our infrastructure. They actually have our customers call our dial modems, go through our backbone, use our backbone to go international. MikeSoft Network is an example. It doesn't have a modem in the world. It's all ours. So we do a lot of localized pieces.
  322. That side of the business will continue to evolve. That's an economy of scale issue. It's a capital investment issue. In that particular environment it's likely that the larger players will get more and more of that piece of the puzzle.
  323. There are what are called network service providers which are companies like UUNET, Internet service providers, and I am artificially making a distinction here, that are involved. We will get into more detail.
  324. When someone purchases or rents from us our modem pool, they can then focus their energies on doing the marketing, the local content, the building the customer relation, the customer support, in their local community.
  325. I think there will be an addition of that kind of thing and of ours, but it's two separate entities. The garble group forecasted that the number of ISPs will decline by about a tenth or to a tenth of what they are today. That's what people have been quoting.
  326. In fact, it's a bit of a misquote. What the real quote was, the number of facilities based ISPs will go down to a tenth, meaning that the rest of the ISPs out there, some will come, some will go, will be renting space from large ISPs and those ISPs will focus on the content and aggregation as opposed to the others.
  327. MR. HALL: I think part of the problem is defining what an ISP is. There are two areas I see in ISP. There is the access portion of my ISP business and there's the content portion of my ISP business. If you separate those two, the access is very much a telecommunications raw infrastructure, you know. It costs a lot of money to play, but it provides the raw access.
  328. The content portion is probably what distinguishes my ISP from every other ISP. No two ISPs are the same. It's not like long distance where, frankly, whether I use Sprint or AT&T, my phone call to Toronto is handled exactly the same way to me, the end user.
  329. The ISP experience is very different. The services I bundled in the Web page base, I offer the extra community values. I offer the text support. Those are the extra services or the content that make every ISP different.
  330. ISPs create some of their own content, some more than others. If you look at an ISP like Simpatico, they create a fair amount of their content on the Web page. Some ISPs, the only content on their Web page is here are my services, here is what I do, I offer access.
  331. It's important to realize it's our clients that create the content. Whether they have leased space on our physical server, you know, our client's content, there's our content and then there's our access services. I think content and access are certainly the two.
  332. As the market gets larger and as high speed access comes more and more to the home, if the small players are prevented from gaining access affordably and able to compete to that high speed last mile access, they will have to concentrate on more and more of the content issue, so you are seeing more and more ISPs look to, you know, e-commerce and other services, other value added services that I would lump under content.
  333. A small ISP may have gotten into the business of providing access. If that becomes too prohibitively competitive, they will have to slide over more into the content area. I think you will see a gradual slide to the content, certainly on some of the smaller ISPs, although many will just try and merge or disappear. We will see that attrition as well.
  334. MS MOORE: Thank you.
  335. Do you see a market demand for showcasing Canadian content on the Internet?
  336. MR. HALL: A market demand? Yes. Our customers want Canadian content. I mean there is a lot of Canadian content out there. Our customers are creating Canadian content. They don't do it because people in Germany want to come and see this Canadian content. That may be the case, but predominantly it is creating Canadian content for Canadians in a community type setting.
  337. When I surf the Internet, do I want to see Canadian content? Yes. Is it there? Yes. You know, it's not a problem. The content is being created as fast as I can go and look at it. There is a market demand.
  338. The industry and people are responding to that demand and are creating Canadian content. I don't feel there's a need to regulate or mandate any more. We are flourishing. We are leading the world in a lot of areas on the Internet.
  339. MS LANGFORD: If I could just add to that. We have invested a great deal in all kinds of Canadian content. Again, the focus here seems to be on some sort of multimedia content, but there is a huge wealth of films and art work and music and so forth that hasn't yet really fully exploited the opportunity to be on-line.
  340. If I could give an example. In 1995 the independent U.K. record producers decided to create a Web site. They put up -- in 1995 the Internet wasn't very sophisticated and so they put up basically a mail order service where you could just listen to a little clip. That's all you got because of the speed of the modems people were using at the time and so forth.
  341. In that mail order business which was not even e-commerce labelled, at the time you couldn't do any transactions on-line, you had to fax in your order. They did more distribution around the world in that year than they had in any other form of distribution every. That was sort of year one of the Internet.
  342. If you can extend that to Canadian music, if the database that currently Heritage has been funding for the independent record producers in Canada were put on-line and commerce enabled, I can tell you that the market would be not just Canadians. It would be worldwide.
  343. MR. CANTIN: There were two pieces to your question, each of which I think deserve individual treatment, the content and the showcase.
  344. There is a desperate need for the hundreds and thousands for small, medium and large businesses in Canada to figure out how to get on the Internet the best way and maximize its opportunity and give them access to the worldwide and even the Canadian marketplaces.
  345. It's a bit of the "let Mikey try it first" scenario in some cases and a lot of other reasons as well that the businesses haven't jumped on it as well as they could or made use of it as well as they could.
  346. Is there a need for some showcase technology to prove that it can be done safely, securely and well? Yes. Is that a content issue? On the business side, not necessarily. It may be even a security issue or a technical issue, but there is a showcasing that could very definitely help Canadian business go out.
  347. MR. NEMANIC: My name is John Nemanic. Two comments.
  348. First of all with respect to content. There are a lot of expatriate Canadians who access the Internet from various locations around the world. For example, there are a million Canadians in California, as I understand it. Many of those Canadians surf Canadian sites in order to get information on local news and local content.
  349. I am familiar with a number of my friends who, for example, are working in Silicon Valley who check for local sports scores through the Net. They wouldn't get this from American newspapers I can assure you.
  350. With respect to showcasing Canadian content, through our Tucows Web site, for example, we have promoted Canadian software authors. Some of those products have done rather well on-line. Normally, competing for shelf space is a real problem in the traditional retail networks. However, through the Internet Canadian software developers now have access to a global economy, to a global marketplace, and in fact can compete with the American software developers in many cases, and in fact better.
  351. The Internet has opened up many opportunities for showcasing Canadian products.
  352. MS MOORE: Thank you.
  353. There have been several intervenors who have suggested that there may be a problem with being able to find Canadian content on the Internet, so they have suggested that there should perhaps be a requirement that ISPs in some way facilitate the location of Canadian content.
  354. Could I have your views on that proposal?
  355. MR. CANTIN: There's going to be others as well.
  356. I have heard, I don't know how many times, otherwise informed people make very generic statements about the Internet is a waste of time, there's nothing on there that could do me any good. This seems to go in the same way.
  357. I think if you generally know how to work your way around the Web, there is an awful lot of stuff out there. Whether there is a better search engine or something like that required to be more specific and easier to use, that's definitely a possibility.
  358. I think back where we were talking about earlier, which is an education in some of the processes and some of the tools and maybe an improvement of some of the tools as well. I don't think it's a regulatory issue, but there is an issue with a misunderstanding of what it out there.
  359. MR. HALL: You have to remember the content producers that are putting this content on-line want to be found as well.
  360. If you go to an American search engine, for instance, a Yahoo in the U.S., and put "I want to see the Canadian Humane Society" and you use the word Canada in your search whatever, you are going to find the Canadian Humane Society because the Humane Society has taken it upon themselves to make sure the key words they have listed in the search criteria are Canadian, are Humane Society.
  361. As a content provider, I go out and I say I am going to create this content, I want the world to come and see it, but I want the people that are interested in it to come and see it.
  362. I don't want to put up a page about dogs and have people looking for information on cats come to it if that's not what it is. I think that problem has kind of taken care of itself.
  363. The content providers certainly want their pages to be found and to be seen. The search engines, you know, if you search very specifically -- if you start adding the word Canada, maybe it's an education thing, start adding the words "Canada" or "Canadian", there are more specifics in their criteria.
  364. I have never gone to a search engine and not been able to find a Canadian based site that I was looking for. It doesn't happen.
  365. MS LANGFORD: There are other ways. If you are interested in gardening, I mean you are on a gardening site. The gardening producer of the CD-ROM on creating your own garden can pay to be on that site. While you are in there talking to the relevant people who are interested in gardening, they can link back to that particular Canadian producer.
  366. There are a number of avenues to be found and search engines are not the only one. I just wanted to point that out.
  367. MS MOORE: Thank you.
  368. I direct my next question to Mr. Engelhart. Where an ISP isn't merely providing access but is also aggregating and organizing content, would it still be your position that this is not an undertaking if we assume there was broadcasting involved in some of that content?
  369. MR. ENGELHART: As I said, I think if there is a broadcaster in this piece, then the undertaking is the entity that is operating the Web site. That could be the Humane Society, it could be the ISP that has its own Web site with its own content.
  370. If someone in the Broadcasting Act is broadcasting on the Internet, I think that's the Web site operator. Just because an ISP happens to be that operator wouldn't change anything.
  371. MS MOORE: Thank you.
  372. Several of the members of your panel have mentioned that on the Internet users access something unique each time. I wonder if in your view there are instances where multiple users on the Internet would access the same thing, the same content perhaps, for example, with scheduled concerts that are available.
  373. MR. CANTIN: It is technically possible to have a video stream go to more than one at the same time. It multicasts. There are technologies that let that happen.
  374. I think the point we were making is it is not technically feasible to send audio and video streams over the Internet because that certainly is technically feasible. It is technically feasible to have more than one person receive them at close to identical times. It could be micro seconds or half seconds a part.
  375. The issue is the fact that it can do one thing, does that mean it then fits wholeheartedly into a particular definition and the answer we believe is no because if you have gone to get a video stream and then if you feel like it, you can watch the whole thing, but odds are people don't sit at a PC terminal watching an hour long "I Love Lucy", or something like that.
  376. It just doesn't happen. They sit there and go to something for a very short period of time, get what they want, go somewhere else. The entire session of someone doing what you call a browsing session is very, very unlikely to be the identical session for any two people for the entire session. There could be components of it that are the same, but not the whole session.
  377. MR. HALL: Even if you presume there is some form of broadcasting going on on the Internet -- let's take the Superbowl. Let's say I wanted to watch the Superbowl on the Internet. I think what you will find is the technology will let me choose what camera angle I want from their 60 or 70 cameras they have.
  378. So would it be the same for any two people? No. The whole thing about the Internet and the joy of it is that I can choose what I want to do. The content companies are making it more and more I can choose exactly what I want to do.
  379. I could minimize into a small window and surf other areas. I might be able to choose of the concert I was watching what camera angle I want to watch. I control the content more and more. The companies that are developing that type of content are enabling that. That is truly what is unique about it and what it does well.
  380. MS MOORE: Thank you.
  381. Ms Langford stated this morning that ISPs are involved in a computing business type of model, not a reseller type model. In your view, if an ISP were to offer voice over the Internet, would that ISP then in your view be a reseller in that instance?
  382. MS LANGFORD: Again, it's an application. It's a computing application. Obviously they would voice over the Internet in different ways so there is PST voice and there's PC voice.
  383. Without getting into the complexities of those, it is still a computing application that allows that to happen. That was the point I was making. E-commerce is a computing application and it's very complex, you know, to run the back offices. Intranets connecting people in the secured environment is a very complex computing application and so forth.
  384. In that same vein, voice over the Internet would be a complex computing application.
  385. MS MOORE: Thank you.
  386. You have mentioned the work that you have done with law enforcement agencies in terms of education and liaison. Have any of CAIP's members terminated any accounts on the basis of the content being distributed or generated?
  387. MR. CANTIN: I speak I'm sure for everybody. I know we have. Quite frankly, we don't want to all the time because we don't want to capriciously do it. We do run the risk if we take action on our own unilaterally that they could come back at us for restrictive communications or freedom of speech or something like that.
  388. Traditionally, what we would do, and we have done it in cases before, is if we get complaints from either the public or somebody that says "I went to this site. I put a tracer out to see where that site is hosted. It's going through your network and, therefore, I want you to take it off".
  389. We would then go to the site ourselves. We would involve potentially some law enforcement bodies. We then do take the site down.
  390. We give the site hoster notice. It says we have had an objection to your content. If you don't cease and desist, we will take you down. If they don't cease and desist, we do.
  391. The reason we give them notice is because some site hosters run what is called a chat line. Sometimes they don't even know what's across their own network. What they will do if it's an individual that has put something on there they never wanted to be on there, they can take it off and then they solve their own problem.
  392. They watch that person that is coming on from then on or take the subscription away from that person.
  393. We don't just capriciously say it's not nice we are taking you off. We give them an opportunity to correct the situation and then if they don't, we work through enforcement agencies to take them down, and we have done that.
  394. MR. KAWCHUK: While we don't have a formal ombudsman role in the association, and I probably one get 1 per cent of requests or issues, I have had examples where they have come to me and said "There's something on this site that is illegal. What should I do about it?" and so on. That has happened on more than one occasion within the association.
  395. Indeed, if it has happened at the association level, I think it has happened many, many times at the member level.
  396. MS LANGFORD: If I could refer you to statistics from the Industry Canada survey of ISPs. Out of the 400 who responded, 65.4 per cent actually received customer complaints regarding offensive and illegal conduct. That's things like unsolicited e-mail, harassment and so forth. 30.3 per cent received customer complaints about offensive or illegal content. Out of those, 55.1 per cent discontinued a funder's subscription and 39.7 removed the offensive material from their servers.
  397. We have got a fairly high level of people who are not necessarily CAIP members who are out there doing the responsible thing.
  398. MR. HALL: When I speak when I travel across the country and speak to the different police forces, I think it's very critical to note that there are two areas that ISPs typically get bombarded with. One is a criminal action, one is a civil action.
  399. Criminal is often very clear. If a police officer shows up and says "You have a Web site that you are hosting on your server that one of your users has that is in violation of the law, we would like to charge him", I would say 99 per cent of the time, if not 100 per cent of the time, that is removed and acted on almost instantly.
  400. Where the grey area comes in where, you know, one of my past companies hosted a church site for a particular denomination and another denomination complained about it. That's a grey area. Is it illegal? Is it civil actionably in a civil court? It may be. That's where the ISPs often have to make a decision.
  401. You have to remember we are people. I am a moral person. It's my company. If there is something theoretically on my site that offends me or makes my stomach turn, I don't have to host it for the person. I don't have to have him as a client. Most small ISPs certainly make that decision every day.
  402. When I host sites that I think are immoral, whether they are legal or not, probably not. The challenge is do I monitor everything I host? No. You could become one of my users and in about 15 minutes put content on my server. Now, the second I am aware of it, yes, I tend to take action and I intend to make that decision.
  403. Is it something that is illegal? Is it something against my morals? Do I want to have it physically on my service.
  404. MS MOORE: Thank you.
  405. My last question is whether CAIP or any of your members have given thought to services or site enhancements that might address the needs of persons with various disabilities, including for example site enhancements for persons with visual impairments.
  406. MR. CANTIN: Traditionally, the vehicle for addressing those kinds of requirements isn't at the source of the content or even during the transmission of the content, which is what an ISP traditionally would do.
  407. The solution to those kinds of issues is usually some kind of a software package on the PC that can either expand the view of the screen or give you a different user interface tool or a text or speech soffer module.
  408. If an ISP provides to its user base a complete CD with the browser and the tools on it, it is possible they could do that, but that's it. It would be giving them the software and the tools to enable them to do that, but it's not part of the hosting or the transmission capability.
  409. MR. HALL: I think by definition the Internet enables handicapped people. If you are deaf, if you are in a wheelchair, this new media enables that. It helps you. You can certainly be deaf and communicate like never before using the Internet. You don't have to use a telecommunication device that's special. You can go on-line on the Internet.
  410. If you were homebound and disabled in some way, again the Internet is there and available. This is a resource that we are bringing to the home level and to the end user that was never available before in the history of Canada. We now have the ability to bring content to people who may have disabilities that are challenged in a way that you and I may not be.
  411. MS MOORE: In designing home pages that the ISP provides, you are saying that you don't take into account how you can enhance the site and design the site to take into account the needs of persons with visual impairments.
  412. I note, for example, that the Government of Canada provides guidelines on how to enhance Web page design in terms of whether columns are used, font size, whether you have voice prompt buttons and that type of thing.
  413. MR. CANTIN: Sorry. I didn't mean to state we were being totally insensitive to all those needs.
  414. A lot of the guidelines that you use for impaired are the same darned guidelines for people that don't have impairments. The design of a site, the readability of a site and all those kinds of things aren't unique to somebody with an impairment.
  415. My only reason for saying what I did was because the best solution isn't necessarily one that is starting at the host site. It's one that is provided on the premises of the person. It's not that we are insensitive.
  416. The other thing, and again to get back between the business to business site and a residential site, a business to consumer site, a lot of sites quite frankly don't want a lot of consumer traffic going across them because the products and services they are offering are intended exclusively for business.
  417. If that's the case, the last thing you want is to have a whole lot of consumers coming to your site, phoning your sales staff, ruining their productivity and you then say "Sorry, we don't have anything to sell you", but they sit there 20 minutes telling you that and we couldn't address the needs of the customers who don't want our product.
  418. There are some sites out there, quite a lot of sites -- I mean you look at the Ciscos and the Dells and those are the ones that do literally billions of dollars a year over their Web site. It has nothing to do with consumers. It's all business to business.
  419. There are some sites where that wouldn't be a good thing to do, but for those sites for business to consumer, there are some good guideline design rules for sites that aren't always followed because there are different design graphic preferences on different designers.
  420. The best solution is to have the software and the tools and the modules at the premise so they can customize whatever they are using.
  421. MR. HALL: The best example is probably the Microsoft Internet explorer that came out in Version II. It had a little button that allowed you to increase the font size of the Web page you were visiting.
  422. The Web page that you were visiting, the hoster of it, he designed the site as normal. It was up to the user to say "Oh, no. I can't quite read that little font. I need to make it bigger". With one click of a button he could change the way the site looked to what he wanted as opposed to what the host had designed.
  423. I know my grandmother would have loved it, to have been able to just click and all of a sudden a font becomes huge and she can read it.
  424. Specifically your question about visual impairments, it's the client and it's the software and the client and it exists today as well as a good design of a good sale.
  425. MS LANGFORD: Taking the process of putting together fair practice guidelines for all of its members, and this strikes me as something that could be added to the service delivery aspect of the guidelines. Certainly the fact that the software exists needs to be pointed out in the same way that we point out blocking and filtering software.
  426. MS MOORE: Thank you.
  427. Those are my questions, Mr. Chairperson.
  428. THE CHAIRPERSON: Thank you, counsel.
  429. Thank you very much Ms Langford, gentlemen. If any of you were nervous, it didn't show.
  430. We will take our morning break now and reconvene at 10 to 11.

    --- Short recess at / Courte suspension à 1037

    --- Upon resuming at / Reprise à 1058

  431. THE CHAIRPERSON: Order, please ladies and gentlemen.
  432. Thank you very much.
  433. I would just like to acknowledge the presence of a number of young students from Carleton University in their Law and Media class. I hope you find this somewhat informative today, this session we are dealing with in trying to get a better understanding on new media, as I guess you are, and the whole regulatory process.
  434. Welcome to our proceeding.
  435. Madam Secretary.
  436. MS SANTERRE: Thank you, Mr. Chairman.
  437. The next presentation will be done by the Independent Internet Service Provider Group.
  438. THE CHAIRPERSON: Up to the front row now.
  439. MR. HALL: Some of us moved to the back.
  440. THE CHAIRPERSON: You were worried we didn't get the message?


  441. MR. NEMANIC: Good morning. My name is John Nemanic. I am the President of Internet Direct and Tucows Interactive. With me today is Wayne MacLaurin, President of Cyberus Online. In the back row, we have Rob Hall and Ron Kawchuk.
  442. Very briefly, Internet Direct is the largest Canadian owned independent ISP in Canada. Tucows is the busiest Canadian owned Web site in the world. Cyberus is the largest Ottawa based independent ISP. Ron Kawchuk is President of CAIP and Rob Hall, Echelon Internet.
  443. We are here to present the views of an informal coalition of independent ISPs, part of a rapidly growing and vibrant technology sector. It is the only industry I know of where senior executives are in their late thirties and the average age of employees is under 25.
  444. We do not share common views on all subjects, but after browsing other ISP submissions, the Commission will realize we speak in unison. I shall say it plainly: please do not apply the Broadcasting Act to the Internet.
  445. Our view of what is at stake in this proceeding is clear. The issue for us is whether the Commission will try to impose the Broadcasting Act on the Internet or the Canadian portion of it that the Commission considers to be within federal jurisdiction.
  446. This group and the other Internet service providers, indeed every submission of significance, has pointed out that the Internet is not broadcasting for legal and technical reasons. Why then does the idea keep appearing? Why does it refuse to die?
  447. The concern of some is that Canada will not be able to assure itself its future in cyberspace and that without government intervention, we are lost as a nation in an ocean of foreign voices.
  448. When we reach for the tools at hand, we have two variables, the Telecommunications Act and the Broadcasting Act. Since the general concern is with content, the Broadcasting Act is the only one that can affect content, so we use it.
  449. But as soon as we apply the Broadcasting Act, we have to ask what are we trying to do here? How far do we need to go? What is relevant to regulate?
  450. The truth is we don't have the answers to these questions. We do not know how to apply the old-fashioned tools of licensing and income transfers inside a regulated industry to accomplish what we want, namely a Canadian presence on the Internet.
  451. When we receive the unanimous opinion of every ISP group that Canadian content controls of the old type will not be useful in this new environment, then thinking turns to how we can exempt portions of the Internet from broadcasting regulation.
  452. Our group has said pretty bluntly that this is thinking within the box. This is a case of when all you have is a hammer, everything looks like a nail. When all you have is the Broadcasting Act, everything looks like a broadcasting system.
  453. We have said that there are three major elements for the case for broadcasting regulation. The case for broadcasting regulation has three assumptions: that the problem is content and if the problem is real, that the solutions the Broadcasting Act provides are relevant and appropriate, and that the types of solutions favoured do not bring with them unforeseen costs to the networked economy in Canada.
  454. If the governments wants to solve a more pressing Canadian content problem, consider the following.
  455. Microsoft is not Canadian owned. Netscape is not Canadian owned. Cisco, the company that is now larger than Nortel Networks or Lucent, the company that makes most of the key equipment which runs the Internet, is not Canadian owned. The maker of Real Audio, and a host of other products whose icons fill your screens, are not Canadian owned.
  456. What I am saying here is that the real Canadian content problem is not the one which this proceeding is addressing. The real Canadian content problem is that so much of the basic functions, features and products of the Internet are not made in Canada, but made by Canadians living in Silicon Valley.
  457. The real Canadian content problem is a question of software engineering, university funding, keeping and attracting talent in and to Canada, tax levels, research money, venture capital and the links among all these partners and players in the economic, government and educational sectors.
  458. It should not be forgotten that the inventor of the Java programming language is a Canadian. He had this to say about the Canadian problem a few days ago in the Globe:

    "You go to a university here and people are having a hard time just getting the money together to wire together really primitive stuff. You get what you pay for."

  459. The Canadian government should take the bull by the horns, he says, and dump some serious cash into the country's high tech future. Otherwise people will follow the opportunities, as he did 21 years ago. For me, this is the real Canadian content problem.
  460. We have stated that licensing of ISPs is not going to solve the Canadian content problem. We do not yet know whether this problem is real or how this problem will manifest itself. Economists will tell you that there is no scarcity to regulate on the Internet. All you need is affordable access to it. Since licensing raises costs for everyone, we fail to see how adding licensing costs will help affordability.
  461. This brings to mind the issue that all independent ISPs have been raising with the Commission. The independent ISPs need to offer affordable and effective high speed access to the Internet if they are going to survive. The number one issue with us is to be able to offer our customers the same quality of access as the telephone companies and cable affiliates can.
  462. For example, despite the CRTC mandating third party access to cable plant over three years ago, negotiations to date have been largely futile, resulting in cable companies dominating the high speed residential access market.
  463. Since nearly all cable companies are promoting the America @home service, home users of Internet cable services are being served American content instead of Canadian content.
  464. In effect, the failure to enforce third party access to cable plant has resulted in the absurd situation where third party Canadian providers offering Canadian content cannot compete against American content providers.
  465. I should add out of fairness that Tucows, which is a Canadian property, has been in fact mirrored, affiliated with some of the larger cable companies. I give them credit for at least doing that. Nevertheless, if you have more Canadian providers offering this content, you will find that there will be more Canadian content being served in the high speed market.
  466. Canada's participation in the networked economy is determined by many factors, both cultural and economic. One of the factors is risk. Any market where participation is made subject to the licensing power of government carries a higher risk and therefore a higher cost to investors, and these costs are passed on inevitably to consumers.
  467. We need to consider the costs of intervention before we charge ahead with the Broadcasting Act. We need to consider the effectiveness of the Broadcasting Act in a packet-switched world and we need to consider the real nature of the problem that needs solving.
  468. I will conclude by quoting the Minister of Industry:

    "Many of they key Internet issues lie beyond the reach of government. The Internet itself defies government because it does not have a structure that makes it easy to regulate. Many Internet issues are a matter of technological evolution that will occur regardless of what role governments play - or try to play. ... The Internet operates under general rules of law. For example, the Canadian Criminal Code applies to the Internet as do other Canadian laws.

    Beyond that though, I believe that there is no need to regulate the Internet and we should not regulate the Internet. In the same line of thought, because the Internet is a new medium is no reason to tax it."

  469. I give credit to Manley for getting it.
  470. Thank you.
  471. THE CHAIRPERSON: Thank you, Mr. Nemanic. I think you were very clear, both from the back row and the front row.
  472. I will turn the questioning over to Commissioner Wilson.
  473. COMMISSIONER WILSON: Good morning.
  474. MR. NEMANIC: Good morning.
  475. COMMISSIONER WILSON: A lot of people say to me I call a spade a shovel and I would have to say you are right up there with me. I received your message loud and clear.
  476. I note actually in your oral comments this morning that you really refined your position from the written submissions that you have made.
  477. MR. NEMANIC: Yes.
  478. COMMISSIONER WILSON: I didn't have the benefit of seeing your oral comments before I prepared to meet with you this morning, so many of my questions are going to flow out of your written submission. Perhaps that will give you a greater opportunity to elaborate on your position.
  479. I was struck by a phrase in the second paragraph of your executive summary to your Phase I comments. It appears again in your Phase II submission wherein you state:

    "The essence of the Internet is a common grammar for machines that allows machines to communicate without regard to their origin, manufacture or internal operating system."

  480. MR. NEMANIC: Yes.
  481. COMMISSIONER WILSON: I was struck by the word grammar because of the difficulty we all seem to be having in establishing a common vocabulary with which to talk about the emergence of this industry. This is a problem that you address in your submissions.
  482. I guess we have heard a lot of terms bandied about from Internet service provider to access provider, on-line service provider to content aggregator, portal, new media, content creator. We have also heard the people who access the Internet called consumers, users, audience, viewers. We have also heard various parties refer to what comes over the Internet as content and programming. You refer to it as binary code.
  483. I guess that really is the purpose of why we are here, to sort through all of this.
  484. MR. NEMANIC: Yes.
  485. COMMISSIONER WILSON: I wonder if we could start with you telling us where your organizations fit into all of this vocabulary, what kinds of services are you providing. Are you providing just access or access and content aggregation?
  486. MR. NEMANIC: Speaking for Internet Direct and for Tucows, Internet Direct in this particular, we offer access services. That is somebody dialling at home through their modem can go through our modem pool and in turn be part of the network cloud, part of the Internet.
  487. COMMISSIONER WILSON: This is a new term, network cloud.
  488. MR. NEMANIC: The best way to think of the Internet is it's coterminous, you know, every point touching every other point. Rather than think of it in terms of a highway, which I really think is not the appropriate metaphor, think of it as a sphere, a cloud, as something that once a person is on the Net, they can go anywhere. They are not restricted.
  489. In terms of content, we provide various kinds of localized content. For example, we have our local chats, our little chat lines, and members of our service can go on there and chat with each other.
  490. We have on-line games. We have created something called "Realms of the Spare" which is a multi-users' "Dungeons and Dragons" game. It's one of the most popular in the world, as a matter of fact, running now for about four and a half years. It's a great time waster.
  491. We have created something called "Neck Trivia" which is another game that we promote worldwide. Primarily our customer base is accessing, although interestingly enough, the most popular user group is located in Texas.
  492. When we have our annual Christmas parties, they come up from Texas. We have had people come from as far as South Africa to meet other trivia players. It's really interesting how you create that community of interest.
  493. We have an on-line astrology site that we call which is very, very popular. It goes on and on and on. When you are in the access business and if all you are doing is providing pipe, you could I guess be called a network service provider, but most ISPs provide content, whether it's just posting local sports scores, whether it's doing things like promoting the customers.
  494. For example, I know of some ISPs that will take links from the customers' Web sites that appear on the home page and will rotate those links so that their customers have exposure to the general audience.
  495. The key thing I believe to understand about content is most of the content really comes from our customers. We have on-line high school kids, junior high kids, who are putting on their class photos, placing their poems, telling their stories about the trips. They are doing it through the Internet. They are doing it through their Web site.
  496. That's where content in the real sense, getting the Canadian content message, is not a problem. Individual access rates are not particularly high. If you want to create a Web site, all you basically need is a $600 computer and then an Internet access account with Web space and you can get that for under $10 a month.
  497. Our Canadian content in fact is being promoted on the Internet.
  498. MR. MacLAURIN: Cyberus is more of an access provider. We do primarily the pipes, for lack of a better word, whether that is residential on modem or residential on high speed, ISDN or ADSL, and business which we do primarily on ISDN and ASDL here in Ottawa.
  499. Our content that Cyberus itself does is for our clients. It's our on-line billing. It's our on-line status reports. It's the stuff that our customers need to have to be able to do business with Cyberus more effectively.
  500. Certainly in terms of what our customers are doing, our clients are doing, we have content -- everything ranging from "Here's a picture of my cat" to one of the local schools who recently went out west, and named Unity Peak in the Rockies, posted the journal of their entire journey out to Lake Louise and up on the Web site from our location.
  501. Then we have businesses that are doing everything from simply "Here's a copy of my corporate brochure on the Web" to complete e-commerce solutions. Again, Canadian content being done by Canadians being facilitated from accessing Canada.
  502. COMMISSIONER WILSON: Correct me if I'm wrong. My understanding of the essence of your comments in your written submissions is that the Internet and the media are not separate things. It interests me to hear you talking about the pipes and the content.
  503. In your written submission you state, and this is the basis of your argument, that what the Internet is regardless of what you call it or what vocabulary you use, that there is no distinction as there is in traditional media between the technology that is used to deliver the content and the content itself.
  504. That is because when you break it all down, it's binary code which is packet-switched and delivered to the individual end users. For that reason it is in no way broadcasting. Is that a fair characterization of the position that you submitted in your written submission?
  505. MR. NEMANIC: I would say that's a good way of describing it.
  506. MR. MacLAURIN: The underlying technology way down has been around for decades, but it wasn't until there was something to do with it that anybody was interested.
  507. If you took away the content, the Net would go away. There's nothing there for anybody to do. In that respect, yes. You have to have the content. You have to have a reason to be there. Everything is linked.
  508. Our business is done on -- the technology we use is one thing. It's a collection of great acronyms of how it works and why it works, but the reality is we use it to facilitate business and the business we do can be lumped into all these terms for new media, be it a simple plain text on a Web page, e-mail, news, chat --
  509. COMMISSIONER WILSON: Content, programming.
  510. MR. MacLAURIN: The term used probably comes from what you did in your previous life. If you came from an industry which is heavily into working with traditional media firms, you would probably call it programming because that's what everybody else did in your previous life.
  511. I come from a computer science programming background.
  512. COMMISSIONER WILSON: So your definition of programming might be a little different from my definition of programming --
  513. MR. MacLAURIN: Yes.
  514. COMMISSIONER WILSON: -- coming out of television, for example.
  515. MR. MacLAURIN: Exactly. The fact is it's all content. Without the content, there is no Internet. In that aspect yes, they would have to be linked.
  516. COMMISSIONER WILSON: I guess what I'm trying to get at is, and you stated it quite clearly this morning in your fear, that we are going to look at the Internet as being like traditional media in the sense that there is the infrastructure and there is the content and because there's content, we might decide to apply the Broadcasting Act to that content.
  517. MR. MacLAURIN: Yes.
  518. COMMISSIONER WILSON: I was very interested in the position that you took that it was binary code. It's not content. If you break it all down, it's just digital impulses going along some kind of network.
  519. MR. MacLAURIN: Certainly from a technical standpoint that is the definition of what's going on. Whether or not we can point to a particular kind of content as being an issue, and that's whether or not it's broadcasting, whether or not it's pornography, whether or not it's copyright infringements on music, that's a different issue. That's an issue of whether or not people are conducting business in the way they should be.
  520. COMMISSIONER WILSON: I thought actually Telus made an interesting distinction when, I believe, it was in the appendix to their Phase I comments they said:

    "In order to determine whether new media constitutes broadcasting under the Broadcasting Act, one needs to examine the purpose of new media."

  521. I thought it was interesting to think sometimes the purpose of something. Yesterday I think one of our intervenors said if it looks like a duck and it acts like a duck then it is a duck.
  522. MR. MacLAURIN: Yes.
  523. COMMISSIONER WILSON: Then when I read the Telus comment, I thought "Well, if the purpose of it is to be a duck, then it is".
  524. MR. MacLAURIN: I think that's a position -- unfortunately not knowing how all the legal jargon gets refined -- the positions that we have seen on voice over IP, for example. In layman's terms, if you are using voice over IP to bypass traditional long distance networks, you are providing long distance telephone services.
  525. It doesn't matter how you are doing it, which is one of the reasons why we have jumped into it is because everybody thinks that means contribution, so what's the point. Yes. Sure. If it's a duck, it's a duck.
  526. COMMISSIONER WILSON: I'm not meaning to suggest that I have any particular predisposition by asking these questions.
  527. MR. MacLAURIN: No, no.
  528. COMMISSIONER WILSON: I just wanted to sort of examine your position because it's unique. In terms of what I read, it was a unique approach to why this stuff is not broadcasting. It's not content, it's just code.
  529. On page 19 of your submission, you reference the U.S. Supreme Court decision in Reno versus Stacial in which the U.S. Supreme Court Justice has stated in their opinion, the Internet was clearly not broadcasting.
  530. Do you know what the definition is? I don't, but do you know what the definition is of broadcasting is in the U.S.?
  531. MR. MacLAURIN: No. I'm not sure what it is in Canada either. You put an antenna up, you broadcast radio waves and you put TVs on, right?
  532. I suspect it's very similar to what we do, just in terms of how everything has evolved, just in terms of what service offerings we see in a traditional broadcast media, be it radio or TV.
  533. COMMISSIONER WILSON: Well, we will look that up for sure. I just was curious if you were familiar.
  534. MR. MacLAURIN: No. Legal terms, no, no idea.
  536. MR. HALL: There may be an important distinction because we have these different societies that have different definitions of broadcasting. Certainly technically the ISPs, we define this media as digital bytes, but you know, you define broadcasting a certain way. The U.S. may define broadcasting a certain way.
  537. COMMISSIONER WILSON: I'm talking about the statutory.
  538. MR. HALL: Fair enough. The realistic definition, we all mean the same thing in general terms when we talk about broadcasting. Legally how we definite it versus how the U.S. defines it, how an ISP defines it, I'm not sure that's as important as what do we mean generally when we say broadcasting?
  539. Is it technically this byte or that bit? We can argue the technical details for a long time. What it is, how do people use it --
  540. COMMISSIONER WILSON: Right. What's the purpose of it.
  541. MR. HALL: Fair enough.
  542. COMMISSIONER WILSON: On page 7 of your Phase I submission, you say:

    "The Internet is a standing threat to every closed, authorized or planned idea of communication by taking advantage of the abundance of computing power and bandwidth that technology of markets are making available. The Internet threatens the central planning model of communications which both broadcasting and telephony have been in this century. A new system of communications demands new thinking, including especially deeper insight into its fundamental logic."

  543. Then on, coincidentally, page 7 of your Phase II submission you quote Thomas So, the author of "Race and Culture" as saying -- I really like this quote. It was very interesting.

    "Yet those who today advocate the government's economic role is to preserve the essential framework of law and order, leaving more specific economic decisions to the marketplace, are accused of saying that the government should do nothing, even though it took centuries to accomplish what today is called nothing and nothing has brought widespread economic benefit to great numbers of human beings."

  544. I am assuming from these comments that the new thinking you are suggesting on page 7 of Phase I is to do what you are suggesting on page 7 of Phase II, which is nothing, to allow the marketplace to evolve as it will and to rely on what you describe as the broad framework of statutory and common law that is already available to apply to the Internet.
  545. MR. MacLAURIN: I think certainly in a lot of cases -- eventually, the answer is yes. If it was actually a truly flat level playing field for everybody involved, yes, that's the ideal world. I don't think we are quite there yet.
  546. COMMISSIONER WILSON: That kind of reflects the same position that we heard from the panel that Mr. Nemanic was on this morning with CAIP where they said hands on but hands off.
  547. MR. MacLAURIN: Yes. Assuming in terms of a lot of the issues that have been brought up, not necessarily brought up here but in terms of legal issues on content, on copyright, all this kind of stuff, our stand has always been that the rules of law apply. We don't need new ones. They're there.
  548. If somebody can come to me and prove beyond a shadow of a doubt that there is some content out there that meets the definition of broadcasting, I don't think you will find anybody in the world who will argue that the Broadcasting Act wouldn't apply to that particular content. What most us are saying is that there's --
  549. COMMISSIONER WILSON: There's nothing out there that constitutes that.
  550. MR. MacLAURIN: There is nothing out there that meets that definition.
  551. COMMISSIONER WILSON: What about at the point of true convergence between the Internet, and I am going to use your term the Internet, because that's what you say it is, not new media.
  552. MR. MacLAURIN: Yes.
  553. COMMISSIONER WILSON: But at the point of true convergence. The broadcasters are seriously concerned that what's developing in the new media or Internet industry is going to obliterate their businesses.
  554. That certainly is one school of thought. I mean broadcasting or not, it's going to do what they do.
  555. MR. MacLAURIN: Yes. Sure.
  556. COMMISSIONER WILSON: It's going to replace what they do.
  557. MR. MacLAURIN: And they are very concerned that their businesses are threatened so they are very concerned and want to make sure that doesn't happen.
  558. I think that technically that is still a long way off. The issue of bandwidth to everybody --
  559. COMMISSIONER WILSON: Right to the home.
  560. MR. MacLAURIN: To the home is the real problem. Yes, we can add a hundred or a thousand times more bandwidth to the backbone in a matter of months or a year with technical innovations. We still can't get it to the guy on his PC.
  561. Until I plug the Internet into my television and get high definition broadcasts on 500 channels or a thousand channels, I am not sure why I would do that other than plugging the cable out of my satellite dish into my TV.
  562. COMMISSIONER WILSON: So you don't really see that taking place.
  563. MR. MacLAURIN: Not for a while. The place we find it fastest is telecommunications because it is the one that requires the least amount of technical innovation to get there.
  564. COMMISSIONER WILSON: And that theory you would like to keep our hands on, the telecommunications.
  565. MR. MacLAURIN: Yes. Quite frankly, there's some interesting regulatory issues that we find makes it impossible for us to take advantage of these new innovations.
  566. We can't get last mile, so I can't step forward and say I have an innovation that will supply an alternative to traditional telephony to the home because the guy who controls the traditional telephony to the home also controls that last mile and doesn't want me in it.
  567. MR. HALL: If I could just follow up. I'm sure that the radio people back when TV was just being invented screamed that TV would obliterate them as well and we certainly have a lot of radio stations still around. My point is this media is not TV. It is not radio. It is not like any traditional undertaking we have ever seen.
  568. COMMISSIONER WILSON: Could it be? I mean we are talking about the future.
  569. MR. HALL: By definition, I have to say no, it is not. Can you make parts of it look like radio or parts of it look like TV? Possibly. I can go out of my way to produce a program, using your terms, that someone would listen to for half an hour.
  570. Could I do that? Yes. Is that what the new media and the Internet is about? No. Predominantly the majority of it is not.
  571. The second part of your discussion, should you want to regulate parts of it and not others, you already regulate the parts of it that we need you to regulate. We just need you to be more either active in it or more attuned to our needs in this regulation of those parts.
  572. We are not saying you should regulate it all by any means, but certainly you already do regulate the parts of it that -- certainly the things that matter.
  573. COMMISSIONER WILSON: Everybody has a healthy self-interest.
  574. MR. HALL: Of course, but certainly understand our views when we come to you and ask you to help in some regulatory matter in a sphere that you already have, but broadcasting does not apply to this new media. You have got to buy it as it is. Can I make a portion of it look like something that might be defined as broadcast? Probably, but --
  575. COMMISSIONER WILSON: I don't think anyone is suggesting that we are trying to -- I think it was Ms Garcia with AOL who yesterday talked about trying to jimmy it into the definition. I don't think anybody is suggesting we are trying to do that.
  576. I will tell you why I was asking that question. I have been sitting in my armchair at home, TV across the room. I am trying to imagine 15 years down the road. Am I going to have both television and the Internet on that television? Am I going to be able to control it from my armchair? Am I going to be able to watch events that are on the Internet, scheduled events, where multiple users can tap in and watch that event or am I going to be able to download programs like "Due South" -- I mean Canadian programs here -- "Cold Squad" and watch those on my television.
  577. If that's where it is going ultimately, then maybe that is in the long term.
  578. MR. MacLAURIN: Yes. The answer is maybe it is. Quite frankly, we don't know.
  579. About six years ago when I was working at Northern Telecom, before it became Nortel, before it became Northern Networks, North Bay Networks, whatever they are now, there a was big push to video on demand. That was the next big thing.
  580. They poured millions and millions of dollars into big, huge, expensive computer hardware so I could watch, talk and whenever I wanted. I still have video on demand. The best I have is the SuperChannel carrying "Top Gun" in three different time slots so that as long as I watch it in 15 minutes, I will catch the beginning of it.
  581. COMMISSIONER WILSON: Or program your VCR.
  582. MR. MacLAURIN: Not video on demand. Right?
  584. MR. MacLAURIN: It may happen, but it has been eight years since I heard the first instance of what that might be. We haven't seen it yet Maybe.
  585. COMMISSIONER WILSON: Let's leave that. I want to go to a comment that you made about competitive pressures that you feel.
  586. On page 9 of your Phase I submission you state:

    "Independent ISPs provide Canada with a core of competence in Internet technologies and that the competitive pressures upon us from our suppliers, telephone and cable companies, stimulate our creativity and responsiveness to the market."

  587. Are you referring, when you talk about telephone and cable companies, to services such as Simpatico and @home or are you referring to the issue of ISP access to bottleneck facilities?
  588. MR. NEMANIC: For us, the major concern is access to bottleneck facilities. That's the key problem.
  589. Not that it matters, but I'm not particularly threatened by Simpatico per se or by some of the @home services because we can provide our own tailored content and we can provide our own experiences to our customers.
  590. There are some people out there, frankly, who do not want to deal with the cableco, the telcos. They like dealing with their independent ISPs. As a matter of fact, it's close to 70 per cent of Canadians.
  591. The problem for us if we don't have that last mile access, we can't start to develop the high speed access content. We can't get in that game. If we can't get in that game, that means eventually if there aren't Canadians doing it, somebody else will do it. The Internet doesn't bore a vacuum.
  592. I believe that local providers have been at the forefront of creating and promoting Canadian content. An example of that content might be our "Dungeons and Dragons" dream. I would like to create a 3D version of it and I would love to be able to run it over high speed networks. I would love to be able to create interactive educational programs for my kids, for example. I think that would be great.
  593. Can't serve it if you are doing everything through a 56K modem. Will the techno telco cable cause it? They may. They may not. If there is a level playing field, then you will find that you will get much more diversity of content. You will get many more players in there.
  594. You will find that localized ISPs are often times more amenable to working with groups who otherwise might not have access to, say, -- might not have the resources to approach someone like that, a Rogers, for example, and say "We want to appear on your home page".
  595. I mentioned earlier that Tucows has some affiliates with some of the cable companies. That's because we are the busiest Web site in Canada, as a matter of fact the busiest Canadian Web site, period.
  596. My point is what if some of our customers aggregates Canadian poetry, some obscure Canadian poet -- perhaps a person wanted to create an interactive experience with that poet reading that material. It's highly unlikely that you are going to be able to commercialize that to the extent that someone like a large telco cableco will accept it.
  597. On the other hand, the small ISPs can put this on their Web site. Most people looking for that will be able to access it. For us the real issue is not content. It really is all about access.
  598. We are not asking for subsidies. We are just asking for a level playing field, nothing more.
  599. COMMISSIONER WILSON: And that's what you meant when you said this morning:

    "-- the failure to enforce third party access to cable plant has resulted in the absurd situation where third party Canadian providers...cannot compete against American content providers."

  600. MR. NEMANIC: If you are a customer of @home, you log on, you see the @home page. You see their content. Most of their content as I understand it now today, most of it is American.
  601. On the other hand, if Cyberus Online for example had a high speed service, I have no doubt that a lot of the content that they would offer would be local in nature because they are a local provider. They would be of interest of people in, say, the Ottawa-Carleton area.
  602. There are a number of developers who would love to have the opportunity to market that. They can't do it right now. They just can't.
  603. MR. MacLAURIN: There's an interesting phenomena because 70 per cent of the Internet in Canada is served by just little small ISPs.
  604. The recent trends in the large companies when they are looking for innovation is to buy it. Whether that's Northern buying Bay Networks because they needed a piece of a puzzle they couldn't develop fast enough for themselves, whether it's Rogers or Shaw buying the @home brand because it was the fastest or most expedient way to get that service out, "I think I am going to do that". Little guys can't.
  605. You find the little guys developing their own content because to an ISP or anybody who is developing something primarily for -- they are self-employed if you would like to use that term, which my banks still think I am.
  607. MR. MacLAURIN: If Cyberus is going to look at a new product and we look at the cost of developing that product, we don't typically look at the costs to the people involved. We look at what is the cost of buying new equipment or whatever because that is a hard cost.
  608. I have people employed. If they have to work 36 hours extra to get this product our, they do it. If I have to work 200 hour work weeks instead of a hundred hour work weeks, that doesn't get factored into the cost of doing the service.
  609. If I am Bell, and I have a thousand people working overtime on a project for six months, it does go on my bottom line. For them it might be cheaper to buy product. For me it's always cheaper to develop it which means I develop stuff that I need done.
  610. If I come up with an innovative idea, I am going to develop it. I am going to build it. I am not going to go buy it because it's cheaper for me in hard currency sense to develop it.
  611. You get the small guys coming up with the really neat stuff. You get Tucows developing a wonderful selection of share wares, all the so change and everything else built around it, because it was cheaper for them to do that than it was for them to go and find something in the U.S. that was mostly right and buying it.
  612. You look at some of the recent innovations on the net. ICQ by Meryl Bellis. Again, a couple of guys in their basement thought this was a really cool idea, built it up, gave it away for free over the Internet and got bought for some God-awful amount of money by AOL.
  613. Computer games, "Doom", right? A couple of years the biggest game ever. A couple of guys in the basement developed it. Gave it away for free over the Net. No other traditional gaming company in the world would ever have thought of giving something away because they had to look at the bottom line.
  614. These guys didn't care. They were out to give it away. "Oh, wait a minute. I can buy a Ferrari. Neat". Now they have a huge company doing this kind of stuff and it's now the new model. Almost every game in the world now is given away for free in some version across the Net before it's released.
  615. COMMISSIONER WILSON: One of the things that we have heard, and I think it's actually a quotation, I can't remember from whom, maybe it was the Ministry, about e-commerce and new media being the greatest economic of the 21st century.
  616. I think one of the points that you raise in your submission is that the independent ISPs are really a crucial part of driving the growth.
  617. MR. MacLAURIN: Yes. For example, in Canada if we had waited for Visa and MasterCard to get around to producing their own version of e-commerce enabled transactions, we would still be waiting. Neither one of them ever have released a full blown, officially approved, you can go license it kind of thing for their products. All of us are doing through it other means.
  618. Whether or not you have written up something that emulates a swipe card reader at your front desk and just makes it look like you are doing swipe cards or if you have gone to some clearing house and bought the right to do on-line transactions through a third party house, that's an example.
  619. It's the small guys doing that first because the small guys realize that was a market they could get into, do a head-in, do very well in their community, offer their business. They didn't have to wait for some big business to get around to figuring out how to do it themselves.
  620. COMMISSIONER WILSON: Okay. I just have one more thing that I want to raise with you. I just note in terms of your written submission that you provide a description of the actual sort of technical characteristics at the Internet that I found very useful and very interesting.
  621. I am not going to persist with specific questions on those parts of your comments, but I do have to ask you about some of the comments and terminology that were used, particularly in your Phase II submission. I hope you will take this in the spirit in which it is intended.
  622. MR. NEMANIC: Sure.
  623. COMMISSIONER WILSON: I believe it was the CAB yesterday who talked about the possibility that their industry could be straitjacketed in the emerging new media marketplace. Then I noticed that throughout your Phase II comments you used a number of terms that had kind of a psychiatric spin to them.
  624. You talked about the broadcasting mental model, the tendency of the Canadian psyche. You talked about escaping from the traditional regulatory frameworks just as you seemed to infer from some of the phraseology from our questions of the Public Notice that the Commission is somehow intent on going down a certain path, a certain regulatory path.
  625. I kind of inferred from these terms that maybe you were trying to tell us something. Then this morning you said our group has said it pretty bluntly that this is thinking within the box. The box is actually another kind of asylum. We are all trapped in the regulatory asylum.
  626. Are you trying to tell us something? I'm fairly new. I can't use this as an excuse any more, but what exactly is the broadcasting mental model? It is described in your submission, but where did that term come from?
  627. MR. NEMANIC: Frankly, as an ISP operator, and I have had this discussion with a number of operators, and I am also a member of CAIP as well and have had these discussions internally.
  628. A lot of us are frankly puzzled by this whole notion of prime broadcasting through the Internet in a particular way you would regulate it. We see it as packets.
  629. To our mind, if you were to turn around and say we are going to regulate Canadian content, there is absolutely no reason why somebody who wanted to escape that regulation and the concomitant costs couldn't set up a server, say, in the United States or in England or Asia, what have you, and just avoid all that.
  630. It's also sort of a thought there is perhaps this scarcity that Canadian content is going to be lost in a sea of foreign content, primarily American content.
  631. Our view simply is if we have access, that is if we are on a level playing field, I can assure you there will be an explosion of Canadian content on the Internet. There will be Canadians talking with Canadians.
  632. One of the things that really, really fascinates me about the Internet is just what a thirst there is for knowledge out there, how many people who want to be part of that.
  633. For example, one of my friends went up to Baffin Island and set up an ISP. I thought this was rather interesting. If I remember correctly, I forget the name of the community, but there's about 400 households and they have over 80 per cent penetration.
  634. As he described to me, he said "I couldn't believe how excited they were that they could finally have access to all this information". They in turn could get their messages out there.
  635. It's an interesting thing. You can be on Baffin Island and you can set up a business selling Canadian content. You could sell your poetry, for example, or your readings. You could collect transactions. You don't have to leave home. You are not limited by geography.
  636. I think it creates a wonderful opportunity if Canadians can master technology to be leaders in the 21st century. We are at the forefront. We are at the forefront, yet I have to say in some respects right now there is a perception of a lot of content developers that the United States is a more favourable environment to work in.
  637. As a Canadian, I choose to be here. I could operate Tucows out of the United States. We have a U.S. subsidiary. We could operate out of the States. We could pay lower taxes. We could move down there. Damn it, I'm a Canadian.
  638. I like the fact that we have been able to create this content that is being accessed on a global basis, that people actually feel in Zimbabwe that our customers in Channel Islands, customers in Japan and China, find this content useful.
  639. Our concern is it's tough enough having difficulty accessing capital. It's tough enough that you have to pay higher taxes, but if regulations are imposed, then it's the sort of situation where really we have to sit there and say "Geez, we just can't survive on a global basis. We are competing globally. We have to move to a more favourable environment".
  640. Conversely, if Canada was to become very progressive in this area, if indeed we were to promote content development and ensure there was a favourable environment, you might find that we could become exporters to the world. We in fact could create a wonderful industry.
  641. I think there's a great opportunity here as well for Canadians. End of speech.
  642. COMMISSIONER WILSON: I think that's a really good note to finish on.
  643. MR. NEMANIC: Thank you.
  644. COMMISSIONER WILSON: I just want to say that I respect your passion for being a Canadian and for wanting to be the best and export the best of what you do.
  645. I also want to say thank you for giving us a slightly different take on the phrase Canadian content.
  646. Thank you very much.
  647. MR. NEMANIC: Thank you.
  648. THE CHAIRPERSON: Thank you, Commissioner Wilson.
  649. I believe our Chair, Madam Bertrand, has a question or two.
  650. THE CHAIRPERSON OF THE COMMISSION: Yes. Good morning. It's not only interesting, but we can sense your enthusiasm and your passion about it. That's very contagious in a sense.
  651. It kind of relates somewhat to the question I was having with the CBC yesterday where the CBC says we could be like the site of all sites and maybe capable of helping, which is an interesting proposition.
  652. I was questioning them, asking if they were the best player to do that. Everybody sees its own role. What I was thinking yesterday by asking that question, I think first and foremost before we think of any tools or any approaches we have to think of what will be more favourable for the flourishment of that kind of universe and environment for Canadians at large, including all the components, economic, social and cultural.
  653. It is in that perspective that I am coming to the hearing. I would like to hear your views. You were quite clear about your capacity. I think it relates also to questioning from Commissioner McKendry earlier of your capacity to innovating. You have demonstrated it.
  654. We have about 700 Internet providers now in Canada. I would like you to relate that to a phrase that was in the executive summary of the CCTA where they say:

    "It would be incorrect to believe that smaller companies will necessarily by the norm or that smaller companies will necessarily have an advantage in this marketplace."

  655. I am concerned because other than the question is it broadcasting or is it not broadcasting and what is the relationship to telecom, there is certainly on our part in understanding the impact on the environment we are accustomed to.
  656. Are there things we can do to help? Not regulation, but certainly we can ask the question.
  657. I wonder if it would help the universe of new media to help consolidation, help people from the traditional environment to move into the new one? Is that a help? If yes, under what conditions? Am I clear?
  658. MR. NEMANIC: I sense what you are trying to say. I believe I understand what you are saying.
  659. My response is one of the key success factors for developing a successful enterprise, I mean of promoting contact, is your pace of intervention. That is very critical. The Internet changes very, very quickly. There are new products and services being rolled out almost daily.
  660. It's interesting to note the smaller ones won't necessarily be the ones who will do this. We mention an example, a company Mirabelus. Just as an aside, I have talked to the principles of Mirabelus. They are out of Israel. There's four programmers. We actually helped them in part to develop their product.
  661. We just did it on an informal worth. For what it's worth, we did this when this company started and it was sold to AOL for $287 million, plus $120 million in consideration.
  662. If you look at companies like Netscape, they essentially started as just very modest enterprises. You had Margaret Driesen who came out of the university, teamed up with somebody who had some experience in this area, created this small business and the next thing you know, they became this huge, huge success story.
  663. I can think of countless examples that started that way. The point is when it comes doing a piece of business on the Internet, the most important thing is if you have something like regulation, I believe regulation will slow that down.
  664. If we have to consult with somebody and get permission every time we want to roll ouy a new product or service, this would put us at a significant disadvantage. I am just using the example of the States or it could certainly be Britain. Somebody rolling out a comparable service, rolling it out a lot quicker and getting penetration.
  665. First mover advantages are absolutely critical in this business. One of the reason why Tucows is so successful is we started it over three and a half years ago. In fact, this was a strategic diversification that came out of our access business. This is where access is so useful. It gives you the opportunity to see what people are actually doing.
  666. We noticed something very interesting, that our customers liked to dabble a lot with software. They were asking us where they could find the software. They asked us for descriptions of software, the latest versions.
  667. We started abrogating this content. The next thing you know, we had an Australian company contact us and say "You know, you got a really great Web site, but it's so slow because we have to go across the pond to access it. Would you mind if we have a copy, to speak, a duplication." I said sure.
  668. We developed technology that allowed us to immediately update whatever we put in Toronto to immediately update it around the world. As a consequence, we were able to develop over 550 affiliate relationships in over 60 countries around the world.
  669. Some of our favourite relationships are with a lot of prominent companies; Ericson. We have RoadRunner in the States, Cable and Wild, this is one of our mirrors. In Canada, of course, Simpatico in Saskatchewan. Cojeco Cable, Shaw Cable and so forth. In Singapore, I think we got the cable company there as well.
  670. I could of go on and on. The point is that the pace of innovation is critical. First mover advantage is critical.
  671. THE CHAIRPERSON OF THE COMMISSION: Can smaller companies better have that pace?
  672. MR. NEMANIC: With no disrespect to the telcos and cablecos, those are much larger organizations. Everybody wants to have their voice heard. It might take months to get together the key people to make the decision. In the meantime the opportunity has opened, the door has already closed.
  673. MR. MacLAURIN: That's certainly part of it. A small business to survive needs to be innovative. We have to do things quicker, faster and better than anybody else.
  674. I don't have a hundred million dollars to throw at a project if I miss the window. I give you an example. CD-ROMs, Microsoft almost lost their edge because of the Internet. They were so focused on doing CD-ROMs and CD-ROM technology that they ended up spending a few hundred million dollars to catch up on what to do on the Internet.
  675. Whether or not we want four or five companies in Canada or an organization in Canada that is responsible for producing Canadian content and producing -- no offence, three more versions of Ann of Green Gables -- a cutting, leading edge company producing state of the art, worldwide renowned animation. You won't necessarily get both.
  676. As to the CBC, whether or not they are a good choice of being an aggregator. The last time I looked, I think they got $700 million last year. I'm not sure this industry made $700 million last year.
  677. Again, I think you would miss stuff if an institution that is that large and inherently that slow to react and change and innovation, I'm not sure they would be open to accepting a new idea from a small company of two guys who can only write in Inuit and don't want to submit the form in the three official languages that the CBC wants in the ten different forms before they allow you to put their icon on their home page.
  678. What you will find is you will find somebody who will say the CBC wants to charge me $100 a year to do this, I would do it for free. That infrastructure collapses upon itself.
  679. THE CHAIRPERSON OF THE COMMISSION: Do you see those small companies condemned at one point by need of financial -- in growing, the need of capital. Do you see those condemned to being sold to AOL or larger entities?
  680. MR. MacLAURIN: The answer to being sold, that is probably a function of what the owners want to do with their company. Selling certainly could make them money and they could go live somewhere warm and sunny.
  681. Whether or not you choose to do that is entirely up to you as a company. There are lots of very, very successful small business in Canada who run quite happily, regardless of whether they want to sell out.
  682. In terms of who is going to buy you if you do, the brutal reality is the only people with money are the Americans. Our current tax and investment environment doesn't encourage Canadian companies to do that. I have got an example.
  683. One of my Directors, his first start-up in California, he just made $260 million. He had 30 days to hide that money in other investment, real, real fast, or the IRS was going to come and get it. He moved very quickly to reinvest that money.
  684. That doesn't exist here. If I sell my company for a couple of million, I get to hide a little bit in RSPs and either pay a lot of accountants a lot of money to hide it for me or it goes away. There is no incentive for me to reinvest that.
  685. MR. HALL: If I can just touch on your initial comment about the CBC, what is the term you used about the CBC becoming an aggregate? Was that it?
  686. THE CHAIRPERSON OF THE COMMISSION: They were thinking of becoming the Canadian --
  687. MR. HALL: I am sure they would love you to fund them doing that. Your point was do these big companies that are traditional broadcasters need help moving into this new media.
  688. I look at the CBC Web site and others like Canoe, which is from the newspaper publishing chain. There is no barrier right now stopping them from becoming that exact aggregator, other than what the people in the public want to see.
  689. If the CBC develop a beautiful Web site and the people want to go to it and they choose to use it, they will by default become the aggregator. Do they need funding to do that from the rest of the Internet community? I would say no. Do the small companies need funding? No.
  690. There is no barrier to us right now to producing those aggregate sites other than useable content and let the people decide what they want to use and where they want to visit.
  691. Do these companies that are traditional broadcasters need help in funding and a special fund set aside to help them move into this new media? They have been doing it for years.
  692. Some of them are leading the way such as CBC and that. They don't need more help to do it. The little companies I don't think need the help to do it either.
  694. THE CHAIRPERSON: Commissioner Grauer.
  695. COMMISSIONER GRAUER: I just have a follow-up to our Chair's question.
  696. With respect to the area of innovation, I know your concerns that any regulatory initiatives on our part would hamper efforts to innovate. I just wondered if you have any suggestions to us in terms of things that we could be doing or recommendations we could be making to help create or nurture a climate of innovation, as I think somebody phrased it yesterday.
  697. You have just mentioned some tax things. I just wonder if there is more you think should be done.
  698. MR. NEMANIC: My own view on it is that to date, because we haven't had the issues of regulation -- in fact we have had that climate of innovation and we have had some successes. I think we will have more successes. Frankly, just a few bits of regulation will put a damper on some of those efforts.
  699. Having said that, again at the risk of overstating my case, the access issue for us is a critical one, in particular the last mile, in particular being able to offer high speed solutions.
  700. I should make this point. I have been speaking primarily about residential customers. Let's talk about business users. This is very important.
  701. ADSL is not a business solution. It is asymmetrical. If you want to have a business, you need directionality. The problem is that the cost of a high speed connection in Canada is far higher than it is in the United States. Competition in the United States in some cases has resulted in costs for a comparable band being one third of what it is in Canada. I speak from experience because of our U.S. office, because what it costs for bandwidth there versus here.
  702. My point is this. The Internet bores a vacuum. If Canadian businesses are not getting on the Net at the same pace as American businesses, then Canadian businesses will frankly go to the American sites and they will buy from the Americans.
  703. If on the other hand we can foster a competitive environment where my organization or Cyberus or Rob Hall through Echelon can rule out specialized high speed services, this I think would be a great incentive to getting businesses on-line, in fact making sure that we don't lose traffic and that we don't lose dollars to the U.S. because we don't have that kind of high speed access.
  704. Let me try to give you a concrete example. A company like Bell may bring out a certain standardized service. It's a one size fits all. We may have customers who say to us "You know what, John? I need 10 megs downstream, 5 megs upstream. I need a virtual private network. Can you tailor this for me?"
  705. If I had access to the underlying facilities, yes, I could do that. He could do that. We all could do it. We could customize solutions.
  706. Frankly, try going to them and asking them to do that. We have a hard enough time getting bloody phone lines much as trying to get customized services.
  707. My answer to that if on the access side, and again at the risk of overstating my case, if the access side is properly deregulated, if we have non-discriminatory access to underlying telecom facilities, then we are going to do just fine.
  708. Just to comment sort of on the CBC, I think their site is great. Whether they could become the aggregator is certainly another issue. If they could develop compelling content, then Canadians will go to that site.
  709. Having said that, again it's not one size fits all. There may be certain content on the CBC site that appeals to mass audience. For example, if I'm on Baffin Island, I like my little ISP because they tell me what happened at the local basketball game, local hockey game, what have you, who caught the biggest fish or who is dating whom.
  710. COMMISSIONER GRAUER: Thank you very much.
  711. THE CHAIRPERSON: Commissioner Pennefather.
  713. I would like your take on another aspect. You mentioned the whole business of keeping and attracting talent to Canada and getting some of those Canadians back to the Ottawa Valley from Silicon Valley.
  714. What's your take on what could be done at that?
  715. MR. MacLAURIN: Ninety per cent of that is taxes. Bluntly and simply, I would make more money if I lived in Silicon Valley. I would keep more money if I lived in Silicon Valley.
  716. For a long time it was an issue of where you got paid more. Because of the success of the industries both in the Internet and in other high tech particularly software, it's now so competitive to get that talent we are finally seeing salaries in line with what our American counterparts are making.
  717. However, if I am going to make hundred thousand here or a hundred thousand in California, and the answer is by December I have $30,000 left in Canada or have $75,000 left in Silicon Valley, it's just becoming really hard to justify why I stay here beyond the fact that I like Ottawa and my family is here.
  718. In terms of fostering innovation or fostering more companies to take a chance here, that's more of an issue of attracting capital. Again, that's partly taxes. The people with the money -- it's a better tax break or better investment to invest in the States or leave the money in the States if they are Americans.
  719. In Canada, we went through this year actually looking for capital to do new things here. After talking with various organizations in Ottawa, the average investment by an individual in Ottawa, an angel investor if you will, is $80,000. $80,000 doesn't buy me a new server, let alone pay for the development of anything.
  720. You look at what the venture capitalists are throwing money at in the U.S. You can write the worst shoddiest business case in the world for whatever happens to be the latest buzzword and people throw money at you.
  721. Whether or not that's a good thing for the industry, well, there's a lot of failures now in the States in terms of small startups, but if we could attract capital and we could keep the capital here once it's made, then that would go a long way to attract new talent to stay here.
  722. MR. KAWCHUK: I would like to add something. There are 700 entrepreneurs that didn't exist four years ago. For every hundred thousand dollars of revenue that the average ISP gets, he employs at least one person. Those people are all over this country at all different skill levels in all different communities.
  723. I think encouraging that and keeping that going will help Canadian employment and help Canadian high tech and let people work where they grew up or where they live.
  724. MR. HALL: I think you have to also understand there is a key motivator here. Certainly we all understand the tax implications and the Canadian dollar exchange rate and the financial differences between working here and Silicon Valley.
  725. I think you have to understand the mentality of a lot of people we are out trying to hire. These are typically kids. They are typically under 30. They are typically making $120,000 to $150,000 a year, whether it be U.S. or Canadian.
  726. I will give you an example of the former Vice-President of Hook-up Communications, one of the public companies here, who went down to the U.S., was offered $120,000 U.S. and his first year's bonus because the Internet group exceeded their projections was $450,000 U.S. dollars.
  727. He doesn't care about money any more. He cares about what's innovative, what's neat, what's cool. If Canadian companies can stay in the forefront of innovation, he would come back to Canada for probably $50,000 a year if the project he was involved with was cutting edge, exciting and new because money isn't his driving force any more.
  728. All things being equal, he wants to have fun at work. He's a kid. He wants to enjoy what he's doing. These are the people that are developing this new idea. We have to keep that talent as well. We have to be able to certainly afford to pay them but we also have to be on the cutting edge.
  729. If they are developing something that was designed in the U.S. and they are just rehashing it two years later, they are not as intrigued. It's critical to keep that innovation going and keep the forefront in Canada.
  730. COMMISSIONER PENNEFATHER: Thank you very much. I think I will go home and speak to my son now.
  731. MR. NEMANIC: If I may add a comment to that. Again, my perspective might be a little bit different from Wayne's.
  732. I believe that a lot of our programmers and developers are motivated, not by money per se although the money is certainly important and the hygienic factor, but beyond a certain point they don't need that much more. It's more to have the opportunity to do really creative things.
  733. I was talking to my Webmaster for Tucows, our head Webmaster. He used to be in broadcasting. As a matter of fact, he used to be a radio broadcaster. I said "By the way, I'm just going up to Ottawa to talk to them about new media". He says "Oh, God, no, please. I hope they're not going to do this to us".
  734. His concern, of course, was he has created this wonderful innovating content. He doesn't want to sit there and think "Well, gee, you know, if I am creating a hundred images, do 15 of them have to be so-called Canadian images or something like that".
  735. I mean, I don't know how you could do this in the first place.
  736. My point is though that if Canada is seen as a place where we can have free expression of these ideas, where we can be innovative, if you can foster an environment that encourages this sort of thing, it doesn't necessarily have to be money. Rather, sort of an attitude of "Hey, what you guys are doing is great. We love having you". Then I think we could be successful. It's not just about money. Really it isn't.
  737. THE CHAIRPERSON: I just have one last question.
  738. Is Tucows the "udder" Canadian on-line Web site?
  739. MR. NEMANIC: That's real good. Moo-oo-oo.
  740. THE CHAIRPERSON: I really would like to know where the name Tucows came from.
  741. MR. NEMANIC: It's actually an acronym that stands for the ultimate collection of windsock software. This started three and a half years ago. One of our customer says "Well, ultimate collection, moo cows -- no, two cows. Yes, that's how I can remember it."
  742. We thought "You know, that's real cool", so we registered the name and registered the trade mark. The rest is history.
  743. THE CHAIRPERSON: Good for you.
  744. Thank you very much. It has been a really interesting discussion this morning.
  745. We will take our lunch break now and reconvene at 1:30.

    --- Recess at / Suspension à 1205

    --- Upon resuming at / Reprise à 1330

  746. THE CHAIRPERSON: Order, ladies and gentlemen.
  747. Madam Secretary.
  748. MS SANTERRE: Thank you, Mr. Chairman.
  749. The presentation will be by Netcom Canada Inc., PSINet Limited, Internet Direct Canada Inc., and UUNET.


  750. MR. DESAI: Good afternoon, Mr. Chair and members of the CRTC.
  751. Thank you for providing us with the opportunity to present our views directly to you and to respond to your questions.
  752. Let me begin by introducing ourselves. I am Nadir Desai, President and CEO of PSINet Limited. On my left is John Blakney, our legal counsel from the law firm of Fraser Milner and on my right is Richard Cantin of UUNET, an MCI WorldCom company and a partner in this presentation.
  753. Richard and I would first like to tell you a little bit about ourselves.
  754. PSINet is a global facilities based IP telecommunications carrier and we also operate the facilities for Web hosting, management and storage.
  755. In Canada, PSINet Limited has grown from one employee to over 300 in less than three years. We have grown from no revenue three years ago to in excess of $50 million this year. We have the largest base of corporate Internet customers in Canada and we service a significant number of consumers.
  756. Corporate customers number in excess of 10,000 in Canada and our consumer base exceeds 120,000 users across the country in major cities all the way down to small towns.
  757. Our growth rate in 1999 will exceed 50 per cent in revenue and we will add an additional 100 employees. Our newly created Web design and management group will focus primarily on the creation of a Canadian portal site to provide content and access to both consumers and businesses. This team will go from 10 today to over 30 employees next year.
  758. PSINet currently has responsibility for several global aspects of the company. We are responsible for sales marketing and training for European and Asian employees in Canada and PSINet Canada will host the first consumer conference for the company globally in early 1999.
  759. Richard?
  760. MR. CANTIN: This is now my second time in front of the panel so I am a little less nervous.
  761. UUNET is the Internet arm of the MCI WorldCom family of companies and as such is a global player in the Internet. We have coverage through over a thousand points of presence, or POPs, in over 70 countries worldwide, including Canada, the U.S.A., Europe and Asia.
  762. We are connected from Canada to the international IP community with over 500 megabit per second capacity and redundant points out of Vancouver, Toronto and Montreal.
  763. Of the 4,000 or so ISPs in North America, less than 40 own or control their own backbone. UUNET and PSINet are two of those 40. The remaining 3,960 or so rent capacity from one of us, including UUNET and PSINet.
  764. UUNET sells only to business, not directly to consumers. Included in our list of business customers are numerous Canadian ISPs. In fact, we often refer to ourselves as the OAM of the ISP industry.
  765. We have, just to give you a sense of scale, dedicated access products offered to Canadian businesses ranging in price from $600 to over $60,000 a month in services.
  766. Our purpose in being here today is to bring the business to business perspective to the hearings. In an earlier article in The Economist and in many articles since then, it has been widely accepted that the business to business opportunity in e-commerce is about ten times that of the business consumer potential, so we would like to make sure that Canadian businesses are adequate enabled to compete in this global marketplace.
  767. MR. DESAI: Thank you, Richard.
  768. We represent Netcom Canada Inc., PSINet Limited, Internet Direct Canada Inc., and UUNET. AOL Canada services Inc. have also participated in the drafting of our Phase I and Phase II submissions as well as in our preparations for this appearance.
  769. I believe that there is no need to repeat what we have already said in our written submissions and that our time today can be used more productively in dialogue with the Commission. Our formal presentation to you will therefore be brief.
  770. The Internet service providers who have joined in this group represent some of the largest independent ISP businesses in North America and, in fact, the world. By independent, I mean not controlled by or affiliated with Canadian local telephone or local TV companies.
  771. We have provided Internet access and related services since the advent of the popular use and commercialization of the Internet, and more particularly the World Wide Web.
  772. We have been an essential part of the technological cross-fertilization between Internet access and transmission technologies, Internet protocol-based developments and we content design, storage and retrieval.
  773. There has been explosive growth in the Internet over the past five years. This is a global phenomena driven by an infinite number of contributors worldwide.
  774. The amount of investment that has occurred in the last five years has been staggering, in the billions of dollars.
  775. We are proud of the leading role that the independent service providers have played in defining and developing Internet services in Canada. We were agile, creative and innovative and we also brought competition well ahead of the incumbent carriers. Our presence helped to drive down the cost of access for everyday users.
  776. Our companies are involved in very large investments worldwide; investments that are essential to the progressive development of the Internet and new media.
  777. We are of the view, therefore, that it is very important to facilitate competition through the availability of enabling technologies from the telcos and the cablecos.
  778. Regulatory police should recognize that it is particularly vital to ensure that incumbent carriers cannot use control over the last mile access facilities to limit the development of a fully competitive Internet services sector.
  779. Much of the Internet to date has grown on a network characterized by low speed access. However, as we move into more advanced uses of the Internet for business, distance learning and other new needs being identified by consumers, literally on a daily basis, the need for broadly available high speed access has become critical to the future of the Internet.
  780. We hold the view that high speed access is essential for both businesses and consumers as well as to facilitate competition. Vigorous competition among many players brings more and more innovation and better and better prices.
  781. To facilitate competition, we believe it is essential to level the playing field on high speed access over the last mile. Competition must be allowed to develop if indeed Canada is to continue to be one of the most advanced nations in the world in its use of the Internet.
  782. The factors that are most compelling are this country's vast geographic expanse, the large number of small, remote communities, the high level of education that is held by so many Canadians, the increasing importance of the Internet for commerce and the extensive benefits that we see coming with that and the growing demand for distance learning.
  783. These are all driving forces that are wanting for higher and high speed access, ever-increasing geographic coverage and continuous improvement in terms of service and pricing.
  784. Key to this facilitation is to provide more open high speed access for all ISPs to the last mile. To be effective, this access must have no limitations on its availability and there must be a level playing field with respect to pricing at the buyer level. Then and only then will sufficient competition be supported.
  785. I don't believe I am exaggerating when I say if this is not done, Canada will fall seriously behind in its ability to maximize all that the Internet has to offer.
  786. We believe that the CRTC should turn its attention to this important matter. It is important as we move forward in the age of new media and it is important to note that timing cannot be overlooked.
  787. The previous decisions of the CRTC are all generally supportive of this pressing need, but what we are finding to be of increasing importance is to eliminate the "just one more day" syndrome.
  788. Every day in getting on with establishing a competitive business model for Internet access means that this country just falls one day further behind in terms of keeping pace with advances being made outside of Canada. This delay in turn will mean business will go outside of Canada.
  789. I cannot overemphasize the importance that we believe is brought to bear by competition. Through vigorous competition and innovation, independent ISPs have defined the Internet services market in terms of price, quality and functionality of Internet access, transmission and Web hosting services.
  790. By comparison, the ISP products of conventional telecommunication carriers and cable TV companies are relative late entrant, follow-on products.
  791. We have in our written submissions really concentrated on the basis question in the Commission's Public Notices in relation to the purpose of any regulatory framework, namely would some form of broad enabling framework serve to stimulate economic and cultural development?
  792. We have stated in our submissions, and I believe that directly or indirectly other ISPs have stated in their submissions, that there should not be any new legislative or regulatory framework.
  793. The enabling framework should be competition, not direct regulation. Therefore, any regulatory intervention that may be contemplated should address only market power situations that inhibit the continuing competitive development of the interrelated elements of the Internet industry.
  794. The Commission's Public Notices disclaim any preconception as to what aspects of new media, in reality Internet-based services, are subject to the Commission's jurisdiction.
  795. Nevertheless, the Public Notices are directed to regulatory options that may help achieve the regulatory objectives of the Broadcasting Act. They appear to neglect the fact that the Telecommunications Act, for which this Commission is also responsible, also contains several significant policy objectives.
  796. Our submissions, and I believe that it is fair to say the submissions of many other ISPs and many other parties, have made it clear that he Broadcasting Act simply does not apply to Internet content or Internet access and/or transmission services.
  797. There is, therefore, no basis for either direct regulation through licensing or indirect regulation through an exemption order under that Act.
  798. These submissions also demonstrate that any effort to inappropriately stretch the coverage of the Broadcasting Act to capture some aspect of the Internet industry would at best be waste effort and more probably would result in lost Canadian jobs.
  799. There are several reasons: No substitutability between Web products and broadcasting products; no demonstrable need for direct intervention in Web content supply, particularly no demonstrable shortage of Canadian Internet information, and an absence of the preconditions for effective direct regulation.
  800. It follows that to the extent that this Commission presently has a role in relation to the Internet industry, it is in relation to the policy objectives of the Telecommunications Act.
  801. Internet access and transmission services are enhanced telecommunication services. Our submissions have emphasized that to achieve the policy objectives of the Telecommunications Act, firm intervention by the Commission is now required to ensure the availability to ISPs from the incumbent telephone and cable companies of standardized high speed network access circuits.
  802. The industry is now at he point where low speed, 56 kilobit, data transfer rates over copper wire will become a declining technology, eclipsed by much higher speed DSL and coaxial cable-modem based last mile technologies.
  803. The Commission has recognized the need for cable company tariffing of a broadband product, but the overall regulatory response to the obvious market power of the cable and telephone companies over last mile services has been completely insufficient to preclude the emergence of a cable/telco duopoly in the higher speed Internet access services.
  804. Our Phase II submission emphasized that vigorous ISP competition and innovation has been and will continue to be a prerequisite for continuing growth in opportunities for Web content supply.

    ISP products basically define the price to the computer user of Web content and its accessibility, quality and reliability and hence the overall Internet connectedness of Canadian consumers and business.

  805. Our remedial proposals are, we believe, necessary in the circumstances and should be adopted in the Commission's report on this proceeding.
  806. They include speedy definition and implementation by the incumbent local exchange carriers of a tariffed last mile access service to be defined in functional, not technological terms, and provided on an equal access basis within markets defined by the Commission, and speedy resolution of the cable tariff access issue through a final offer arbitration process.
  807. We also, however, see no real current prospect of last mile high speed Internet access services being introduced by other wireless or wireline competitive local exchange carriers.
  808. We have, therefore, concluded that additional measures are needed to provide for a fully competitive last mile access market for both Canadian consumers and businesses.
  809. We have concluded that one example of a necessary additional measure would be to provide both Canadian and non-Canadian controlled ISPs with an opportunity to own wireless telecommunication facilities to provide last mile Internet connectivity.
  810. This can be achieved by using currently available low power technologies within the existing general use spectrum on a case by case basis where suitable alternative last mile services at reasonable cost may not be available.
  811. It is our view that it would be appropriate for the Commission to express a view on the overall mix of measures that are appropriate for achieving a sufficiently competitive last mile high speed access market within the framework of the policy objectives of the Telecommunications Act.
  812. To conclude, vigorous competition in Internet access services is the best enabling framework for the development of Canadian Internet or new media services.
  813. The Broadcasting Act has no application to this sector, but the policies and regulatory tools of the Telecommunications Act do.
  814. From our perspective, the most significant response needed at this time from the Commission for the continuing development of the Internet/new media sector is to require telco and cableco supply of high speed last mile Internet access on an equal access basis.
  815. That is to say with no limitations as to the accessibility of technology and a level playing field with respect to pricing at the buyer level. The need for action in this regard is urgent in order to avoid a cable/telco duopoly in Internet access services.
  816. Thank you.
  817. We would be pleased to answer any questions the Commission may have.
  818. THE CHAIRPERSON: Thank you, Mr. Desai.
  819. We find a few questions here. I wonder as we go into this, perhaps we could start by having you give us a sense of where you see this ISP business going over the next short while.
  820. I appreciate that in this businessa year is even a long time. What's your sense of what the growth potential or growth opportunities for this business are. You may want to characterize it between the residents market and the business market because I think, Mr. Cantin, you wanted to demonstrate that there is a separate market and separate issues related to that as well.
  821. MR. DESAI: I will start by saying that the Internet in Canada as the Internet in the rest of the world is now in its infancy. The growth potential will continue to exceed any of the expectations you may have or belief in terms of the forecasts you have seen for at least the next ten years.
  822. This is the new age telecommunications. IP will be the protocol for all methods of communicating on a global basis. What that means is as every Canadian home has a telephone, it will have Internet access, high speed ultimately to gain access to the World Wide Web, the rest of Canadians and communicate with them effectively, be that e-mail, be that voice, be that a multiple of things, it will occur.
  823. The growth right now is in its infancy. The technology exists to continue to further this globally. The constraining factors we have here in Canada are the lack of equal access to that last mile.
  824. THE CHAIRPERSON: I got that message. Actually I would like you to focus more on your business, your members' business. I am not trying to get a handle on how we are all going to be interconnected in this Internet cloud.
  825. MR. DESAI: Right.
  826. THE CHAIRPERSON: I understand that, where we are going, although it may be a foggy cloud, particularly where I come from. I want to approach it right now in trying to get a better understanding of where you see your business as a business, ISP business, going over the next number of years.
  827. MR. DESAI: In the context of the discussions you had this morning with the smaller ISPs or the regional ISPs, there truly is a separation between what you have here -- we call ourselves the carrier of carriers -- and the local ISPs that we support and love to see thrive on our networks.
  828. As a business in Canada, PSINet will continue to grow both its residential base and its corporate base, which includes other ISPs.
  829. We are focused as a company on providing access. We are providing the networks on a national and international scale for both consumers and corporations to essentially hook into and then provide other aspects of what they do, that being content, commerce, but essentially as a business PSINet is focused on access.
  830. Over the next five years that is going to be our primary focus both here in Canada and abroad.
  831. THE CHAIRPERSON: Mr. Cantin.
  832. MR. CANTIN: A little example of scale or growth rates we have experienced to give some credibility to what I am about to say because if I had not been in this, I would not have believed it myself.
  833. In 1996, UUNET had one T-1 connection going to the U.S. to the international Internet community. That's 175 megabit a second connection. As we speak today, UUNET has over 500 megabits per second capacity going to the U.S. and we are about to double that over a gig within the next four months.
  834. That's the kind of growth rate in capacity and usage that we are seeing and will continue to see.
  835. We have grown over 100 per cent per year in revenues for the last two years and we don't anticipate that to slow down. Again, the industry, the growth rates, the pace, this is a crazy and wonderful industry all at the same time.
  836. The other growth that we have seen and talked about, and it seems to be validated by all the stories we are seeing, is the difference in the growth rate between the voice and the IP sectors themselves.
  837. Voice historically, even on the positive side, is growing maybe around 8 per cent a year. The growth of voice is really dependent on how many people exist on this planet. Only so many people can be on the end of each phone.
  838. The growth in the Internet based capacity, we are doubling every four months. Even if you make that conservative, that is 800 to 1,000 per cent a year.
  839. At those growth rates, it doesn't take long to figure out that if we concede that today, which is probably about true, 50 per cent of the traffic worldwide is data, 50 per cent IP and 50 per cent of it is voice, it's not going to be long before that number changes dramatically and IP will outshadow anything out there.
  840. Today we live in a circuit switch network over data and which IP ride. It won't be long before it makes a whole lot of sense to have a network architected for data and packet-switching over which voice will ride. That's what will happen.
  841. The other thing is we access hosting or value add services. We are pretty much on track with what I would call the industry average forces. Dunis Gartner has done this. In 1997 the numbers they had, access products traditionally represented about 85 per cent of the revenue of the average ISP. Hosting services where we host the server, something like that, were representing about 8 per cent and value added products and services were in the 5 to 8 per cent range.
  842. Value added products and services would include doing consulting for somebody who didn't know how to get on to the Internet or actually doing some work on the Web designs or something like that.
  843. All of those areas will grow dramatically. None of the areas will shrink. As a percentage of the business going forward, it's expected that by the end of 1999, 2000, access will represent around 70 per cent, so it's a decline percentagewise of about 15 per cent of the total, although it's growing considerably.
  844. Hosting will represent around 13 per cent, but the big growth is in the value add products and services which is now going to be around 17, depending on how you want to measure that, the reason for that being is that the Internet itself is evolving from the mechanism or medium being used to transmit e-mail and/or images to a Web browser to a medium that will be used to be the basic data communications architecture, so it needs more value added products and services, like VPNs, firewalls, secure services.
  845. Those services will take on more and more importance as it gets integrated into the whole legacy architecture of businesses.
  846. THE CHAIRPERSON: Today we have had the Canadian Association of Internet Providers and the Independent Internet Service Provider Group and now your group, so presentations from a number of different ISPs. I agree there are grey areas between ISPs and gateways and portals and so on.
  847. What's your sense of the nature of this business in terms of, say, the number of companies and what kind of evolution we may be likely to see over time in this business. I ask that partly because as a result of this big announcement the other day. There has been some speculation that with the AOL/Netscape deal, some commentators are suggesting we could just see this whole business evolve to four or five power houses dominating this whole business.
  848. What's your sense of that in terms of the future business prospects for the ISP business?
  849. MR. DESAI: I see that as a two part answer. One is that in Canada there are 150,000 business units and one day all of them will be connected.
  850. The component is with respect to the other ISPs, we see that continuing to flourish. The smaller, local and regional ISPs will continue to grow. We do not see a consolidation of the much larger ISPs taking them out.
  851. Those ISPs, and you saw today when you heard from them, they effectively, much more effectively than us understand their local market needs. They provide a direct level or service and support to not only local markets, but in some cases vertical markets.
  852. What we allow them to do by virtue of what we do is focus their energy on local needs, on content, on sales, on marketing. We manage the network so that they have access to it.
  853. In terms of growth of smaller ISPs, I see that the potential will continue to be there and for them to continue to flourish. They will not only maintain what they have, but they will find ways to be more creative and ultimately more economically viable as businesses.
  854. MR. CANTIN: I think it's important to differentiate between when we talk about 4,000 ISPs in Canada -- in North America, what the composition of the existing ISP structure is and what it's expected to be in the future.
  855. A lot of the ISPs that exist today, even the smaller ones, started out with a modem pool and a server in their basement and it grew from there. The growth of that segment on the hardware and the architecture on the network side will probably decrease because it is getting to be more and more an economy of scale.
  856. I think what you are going to see more of is what we are seeing today. Both of our companies and others do it as well. The network architecture itself, the infrastructure, will be provided by some of the big players, but the people that use that and present that as an end to their customer base and let themselves focus on the customer content, the market, the billing, their customer support, the technical support, there will be a splitting of the streams if you will into those that focus on the architecture and the infrastructure itself and those that provide the other pieces of the business.
  857. Microsoft does not own a modem pool in this world. They get from UUNET all the modem pools. They call it theirs and they present it to the world as though they have an Internet network and they don't, which is fine. We like it that way.
  858. I think what you are going to see is more and more of that going forward. The reports of the demise of the industry, if you read between the lines, it says the 4,000 ISPs will decline to 400 within the next three years. There is one little line after that that says "of the facilities based ISPs".
  859. I agree that once line is understood, so we will have a robust industry. It is a dynamic industry which means there is a dynamic list of players. Some will come in, some will not stay, some will be consolidated, but there will always be new entrants come in and there will always be the players providing the networks and the infrastructure underneath that.
  860. THE CHAIRPERSON: I guess any speculation on what the future of this whole business network is likely to be is pretty speculative, but I am inclined to agree with you that the whole notion of a circuit switch world is going to be turned on its head and we will end up in a packet-switch world and that packet-switched environment, that cloud that Mr. Nemanic referred to this morning, I think will be the telecommunications infrastructure of tomorrow.
  861. In a sense, I guess I was a little surprised at the numbers you gave in terms of the access function. I guess asking my questions was with that sort of in mind. Again, I appreciate it's difficult to make parallels, but I know for example in Nova Scotia in the 1950s there were over 200 telephone companies. Now there are two. One of them is very small.
  862. I am wondering whether in terms of the access part of this we are not likely to see that same kind of evolution that the telecommunications infrastructure if you will of this ends up being in the hands of a few large groups or companies.
  863. MR. CANTIN: I think from the point of view of the architecture and the network infrastructure being provided, I think there will be fewer people doing that, but the difference here between that and telecommunications companies is if an ISP rents a modem pool and calls it theirs, they put to the consumer an entirely different looking face than any other ISP that's doing the exact same thing from us.
  864. The services that they offer on their sites, the bundling, the packaging, the information that is available from their service compared to somebody else. I do believe there is going to be a consolidation of the architecture and infrastructure layers, but I think what that will do is spawn even more of what we are already seeing as a trend, which is more of the people that then rent that from you and focus their efforts on other areas like content and customer support and things like that.
  865. THE CHAIRPERSON: In understanding your point there, I'm not sure where that hosting business fits relative to the access in terms of the technology.
  866. MR. DESAI: There are many types of hosting services that are available. The smaller ISPs provide smaller businesses and in most cases individuals with access to their server so they can put up small Web sites and then get out to the community at large.
  867. In terms of Web hosting, and I can try to answer this question, I don't know if it makes sense, there's a need for facilities based carriers, the likes of our companies that are in the forefront of the technology, to build high end data centres, which we have already started to build and have exist in Canada, all over the world, particularly here in Canada, such that we can support the massive amounts of e-commerce and other transactions that will take place within a very short period of time.
  868. We spoke about the fact that one Internet year we always claim is -- for every year that goes by, seven years on the Internet have gone by, so at 34 I have been in this three years. I now have over 25 years worth of Internet experience by virtue of how fast it changes.
  869. Having said that, these data centres or Web hosting centres that we are currently building are unrivalled by our telecommunications, our telephone companies that are out there. We are building these things for the likes of the banks in Canada, for the likes of all the major institutions.
  870. Furthermore, there will be parts of it where the smaller and mid-size businesses can go to it as well and feel effectively secure and have access to broadband widths so that hundreds of thousands, thousands and millions of people from within Canada and externally can come and visit and transact whatever that is by definition at the time on these servers.
  871. That's the type of Web data centres we look to build all around Canada and beyond the borders.
  872. THE CHAIRPERSON: You have mentioned on a couple of occasions now the carrier issue. With your operation, from a facilities point of view we have talked about the last mile issue here, or you have. I will pursue that a little more a little later.
  873. Help me understand your business from a network point of view, except for the last mile.
  874. MR. DESAI: I can talk to PSINet and then we can go to UUNET on that.
  875. From the network point of view, we buy what is known as clear channel. In other words, we lease in Canada. At each point of presence along the network in the 35 major centres we are in now, we place our own network equipment, our own switching equipment, our own switches, our own routers.
  876. We manage that and monitor that at the layer one out of our network facility right here in Ottawa where we have about a hundred people employed.
  877. In the U.S. the same thing is done and we are doing the same thing in Europe. The difference is in the United States and in Asia we have actually gone and purchased the fibre in the ground to the tune of over 15,000 route miles of OC48 which makes us -- you couldn't build a network like that throughout Canada right now. Obviously UUNET's eclipses ours by an even greater factor.
  878. What we do is manage the network at the basic layer. We own and operate the switches, the routers and we facilitate or move the traffic around in the most efficient manner. We appear privately and publicly with many other providers all over the globe.
  879. THE CHAIRPERSON: So in some parts of the world you actually own the facilities as well, so you would be a true carrier.
  880. MR. DESAI: In the United States we do and we are negotiating and have moved along in several other parts, including Europe and transAtlantic bandwidths.
  881. THE CHAIRPERSON: In Canada you have not done that, at least not yet.
  882. MR. DESAI: That's correct.
  883. THE CHAIRPERSON: Is there any reason why you haven't? Is it an economic reason or a regulatory reason or what?
  884. MR. DESAI: No. It's the furthest thing from an economic reason. In fact, we would wholeheartedly take out our cheque book right now and write a cheque for the capacity that we could buy from any one of the carriers, but the issue of foreign ownership and the regulatory environment is not conducive for us to do that there.
  885. If we were able to, it gives us a significant advantage to continue to grow and advance the Internet in Canada, such that smaller businesses and consumers can enjoy even more.
  886. It's important to remember the telephone companies here are the incumbents. We were the guys who built this thing. We are still at the forefront of it from that basic network level.
  887. MR. CANTIN: The issues are similar, the architects are similar. We own our own points throughout as in the network management software centre.
  888. We by law by regulation are obliged to rent the pipes themselves. WorldCom, which is our parent company, provides the fibre and the last mile as well. In the U.S. there are two fibre trunks running under the Atlantic between New York and London, England.
  889. We have a whole ring network in Europe which is opening up quite a bit in the regulatory environment. We even have some fibre that is ours running in Japan and we have gone to Australia and other places in the eastern Asian world. We actually put in the ground our own stuff.
  890. I will give you an example of why that is. There's a measure in the telco world called the DSO mile cost which brings everything down to the lowest common denominator of how much would it cost if you translated that to an equivalent bandwidth and distance capable measure.
  891. In the U.S., our DSO mile costs get as low as three cents U.S. They run as high as seven cents U.S. Let's say they range from five cents to twelve cents Canadian, if you will. The best we have ever been able to do here in Canada by renting our facilities here is 23 cents a DSO mile.
  892. That's the best.
  893. That just puts us at a cost disadvantage to anybody doing the same thing in the U.S. We would bring capital into this country in a minute if we were allowed to do that because we could be much more competitive doing that.
  894. As far as the difference, the backbone itself, we do lease the large circuits. In fact, we often find ourselves -- not often -- we have consistently found ourselves pushing the envelope with the telcos. We were the first one to run an OC-3 to the U.S., 105 megabits per second, with pure IP running over that.
  895. We are now asking them for an OC-12 and they have no ability to provision that for us. If we had our own fibre, we would run it. We are consistently finding ourselves hamstrung by the inability to provide the capacity we want.
  896. THE CHAIRPERSON: And the folks at Ledco were wondering whether they would ever be able to fill this pipe they put in the ground.
  897. MR. CANTIN: That's the least of their concerns, quite frankly.
  898. The other thing is I want to make sure we understand the same terminology because we have come across this a couple of times.
  899. There is a difference in definition of local loop and last mile. We have often said in front of other people and we are saying it to this Commission now that the last mile costs in the U.S. are one half to one third the costs in the translated basis of what you can get here in Canada. That is in like geographies for like distances.
  900. We found out at one point that that statement was being challenged. Then we found out because of the official definition of local loop used by the telcos, they were talking about a piece of the last mile, not the whole last mile.
  901. When we talk about the costs of the last mile, we mean from the customer premise to the local CO of the telco to the interexchange of the CO and back to our point of presence.
  902. That last mile distance is the one that genuinely, and we can give you statistics if you want -- in equivalent geography and equivalent distance is a half to a third the price in the U.S. on a converted dollar basis than it is here.
  903. THE CHAIRPERSON: So the telephone companies would refer to that as two last miles in an interexchange.
  904. MR. CANTIN: Yes, they would and they call that the megaroute. We found out we were using terminologies that were being challenged because of the words we used.
  905. THE CHAIRPERSON: Okay. Again, we will get there. I guess if you see we are not, I am sure you will remind me.
  906. I just want to continue on this other issue in terms of your access or use of or ownership of the backbone infrastructure. I take it in most areas of this world your companies operate in you would be owners of your own telecommunications infrastructure, the backbone pipe if you will.
  907. MR. DESAI: That's correct. Our company has raised billions of dollars in order to acquire the fibre in the ground essentially.
  908. THE CHAIRPERSON: Does that mean in the United States? It is easy to get tripped up in misunderstanding the technology or the terminology, sorry.
  909. Would you be understood as a carrier, as a telecommunications carrier in eth U.S.?
  910. MR. DESAI: PSINet is considered a carrier in the U.S. and in certain markets outside of the U.S.
  911. THE CHAIRPERSON: And in certain markets --
  912. MR. DESAI: Outside of the U.S. where a regulatory environment is conducive to us being designated that.
  913. THE CHAIRPERSON: Are there a number of shall we say significant jurisdictions where you are not because of the regulatory environment?
  914. MR. DESAI: The main one is Canada.
  915. THE CHAIRPERSON: Besides Canada?
  916. MR. DESAI: There are small European countries that are in the process of deregulating that have given us the time lines that are within the next 24 month horizon, such as France. England is for all intents and purpose getting into the country deregulated and moving around it deregulated now.
  917. THE CHAIRPERSON: As I was discussing with Ms Langford this morning, and I don't want to embarrass her, but we have to be careful using this term deregulating.
  918. MR. DESAI: Right.
  919. THE CHAIRPERSON: It's one thing to open up the market to competition and allow access to the infrastructure. It's another thing to deregulate.
  920. You were talking about some of the European countries where they would still have a monopoly environment which wouldn't allow you to compete.
  921. MR. DESAI: Right. Where they have a regulatory framework which impedes the type of acquisitions we try to make in terms of, for all intents and purposes, owning the fibre, owning the backbone.
  922. THE CHAIRPERSON: Are there other jurisdictions where the foreign ownership rules would be the same sort of concern that you would be dealing with in Canada?
  923. MR. DESAI: In South American markets there are foreign ownership rules right now in Brazil, Argentina, some of the major markets. Chile is completely -- I won't call it deregulated, but there is no foreign ownership restrictions going in there.
  924. Those markets, the other two major ones in South America, have committed a time line for foreign ownership relaxation, but to the best of my knowledge, we have in the industrialized world the strongest foreign ownership rules with regard to the telecommunications industry.
  925. THE CHAIRPERSON: It begs the question, in my mind at least, why would you even come to Canada rather than, say, operate from the U.S. and sell your service into Canada?
  926. MR. DESAI: Canada is a significant market. It's a significant market internally and it's a significant market to the rest of the world.
  927. We contribute a disproportionate amount of technology by way of our corporations to the rest of the world and we import an equal amount.
  928. To do business in Canada makes sense, especially by virtue of the fact that we started out as an American company. We are now a global company. We had to recognize that our biggest trading partner was also a very good place to do business.
  929. PSINet's goal is to be a global facilities based carrier. By global, we have to be in these top 20 telecommunications markets. Canada is one of those markets.
  930. MR. BLAKNY: Mr. Chairman, if I could just add one point, not to divert from the business discussion.
  931. There's a locational advantage in your exempt transmission apparatus towards the local and regional market, so there are business and economic reasons to locate what these businesses characterize as part of their facilities within a national market and in fact within regional and local markets.
  932. In that sense, there are sound business reasons for a very substantial portion of their hardware investment being located in the local and regional markets.
  933. MR. CANTIN: I would also like to add that UUNET started as a Canadian company and it had been acquired by WorldCom in the U.S.
  934. There are a number of reasons why we continue to be here as an entity, the first and foremost of which is because if we weren't here, the stuff wouldn't be here to let us do our business with our customers.
  935. We are driving the technology. We are driving the implementation of new innovations. If we weren't physically doing it as a company, the options would be to sit in the U.S. and rent all this stuff from a telco or a common carrier. If we waited for that, we would be a long time getting it. We have to be here if we want to be on the edge where we want.
  936. The other thing is from our multinational customers' points of view, things like VPNs which require consistent technology implemented across the network if it is going to be efficient. They want the same kinds of technologies implemented.
  937. Ford would want the same encryption technology in Toronto in Oakville and in Dearborn and in London, England, and all the others. The only way the can get that is by having that technology being managed by a constant company, so there are real reasons to be here.
  938. MR. DESAI: One last addition to that is those high growth smaller ISPs that you spoke to and listened to this morning would have been severely limited in their ability to even enter into this marketplace had it not been for the likes of UUNET and then PSINet coming into the market and creating the facilities for them to open up shop locally, regionally and nationally.
  939. THE CHAIRPERSON: I'm sorry, I don't understand how you are creating -- what are the facilities that you provide that allowed them to develop as opposed to the carriers?
  940. MR. DESAI: Well, the carriers until very recently did not have national IP backbones. They did not have the type of robust networks we came in and built in Canada. There would have been limited capacity and limited availability geographically for these guys to operate the ISPs that they have.
  941. The Internet or the IP infrastructure was created by the likes of PSINet and UUNET and then transported up here years before the telephone companies even realized this was a potential business.
  942. THE CHAIRPERSON: Mr. Blakny, did you want to add something? No.
  943. When I was reading your Phase II brief, you talked about at the bottom of page 2, and I took it from reading this that you see yourselves very much as telecommunications carriers, and I will use that term here loosely here for now given the foreign ownership issue.
  944. You talk again near the bottom of the page about being the real competitive alternative to the phone companies. I guess today in the sense that you are providing IP as a competitive alternative to circuit switching, but ultimately as they go into converting their networks, and I suppose at some point in time the networks will get totally converted to packet-switching, but that may be some time in the future.
  945. You would be today the competitive alternative to circuit switching and competitive alternative to them in packet-switching in the future and very much want to be in that game.
  946. MR. CANTIN: Very much. In the U.S. as an example and in Europe, WorldCom can go to the marketplace with a combined voice, data and IP services they can offer like a telco can here in Canada today.
  947. In Canada, UUNET can virtually only go to market with an IP product today. WorldCom does not have the ability to come into Canada and have its own fibre facilities, so they can't do that.
  948. The ideal scenario for us would be to be able to be a full service competitor. By doing that -- somebody mentioned the convergence issue. I think it was you, Martha, this morning. That is going to happen. I mean it is going to happen.
  949. If we are held out of a particular segment of a solution and only allowed to play in this one, the more the convergence comes along, the more that's not a viable scenario. We desperately do hope that at some point we can play the full game here in Canada. In the meantime, we are leading the charge on the IP services.
  950. THE CHAIRPERSON: When you say the full game, it is your wish to want to be in the business of providing the full suite of what we understand telecommunications services to be.
  951. MR. CANTIN: Yes.
  952. THE CHAIRPERSON: Which could include basic voice telephony right through to sophisticated Internet, video, audio and I don't want to go down the route of whether or not it is broadcasting. You want to be able to offer the full suite of services to whoever your customers are, whether they are residence customers or business.
  953. MR. CANTIN: Yes.
  954. MR. BLAKNY: Perhaps with one additional point. The full suite of assets includes data storage and retrieval assets which are an integral part of the overall network design of these businesses.
  955. In a way, you can't separate a transmission from an enhanced data storage and retrieval communications function the way these businesses are designed.
  956. THE CHAIRPERSON: I take your point but I am not sure of the distinction you are trying to make here.
  957. MR. BLAKNY: I am trying to avoid just a notional segregation between a transmission or routing business and a business that is involved in data storage and retrieval, however you characterize it, new media, whatever. It happens to be an integrally related asset structure. You can't sever the two and look at them as piece parts.
  958. THE CHAIRPERSON: If I think you are trying to draw a distinction between what I might characterize as some sort of real time communications like voice telephony as opposed to some sort of storage and retrieval like me accessing home pages on Web sites and picking and choosing and altering data, and that's the distinction you are drawing there, I presume the full suite of services would include both.
  959. My understanding is from some of the changes in the technology because there was -- as the discussion is going on, I am totally out of order in the questions I was going to ask you.
  960. There was somewhere in here that you said it's impossible to distinguish between various types of services in one or other of your briefs. I forget if it was the first one or the second one.
  961. My understanding is now there is a lot of work being done in fact to overcome that problem, that we will be able to actually tag bits so that I can tag a voice bit as being distinct from a video bit or being distinct from various forms of packets so that people would be able to price and prioritize the distribution of those bits so that you could make sure that the voice bit gets through right away so that telephone call gets through as opposed to storing the other bits.
  962. MR. DESAI: That's put forward by telecommunications companies in order to maintain the current pricing regime that they have. The truth is that it costs exactly the same money to terminate a call from Toronto to Ottawa as it does Toronto from Hong Kong. It's all of the taxes in between.
  963. They are using a model that states that we can price these things separately and, therefore, get premiums for them.
  964. The new model for the next millennium is that the contents of the packets are irrelevant. The switching fabric will be such that the voice, the video, the e-mail, whatever application is on that, will arrive in a format that is non-latent, that is equal to the current telephony network and will arrive in an efficient manner.
  965. That's what IP is all about.
  966. THE CHAIRPERSON: Not to cut you off, but I agree with you on that. I wasn't trying to prejudice the discussion in the sense of favouring one pricing model or another as much as to say that technology will allow the voice traffic to get through right away if it has to or if some of the other traffic doesn't need to get through quite so fast because the e-mail message ends up being routed through some other way that maybe it does.
  967. I don't see this issue to be particularly pertinent to the discussion.
  968. MR. DESAI: No. All I can say to you is that technology is less relevant to the fact that the technology to speed up the network makes that technology obsolete or unnecessary.
  969. MR. CANTIN: There's a couple of competing ways of doing what you are asking about. One way to do it kind of today and another way that has just been announced a week ago in the press.
  970. The two ways of trying to come up with some means of removing the anarchy from the Internet, and by anarchy I mean every packet is treated exactly the same so it doesn't matter how important you are, you get through at the same pace as everybody else.
  971. The two ways of dealing with that are to have the sender define the priority of the packet and have the high priority packets go through more readily than the lower priority packets.
  972. That technology does not exist across the network. There are competing standards for that to be developed. When and if it does come out, it will required the routers across every node and connection point in it to have the same technology to make sure whether its NPLS, RCP, all the other technology being proposed, whether the packet priority determines how fast it goes through. That's one that the Internet community has been working on.
  973. Last week an announcement came out about, and it has been sort of rumoured for a while, an ability on the product side to discriminate between the types of packets going across the network and let the carrier determine how fast they should go across and how much they should be priced for that.
  974. Quite frankly, that's the last thing I would want as a carrier. If I as the carrier am being asked to determine how important a packet is and whether or not it should go fast or slow and what I should charge for it, I am out of my league.
  975. If they say all video should go quickly and be charged more for, then what happens if some kid tries to send Grandma in Manitoba some videostream that he just took off the home page? I'm supposed to charge him more? He probably couldn't care less if it got there quicker.
  976. I would always prefer a model that leaves it up to the sender to designate priority and have them go through at their decision as opposed to mine.
  977. MR. DESAI: One last component on a technical answer is that although the network for the most part right now is router based, switchers are being introduced all over the world.
  978. PSINet's entire backbone is a switched and router based network, so we can and do prioritize traffic in the sense that we make sure it goes efficiently rather than in an anarch -- in an efficient manner.
  979. We take traffic. Like in telephony, there's a switch that's located in the U.S. or in Hong Kong and it doesn't stop along the way. That also makes for a more efficient network.
  980. Be it a router or a switch, ultimately the goal will be to be more efficient in how we manage the traffic over these networks on a global level.
  981. THE CHAIRPERSON: I suppose on this issue that we have just been talking about, at least where you are carriers and can control your own infrastructure, if some other alternative carrier wanted to use that particular capability and you didn't and that was perceived by customers to be more desirable, then you would win and they would lose that particular traffic as customers saw more value in using one network as opposed to another one.
  982. You did say in your submission that ISPs which are not Canadian carriers will nevertheless for some time be dependent upon services of Canadian carriers for last mile customer access. I was struck by the term "for some time". I wasn't quite sure what you meant there.
  983. Did "for some time" mean for all time, forever, or did you see some light at the end of the tunnel?
  984. MR. DESAI: We see some progress now. The marketplace has opened up to other carriers for the last mile. The only problem is there are very few and their builds that they are currently undertaking to get into are going to take many years to become competitive on a larger footprint, if you will, on the major economic centres and beyond.
  985. By some time I guess what we were saying was that the duopoly will still have that definitive advantage or hold over us until we can really open the marketplace up in a competitive nature, or you can work with us in terms of the current pricing models to make them more rational.
  986. THE CHAIRPERSON: I was wondering whether for some time related to the issue of whether or not you could become a carrier.
  987. MR. DESAI: To a degree, it does.
  988. THE CHAIRPERSON: How big a degree?
  989. MR. DESAI: Obviously WorldCom is there already in the rest of the world and it is PSINet's desire to do the same thing, so to a significant degree.
  990. THE CHAIRPERSON: We have been hearing for two and a half days now about the concern over whether or not the Commission might attempt to define as broadcasting some elements of the Internet itself or some of the content traffic that might be carried over the Internet and how that could be inhibiting to the development of this business in Canada.
  991. I am wondering, given the focus of your submission has largely been on access carrier issues, to what extent you believe there is a problem here with respect to the nature of that sort of facilities competition in terms of handicap in Canada relative to the rest of the world in terms of developing the Internet, Internet traffic and electronic commerce.
  992. MR. CANTIN: Are you asking us if we believe the foreign ownership restrictions in Canada hurt us as much as other people believe in the potential for broadcast regulation would hurt?
  993. THE CHAIRPERSON: Setting aside the whole issue of broadcasting.
  994. MR. CANTIN: Right.
  995. THE CHAIRPERSON: To the extent that you have talked about the innovative opportunities that we have for you as a company, your company, the other companies that are represented here, and the innovation, the network developments that you have been able to undertake here in an indirect way and perhaps more directly in other parts of the world through your ownership of the infrastructure and being treated as carriers.
  996. If you were treated as carriers in Canada or let me turn it around. To what extent is Canada being inhibited in its development of this network infrastructure and its capability to develop electronic commerce and the Internet and all the capabilities it could do by not treating you as carriers in Canada?
  997. MR. CANTIN: Quite a bit. Well, actually that is as much for the Canadian business as much as it is us. If we do eventually get driven out of business in Canada, will somebody else pick it up? I don't know. I think we have been a leader in this.
  998. The inability of us to create our own networks to our own architecture design means that sometimes, and quite often, the U.S. will roll out a new architecture. It will actually be absorbed in Europe, it will be absorbed elsewhere, but because we have to go over somebody else's lease line to do this or do that, we have to work out how the heck do we it in Canada and we lag what is happening in the other industries quite often. That does happen today.
  999. The other thing is as the deregulation process continues and people who would have historically been in a monopolistic environment get into this competitive arena, we have seen some panic situations arise quite frankly whereby to protect the voice side of the business, they literally give away the Internet side of the business, the bundling that happens and the things that happen on that side.
  1000. That just isn't good for business because if you are going to do that, all you are doing is creating a price war instead of an innovation war instead of making things happen.
  1001. If we were able to play in that game on an equal footing, we could do something. Right now it's just a painful process for us.
  1002. MR. DESAI: Another side of that is are we inhibiting Canadian businesses from growth as a result of our inability to bring our innovative technologies to bear here because of things like foreign ownership. I believe to a very real degree right now and in an ever growing amount that will happen.
  1003. Companies look toward locating in parts of the world, especially global companies, where a lot of things make sense for them. More and more, telecommunications costs are becoming something that they view. They take a good, long, hard look at.
  1004. As we pointed out earlier, you can buy the same high speed circuits, last mile, in New York or, frankly, in Cork Island for a third of the price that you can here. Your business becomes dependent on it because of transactions or relationships you have with suppliers or your other offices.
  1005. You start to give a second glance at the other markets because this one is still regulated and the pricing structure is still inflated. I see that as a competitive disadvantage for Canadian owned companies and for foreign companies that will want to come and do business here.
  1006. In the United States we have rolled out a voice product for corporations on their leased lines. We don't have that product here. It would effectively give Canadian offices across this very large country about a 60 per cent savings over their current long distance rates that they have right now.
  1007. That to me makes them more effective and gives them more money to spend on things like growth, hiring people or R&D.
  1008. THE CHAIRPERSON: We do have some competition in Canada in the backbone business. I mentioned earlier the Ledcor Construction that was undertaken over the past few years. It's somewhat limited, but growing.
  1009. Is it your view that that would not be enough competition to allow the kind of pricing that you think we would need to get those prices down to the DSO per mile of the Canadian equivalent of three cents?
  1010. MR. CANTIN: I will answer no to the question and then I will give you an analogy to that. I think there are two issues. There is pricing and innovation, new features and new things happening.
  1011. If you look at the cellular experience, and there's a lot more like it but that's the closest one in history, for quite a period of time there was a duopoly between Cantel and Bell with two cellular companies that had a few new features coming on each year and a bit of price changing, but not an awful lot.
  1012. Three or four new entrants came in in the digital PCS arena and you are seeing price moves and feature additions and things happening that just haven't happened in the five to ten years they have been in existence.
  1013. I can tell you I worked on the cellular side. The features that are there are not because you have digital PCS technology. It's not the technology that is making possible. We could have done it on the cellular side as well. It's because there's a lot of competition out there now. If they want to earn their stripes, they had better get better, faster, smarter, lower cost.
  1014. The number of two competitors or one or two competitors on the last mile and/or backbone supply road is good, but unfortunately the first thing that happened when we opened up, the one cap bought the other cap, so that doesn't exactly increase the competition in the open field.
  1015. Historically, four to five players are needed in a market dynamic situation before you come to a market competition scenario and we do not have that in Canada today.
  1016. THE CHAIRPERSON: Let me ask you one last question in this area and then we will get into this last mile issue a bit.
  1017. Let's assume we came out of this proceeding, since one of the biggest concerns that everybody seems to be expressing, and I think you mentioned this morning the consensus areas that one would seem to be getting from most of the players at least -- I don't know whether that defines consensus or not -- is that the Commission should clarify the issues surrounding the whole broadcasting question and from the perspective of most people, the ideal thing would be to simply say that none of this Internet stuff is broadcasting and we don't intend to regulate or touch any part of it.
  1018. Let's assume we came out of this proceeding with that sort of a conclusion. Let's also assume that we came out of this proceeding addressing your last mile questions, such that we were able to resolve about three or four specific issues that you have raised here.
  1019. To what extent would the problem that we have been discussing here for the last little while continue to be an inhibitor for Canada in terms of the development of our connectedness agenda and our electronic commerce future and fundamentally the development of this network infrastructure and the services that are going to run on that platform?
  1020. MR. CANTIN: I guess the flippant remark that I would hug you if you did all that wouldn't be a good idea.
  1021. THE CHAIRPERSON: I'm not very big, but I'd slug you.
  1022. MR. CANTIN: Quite frankly, if you addressed both of those concerns, that would go an awful long way to enabling a more competitive nature.
  1023. We know that there are always new things going to come and we know that I cannot forecast this business even a year out, quite frankly, but given what we are facing today, given that we know our problems today, if that was what came out today as a result, I would be a very happy guy.
  1024. MR. DESAI: Beginning with the hug and all the way through the conclusion, I second that. That would be great.
  1025. THE CHAIRPERSON: That would be one of the two guys on the panel.
  1026. It's important to recognize that we are here today as Canadian centric companies. We are here because we are both Canadians and we have the interests of our companies here in Canada at heart.
  1027. We are looking for solutions that are short term and long term here in Canada. There's a significant capital investment. There's a significant investment in people here and there will continue to be a significant investment in both.
  1028. What is the long term picture that may not happen as a result of this but will facilitate a dialogue? It is ultimately to allow more entrants into the marketplace such that there are four or five competitors on a national and a local level.
  1029. Does it need to happen here? No. We need some help on the other areas. That would facilitate immediate growth for Canadian business and consumers because, frankly, high speed is the next step. They need the high speed to their doorstep.
  1030. THE CHAIRPERSON: Are we going to continue to be inhibited, I think to use your term, in terms of the technological innovation relative to other countries with the lack of that carrier capability here?
  1031. MR. DESAI: Long term that limitation will inhibit us.
  1032. THE CHAIRPERSON: And what does long term mean here? You talked about the seven years before.
  1033. MR. DESAI: Right.
  1034. THE CHAIRPERSON: Is that like seven years which really means next year?
  1035. MR. DESAI: I guess traditionally you are used to corporations coming back a decade from now and telling you it's time to further enhance or decrease regulations.
  1036. I see the day where a year from now we will have figured out the need for an even larger backbone capacity or a local loop access and we could be sitting here having that discussion.
  1037. In Internet years, it means 12 to 18 months at the long end of the spectrum.
  1038. THE CHAIRPERSON: That's not very far away.
  1039. MR. DESAI: No.
  1040. THE CHAIRPERSON: This morning Mr. Kawchuk, I think it was, used the term he would like us to think of you as DLECs as opposed to CLECSs I wasn't sure. I meant to ask him what the "D" meant.
  1041. MR. BLAKNY: I think we should get out of the "E" part of the acronym in any event because if --
  1043. MR. BLAKNY: I think it was meaning digital local exchange carriers.
  1044. THE CHAIRPERSON: That's what I thought.
  1045. MR. BLAKNY: The exchange part of the acronym that is part of the problematic component because the term and the unbundling competition policy on your 1997 decision from which it is derived, circuit switch environment concepts.
  1046. I don't think exchange fits within this network world at all. If we are developing a different acronym, we all try to summarize the world in those terms and narrow environments, it would be better just to sit back and not extrapolate from the terminology concepts in the local competition decision.
  1047. I realize that we are dealing with a fundamentally different set of network variables.
  1048. THE CHAIRPERSON: I take your point on that and agree with. It is a fundamentally different set of network variables, but I guess we are still stuck with that network which you want to interconnect with.
  1049. I guess at the risk of sounding somewhat flippant, and I want to pursue how we get to the solution to this problem, why should we consider the ISPs from an interconnection point of view in terms of access to the telecommunications telephone companies' infrastructure any different than any other customer because I take it you are looking for, notwithstanding your comment just now, Mr. Blakny, you are looking for a level of access to the telecommunications infrastructure that in fact is comparable to what the CLECs get in the sense of in order to encourage telephone telecommunications competition and particular local telephone competition, we wanted these new carriers to be treated as co-carriers and co-competitors, if you will, of the phone company.
  1050. In order to allow that to happen, an order for co-location of the unbundling of local access facilities, in that case the loop, we defined as essential services for the purpose of achieving that objective certain facilities forever and certain other facilities for a limited period of time until we get to the stage where we felt we would have some facilities construction done and then let market weights prevail.
  1051. Why should we treat ISPs in that context as opposed to simply another customer of the telephone company?
  1052. MR. DESAI: I will start by stating at the level which UUNET, PSINet and very few others operate, we are in a traditional sense not their customer. We are their counterpart in most other parts of the world.
  1053. In the case of UUNET, larger than all of them here in Canada and by virtue of our own capacity in the U.S., larger than most of them here in Canada.
  1054. We are not just the customers that need to pay them for a managed service or unmanaged service to ride on their networks. We are bringing a new technology and a new way of communicating on a local and a global scale to the market.
  1055. If this were a completely deregulated market right now, if you make that assumption, we may be peering with them rather than using their networks simply because we would have gone out and bought fibre strands from one of the existing companies out there and would see ourselves as the equal.
  1056. We view ourselves on a global level as their equals and not their customers. Yes, in cases we are their customers for bandwidth and in other cases they become our customers where they buy bandwidth from us to travel the networks we have outside of Canada.
  1057. MR. CANTIN: It's an interesting flip. We are now actually from within Bell dealt with by the carrier sales organization within Bell. Yet everything we try to get from them in this regard is "Oh, no, that's not something we offer to our customers" or something like that.
  1058. Although they recognize and validate our existence on one side, from a product side it is always the next base from them.
  1059. We also in addition to pushing the edge on the technology are competing with them. We are both the supplier, the customer, all of the above. We are seeing some things happen today.
  1060. It might be a big coincidence, it just might be, but we have had a number of times in the last few months when we phoned to get an IST in local loop to a customer, we are told "Sorry, that seal is full up, no more IST connections allowed" and within a few hours we sent the request to get customers are called back by Bell and offered an ADS L-line.
  1061. We think there needs to be some very clean distinctions between what is going to happen and what can happen. We believe we can operate cleanly as a peer with them who we see as a customer right now in that relationship. It's not a fair game.
  1062. MR. BLAKNY: If I could just interject, Mr. Chairman.
  1063. THE CHAIRPERSON: Sure.
  1064. MR. BLAKNY: I think there may be some confusion or false distinction associated between the terms carrier and customer. Since time immemorial, Stentor members have been customers of each other, switching aggregation and termination services. They didn't overlap the networks. They subsumed that relationship in a connection arrangement and ceased to be a seller/customer arrangement.
  1065. Only a few years ago we went through the same kind of exercise, what kind of obligations should you have as a long distance service supplier. Ultimately the Commission concluded that even resellers, which is now a pejorative term it seems, could have equal ease of access interconnection.
  1066. Again, who is the customer, who is the carrier? Carrier is a word that comes out of the Telecom Act. It is a particular kind of business that attracts certain regulatory exposure and foreign ownership limits, but in this world --
  1067. THE CHAIRPERSON: It attracts a certain kind of benefit.
  1068. MR. BLAKNY: It may or may not, depending on the policies you adopt.
  1069. THE CHAIRPERSON: Isn't that the point? Certain companies have benefit from certain types of treatment and that's what I'm trying to get at here. What's the particular hook here, if you will, that says these particular kinds of companies operating at this particular type of business using telecommunications infrastructure warrant this kind of access, which would be similar to that of a CLEC, even though the environment may be different as opposed to any other customer that may happen to use telecommunications to operate its business.
  1070. MR. CANTIN: I think one of the key things to think about is what we do with it once we have purchased form the pipe. We don't just resell the pipe as an example. We put our router switches on that pipe. We put our network operation centres into that pipe. We run our traffic over that pipe. We managed the build and the development of that pipe and then we run services over there, including virtual pipe, et cetera.
  1071. One of the things that we do is not just take a pipe and give it to somebody else. We take a raw pipe and make it into something. On that basis it's not just as a customer of theirs -- I mean you could apply an OEM. There's a lot of other world analogies that can be applied.
  1072. It really isn't just a case of taking something and reselling it. It's doing something with it quite a bit.
  1073. MR. BLAKNY: Then there's another perspective. Basically the question can be reversed in a way. If the market power that prevents the competitive deflourishing of this industry resides with the telcos in the last mile, however you define it in functional terms, it seems to me that whether you characterize the person that requires access to that essential facility, bottleneck service, whatever the term of art of the day is, considers that that would enhance that person's business and ultimately in your minds it would help to achieve the relatively general but nevertheless important objectives of the Telecom Act.
  1074. It isn't so much our onus to define what benefits we can bring to the economy in getting the bottleneck service provided. We should at least for your purposes define what the bottleneck is and give you a reasonably operational mechanism to implement an anti-bottleneck policy, but then it should be left to the marketplace to determine who gets on to that bottleneck product and what they do with it.
  1075. THE CHAIRPERSON: I take it your view would be that but for the foreign ownership problem, we should treat you as a carrier, such that you could get the same sorts of access that other carriers that we have ruled over here in terms of co-location, access to unbundled facilities --
  1076. MR. BLAKNY: Yes. It would have different functions.
  1077. THE CHAIRPERSON: There is a public policy reason for treating you the way we treat an ISP the same way we do --
  1078. MR. BLAKNY: Arguably it's a public policy reason that relates to overcoming the market power effects of the telcos' position presently and the local access product, however you define it. I don't think that we need to go any further than that.
  1079. THE CHAIRPERSON: Sorry, the local access product, however you define it.
  1080. MR. BLAKNY: The last mile or whatever functional parameters you want to attach to it.
  1081. THE CHAIRPERSON: But it's really more how you define it, I guess, in terms of what is it going to take to develop this business because, as Mr. Cantin indicated earlier, typically we have talked about the last mile as that loop from the CO out to the customer premise. In this particular case last mile ends up being two loops and the interexchange trunking facility. Right? You are nodding yes.
  1082. Even the definition ends up being a little bit different than the one which goes back to your point. It's a little different situation here.
  1083. I don't know that we need to get into the details of it here and now because you have suggested what we should do is run a proceeding to take a look at that question about how one would define the parameters around that sort of last mile when we get to high speed access.
  1084. When you talk about XDSL here, and I understand the problem that we have had with respect to the allegations related to Simpatico as opposed to Bell and so on. I don't want to pursue that issue here. Are there issues beyond that in terms of the XDSL or ADSL in the particular case of ADSL?
  1085. MR. DESAI: XDSL or ADSL in the current format, yes, you understand where our scratching of heads are in relation to a tariff and then a non-tariff subsidiary.
  1086. Through acquisition I am CEO of three Internet companies in Canada. Whatever the Securities Exchange Commission will allow me to do, I can create some wonderful "mathemagics", but at the end of the day the shareholder sees it all as one rolled up package. That's where we have this concern with how Bell Canada does things with itself and then Simpatico and says it's losing money on one end and making money or not making money on the other.
  1087. In terms of other issues, yes, the other issues exist with the DSO and the DS1 and how they are sold and/or bundled by several of the large telephone companies across Canada and the practices again going forward on many different aspects that include how they price Internet on top of that and how they give us service delivery relative to giving customers directly service to delivery.
  1088. It goes beyond the XDSL. It also involves the DSO and the DS1 and ultimately even the larger pipes that we will connect to customer premises.
  1089. MR. CANTIN: Also, I think this is a good point to distinguish between a residential solution and a business solution.
  1090. ADSL is a good residential solution for today, but if the only result of our discussion was to make sure that ADSL was a level playing field, I would fail my business as an example and I think we would fail businesses in Canada in general.
  1091. If we can have a bundled level playing field offering for residential service that we can resell, that would be fine. Businesses don't run at the same pace as that and they don't have the same product needs as that. I think John Nemanic touched on it a little bit today.
  1092. If I have a downstream speed of 2 meg and an upstream speed of 128 k, one business or the other has got to be ripped off in this function. What we need is the ability to have the same speed going both ways.
  1093. The telcos do use that technology. They call it HTSL in their interseal communications, but they are not offering that as a product. What we would need in that scenario would be the ability to actually co-locate on a reasonable rate within the CO, and I don't mean the 3,200 COs.
  1094. I mean the 40 plus 4 COs that we could then use to business with a product that quite frankly isn't being yet offered by a telco which is our history of having products down here being offered by telcos to business.
  1095. THE CHAIRPERSON: Again, so fundamentally what you would like us to do coming out of this is initiate a proceeding to address that whole question.
  1096. MR. CANTIN: A speedy proceeding.
  1098. Mr. Blakney, this question might be best directed to you, although if the others have an answer, I will be pleased to hear it.
  1099. In the case of local telephone competition, we attempted to arrive at this by defining what we characterized as essential service, the bottleneck facilities, to use the term you just used. There it was essentially those facilities to be able to provide local telephony.
  1100. In fact, we defined as essentials loops and band D where the telephone companies defined these various bands and the band D is in the more rural areas. Our view was that in order to get competition going though, we would have to recognize that there is no real facility competition existing in band A or in the downtown corridors of many cities.
  1101. We may have the Bells, RNS in Toronto with some facilities running into major businesses, so we defined sort of near-essential, if you will, for a period of five years, those facilities, and ordered them unbundled and priced at cost plus 25 per cent.

    We just had a proceeding to deal with the cost and the decision should be out within a few days.

  1102. Is it your view that we should be looking at the whole issue of local, perhaps a little broader definition, that the high speed facility is an essential facility or near essential facility, a bottleneck facility and taking that same sort of philosophical approach to dealing with it in terms of access and pricing?
  1103. MR. BLAKNY: Yes. Yes.
  1104. THE CHAIRPERSON: I heard your answer. Your view would be that notwithstanding the fact that there are at least two players in many markets or in some markets at least, take Toronto where you would have Bell, RNS and MetroNet and Rogers Cable, that notwithstanding that we should still define somehow or other those as being bottleneck.
  1105. MR. BLAKNY: I think the market analysis has to be developed. I think you shouldn't presume that merely because MetroNet exists in some fashion that it is an effective competitor, that it is going to define new products for ISPs and others.
  1106. Our brief in its development did involve carefully analysis of the development of the so-called local competition market to date and there has been no meaningful development in that market to date.
  1107. I think, Commissioner Colville, we can look at the basic economics of that market and see why. The economic rents that permitted the extent of entry and the interexchange market aren't present. The capacity to have a technical influence over the rate of competition given the complexities of unbundling, number portability and other matters, create a technical impediment to effective competition which wasn't present in interexchange as well.
  1108. We considered those factors. We also considered the prospect of wireless entry. Notwithstanding Max Link's press release on Monday, there is no current expectation on our client's part of meaningful wireless broadband entry in the last mile.
  1109. Max Link was licensed two years ago. Nothing has happened. We looked at those factors. Quite frankly, it may be a more complex analysis, but our belief is that you would find that there is incumbency market power in the telcos in those local last mile markets.
  1110. The analysis may be more complicated, but I believe that would be the outcome of the analysis.
  1111. THE CHAIRPERSON: And on the cable side, you are not satisfied with the progress of the negotiations between the ISPs and the cable industry in terms of resolving that problem or discussions. Maybe I shouldn't characterize them as negotiations.
  1112. MR. BLAKNY: Yes. We are not satisfied with what has taken place. You have mandated them to open this market up and, frankly, their response has, one, been very slow and, two, their options that they have put forward to us, we just scratch our head with some of the thinking that goes on behind how we are able or unable to make a good business case for what we would do over those networks.
  1113. The point in cable to me is significantly made when we realize that the cable companies to protect their turf went to a massive American base content and consumer management system and precluded any of the guys that were sitting on this table this morning from entering that marketplace.
  1114. I give to you that if they were allowed to have done it a year ago or even within the past six months, they would have significantly increased their consumer base in those markets where they were and increased the level of content which is Canadian to the consumers by virtue of where they are located.
  1115. Instead, we have allowed them to dilly-dally for a long time now while they have been building a robust American-based network or support mechanism.
  1116. THE CHAIRPERSON: So your specific suggestion is that we should, I think it was some sort of final, I think your suggestion today was even a little more specific than you had in your brief.
  1117. MR. BLAKNY: Well, we posited the final offer arbitration model. We looked at the CAIP presentation. We thought it was very much going in the wrong direction, put time limits on it.
  1118. We discussed what kinds of other models can provoke meaningful negotiations between parties. I posited the final arbitration model that was built to our transportation laws a few years ago with the National Transportation Act which has actually proven to be an effective vehicle to ensure that final offer arbitration does not have to be selected by the parties. We offered that for your consideration.
  1119. THE CHAIRPERSON: In any event, it's your belief that it's time for the Commission to take some action to resolve this.
  1120. MR. BLAKNY: As the clients have indicated, it has just gone on for far too long and the suspicion or the expectation is that this side of the table would get negotiated.
  1121. THE CHAIRPERSON: Now, if we did resolve that issue, does that change your view on the other issue at all?
  1122. MR. CANTIN: The cable modem access solution is predominantly a residential solution and will continue to be for quite some time because of the security issues and the connections that are available to a shared network.
  1123. I will not speak to it because we don't have a consumer base directly, but it doesn't solve the business to business kind of activity issue by having a cable modem issue solved.
  1124. MR. DESAI: I agree completely with that. It allows us to continue to expand our consumer base of which we have one here in Canada, a large presence.
  1125. By expanding that base at a much faster rate than the cable companies are currently doing because they are not as agile and strong as we would be in that marketplace, we would do another thing. We would allow for more Canadian businesses that wanted to get on-line to meet the needs of those consumers that are coming on-line.
  1126. While it will answer the consumer issue, it will also then precipitate the need for the discussion to move much faster forward on the last mile with the corporation such that we can now make them competitive in the marketplace so that the consumer doesn't use this wonderful new tool to shop at Land's End or elsewhere, but gives us the ability to compete in this marketplace and abroad.
  1127. THE CHAIRPERSON: Well, with all this talk about the last mile or the last kilometre, which I guess we should have been referring to here, I didn't ask my other questions that I had originally prepared to ask you so maybe we should start on those. No?
  1128. I think we have probably pursued this issue enough. It has been very helpful.
  1129. I think counsel has a question or two.
  1130. MS PINSKY: Thank you.
  1131. First I would just like to clarify. In your oral submission you stated that Internet access and transmission services are enhanced telecommunications services. In your written submission, you stated that Internet services are enhanced telecom save perhaps for telephone and fax.
  1132. I wonder if you could just clarify what your view is with respect to Internet voice telephony and fax, whether or not those would be advanced telecom services.
  1133. MR. DESAI: Defining Internet telephony and Internet fax is something that I think needs to be done because currently there is a regulatory framework that needs definition for it.
  1134. The truth is it's packets. We don't know what's in it. We don't open them up. Whether it has voice, video or fax in it to us is irrelevant. It's that we can deliver the data in an efficient manner.
  1135. In the context of what you are asking me, where do we see that fit, it fits in the packet. It is a one or a zero and it travels over an IP based network. That's a technological or technical answer.
  1136. As for the regulatory answer, that is the debate I believe that is now coming forward and will accelerate as we look south of the border and to other parts of the world. Corporations will be the early adopters of IP telephony networks for their internal geographically dispersed offices.
  1137. As soon as that happens, we will give -- there will be a significant disadvantage for Canadian companies. That is happening.
  1138. What we are asking the CRTC to look hard at is what is it you want us to talk to you about with respect to IP telephony and the current contribution regime which we believe needs to be visited.
  1139. MR. CANTIN: There's a concept that I don't think has been brought out yet and I would like to bring it out at this point because it is germane to what you just asked.
  1140. When we talk about parts of it being enhanced telephony, parts of it may being voice or fax not being enhanced telephony, an underlying assumption might be that we could actually distinguish between the parts that are and the parts that aren't going across the network.
  1141. As an example, we have downstream ISPs that rent our circuits and our modems from us who carry consumer traffic. That comes across our network. We have insurance companies, banks, health facilities and institutions that also carry traffic across our network.
  1142. With those companies we have contracts with them that preclude us from looking at what's coming across the network from them because there are laws of this land that say if you are an insurance company and something goes out about something that you are transmitting of information about your customers, you the directors of that company can go to jail.
  1143. They require us and reasonably so to not even look at the data coming across out network and not interpret and not review it.
  1144. If we cannot physically by law do it with their stuff, it would be asking an awful lot what are the stuff we can't and the rest we will. It is a technical unfeasible request to discriminate the stuff coming across the network.
  1145. MS PINSKY: Thanks.
  1146. I just wanted to clarify the exception that you had made for telephone and fax.
  1147. I might just have another legal question and perhaps it's best directed to Mr. Blakny. In your submission in Phase II at page 12, this relates to the recommendations you made with respect to the approach the Commission ought to take under the Broadcasting Act.
  1148. At point 3 you have stated:

    "For an activity to define the undertaking of a business, the activity must constitute more than just an incidental part of the business and there must also be some control over the significance of that activity by the business."

  1149. I was wondering if I could just ask you to clarify in more detail what you mean by that second test, that there also be some control over the significance of that activity by the business.
  1150. MR. BLAKNY: It just simply goes back to what the locus of the undertaking is. Take a Web hosting facility. The question may arise if you have no control over the content of the Web hosting service, hypothetically I will follow on, then it's unclear whether the Web hosting service would constitute some form of undertaking for the distribution of the data streams that reside in it.
  1151. I think that you are alluding to the additional points that are on page 12. We wouldn't want to parch them out in too fine a sense.
  1152. We are trying to bring to bear some additional considerations that we saw not really having been carefully addressed in Phase I submissions as to where you may find you have jurisdiction and where you may not.
  1153. One of them is you have to appreciate the Broadcasting Act doesn't regulate a person who sends a program. It regulates programming undertakings and distribution undertakings.
  1154. We felt it would be useful to the Commission also to get outside the Broadcasting Act and look at a few more first principles that would assist you in defining the ambit of your jurisdiction, the concept of undertaking, federal responsibility, the interpretation of the Broadcasting Act within the context of the overall communications law, the framework at the federal level which includes copyright law, Telecom Act and now the definitional structure of our trading arrangements which also have specific telecom chapters. That was really the spirit in which we were offering up those considerations to you.
  1155. MS PINSKY: Thank you.
  1156. Those are all my questions.
  1157. THE CHAIRPERSON: Thank you, counsel.
  1158. Thank you very much, gentlemen.
  1159. I think this might be a good point to take a break. We will reconvene in 15 minutes at 25 after three.

    --- Short recess at / Courte suspension à 1510

    --- Upon resuming at / Reprise à 1528

  1160. THE CHAIRPERSON: Order, please, ladies and gentlemen.
  1161. Madam Secretary.
  1162. MS SANTERRE: Thank you, Mr. Chairman.
  1163. I would like now to invite IBM Canada Limited to present their presentation.


  1164. MS LANGFORD: Thank you, Mr. Chairman, Madam Chairman, Commissioners.
  1165. I introduced myself this morning when I was introduced as the Chair of CAIP and also doing Internet policy at IBM. I am very pleased to introduce you to Shahla Aly who is Vice-President of e-business at IBM.
  1166. I am just going to start with a little bit of overview about IBM because we are here because we are yet another business case. We are another example of the links in the chain scenario as a member of integrated enterprises, one of which is obviously a global network and networking activities.
  1167. IBM Canada is a major national employer. We have nearly 18,000 employees that rank us among the top 50 employers in Canada. In 1997, we hired more than 2,600 full time highly skilled employees, 5,000 professional and university graduates over the past two years. In addition, we provided work time experience for 500 students and generated temporary employment for approximately 2,000 Canadians.
  1168. Our workforce includes those of our wholly owned subsidiaries, Information Systems Management Corporation, Object Technology International Inc. and Polar Bear Software Corporation. The average age of our total population is 39.3 years and the average length of service is 13.2 years.
  1169. Over half of our employees work in IBM global services, many of them for Shahla Aly in the e-business part.
  1170. Shahla.
  1171. MS ALY: Thank you.
  1172. Good afternoon, ladies and gentlemen.
  1173. The promise and appeal of usual connectivity, just the ability to connect with people, information and business worldwide has gone from beyond being fascinating. It used to be fascinating to becoming overwhelmingly compelling, compelling because we are looking at the creation and formation of a brand new and brave new world.
  1174. The technology sector has created in essence land and on this virtual land are being built businesses, schools, government buildings, hospitals and, of course, broadcasting businesses.
  1175. The point is that just like the physical world and physical land, in the virtual world and virtual land of the Internet there will be a variety of entities, not just one kind and, most importantly, a variety of incredible opportunities.
  1176. That's the way I would like to portray the Internet. It really is brand new land and a brand new world that we are looking at. On this land will be coming up new businesses and all kinds of entities.
  1177. I am pleased to have this opportunity to present IBM Canada's position on new media, a subject that is of critical importance to our ability as Canadians to compete in the new, networked economy.
  1178. In your deliberations you will be more familiar with the telecommunications aspects of Internet activity which at its basic is merely a conglomeration of hardware, software applications and telecommunications links used for a vast multitude of purposes.
  1179. This afternoon I will share examples of the many ways in which Canadians young and old are using the Internet for business and person advantage and in doing so demonstrate why we should not be too quick classify this new media as telecommunications or broadcasting or restrict its potential through unnecessary rules and regulations.
  1180. When Quebec-based Movement Desjardins established a presence on the Web offering banking services, it saved its customers money by bring down the cost of paying a bill from one dollar to thirteen cents.
  1181. Athabasca University uses the Internet to deliver 100 per cent of its courses by what's called distance learning and it has captured 30 per cent of all executive MBA students in Canada.
  1182. set up a Web site in 29956 and today 40 per cent of its business is conducted over the Internet.
  1183. The real benefit is the increased number of sales received from outside Canada, from countries as far away as New Zealand, Australia and Europe and from customers who otherwise would never have had the opportunity to shop in its Toronto based physical store.
  1184. Librarie Garneau, the largest francophone book chain, is extending its reach beyond Canada's borders, making its more than 250,000 French language books available to the world.
  1185. One only has to think of the seven million francophones dispersed around the United States to see the immense pool to potential customers in North America alone.
  1186. Ontario Leasing Ltd. of Markham, Ontario, launched a Web site in May of this year providing no haggle price quotes for leases on a range of new cars. In that month alone the service provided more quotes than Ontario Leasing's entire team of ten sales representatives did over the previous eight months.
  1187. The Alberta Women's Enterprise Association is a not for profit organization that uses the intranet to provide better service for its customers and connecting them to other women to share business experiences.
  1188. Canadian Tire is moving beyond its traditional link to large suppliers, creating an Internet-based supply chain that now includes nearly 2,000 suppliers of all sizes.
  1189. For parents with young children, the Toronto Hospital for Sick Children's new Web site is providing them with incredible peace of mind by providing health care providers with access to patient information across the continuum of care 24 hours a day.
  1190. Whether in Toronto or at the cottage north of the city, emergency room attendants now have direct access to an asthmatic child's complete medical history and are able to immediately start emergency treatment when necessary.
  1191. In British Columbia, the province's 1,000 pharmacists and nearly 700 pharmacies are connected through an internal network. Since its inception the system has helped curb prescription fraud and abuse, saving millions of taxpayers' dollars.
  1192. Over a two year period, PharmaNet flagged about 4.8 million potentially harmful drug reactions and of those 472,000 were serious enough to be life threatening or require hospitalization.

    Another four million could have caused health problems.

  1193. For the citizens of remote northern communities like Rankin Inlet in the Northwest Territories, the Internet is providing them with a link to the outside world in a way never before possible. Today some 20 per cent of its local citizens, many who grew up in a settlement with no telephones, have an e-mail address.
  1194. The John D. Bracco School in Edmonton uses the Internet to ensure that children of families who are working abroad in Holland, Turkey and even in the oil fields of Saudi Arabia continue to receive a Canadian education.
  1195. What new vistas the Internet can open up and new worlds that can open up to the physically disabled. We in fact have a student working for us at Lakehead University who works for my business who is a paraplegic and is able to provide value and Web site construction from his wheelchair in Lakehead. He had never come into the offices in Toronto. He works distance.
  1196. For Canadian artist Byron Stevens, establishing a Web site is the first step in realizing his dream of selling his paintings in Japan. We have a video.

    --- Video Presentation / Présentation vidéo

  1197. Let me share with you additional examples of how the Web makes it possible to make Canadiana available to the rest of the world.
  1198. When Bryson's Furniture, a 50 year old family run business that specializes in the sale of handcrafted Mennonite furniture, decided to open a Web site, it was with the intention of extending its sale reach across Ontario. However, when their first e-mail order arrived, it came not from Ontario but from an enthusiastic customer in California who wanted lots of furniture and he offered to pay all shipping costs.
  1199. As you can see, the Internet is about more than content. It's about business transformation, growth, wealth creation, competitive advantage and personal effectiveness. Thousands of businesses have already proven that the Internet has helped them grow revenue, reduce costs, improve quality, decrease time to market, manage the supply chain and enter new global markets in ways never before possible.
  1200. In fact, last year in Canada, e-commerce sales accounted for 5.4 per cent of worldwide Internet commerce revenue in a market that is expected to reach $300 billion by the turn of the century.
  1201. In many ways Canada's potential is totally unlimited with our world class telecommunications infrastructure, powerful base of innovative and creative entrepreneurs and the fact that we lead the G-7 in penetration of cable, telephones and home computers. However, I firmly believe that the great promise and potential that the Internet holds for Canada is not inevitable.
  1202. The networked world that is taking place around us is a global phenomena and by its very nature transcends national and international borders. The danger, as I see it, is that each government, each special interest group could view the Internet as a mosaic of local issues and not as the global phenomena that it is.
  1203. Now granted there are issues associated with the use of e-commerce that concern all of us. The Internet is an emerging technology and as with all emerging technologies, there are issues.
  1204. We all know what they are, including security, privacy, trust, consumer protection, intellectual property protection, Internet taxation, ubiquitous access, pornography, bandwidth and so on.
  1205. These are all important issues and I don't for one minute want to diminish any of them, but they can be resolved. In fact, there are some very real actions and activities under way for all of them which we would be happy to delve into during questions.
  1206. The key point here is that we can't let the issues become barriers if the true potential of the networked world and the true potential of Internet and global e-commerce is to be fulfilled. Policies and practices must be industry driven and market led.
  1207. Industry can't do it alone. Business and government have to work together. We all have roles to play.
  1208. Our competitive advantage as a nation will be based largely on the availability of communications infrastructure to enable Canadian businesses and industries to exploit Internet-based commerce in worldwide markets faster and cheaper than any other country can and for marketers to determine what unique value Canadian goods and services can bring to the global marketplace.
  1209. There are many unique assets, including our diversity itself. Being able to service in a multitude of languages, for instance, is a Canadian strength. In fact, Toronto alone houses a population with the largest number of first languages in the world and the flags of 169 countries can be rightfully flown along with the maple leaf.
  1210. If Canadian businesses jump on board and get up the learning curve early, the opportunity to emerge as world class leaders and reach a new economic platform is there for our taking.
  1211. At IBM we have gained a lot of valuable experience in this area over the past couple of years as we have worked with thousands of companies on e-business projects and we have made strong progress in building our own capabilities as an e-business.
  1212. We are here to offer the expertise and experience that we have gained.
  1213. We have success stories, case studies and an intellectual learning curve that we are willing to share with business, government and in particular with those who wish to take their cultural products and services to the world.
  1214. Thank you for your time today. We would be happy to take your questions.
  1215. THE CHAIRPERSON: Thank you for your presentation.
  1216. I will turn the questioning over to Francoise Bertrand.
  1217. THE CHAIRPERSON OF THE COMMISSION: Thank you very much indeed for participating even ahead of time in the hearing today by bringing your views and expertise. We certainly take this hearing as an exploratory one and a learning one and we are really pleased that the participation of the intervenors is in that mode as well.
  1218. I would like before we start to understand better. We know IBM is a computer company. We know that you are involved in e-commerce. Could you explain to us the components that are of interest in particular to our proceeding.
  1219. I would be interested if you would take me by the hand to see what is your active part so that it would be clearer in my mind.
  1220. MS LANGFORD: I will start by describing a little bit about the network and then I will pass over to Shahla to tell you what we do with that network.
  1221. Our network is actually quite historically old. We created a network for internal IBM operations and our customers many, many years ago, more than a decade ago.
  1222. THE CHAIRPERSON OF THE COMMISSION: Old being more than ten years ago?
  1223. MS LANGFORD: In some cases, in some parts of the world, many more years than that. What it involves is now taking those -- they are leased lines I should say, but we own the rest of the facilities, much like the group you heard today -- in Canada is pretty much the model globally. We lease the interconnecting facilities but have obviously our network within our own premises in IBM operations around the globe.
  1224. There are 1,300 points of presence around the world, 55 of those are in Canada. What that gave us when the Internet world came along was an opportunity to flip the old private network into open networking.
  1225. We were able then to offer that service to our customers and to create secure intranets and expand the ability of their employees and customers to access that network from anywhere rather than just from the office or the work premises.
  1226. That is the underlying sort of IBM infrastructure, if you will. On top of that you have the computer expertise which is another link in the chain. That gave us then the opportunity to take the knowhow and show-how and do things that Shahla does in her group.
  1227. MS ALY: What we basically do in our group for our customers is first and foremost I might point out, and I think I would be pointing out the obvious here, is that technology is our core competency and e-business is our integrating strategy.
  1228. We have the best spokesperson and that's Lou Gersner on e-business, so we are very fortunate. In fact, he was at the OECD conference recently talking about the need to embrace e-business as we move into the next century.
  1229. What we look at in my particular group and across IBM and across IBM Canada is enabling our customers on e-business. If we were to tell you what we think e-business is, it's taking your basic business and enabling it with Web technologies.
  1230. That doesn't mean just reaching out through the Internet. When we say Web technologies, it's connecting all important stakeholders' employees through an intranet so that when you look at dispersed communities of employees scattered over a geography, it is very possible to connect through an intranet and bring them closer together.
  1231. When you look at extranets, and that is your suppliers and vendors, it's taking e-business and Web technologies and connecting that key stakeholder group, and I could give you many examples of that.
  1232. The final important stakeholder in all of this is, of course, your customers. Whether you are a government or a business or a hospital, you all have customers. Let me give you one simple example. It's not one that we did, so it's an objective example.
  1233. Revenue Canada I quote quite often as one of the best examples of embracing e-business. They decided, and it was well over three years ago, that they would do something very simple which is put up forms on the Internet.
  1234. In many Canadian households on April 29 when you are doing your taxes and panic strikes because you are missing that moving living form or in my case the child care expense form, typically what happened was in the morning you would get up very early at 7:59 so you could get through the IVR system to the customer rep who would then take your requirement, turn around, pull from the shelf a form, put it in an envelope. It would go downstairs to the mail room and you would receive it three days later.
  1235. THE CHAIRPERSON: If you are lucky.
  1236. MS ALY: If you're lucky, I guess. If you live in Ottawa.
  1237. What is happening is Revenue Canada decided three years ago, and was very progressive and many others have followed suit, to put the forms on the Internet. Let's look at the scenario here not only in terms of customer care, and this is government doing it, but cost reduction for all of us as taxpayers.
  1238. Again, it is April 29. I am trying to do my taxes. I simply go on to the Revenue Canada Web site. I go to the forms. I print the form. Let's look what's happening here.
  1239. I am doing it in my own household with my own time, my own computer, my own printer, my own paper, using my ISP time. In fact, I have become for that moment in time an unpaid employee of Revenue Canada and I'm mighty happy.
  1240. I would say, and I have not got confirmation from Revenue Canada on this, but my estimate in terms of every form that is printed by a citizen of Canada, Revenue Canada saves $40 because the average cost of a pole sent to pole, by the time you have put somebody into a seat is about $8 to $16. You have given them technology. You have got the mail room involved and so on and so forth.
  1241. That's what we are all about, enabling customers. We have enabled many of the leading banks in terms of Internet to reach into their customers.
  1242. What I find also fascinating is as I go around Canada, and I have been doing this since 1995, is why are Canadian entities reaching out to their constituents. I looked at Alberta agriculture, a fascinating site.
  1243. Obviously this is a site for farmers in Alberta. I learned a few things that perhaps all of you already know, but was new news to me. One of the most computer literate groups in Canada happen to be the farmers of Canada. In Alberta they are very geographically dispersed.
  1244. They demanded that Alberta agriculture reach them through the Internet because that happened to be the most convenient medium for them. What you were seeing was all kinds of forces in play. One, we are enabling our customers, but the stakeholders are demanding that enablement as well.
  1245. Another observation I would make is as we moved from 1995 to 1998, the language of the customers and key constituents like employees and stakeholders has changed as well in terms of expectation.
  1246. THE CHAIRPERSON OF THE COMMISSION: You talked a lot about education. You talked about education at the same time as you have responsibility in terms of making a business case and reaching a bottom line. There is a need at the same time because of the learning curve that everybody is taking at the same time of education.
  1247. What do you find to be the key that will really create the demand, not only from the business side but also from the citizen itself in terms of getting involved?
  1248. MS ALY: I would say it is already there. If we go back to 1995 when I stood in front of audiences, even if I had been here in 1995, the language I would have employed would have been very different because the assumption I would have made on your awareness would have been different in 1995 than 1998.
  1249. In 1995 I would say the word "browse" and most people wouldn't have known. In fact, I used to stand in front of audiences at that point in time and say "How many people have surfed the net?" and there might have been three hands going up. In 1998, every hand goes up because it's decidedly unfashionable not to have surfed the net. Everybody is doing it.
  1250. The question now is how many people have bought something on the net. That's the next question now. You get about half the hands raised.
  1251. IBM has done a huge amount in terms of raising awareness in terms of what the Internet can do through seminars we have conducted across the country, through our e-business campaigns which hopefully you have seen some of our ads where we try to bring up awareness of what both small and large businesses can do, what governments, hospitals and education can do as well.
  1252. We have been involved in all of those arenas. What I am finding personally, by the way, is we have been doing the awareness reason, but the universities have been doing it as well.
  1253. If I go back to 1996 when I started by e-business services organization, it was called Internet Consulting and Services, I started with six people and it's several hundred now. It's one of the businesses that I run.
  1254. At that point in time if somebody could spell HTML, and I will be honest about it, we have heard of them, because boy, this person knows what a Web page is. Now I am finding the universities without much prompting at all are producing Java, C++, Web designers. All of the faculties, and I happen to sit on a couple of faculty advisory boards, reflect the Web attainment in their curriculum.
  1255. So it's happening from a business perspective, it's happening from a school perspective. If you go into the schools of today, and I happened to be at the TLI opening day where Minister Manley was talking. He talked with great pride and I think it is a point of pride that when he took office five years ago, there were 12 schools and libraries that were connected to the Internet. By year end, every school and library in Canada will be connected.
  1256. Given the focus of government, given Jean Chrétien's speech which he made at the OECD, where he said by the year 2000 his personal ambition is to have Canada as the most connected nation in the world. He hosted the OECD conference that focused on electronic commerce.
  1257. The awareness is happening on many fronts. IBM is certainly taking on a fair amount of it, but we are very fortunate the environment is moving there.
  1258. MS LANGFORD: If I could just add to that. Our actual charity program is focused on K to 12 support of computers in the schools, so at a very fundamental level our corporate attitude is we have to teach kids computing skills. In order to do that, the computers have to be in the schools. That's where we focus the majority of our charitable work in Canada and in fact abroad. It's a top-down policy.
  1259. We just actually released a product that even goes below Kindergarten now. It's a tot's plastic computer module that is taking it to the nursery school level. We definitely have to start at the ground up to even create the skillset.
  1260. In creating that skillset we also have to ensure that children are aware of all the issues. That's an important part of that program as well.
  1261. THE CHAIRPERSON OF THE COMMISSION: Yesterday we had the CCTA people here. They were kind of saying that the deployment of Internet will be increased if it can be assimilated with the TV set, the Web TV. There are less computers today than there are television sets, so if we can bring that together, it will really make for a revolution or the famous application we are looking for.
  1262. I would like to have your view on that approach, especially what we heard, not to rule out any logic today that Internet was merely a computer universe. I hear too much about the relationship with the television set today.
  1263. I would like your opinion not on the regular toy approach of it but rather your point of view in terms of what will foster rapid growth at a speed at which doctors will join.
  1264. THE CHAIRPERSON: I think you are absolutely right. If you look at North America, televisions are penetrated into 96 per cent of households. I have no idea how those 4 per cent don't have TVs, but somehow there are 4 per cent that don't have a television in their home.
  1265. With cable modem, there will absolutely be more access to the Internet. The fact of life is behind what you are accessing is still Web sites that are hosted by computers. That's still there in the background.
  1266. The fact of life is what we are looking at here is Internet access devices and I think television will certainly make it more prevalent. It certainly is seeing its way into Toronto and the speed at which you can access Web sites is immensely faster.
  1267. It is cheaper at the moment to be able to access through a television if that's all that you want to do at that point in time is simply go in and access, but if you are downloading, there will be other problems that you would have.
  1268. A child wanting to do a project, as my son recently did on the Golden Eagle, goes and scans the Web for Web sites. No longer do we have to make the trek to the library. He finds all of the books that are available, gets a whole wealth of information.
  1269. What he typically does is he prints off some. There might be some difficulties there. However, the majority of the information will be available.
  1270. I think what that will do is increase the comfort level of the people who have not surfed the Web as yet, for those who haven't. It will certainly make it more accessible at all levels of the economic strata.
  1271. THE CHAIRPERSON OF THE COMMISSION: Also yesterday we met with the CAB. They told us that right now you cannot really measure any direct impact. There seems to be a growing phenomenon. They stated the case of Coke kind of not placing advertising through Toronto any more but rather from Texas with added value Web pages.
  1272. What's your view on that kind of comment that the impact on broadcasters of that form of communication will be tremendous and will be a real competition? What's your view on this? What's your experience from 1995 to 1998 when you kind of forecast what can happen in the next few years?
  1273. Do you see that it will be strictly an incremental erosion or will there be a very important shift from what we have seen up until now of advertising revenues?
  1274. MS ALY: Well, there would be advertising revenues obviously for the people who are hosting the sites on which there is -- so there might be a shift from traditional receivers of the advertising revenue -- is that the question -- to those who are on the Web.
  1275. I certainly know that all of us in business are looking at our advertising dollars. There will always be a budget that has to be reallocated across the medium that is available. Once it was only radio and newspaper and then television comes along. There was a reallocation.
  1276. I think there would have to be because of the global reach of the Internet. When you are advertising on television, there will be a confined reach. On the Internet there is more of a reach. As we progress, I would say there will be.
  1277. I guess the answer is yes, they will.
  1278. MS LANGFORD: We don't particularly get involved in the content itself, just the client that puts it on their Web site. Other than perhaps advising them about ways they can link with other sites and so forth, we don't actually get involved in their arrangements that they make with advertisers.
  1279. We don't have experience about whether or not they are having difficulty getting ads, whether they are actually finding, you know, sort of their relationship with advertisers and what advertisers are telling them. We don't have a lot of that kind of experience.
  1280. At IBM, we are definitely advertising on-line as well. We have IBM banners on quite a few sites and I think have found it a good way for people to link to us, so we are certainly using the medium ourselves as an advertising vehicle.
  1281. THE CHAIRPERSON OF THE COMMISSION: We know that it will be used. My question is not in the next 25 years, but in the upcoming years can we expect to see a drastic shift from traditional broadcasting to a digital form or can we see much more like added capacity of going on Web pages? From your experience at IBM and also from your clients, you certainly share some of their successes or problems.
  1282. What we understand is in order to be successful, at the end of the day every part of the chain will have to have a successful business plan. The bottom line will have to be met at one point which is not quite the case as we speak, as I understand it.
  1283. MS LANGFORD: When CTV did the very first cybercast of the World Figure Skating Championships in 1996, they couldn't get any advertisers interested in sponsoring the site. Nobody had any idea whether or not anybody would tune in to the Webcast.
  1284. Interestingly, on the first day, the servers got blown out there was so much demand by the end of the week because of cross-collateral advertising on television and the fact that it was one of the very first sports events that had ever been cybercast.
  1285. Some of the journalists from around the world actually reported on it in newspapers. The site was stating to get hits from around the world and they ended up having a million hits a day.
  1286. The next year when they did the same event, obviously there was a great interest in advertisers being on that particular site. What CTV did was packaged and said "You sponsor the event and you get to be on the site as well as mentions on the air".
  1287. I think it obviously made it that much more attractive for advertisers. That's an experience that is repeated again and again at the moment. As the world evolves, some models will change.
  1288. I think you heard yesterday that the kind of reach and richness that the Web allows to personalize advertising is going to make it a far different model, one that will still have mass appeal advertising. In television, in fact, television will still be a place where you will advertise to drive eyeballs to the Web site.
  1289. If anything, there is a new market opportunity, a new group of advertisers, if you will, for traditional, but then you get to the Web, there will be new models of personalized, if you will, advertising that can be much more targeted and, therefore, a different price range and different kind. It might even attract a different kind of advertiser.
  1290. THE CHAIRPERSON OF THE COMMISSION: That kind of ties to an idea. We have talked a lot about the fact that the new media is not like the traditional broadcasting universe where there was management of scarcity. It's all about global, democratic, anyone who wants to have a presence can have that presence.
  1291. In order to succeed in that universe, it's not a matter of being there. It's other matters or other elements that will make it happen. Either you get more personalized.
  1292. What are the elements in your experience that will make it a hit, not only one hit but many hits, so that you can really be a success and have a presence that is significant?
  1293. MS ALY: That's a question, by the way, that many of of my customers ask me. A bookstore will come along and say "Make me look like" Everybody knows
  1294. The fact of life is that was an early adopter. There's an amount of life that comes to an early adopter that simply cannot be duplicated.
  1295. FedEx just by having that little application on line, you may recall, for tracking of packages got more speech time, air time through speeches that people made, because they constantly quoted FedEx, than I'm sure they could have bought in the next 50 years. There is that element of that.
  1296. The other thing to be successful, one of the lessons we have learned, and we have learned many lessons in the thousands of engagements we have done, is when you approach the Internet with a business, it is about business, it's not about technology, so this is not about playing in a sandbox.
  1297. You bring to the Web the same kind of business case that you would if you were in the physical world. You have to understand that there has to be a business case. In fact, the advertising that goes on, if you look at the globe fund or if you look at e-trade, the amount of advertising they do through traditional means is a humungous amount.
  1298. Even the ones that only have an existence on the virtual world and they don't have it on the physical world spend a lot of money making the URL known on the backs of buses, in newspapers, in airports and so on. That's going to be a large part of it as well. You have to get the name known. And you have to provide value.
  1299. Why would I today come to the Web when it takes a little bit of time, and we spoke about this before. We are looking at today the Internet technologies as being an emerging set of technologies. They are not established.
  1300. The key here is for any business, when they look at me and say "So you come around and say in order to participate in the 21st century, you have to be on the Web. You don't have an option, otherwise you will die. Tell me why I should do that given all of these problems that I see".
  1301. There are problems and I referenced them in my speech here. The reason is the Internet set of technologies are emerging but they will become established. Let me just give you one little example of what happens when you ignore these technologies and why, even though you may not have a clear cut case, you have to go on the Web.
  1302. Several years ago there was a new technology that was emerging, just like the Internet. People were very sceptical about it. This was CD-ROM, so it's not that many years ago.
  1303. One of the organizations that looked at CD-ROMs was Encyclopedia Britannica. If I were to ask you what was the most popular selling encyclopedia in the world, even today audiences say Encyclopedia Britannica. They should say that because for 217 years it was. It was the most popular because they understood intellectual collateral, they understood projects, they understood teachers and they knew how to put this altogether.
  1304. Not stupid people, management looked at the CD-ROM phenomena. What was happening at that point in time? Well, first and foremost they were very expensive. There were technical problems. Not everybody had them. The most important thing that happens when any set of technologies is emerging is customers don't want it and customers work with their dollars.
  1305. Customers were still saying "I would like to spend a couple of thousand dollars on 15 feet of paper rather than $64.99 on a CD-ROM". One thing you have to keep in mind is customers are very portable. They can port their dollar from here to there in a minute. Organizations can't move.
  1306. What happened was Encyclopedia Britannica ignored the CD-ROM phenomena. A couple of Christmases happened. Technology improved. The price point went out. Everybody in North America had the ability to have CD-ROMs.
  1307. Suddenly, Encyclopedia Britannica fell not from number one to respectable number two but to number three. Carter came out as number one and Gauley's came out as number two. Now, Encyclopedia Britannica is coming back.
  1308. The point is that it's nicer to just stay there than have to go down and come back. So it does become a matter of economic survival as well to recognize it.
  1309. When people say why should I go on and how do I make sure that I am absolutely the best, the first thing I say is it's about business, it's not about technology. The second is make sure that you understand how the Internet can at least get you to have you achieve your current business objectives.
  1310. If you are a current business, you already have business objectives and goals. When you have these business objectives and goals, they recognize physical constraints and confinements.
  1311. For example, a physical constraint is the amount of time in the day. One of your objectives is to provide customer care 24 hours a day possibly, but only five days a week because you can't afford more. The Internet lets you get to the very edge 24 hours a day, 365 days a year. That's customer care.
  1312. It's not only about setting up a business, but what can you do within a business. Can you provide care to your customers? Can you provide them services that you were providing through other people but in a limited time frame?
  1313. The example is my printer broke down recently, Saturday night, 12 o'clock. Everything happens at 12 o'clock at night for me. I couldn't get anyone to help me fix it because nobody at the 1-800 number was picking up. I go on to the Lexmark Web site. It says "If these three green lights are flashing, do this". I did it, it worked.
  1314. You think about that. The script for fixing my printer most likely was in the manual. When you phone in and a customer services rep attends to you, they are not inventing it at the moment. These scripts are written for predetermined problems, problems that occur quite frequently.
  1315. The long and short of it is if somebody wants to be successful, they have to also understand what portion of their business they are going to put up on the net. You don't always have to be selling. You can be providing care as well to your customers.
  1316. We are getting to the point that we expect a URL now to be even on the side of a sprinkler. I bought a sprinkler recently and it wouldn't rotate. It's one of these oscillating sprinklers. There was URL on the side of it. You could go in and phone up instead of having to go back to the hardware store.
  1317. Those are going to be the key successes. What value do you provide. Another example.
  1318. There's a grocery store in California that provides groceries on the Internet. Why would anybody go there? What value are they providing that you wouldn't get other than the convenience and time saving?
  1319. The value they provide is you can go in and have a nutrient shopping. You can say before you go in "I would like everything that I buy to have the lowest content in terms of sodium" or "the highest content in terms of protein" and you can do a nutrient shop.
  1320. They were able to scan in all the labels into the computer. If you went into the store and you had to line up eight cans of tomatoes and read the sodium content of each and then you went and did the same thing for corn and so on and so forth, it becomes an impossible task.
  1321. You can replicate your business and then provide value and that's one of the keys as well. Service is another part.
  1322. THE CHAIRPERSON OF THE COMMISSION: It suggests to me listening to you that in e-commerce, which is an activity on the net, if the value per se of being there is not absolute, it's the same thing in other dimensions of the net.
  1323. MS ALY: That's right.
  1324. THE CHAIRPERSON OF THE COMMISSION: We think and try to get an understanding of the impact of the net, recognizing the global reality of the net and the necessity and the interest of that reality, yet recognizing also that there are values that are distant in Canada that we would like also to be reflected for ourselves and others.
  1325. I'm wondering if what you are saying is somewhat kind of challenging what others say. We are concerned about the fact that the net might not have the same kind of promotion for the eye level for Canadian content that we have, for example, in the broadcasting system.
  1326. The answer that is usually given is that you have yourself fears. You know, why worry? Everybody is entitled to happiness. Everybody can be there.
  1327. If I extract from your short exposé, and I am sure if we had more time you could have more nuances, but what I'm getting is that it's not all to be there. There is more about it in order to make a statement and be capable of carrying the full importance.
  1328. MS ALY: Yes.
  1329. THE CHAIRPERSON OF THE COMMISSION: I'm wondering how it impacts the other dimensions that we are concerned about. I would come back to some comments you make where people say it's all very interesting to say that it's not broadcasting, but what will happen in that universe when it evolves in the capacity that we have had in Canada not to exclude any other content.
  1330. I don't think there is any other country that has as much foreign presence as here, but at the same time we were allowing for the variety of choice to also foster a Canadian presence.
  1331. What can be done in order to have that in that new universe which is not strictly at any page and being there, the full capacity of being a success there?
  1332. MS LANGFORD: What we were getting at in the submissions in Phase II in an ideal world, if you were a music site, for instance, you would put absolutely everything in the universe on your site because that means that everyone would come to your site because they would know that it was a one stop shop.
  1333. Clearly, there are a million licensing reasons why that may never be able to happen, but there are certainly no technology reasons why you couldn't have every recording, you know, access to the initial work itself. There is no shelf space limitation. That was really the point that was being made.
  1334. What Canadian music producers would have to figure out is how to best market the uniqueness of whatever it is that the product has to offer. It may be customerization and it may be personalization and it may be developing a relationship with the people who come and visit their site.
  1335. is not successful just because they have a large selection of books. They are successful because you get the books the next day or the day after at the latest. You fill in some information of your choice about your preferences. They also make note of the kinds of books you buy. Then they tell you about other books in that category. "Would you be interested in them?"
  1336. What they are finding is people are buying more and more and more. The volume is increasing. They have people who have spent $65,000 on books this year.
  1337. It's that kind of personalization. There are fanatics who want every book on butterflies. They would not have known that they existed, so they have learned how to use the medium to market in that kind of specialized way to visitors to their site.
  1338. It's not an automatic thing. It's a thinking about what the medium gives you as an opportunity to develop a relationship.
  1339. I am a Springsteen fan. If I could get my hands on everything he did, I would be buying it. There are people of every kind and taste in the world, so it's finding that niche and being able to exploit the potential of the opportunity.
  1340. THE CHAIRPERSON OF THE COMMISSION: If you are not an adopter, if you don't have a brand that is well established, and I come back to some comments like McLellan & Stewart, the publisher, who say there is also the practice that has developed of bundling with some manufacturers. There are some established markets that are there.
  1341. What is the chance as a Canadian content producer not to be there, but to be there in such a way that I can be successful? What I mean to say, I am not thinking that there is a toolbox to answer that question, but it seems to me that it's not all to be there. There is more to it.
  1342. I don't sense from the different dialogues that we have had that there is a recognition of that situation. I am wondering if you have one, having great experience in the involvement and intervention in the net.
  1343. MS ALY: Yes. I guess the analogy I would call into play is just because somebody creates a CD doesn't mean it is going to sell. Right?
  1345. MS ALY: Or they have a bookstore or a CD store that focuses only on Canadian artists, there is absolutely no guarantee unless they bring in a lot of business ploys that are valuable to that particular existence.
  1346. If you are on the Web, first and foremost the value statement comes up again and certainly the advertising comes into play. I think the big difference is going to be value.
  1347. The chances of being successful on the Web are more immense. I know that one of the speakers talked this morning about the ability to reach Canadians worldwide. This is one way that publishers and artists and authors can reach Canadians across the world, and they are scattered across the world. They still have a need to connect into Canada.
  1348. You just have to travel to Turkey or to some countries way outside. It would be difficult to get some Canadian artist CDs, but now you would be able to reach them. That's one aspect. The reach would help you be successful.
  1349. Again, I don't think anybody could really prove that if you just went up on the Web you would be successful. There is no guarantee.
  1350. MS LANGFORD: The Boston Consulting Group last week released the very first study of on-line retailing. It's the first time any indepth analysis has been done. They didn't study any Canadian sites because they said there wasn't a significant enough number of them to be able to study yet.
  1351. It is predominantly an American study, but it did show some very interesting statistics about the early adopters and some of the elements it takes to win.
  1352. Rather than delving through those, I do have those stats. What I propose is perhaps to file that report on the record and you can look at some of that research.
  1354. MS LANGFORD: I think it is quite fascinating. It is the first time anybody has done any sort of qualitative research.
  1355. In general, they have said that brands, yes, right now are moving or the adopters are getting more than their fair share of the market, but anybody's crown can be toppled and by finding a similar winning formula of value proposition, as Shahla said.
  1356. Again, both the reach and the richness have totally changed the marketing reality. Suddenly there is so much more depth to the kind of understanding which you can have with your customer. There's a whole new game out there. Everybody is just learning, but the early learners obviously are going to make mistakes and capitalize on them.
  1357. I guess our pitch would be let's figure out a way to get the Canadian sites up and get that learning curve going.
  1358. THE CHAIRPERSON OF THE COMMISSION: So you are saying that this study which you are willing to share with us could not study the Canadian sites because they were not numerous enough.
  1359. That's strange because yesterday we were told over and over again that the supply was not a problem in Canada. That would indicate to me that we still have a lot of work to do in order to get more presence.
  1360. MS LANGFORD: The distinction between the number of Web pages and the number of e-commerce sites, that's very much the difference. It's the merchants who are still reluctant. Shahla has a lot of experience about merchant reluctance.
  1361. MS ALY: It's not bad news all over. If you were to look at who is leading, for instance, in banking worldwide, the banking industry in Canada is considered to be leading even though they got off to a late start. So it was Wells Fargo in the States in 1995 that had one of the leading Web sites.
  1362. If you look at our Canadian banks, we can be really proud. Some of the stats that come out, for instance, from the Canadian Imperial Bank of Commerce, they exceeded their expectation of Internet users by almost 100 per cent just in the first year. It is an amazing phenomena that has occurred. The banking industry worldwide is coming to examine Canadian banks.
  1363. On the other hand, from a retail perspective we have a timid approach. If you were to sort of reflect on my oral speech, you would note that I say that 5.6 per cent of the commerce dollars came from Canada. Therefore, it does not sort of rationalize with that.
  1364. What I would put in front of you is the possibility that we are witnessing one of the biggest cross-border shopping sprees in history that is invisible.
  1365. If you go shopping on the Internet at this point in time, you simply cannot buy enough Canadian stuff. Most of the large stores that are open, if you go for CDs, it would be CD Now and Music Boulevard. We are fortunate now that we do have a large Canadian bookstore, but up to this point in time it was
  1366. My children, who consistently use my credit card by the way to shop on the Internet, are constantly on these Web sites. It amazes me how also the United States retailers are getting to Canadian children as well. They know that there is a lack of Canadian retail sites. Let me give you an example.
  1367. My daughter started a Web site for The Back Street Boys. She is a big fan of them. I went on to the Web site. The first thing I see is a banner floating across for CD Now. Why are you doing that? Why do you have a CD Now banner?
  1368. Because the CD Now people had gotten to my daughter through the Web site for The Back Street Boys and had offered her $10 to put up this advertising on her Web site the first time someone came to her Web site and bought a CD from CD Now. Ten bucks is a lot for a 14 year old, especially if it's U.S.
  1369. You have this phenomena occurring.
  1370. THE CHAIRPERSON OF THE COMMISSION: Especially if she has been grounded.
  1371. MS ALY: That's supposed to be to spend.
  1372. One of the interpretations I had from a newspaper I was talking to was, you know, Canadian retailers tend to be behind anyway. We tend to be less innovative or perhaps a little more timid. I don't agree with that.
  1373. I think if you look at us as a nation, we are very connected and very comfortable with technology. You go anywhere across Canada, including any milk store, and they are taking debit cards.
  1374. The Minister of Revenue was talking last night at a dinner where I was at. He mentioned that he was in Orlando at Disney World, the epitome of technology, and they did not recognize debit cards.
  1375. To hide behind the cover of saying that Canada tends to be behind in any way is not a good reason in my mind. One of the things we have to understand is if we don't get on board very quickly as a nation, we do lose the experience that Margo was referencing in terms of early adopter and learning curve.
  1376. In order to get there, we need to have a very clearly defined landscape. If you don't know what the landscape looks like, you don't invest. Research and development dollars gravitate towards a clearly landscape and that includes clarity in terms of legislation, policy and taxation.
  1377. THE CHAIRPERSON OF THE COMMISSION: We will get to that clarity in a moment. I would like to get your comments. On page 11 of your brief you talk about self-regulation. You have vast experience in self-regulation in the domain of offensive content. Although we are not expert by any means, we have more knowledge of it.
  1378. You refer also in terms of self-regulation in terms of creating eye level cultural content as well. There is a possibility of using self-regulation in that domain.
  1379. I would like to know what you mean by that and what are the practical experiences you have in that respect.
  1380. MS LANGFORD: Yes. We have met with 13 creative collectives. Our goal is to actually formulate a process for what we call modus and takedown. The experience comes with already doing this in the police context. The police usually notify us of illegal content. At that point we are aware that it exists and we take it down.
  1381. In the intellectual property rights owner scenario, they are very concerned and rightfully so about illegal material on-line. In the same vein, there are technologies such as Web crawlers that can go through and look for music files or video files and so forth, identify the site these are on, and then that is all very transparent on line. You can actually tell who is hosting that site. They can then contact the ISP that is hosting that site and give them notice that there are illegal files on one of their customer's Web sites.
  1382. Usually every single Web site has a contract or agreement that says if there is anything illegal, or course it can be taken down. If the material is not taken down, then the Web site can be shut off. That's having enforcement of notice and take down happens.
  1383. In the United States all of the creators, collectives and all of the ISP associations already made this agreement. They actually referenced it into the Web implementation legislation. They are all under way doing this.
  1384. We have got basically IBM's experience in the United States to draw on as well as ISP interassociation experience of how to do this. We want to do it in Canada and we want to do it quickly so that they have a mechanism to enforce the rights, which they certainly have a right to do. That's where we are moving.
  1385. It doesn't necessarily have to be a part of legislation. We can have the agreement. We can have a process. We can just have a general understanding of when you get a notice from a copyright owner, here's what you do.
  1386. THE CHAIRPERSON OF THE COMMISSION: That is more in relation to rights protection that you were referring to.
  1387. You talk also in your brief about foreign ownership. One objection you would have about being assimilated with broadcasting would be the fact that it might impair the capacity of IBM to get involved in some new media services.
  1388. I was wondering if you could be precise about what you meant by that and what kind of services you think might be very interesting for your business as well as for Canadians that would be deprived of.
  1389. MS LANGFORD: We have a number of opportunities, of course, that knock on the door every day. A lot of people would like to come and partner with IBM. Some of them have been things that potentially look like broadcasting and we have actually stayed away from them, given our foreign ownership situation, because we didn't want to invest until we had some certainty.
  1390. They are just in general opportunities such that would involve videostreaming or even archived video being available on-line. It's generally -- you know, we go into the picture kind of scenario that we started to get worried. I don't think that graphics and text have given us much grief, but we are concerned that we will have spent money in a joint venture of some sort like that and then find out afterwards that we are not really entitled to be doing that.
  1391. That's the kind of clarity that we are looking for today out of this proceeding. If you are showing video, is that the trigger? If you are streaming, does it have to be live? What is it that will trigger?
  1392. We have talked about some of the criteria this morning. Is it one of the criteria? Is it multiple? If it stops being one to one and starts being one to multi, what is going to trigger it being a broadcast, et cetera?
  1393. We are looking for that direction. Obviously we are very anxious to do whatever it is the customers and the potential partners want us to do. We want to be in this area. We certainly have plenty of opportunity to do so.
  1394. MS ALY: In the absence of a defined position, what we find that many customers are doing is assuming a position. What they tend to assume is a negative position. "If you don't know exactly if it is going to be legislated or not, let's just assume it is going to be legislated."
  1395. I cannot tell you how many e-mails I get from ISPs who are setting up in the tax havens, for instance, saying when you are hosting these customers, bring them to us. I can tell you what the position is here.
  1396. I have sat down with the Ministers of many of these governments in the Barbados, the British Virgin Islands, who fully understand what is happening in Canada and do understand that the landscape is not defined from many aspects.
  1397. They have a sliding scale, for instance, on taxation. The more you make, the less you pay is the way they are running it. They have suddenly seen this opportunity and they come and talk to us because we do have IBM offices in the Barbados, in the British Virgin Islands, Curacao and other places. I go there all the time.
  1398. When you talk to them, the dollars are gleaming in their eyes because they see the opportunity. Before it was difficult to bring a business to the Barbados or to the Bahamas because you simply didn't have the consumer base. Your consumer base is now the world.
  1399. I have already seen businesses being deployed because of the uncertainty and the entire business is set up in the Bahamas --
  1400. THE CHAIRPERSON OF THE COMMISSION: And maybe the weather too.
  1401. MS ALY: Absolutely. You make a good point. The weather was attractive before you didn't have the consumer base. Now the weather is attractive and you have the consumer base.
  1402. Now it is going out of the purview of this particular one because you are not sure of what fees are going to be collected and other aspects. I know of a company that does consultation on the Web where the President sits here and all the worker sit here but the server is in Bermuda, as is the CO.
  1403. The directing mind is there and there is a physical residency. You can guess what rules they are living by. Right? It's perfectly legitimate by our residency rules in terms of at least taxation, which I do have some understanding of.
  1404. THE CHAIRPERSON OF THE COMMISSION: You talk about certainty. Reading from the study of 1996 that we already had some knowledge of and your brief in Phase II, I am not too sure about your certainty. It seems to have evolved from the study of 1996 to today.
  1405. I would like to hear where you are today. What would be, given your own business plan, your own vision of words, what would be the kind of regulatory certainty and also more governmental support that you would see as making it happen?
  1406. MS LANGFORD: Yes. We sort of debated whether we would really file a report, but we did. We felt that some of its analysis of the Broadcast Act was still relevant, but clearly the recommendations have been sort of eclipsed by events, if you will.
  1407. Certainly the world didn't evolve exactly as we thought. In the interim we had the liability study of Industry Canada which I think gives us a good framework for some certainty. It helped us also when we were before the Copyright Board.
  1408. The way we see the world evolving, not just in this country but elsewhere in the regulatory framework, is that my ability, if you will, whether that's for regulation or for other things such as copyright, flows from actions and actors.
  1409. When we are talking about undertakings it's a bit now skewed because you had distribution undertakings and programming undertakings and that doesn't quite match the actions and actors scenario that is happening on-line.
  1410. Actions people have to take responsibility for and actors who do those actions. What it is distilling down to is we see the Web site owner as being responsible for the content they put on-line and not obviously the ISP who cannot do anything except on a notice and take down basis enforce a contractual right to ensure that whatever is there is properly either regulated, legislated, enforced or whatever.
  1411. In terms of broadcasting, you may decide that some Web sites are broadcasting. We would certainly hope you wouldn't decide that ISPs are broadcasters. I think that's probably as clear as we can be.
  1412. We would have to go through the Web sites themselves and analyze, which I did a bit with Virtually Canadian in the second phase because I thought that might help as a scenario.
  1413. Virtually Canadian has some aspects that look very much like the on-line broadcasters. We ask you to go back to first principles. What were the reasons behind regulating and having the broadcast rules apply and do they apply to Virtually Canadian?
  1414. Is that a valid analysis? Do the spectrum rules apply? Are the cultural, industrial and social goals being met by Virtually Canadian and, therefore, it might be a broadcast but you might want to exempt it because it wouldn't be materially enhanced by a regulation? Those kinds of analysis.
  1415. That's where we are. Indeed, there is no doubt that there are some activities. Broadcasters are on-line and the broadcast programs are the same ones that already fulfil your rules that are on-line. But then there are some other Web sites and they do have some broadcast element like activity.
  1416. I ask you to look at a whole lot of factors, the preponderance perhaps of one kind of activity on the site versus the other. Is it more publishing? Is it more informational? Is the occasional concert enough to trigger a broadcast regulation and, if so, is it meeting all the other tests and, therefore, should be exempt?
  1417. Quite honestly, if you don't exempt it, it won't stay here. That's quite another reality that has to be dealt with.
  1418. THE CHAIRPERSON OF THE COMMISSION: If I understand correctly, you still have that view of exemption, but you have changed where the onus is. It is the Web page itself, the centre.
  1419. MS LANGFORD: If you look at a Web site -- we got in this morning. The reason I was hesitant answering the question this morning about foreign ownership and exemption is because there is that challenge.
  1420. We wouldn't probably put up a site ourselves that would look like broadcasting in the event that you might not be able to exempt us. Again, there is that kind of situation which would mean that if we wanted to do that kind of activity for a customer, we would have to host that in the United States or some place else that didn't have that sort of dichotomy.
  1421. That's the challenge for every single ISP and also for IBM an opportunity and we pick the best location for a customer and it doesn't matter where the goods are shipped from or where they are accessed from. In the case of a broadcast, where it's accessed from is irrelevant. If it's a Canadian company, it can still put a site, as she said, absolutely anywhere.
  1422. Hopefully that --
  1423. THE CHAIRPERSON OF THE COMMISSION: Yes. It clarifies your position. What would be your view, given your knowledge and expertise, if we were to consider that as an interesting -- if ever we want to do something, if that would be the interesting element.
  1424. Where would you see the criterion being? Is that what you would see as being the element that triggers the definition of being a broadcasting unit or a broadcasting --
  1425. MS LANGFORD: Again, it's a challenge with only one site to think about. I guess I would have to say preponderance is probably one of the factors you might want to consider. Also whether or not it's even challenging.
  1426. Again, back to first principles on the regulation, is it even challenging an existing broadcast on-line or offline scenario or has it created another whole market opportunity for Canadian culture for one thing which is something Virtually Canadian has done?
  1427. It's also got some other regulatory problems. There is licensing issues. Again, in this country right now the copyright collectives haven't got a licensing model for Canadians to actually operate legally.
  1428. They are in a very uncomfortable situation and they might not even survive. That problem, let alone whether or not they are a broadcast entity, whereas in the United States the rights societies have granted Web sites which is why I say that's the way it seems to be working in other parts of the world.
  1429. Web sites have been identified. Web site owners have put the content there. They are the ones that go and get the licence. So I see again, you know, this parallel problem, what is the site doing there. I think it's a good thing right now it has a ton of Canadian musical content on it. It's got Canadian concerts. It's got information about Canadian artists. It's a very valuable cultural site.
  1430. Do we want it there and how do we keep it there? Does that more than compensate for the need somehow for what some perceive to be a competition to something? I don't think it's a competition.
  1431. If occasionally you put a concert on, is that enough to trigger your regulation? So maybe preponderance is a reasonable test.
  1432. I'm sorry. That's a long-winded way to say it's the only one out there that can be identified. It's the only one everyone is targeting and complaining about.
  1433. I'm not sure it's a big issue from our overall big picture policy objectives it's actually achieving or could be if it was properly licensed, making money for Canadian artists. It's achieving all those objectives.
  1434. THE CHAIRPERSON OF THE COMMISSION: Those are all the kind of balancing act elements we will have to consider in our debate afterward and reflection.
  1435. Thank you very much. Those are all my questions.
  1436. THE CHAIRPERSON: Thank you.
  1437. Commissioner Grauer.
  1438. COMMISSIONER GRAUER: Thank you.
  1439. I just have one question with respect to the issue of the Boston Consulting Group's report and the lack of Canadian activity which meant they couldn't measure it.
  1440. I was just wondering if you heard the panel that was on before and if any of the issues they raised resonated with you in terms of a possible causal relation. I think they were raising the fact that this last mile access to high speed they felt was a factor in a lack of being able to get a lot of businesses on-line.
  1441. MS LANGFORD: It's certainly one of them. There are a number of sites that have been hosted in the United States, and again geography not being least but relevant, some Ottawa companies.
  1442. High tech companies have even chosen to host their sites in the States for the reason of cost and access. It's directly tied to the price of a Web site obviously. The whole overlying cost structure is impacted on what it is you charge to host a Web site.
  1443. Yes. Price is a driving motivator for people. In many cases it does not make any sense to host your site in Canada. That is a real challenge for us. It's a challenge at IBM to make sure that we stay competitively priced with our other organizations around the world.
  1444. COMMISSIONER GRAUER: Even in terms of the venue of the site, do you think this has had any impact? Canadian merchants with debit cards, we don't lag in general. This is one area in which we appear to be lagging. I am looking for reasons of just the development, not where they are located, but even getting on-line and getting active.
  1445. MS ALY: It's one that continues to puzzle those of us who are very much hawkish on the Internet phenomena and very concerned for the Canadian economy as it could be encompassed by other countries.
  1446. By the way, the United States is not the only country we worry about. In a survey done last year of 11,000 CEOs by IDC worldwide, it became apparent that the Asian Pacific countries are poised to leapfrog over Europe and then be going shoulder to shoulder with North America and possibly exceeding it because they do understand the value of electronic commerce.
  1447. Let me give you just one example of what can happen. This is a 1996 example.
  1448. I was in Jamaica. The last place that people expect you to be talking about Internet commerce is Jamaica where only 2 per cent of the population in 1996, and it hasn't really a whole bunch since then, is connected to the Internet.
  1449. It is more the reach into Jamaica than the reach of Jamaicans to each other. There is a strategy for countries like that. A woman came up to me at the end of the speech I made and said "Let me give you my story". By the way, I have Canadian equivalents to this.
  1450. Her son, who was a 19 year old, dropped out of school and was not able to get a job, didn't have any university qualifications. It made it difficult for him to get a job. He put up a Web page. This Web page was a one pager saying "I have Jamaican chili peppers to sell".
  1451. The first order he got was from a wealthy Tobasco manufacturer whose order exceeded the capacity of Jamaican chili peppers for Jamaica. Now, that's an interesting anecdote, but if you look at the implications, what it says is your competition is unknown to you.
  1452. Where would that Tobasco manufacturer have come to before? To a wealthy chili supplier in an air conditioned office in Kingston, certainly not to this kid who had access to his uncle's farm, which is exactly what happened here.
  1453. When you look at it from that perspective, we have the speech writer in Winnipeg who wrote speeches for the father of the bride. That's all he could do was write speeches. He couldn't get a job. He said I'm going to go up on the Web and let me see if I can find people who need a speech for the father of the bride.
  1454. Orders came from Australia, Hong Kong and England because everybody gets married and there are fathers of the bride.
  1455. There's a lodge down in Fundy Bay. They advertised and suddenly they are getting bookings from Australia and all kinds of places. The reach implications are immense. We need to recognize that.
  1456. I think there has to be more of an environment of encouragement. Certainly I feel, having been a part of many governmental committees, that there certainly is coming down from Manley and Chrétien the environment of encouragement, but it has to be backed up with certainty.
  1457. The Clinton administration has said the private sector will lead and there will be neutrality in terms of policy legislation. If you have got something on the net and you are wondering whether you need to legislate it, imagine if it was in the physical. Would you or would you not? It's not always a straight equivalent.
  1458. There has to be that factor there as well. Of course, there are other cost implications but we do see a large amount of hesitation. There will be a domino effect once a couple of retailers are hugely successful. Then everyone will scramble to get on. The first ones will have the advantage of being the early adopters.
  1459. COMMISSIONER GRAUER: Thank you.
  1460. THE CHAIRPERSON: Counsel.
  1461. MS PINSKY: Thank you, Mr. Chairman.
  1462. In your discussion with Commissioner Bertrand, you were stating that you would like the Commission to set out what it considers to be the trigger for the definition of broadcasting.
  1463. I guess I would like to ask that question of you. Would you be able to identify the types of activities on a Web site that you would consider would trigger the definition of broadcasting?
  1464. MS LANGFORD: You have heard our position from the point of view of technology. We don't think that a point to point transmission of packets at the moment is broadcasting, but as it evolves, you know, and really I am asking how many of the criteria that you set out that is set out in the Broadcast Act have to trigger.
  1465. I am saying if it becomes point to multipoint, is that the trigger? I don't have the answer to that nor right now that it's not that, except in very, very few circumstances. Even the way that multipoint or endbones transmissions happen right now, you still go to a server and you get a stream of packets individually coming to you.
  1466. On the point to point, it's not broadcasting at the moment by your definition or by the Act's definition. Mass appeal again is a question mark. I don't know how to define mass appeal. I guess it has a global reach. It might be mass appeal. It is certainly not one way, it's two way.
  1467. Is that a trigger point? Some Webcasters schedule something like a concert, but then they are usually archived so, you know, at what point does that become something different?
  1468. To be honest with you, I don't know. This could be easily challenged. I guess that's part of the problem. If one were to find a company liable, if you will, for CRTC regulation, they might take any of these points and contest the validity of it in the context of what's happening now. That's both yours and my challenge in trying to answer this question.
  1469. Right now it doesn't look at all like the definition. If from a policy perspective the government wants to change the definition, I think we would have something different to look at. Right now it isn't in any way following the same characteristics as a broadcast undertaking.
  1470. MS PINSKY: In your discussions, I believe you stated that if there is any type of undertaking you would be looking more sort of toward the Web site as opposed to the ISP.
  1471. Just given the different concepts of content versus distribution of content, do you see a distributor of content in this type of universe in the sense that you were referring to Web site within the context of who is a possible broadcast undertaking, assuming I guess you would have to first meet your triggering events of point to multipoint or whatever triggers you referred to.
  1472. I believe what you were saying is your position has sort of evolved somewhat in the sense that you would see the focal point being the Web site in terms of what would be a broadcasting undertaking as opposed to an ISP being the broadcasting undertaking.
  1473. My question is in terms of the concepts of programming, sort of the programmers versus the distributors, would you see the Web site as a distributor or is there some other entity out there that could be seen --
  1474. MS LANGFORD: I'm sorry, I didn't understand your question.
  1475. What I started off by saying is that actions and actors is actually a more appropriate way to look at this medium. I don't think that there is an equivalent to a programmer versus a distributor. What you have is somebody that has gone out and created content and made the arrangements in a business sense to put it on-line and then to basically space and power and light in the facility.
  1476. The facility has absolutely otherwise nothing to do with that program except providing the facility, if you will, for it to exist, so the distribution is still happening between the two end points from creator to user if you will and in between point that has been described this morning could be a wire between the two computers or it could be a series of rudders and wires.
  1477. It has very little to do with, if you will, the program or the distribution of the program. That's the problem in trying to make the square boxes fit into round pegs or vice versa. It's just not how we can think of it.
  1478. The best analogies that we came up with when the same challenges faced us at the Copyright Board. We were actually being paralleled to a broadcast scenario under the Copyright Act. I think we were being described, ISPs, as the broadcast distributors and that was the blanket licensing model that was being applied.
  1479. We had a lot of time to think about that. The intervening event was the liability study. They simply gave us the framework to say liability is triggered by those responsible, where the nexus of control is, if you will, over the enterprise that is using, creating and promoting the content.
  1480. MS PINSKY: I would just like to pick up on the suggestion you had made in your Phase II submissions where you suggested:

    "The Commission will also need to impose some sort of threshold test to ensure that the primary functions of the entity under consideration is a broadcasting undertaking."

  1481. Then you set out the Virtually Canadian example. I wonder if you could describe the circumstances or at least give us some further clarification in terms of that test and how it would be applied and whether you were talking about -- I think you referred in particular to a preponderance test with respect to one particular Web site and how that would work.
  1482. If you can just elaborate on what your suggestion is.
  1483. MS LANGFORD: Socan actually raised Virtually Canadian in their submission. I used it because it has come up in other fora as a problem site.
  1484. When you go and look at the site, it has many, many facets to it. As I say, they do have on-line concerts from time to time, but the majority of the music on the site is in archived form. There are music files that are stored and people can access on an individual relationship basis.
  1485. Then it has, as I said, backgrounds, photos, fan discussion groups, opportunity to e-mail to the fan club, concert listings, et cetera, so it has a huge vast array of more publishing kinds of activities that never come under the purview of broadcast relation.
  1486. This small amount that might look like in Socan's view makes the whole site a broadcast undertaking I think is perhaps stretch. The preponderance of the site is definitely not the live concerts which only occur from time to time. That's the really why I ask you to consider that as potential when looking at that site, in particular because of its cultural value.
  1487. MS PINSKY: One final question. A small point of clarification. At page 4 of your Phase I submission you state:

    "There is a distinct difference between the public and private spaces on the Internet."

  1488. I wonder if you could just clarify what you meant by that. Were you referring to Internet versus intranet or e-mail versus a Web site? I wasn't sure.
  1489. MS LANGFORD: Again, in my daily context a lot of illegal activity, for instance, that happens on the net that you hear about in the news media sometimes drives some of these activities and concerns of the public happening in e-mail and also out of criminal activity a lot of exchange of music files that are unauthorized,
  1490. A lot of pornography, et cetera, actually is happening in attachments to e-mail and that's private space that no one I think in any public policy context anywhere in the world would want us to go and examine the contents of people's e-mail.
  1491. Also, if it was Canada Post that was wanted to open every letter to make sure there wasn't a pornographic photo inside a letter and that kind thing. It's those private spaces on the Internet that actually result in law enforcement, making arrests because they actually get this stuff on people's computers.
  1492. The publicity is that they exchanged this material or they conducted an illegal criminal activity or operation using the Internet which was, of course, like saying they used the phone to do an illegal activity. It is the same sort of challenge.
  1493. It's a very private space e-mail, so that's what I was trying to get at. It's a driver it seems to the reader, the fear of the public wanting somebody to regulate, but it's definitely not where we want to go. We certainly wouldn't want anybody, rights collectives or otherwise, to come and say that's something you should mandate.
  1494. The public spaces are obviously places that everyone can go, like Web sites and chat rooms.
  1495. MS PINSKY: As opposed to publicly owned, publicly accessible.
  1496. MS LANGFORD: Yes.
  1497. MS PINSKY: Thank you.
  1498. Those are all my questions.
  1499. THE CHAIRPERSON: Thank you, counsel.
  1500. Ms Aly, Ms Langford, thank you very much for your contribution to our understanding of this issue.
  1501. MS LANGFORD: Thank you for having us.
  1502. MS ALY: Thank you.
  1503. THE CHAIRPERSON: Madam Secretary.
  1504. MS SANTERRE: Thank you, Mr. Chairman.
  1505. I would like now to invite Canadian Business Telecommunications Alliance to make their presentation.
  1506. THE CHAIRPERSON: The offline comment here was that it's nice to see more women involved in the digital world.
  1507. Ms Siegel, it's a pleasure to see you by yourself.


  1508. MS SIEGEL: Good afternoon. My name is Arlene Siegel and I am legal counsel for the Canadian Business Telecommunications Alliance.
  1509. The CBTA is Canada's only national, not for profit associations serving as the voice of business telecommunications customers. The CBTA represents approximately 409 business, government and health care organizations from across the country.
  1510. We feel we can offer a unique perspective on the future regulatory infrastructure for Canada's communications industry, that being one shaped from the viewpoint and experiences of Canadian business. We wish to merge the exploration of traditional policy issues with practical business realities.
  1511. In examining the appropriate legislative and regulatory treatment of new media services, the initial focus must be on the technological peculiarities of the new media itself.
  1512. In reviewing the submissions of other parties in this hearing, we see a lot of attention directed, as we just saw recently, towards classifying new media in either the broadcasting or telecommunications category.
  1513. With the risk of being ostracized, it is entirely unclear if that process is possible or in fact desirable. While there are some new media services and applications which currently could be viewed as pure telecommunications, the line becomes somewhat hazy as the technologies advance.
  1514. Broadcasting and telecommunications have been regulated according to two sets of policy objectives which often overlap. In broadcasting the emphasis has been on content, in telecommunications on carriage. The mechanisms which have been put in place to achieve their stated objectives are not necessarily appropriate in the new context.
  1515. In our view, the government must embark on an integrated examination of the technological, jurisdictional, policy and economic factors affecting new media in particular and the communications landscape more generally. In this regard, the review process must be driven by four fundamental questions.
  1516. One, what level of government has jurisdiction to legislate in the field of new media services and what are the boundaries of that jurisdiction?
  1517. Two, what factors must be considered in designing an appropriate model for government intervention, if any?
  1518. Three, how may intervention affect a number of vested interests, those of government, those of business and those of industry as well as those of ordinary Canadians with their unique needs based on linguistic, regional and sociocultural factors?
  1519. Four, how do we move forward in designing a continuing model for government intervention in communications that meets the needs of these diverse interests?
  1520. The CBTA's written submission addresses all these issues in detail. While I will touch on all four issues briefly today, the focus will be on creating a picture of how new media services are being put to work by Canadian businesses and the tremendous need for any future legislative agenda to be based, at least in part, on the functional realities of the new medium.
  1521. In our view, the very first issue that needs to be addressed in responding to the challenges of new media is that pertaining to jurisdiction. It is clear from the examples that you have been provided in the last several days that areas of jurisdiction are now overlapping.
  1522. There are international dimensions, regional and provincial dimensions and, of course, the national interest. If we are to avoid defining the boundaries of this jurisdiction through litigation and if in fact these boundaries are to be meaningful ones, then some degree of federal, international and provincial co-operation will be required.
  1523. The second issue I would like to touch on relates to the need for a critical assessment of the many environmental factors which must help shape any future regulatory agenda for communications. These factors relate to technological development, politics and culture, globalization and economics. I have referred to the technological issues relevant to new media earlier.
  1524. The political, economic and cultural dimensions of communications are as old as the industry itself. These major recurring controversies include the struggle between the federal and provincial levels of government for jurisdiction, public ownership versus profit oriented private ownership and the struggle for establishing a meaningful Canadian identity stamp in communications interactions with the United States and with other countries.
  1525. These controversies have become constant factors in setting the parameters of communications operations in Canada. Today they are enhanced by other such issues as economic indicators and globalization.
  1526. I turn now to the focus of my discussion. That is the use of new media by Canadian business.
  1527. In drafting our response to the Call for Comments in this public notice, the CBTA embarked on a consultative process with its membership. This process is continuing.
  1528. We divided our membership into 11 segments, including consulting, education, financial services, government, industrial manufacturing, medical, publishing, resource, retail and service, transportation and utilities.
  1529. We have met with approximately 30 organizations to date and inquired about their reliance on the use of new information technology in general and new media in particular and the factors the Commission and government may wish to consider as it embarks on its review process.
  1530. The feedback we received suggests that new technologies have rapidly become one of the most important tools for Canadian business. Dramatic infrastructure investments in communications are being made by many corporations.
  1531. New media services in particular are becoming essential for purposes of internal and external corporate communications and collaborative projects, access to information, continuing education, marketing, client relations, organizational infrastructure and, of course, sales.
  1532. Our research points to some important trends which I will outline below.
  1533. One, all organizations interviewed envisage increasing reliance on new media technologies, in particular, expanded use of private networks, use of electronic commerce and IP based solutions for telephony needs.
  1534. Two, IT budgets are becoming a larger and larger proportion of overall corporate budgets. All businesses indicated these items ranked as the second or third highest expenditure after salaries alone.
  1535. Because of the high cost of telecommunications and related services, most businesses are always searching for better and less expensive ways of moving voice and data. New media services hold out important promises in that regard.
  1536. In Canada, the largest users of telecom tend to be the financial and education sectors as well as government. For example, the Canadian Bankers' Association recently stated that its members accounted for some $529 million in telecommunications expenditures in 1997.
  1537. I should indicate that of the 30 organizations which I interviewed, there was a tremendous range in the IT budgets that were relevant. Some consultants or single proprietor businesses had a budget of only a few thousand dollars, while some companies I interviewed had budgets of upwards $150 million.
  1538. Three, many companies choose to buy Canadian manufactured products or seek services from Canadian based industries if other factors are equal. Other factors include product and service reliability as well as cost. However, in considering choice of product in the cast of electronic security, the only factor likely to have an impact is reliability.
  1539. Four, all companies interviewed expressed concern over active government intervention in the field of new media services. However, most companies expressed support for government intervention in areas pertaining to such matters as pornography, organized crime, security, privacy and, of course, copyright law.
  1540. Almost all interviewees, except the largest corporations, expressed concern over the added cost and administrative burden that active intervention could require. Many indicated that business requires certainty and the best thing that government can do is establish clear guidelines on such matters as taxation law and security and privacy.
  1541. These factors were seen as very important in fact in promoting the use of electronic commerce.
  1542. Five, many Canadian institutions whose traditional focus of operations has been on a local or domestic focus are now taking advantage of global opportunities as presented by the Internet.
  1543. Multimedia applications are being put to use by educational institutions who are designing courses and degrees for international audiences. Small businesses are also able to dramatically expand their customer base as a result of new technologies.
  1544. Thus the ability to compete globally is a very important consideration for Canadian business. It's vital that we ensure Canadians are able to take their products and services to the world market in a price competitive fashion and with the fewest impediments as possible.
  1545. I will now turn to our conclusions and recommendations.
  1546. The goal of our CBTA submission has been to provide and point out some of the complex issues facing Canadians and their government representatives in dealing with the challenges arising from new technological developments.
  1547. Canadian communications policy has historically focused on balancing a variety of priorities. Advances in technology and new developments association with digitalization and the Internet suggest that a reconsideration of our communications policy infrastructure and the policy goals upon which it is based may very well be in order.
  1548. It is essential that communications policy be viewed as an interactive force which is both defined by its environment and helps to provide meaning to this environment.
  1549. Of special importance are the practical business realities associated with use and development of all communications technologies. They must act as a strategic tool in helping to guide government intervention.
  1550. Recurring controversies have been part of Canada's communications regulatory infrastructure. These controversies have given rise to a bargaining process which has sometimes resulted in contradictions between policies and practices.
  1551. The realities of Canadian policy in communications have not always met expectations. If Canada's future communications policy is to be a meaningful one, the very practical considerations of the business sector must be considered.
  1552. In attempting to provide the Commission with some suggestions in responding to the challenges of new media services, the CBTA suggests the following.
  1553. One, an integrated review of the current legislative and regulatory infrastructure for communications. It is essential that legislation take into account new technological realities as well as the business concerns expressed in the last few days. This may include a creation of a new integrated legislative approach for dealing with new media services and traditional communications tools.
  1554. Defining some legislative priorities and guidelines will likely require participation of various levels of government. It is essential that any legislative infrastructure include minimal regulation.
  1555. The goal should be to design a positive infrastructure that promotes Canadian economic and social considerations. The notion of exporting Canadian culture must be viewed more broadly as taking on diverse forms, including business, education and training, news and, of course, entertainment based initiatives.
  1556. Two, development of a multifaceted strategy for responding to the needs of our communications infrastructure. This includes consideration of research and development goals, skills development, taxation incentives and implementation factors.
  1557. Three, the creation of a task force, perhaps under the leadership of the CRTC, which is able to coordinate and effect a proactive response to the needs of all Canadians, including industry, to the challenges posed by emerging technologies.
  1558. Canadian business, as was stated by IBM, requires certainty and a nationally coordinated task force where federal, provincial and industry representatives would be able to address the range of legislative and technical issues as they emerge and provide the ability to help coordinate a response. We view this as an ongoing process.
  1559. The technical expertise of the Commission in understanding new communications tools and their potential impact on jurisdiction and economic issues would help to ensure that Canada's communication infrastructure is one grounded in laudable policy public goals and practical realities.
  1560. THE CHAIRPERSON: Don't be too complimentary. It tends to set the fire alarm off around here.
  1561. I will turn the questioning over to Commissioner Pennefather.
  1562. COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
  1563. I should explain that there has been an intervenor who on two separate occasions has had his opening remarks, the same intervenor at almost the same point, interrupted by a fire alarm. That was the reason.
  1564. Thank you very much for being here this afternoon. Thank you for your written comments which are highlighted today in the structure that you presented to us.
  1565. You set a very large agenda. I think at the very beginning of your written presentation you struck a context which says:

    "Canadian and international governments must design a regulatory framework for the modern communications infrastructure."

    which is a large scope.

  1566. If you don't mind, I would like to start with what you said as well as the focus of your presentation today and which is the third of your part of your presentation, both oral and submissions. That is what you termed many times as the practical realities business.
  1567. If you wouldn't mind, I would like you to focus on new media services and the businesses that your organization represents. To be clear, we are talking about a variety of businesses. We are talking about the education sector in this country, the medical sector, government itself, who all use information technologies of one kind or another, amongst which are new media services. Am I right?
  1568. MS SIEGEL: That's exactly correct.
  1569. COMMISSIONER PENNEFATHER: If we could, I would like to focus on those new media services and ask you -- you may want to pick a couple of those sectors, some of which we haven't talked about such as the medical sector --
  1570. MS SIEGEL: Yes.
  1571. COMMISSIONER PENNEFATHER: -- in terms of what new media services you are actually using and flip that right around to what the businesses you represent are looking for from new media services.
  1572. MS SIEGEL: You raise an interesting question because often the businesses themselves who rely so heavily on technologies, new media services only being one component, aren't themselves able to come here and show you the very dynamic uses of these technologies.
  1573. Let me begin by your example and that's the medical profession. North York General Hospital has a completely integrated communications network. It allows its doctors in the radiology departments to take their X-Rays home with them.
  1574. If, for example, a patient at the North York Hospital has some sort of heart problem and the radiologist who specializes in his file is not present, is at home, the hospital can call the doctor. The doctor flips over his computer and within a matter of seconds he can call up the patient's old history as well as any new scans which may arise.
  1575. This doctor then has the ability to transmit the file for more specialized consultation. Perhaps it's some rare new type of infection which is creating havoc in the cell. They can actually use CAT scans to see exactly what's going on and the degree of spread.
  1576. He can transmit that picture to a specialist in Tel Aviv, Israel, who is also networked together with the North York Hospital. They can have some kind of international collaboration on this patient and, in fact, an international response.
  1577. COMMISSIONER PENNEFATHER: I wanted to get, as you go through that, to another point too because we could probably bring up many examples.
  1578. New media services information technology may be also changing the way -- this is a question -- the way businesses are actually done.
  1579. MS SIEGEL: Yes.
  1580. COMMISSIONER PENNEFATHER: I think previously somebody said if you don't have a Web site, you go out of business. That's going pretty far.
  1581. I think that was said in terms of promotion of the business, but is it actually changing the business itself? I will go back to the medical profession.
  1582. Are information technologies changing the way that clients, families and patients, their expectation in terms of the medical profession, the medical business in this country?
  1583. MS SIEGEL: I think it's changing the expectations of just about everyone, be it a doctor, a lawyer, an accountant. Anyone can be reached and be expected to respond at any time of day any day of the week.
  1584. It's certainly changing, and we have heard all about this, the work environment itself. More people are having flexible work environments -- some people view that as a good thing and others as a bad thing -- where they can take their jobs with them home or in fact have a home based business. They don't need heavy capital expenditures in building or rental costs.
  1585. That in itself creates other factors. Perhaps this may have negative implications for the real estate sector. What are you going to do with a host of empty buildings if everyone is working from their basement?
  1586. It's changing work patterns. It's also changing the priorities and orders of an organization. Whereas in the past an organization may have had to have huge departments dedicated to research, fewer employees doing research may be required because it's so much faster to conduct research conducting new technologies, especially on the Internet.
  1587. For example, for my brief, every single article I used, every case I used, except for textbooks, I called up over the Internet. I did all the research using the Internet. So it saves time in that respect. However, companies are similarly having to hire more employees who focus their efforts on technology development, software implementation, et cetera.
  1588. It's changing the type of companies that a business can interact with. For example, if law firm "X" needed research done by a team of lawyers, it can now maybe rely on a single lawyer who is working outside of their home or a lawyer and an accountant. It changes relationships in the way we look at the people who provide us services.
  1589. COMMISSIONER PENNEFATHER: Did this come through in the survey you did with the various --
  1590. MS SIEGEL: Absolutely.
  1591. COMMISSIONER PENNEFATHER: Because it is an aspect of this.
  1592. MS SIEGEL: Exactly. One of the interesting questions we asked or actually one of the interesting responses we received was "Well, are we seeing yet a decrease in cost associated with the use of new media services?" The response was "Absolutely not".
  1593. Everyone has been working under the assumption, and I say so myself, that they expect use of new media services is going to help make us more competitive because it is going to lower our costs and we will be able to take a chunk out of our budgets. Well, so far that's not true.
  1594. So far what we see is that companies are spending more and more money on IT related services. They are only beginning to see well, is there an offset perhaps in staff savings. Not yet. There has been no offset yet.
  1595. Nevertheless, they are able to use these dollars which are being poured into IT to reach an even bigger audience so that while their expenditures aren't changing, perhaps their sales are and that's what they're finding.
  1596. COMMISSIONER PENNEFATHER: That's why I was looking at page 40 of your submission, the second paragraph which moves that customer base to a broader one.
  1597. I think you mentioned that as another practical reality which you want to underline in terms of the effects of new media on business in this country.
  1598. You refer to:

    "-- the growing awareness on the part of Canadian business and government alike of the significance of new media in the global marketplace. Businesses realize that to stay in the forefront of the global economy, they must adapt and keep pace with rapid technological advances that are --"

  1599. And here's the point:

    "-- transforming the ways in which consumers interact with suppliers."

  1600. What do you mean by that last sentence specifically?
  1601. MS SIEGEL: First of all, when we look at consumers, we have different types of consumers. We have consumers who are purchasing an end product, so as a reader, I may purchase a book from a store.
  1602. In the past I may have gone to a bookstore in Toronto and ordered my book. Now I can hook up to Harvard University Bookstore, which I have, and see if they have the book I am looking for, which is very specialized, and order it from the bookstore.
  1603. If it's not available from the bookstore, get it from the library there. They can do an inter-library loan with the University of Toronto and I, of course, receive my book.
  1604. You saw IBM earlier alluded to many examples. There are different types of consumers.
  1605. Another type of consumer would be a consumer who is just a middle person in the manufacturing process. In fact, they are both consuming a product they may need. They may make enhanced modification to a raw material and they themselves then pass it on to someone else.
  1606. I think that those are just some examples.
  1607. Of course, in the banking community, they provide some of the most interesting examples. Many of the banks in this country are now looking at financial centres which are based purely over the Internet and which will incorporate audio and text technologies to offer integrated services to a vast array of clients, many of whom are based in other countries.
  1608. I think the financial sector in particular has some especially interesting possibilities.
  1609. COMMISSIONER PENNEFATHER: Could you then come back to underline for us what the businesses that you have been talking to about the specific point are coming back to what kind of new media. We are talking about new media.
  1610. MS SIEGEL: Yes.
  1611. COMMISSIONER PENNEFATHER: We tend to talk about Web sites.
  1612. MS SIEGEL: That's correct.
  1613. COMMISSIONER PENNEFATHER: There may be more to it than that, but what are they saying is required and why have you come through then to the end to say that -- I think you were talking to an environment in which there is minimal regulation about new media services.
  1614. What difference will that make or not make to business?
  1615. MS SIEGEL: When you look at the variety of our stakeholders, the financial sector, the health care sector, consultants, they have different needs. Some of those needs are simpler than others.
  1616. Some rely on new media services like videoconferencing. Others are becoming very designing. Infrastructures which will allow for IP based telephony. Sales, of course, and advertising are other new media applications that can be used. Of course, the electronic commerce aspects are very important to our members.
  1617. The concerns that they have, of course, are related to what would get in the way of these businesses (a) being able to use new media in whatever way they want, be it an internal use for consultation or an external use for sales or for the content over their Web page.
  1618. They want to make sure that they are not encumbered by cost or administrative burdens which will (a) make their products more costly to produce, which will slow down the pace at which they can come up. This is especially important in the education sector. They are working on all sorts of interesting projects and time is of the essence.
  1619. If they are laden with any applications process, well can we do this, are there restrictions on this, must we analyze this to make sure we are conforming to some sort of regulatory standard, they fear that there will be a tremendous slowdown in innovation and thus the competition will outpace them and they will thus lose out.
  1620. COMMISSIONER PENNEFATHER: The competition in their own business.
  1621. MS SIEGEL: The competition not only in their own business but in the marketplace as a whole. Now competitors are no longer university to university in Canada but university to international academic institution.
  1622. When you look at getting your courses organized, well, do we have to begin looking at, and this probably would never be the case if there were certain exemptions I understand, but would they have to look at "Well, are we conforming to any peculiar content requirements. Is there anything special that we need to do?"
  1623. They fear that there will be an added cost and administrative burden which will slow them down and which really will prevent them in competing effectively.
  1624. COMMISSIONER PENNEFATHER: Competing effectively as Canadian companies. I know you raised the point about what is Canadian in your written submission, but I wanted to ask you from the point of view then of switching over to the new media sector in Canada, how for example would the businesses in your association react to an effort to promote Canadian ISPs, Canadian Web sites? Would there be any objection to that kind of approach?
  1625. MS SIEGEL: Well, it would depend on how you view promoting Web sites. Virtually every respondent -- when we asked them a very general question, we said "If you had recommendations for the Commission, what they be? Do you have any new special ideas that people haven't thought of already? Tell me about them".
  1626. These companies suggested that they felt the focus should be on promotion. Now, how do we classify promotion? Some of our companies will classify promotion as a tax relief or tax based incentives. Others, "We have a variety of interest at stake", would disagree with that terribly.
  1627. So there are different ways of promoting Canadian content, Canadian facilities. Companies feel that one of the best ways to do it is through education, through making sure that early elementary students and high school students and university students are encouraged to pursue a path which fills them with knowledge, of course about their country, but also about technology and the world that they live in.
  1628. That provides them with the tools to take their new developments and their innovations out to the marketplace.
  1629. COMMISSIONER PENNEFATHER: Thank you for bringing that feedback to us because we were talking to someone who is bringing users of new media services' points of view, but it's also a point of view, if I'm right, that sounds like the new media service, the information technology, is fundamentally changing the way one does things, almost blurring the distinction between the business and the new media element itself.
  1630. This brings me to another point. In your paper you give us quite a history of the jurisdictional issues which is most interesting.
  1631. In going through that, I think the question I would most like to ask is what emerges as unique in this situation? What makes the cyberspace different? Why should we approach it so differently than we have done historically in the past, a past you describe at one point as full of all kinds of battles and disputes and so on and so forth?
  1632. That being said, we have achieved quite a bit, we are quite successful in the new media side of things. It has become the word that defines our use of cyberspace to some extent.
  1633. MS SIEGEL: Yes.
  1634. COMMISSIONER PENNEFATHER: Why is this so different?
  1635. MS SIEGEL: I have alluded to the internationalization of new media. In the past when we looked at the history of newspapers, when we looked at the history of television and of radio, we were able to surround our concepts of what was local or what was national in a very defined way. We had ways of designing laws which had in fact boundaries.
  1636. When we look at the Internet, the Internet is everywhere. As the American Supreme Court has suggested, perhaps there is no one who is really able to exert jurisdiction over the Internet because exerting jurisdiction the way you define it is in essence can you enforce it.
  1637. The question you have to begin by asking is can you in fact enforce the laws over the Internet and how do you begin doing that? For this very reason, you require an international effort to do so.
  1638. If there are technologies that are to be designed which in fact can monitor crime or pornography or a host of other factors that we are concerned about over the Internet, then certainly it will have to be done on an international basis.
  1639. If a province, for example, were to try and say "Well, here I am and I am going to set out a law which prohibits certain statements over the Internet", well, it would be impossible to enforce. That's what we are seeing.
  1640. There are some very unique examples in the United States. Many states have tried, of course, they have a unique jurisdictional division of powers, have tried to set out laws in their territory over the Internet.
  1641. The State of Minnesota, I believe, is one such state. When you reach a Web page based in Minnesota it comes with a certain warning: "The Governor is here watching. Listen, you better not do this. Right?"
  1642. The question is well, you know, how is the Governor of Minnesota really going to exert jurisdiction? Certainly companies in Minnesota may very well voluntarily agree to certain rules and regulations, but the fact of the matter is if company "X" based in Minnesota doesn't like what it sees, it's going to move to North Dakota and that's the problem we see with the Internet.
  1643. As a result, you need really international cooperation and really it is the agreement of the companies who are involved that will require. There will always be a security dimension. There will be a need for a watchdog and perhaps as technologies develop, that will be possible. At this stage I'm not sure if it is. I don't think so.
  1644. COMMISSIONER PENNEFATHER: With all of that though, Commissioner Bertrand also raised the point that we heard earlier with our discussion with IBM, that in a recent study there didn't seem to be much Canadian content turning up for study in terms of Web sites.
  1645. Even with this international challenge or opportunity, where is the basis in this cyberspace for us to support Canadian business using Canadian new media as a positive?
  1646. MS SIEGEL: Well, the Ottawa area provides use for examples. You have such a concentration of technology companies in the Ottawa-Carleton corridor.
  1647. There are all sorts of funding grants that are available to companies who are doing innovative projects in this area. They are being taken advantage of, but there are not even enough companies out there to use up the millions of dollars that do exist in funding.
  1648. I think a lot of it relates to how Canadians, and this is a bigger issue and is certainly beyond the CRTC, but how Canadians do business and how aggressive entrepreneurial skills are developed in Canada and we are trained with as we go through the schooling process.
  1649. I think there are steps all along the way that have to be taken. Of course they involve more than just the CRTC. The education ministries in the provinces and human resources and development.
  1650. What do we do to make Canada a country full of entrepreneurs who can't wait to use up the dollars available to them and make sure that we are getting all sorts of interesting messages out there with the great array of messages that we have?
  1651. We have such a tremendous skills base in this country that there is no reason why Canada should not be the absolute leader in the field of new media services and getting those products to market.
  1652. Company after company, and these are huge companies, all say yes, Canada is one of the leaders but it is not the leader.
  1653. COMMISSIONER PENNEFATHER: These are companies you interviewed?
  1654. MS SIEGEL: That's correct.
  1655. These are people, many of them who have years and years of experience who are running multimillion dollar companies and who have some sort of perspective on what is it that we are missing. What are the ingredients that we are missing?
  1656. They all say well Canada in terms of the leadership potential in the field of new media services, as we have often been in telecommunications and broadcasting generally, is excellent. We do fantastic things. We helped to get the ball rolling.
  1657. We need to do more than that to convert ourselves from an active participant and one of the great testing grounds for technology, to be the country that is able to take most advantage and benefit most directly from new technologies, there's missing ingredients.
  1658. That's the collaboration that I speak of.
  1659. COMMISSIONER PENNEFATHER: Keeping clear again that I am interested in how new media services support businesses that you talked about, I just want to make sure I understand the comment that you suggest in your written submission that:

    "Minimal regulation will encourage foreign firms to operate in Canada."

  1660. What are you talking about there?
  1661. MS SIEGEL: I think that when we look at where businesses set up, we see some countries who take a more active regulatory approach and some who have a more liberal approach.
  1662. As I discussed earlier, with new media the technology really provides you with the ability to set up shop anywhere. I think IBM provided some very useful examples, lovely warm weather destinations.
  1663. Unless Canada designs an approach which really meets the needs of business, simply put, businesses will go elsewhere. If you have minimal regulation, businesses will come here.
  1664. COMMISSIONER PENNEFATHER: You present that as a value added as far as business in this country is concerned.
  1665. MS SIEGEL: Certainly if you want to encourage business development in Canada, encourage a larger tax base with which to run your company and to serve the population, then these are priorities that you might want to think about.
  1666. COMMISSIONER PENNEFATHER: I have to ask you too about another comment that I found quite interesting.
  1667. On page 24:

    "Differences between newspapers, broadcast television, cable television, computers, motion pictures and telephone companies are eroding."

  1668. MS SIEGEL: Yes.
  1669. COMMISSIONER PENNEFATHER: What precisely do you mean? Why is this happening and what are the implications for now, the current environment in which we are?
  1670. MS SIEGEL: People have spent a lot of time on trying to define the parameters of broadcasting versus telecommunications.
  1671. When I asked a senior member of the financial services sector about this, he said to me "You know, the truth is I have such advanced technology at home that I can do everything from my laptop".
  1672. It means that if you are interested in seeing clips from the recent football game that you can hook up to a Web page. We are not there yet, but we are getting there. If you want to listen to the Toronto Symphony, you can access providers who can provide you with the potential to download their most recent recording.
  1673. If you will allow me, I will just go into detail on the music industry in particular because there was recently a conference of the Audio Engineering Society based in New York. They are doing some very interesting work, trying to redefine the second generation Internet, Internet II, around protocols which will accommodate networking, audio and music over these channels.
  1674. Right now the technology really isn't good enough. The fine tuning that is required to appreciate music isn't on the Internet as it exists, but it likely will be in the future.
  1675. When you look at the great challenges posed and the great opportunities on the clips of movies and "Star Wars" advances that you see on the Internet that so many people rush then to the movies to go see "Star Wars", when you can download your work, when you can do virtually anything and you are getting to the stage you can do almost anything you could do by turning on your television screen, by picking up your telephone cord, through your laptop, then we see a great distinction blurring and it points to the great need to make sure that the policy objectives which are our guiding principles for all these technologies are coming together as they apply in one box.
  1676. COMMISSIONER PENNEFATHER: So are you saying a motion picture is a technology?
  1677. MS SIEGEL: Am I saying --
  1678. COMMISSIONER PENNEFATHER: A motion picture is a technology.
  1679. MS SIEGEL: Not necessarily a motion picture. The development of motion pictures certainly is technology.
  1680. There's a really interesting company based in Toronto which is heavily involved in the motion picture industry in California. Basically what they do, they do film work for productions that are being filmed in Toronto, as so many films are being done right now in Toronto, Ottawa and Vancouver.
  1681. They immediately send the playback as it is being recorded to the director who is sitting in his chair in Hollywood. The director then says "I don't like this tape. You have to redo this. Let's switch this around". It's all done according to the director's specifications. So, yes.
  1682. COMMISSIONER PENNEFATHER: I notice you referenced Hollywood.
  1683. MS SIEGEL: Yes.
  1684. COMMISSIONER PENNEFATHER: I'm coming to the point there are a number of ways we can take this discussion. You have laid out very carefully, I think, the context in which you made this statement. I know that it is coming from a number of different sectors of business.
  1685. MS SIEGEL: Yes.
  1686. COMMISSIONER PENNEFATHER: It's difficult to get a clear picture. Certainly from what you have said, we understand the impact of new media on these businesses is very, very important, challenging, and a great opportunity, but it also has some profound implications.
  1687. This comment too is one which could take us into a discussion of if you receive your cultural good in one way or another, you are still dealing with receiving that cultural good and it could in certain circumstances still be broadcasting.
  1688. It's really coming at me from another point of view when the balance of the sentence seemed to bring all of what you call technologies, I would call them cultural goods, into one universal medium.
  1689. MS SIEGEL: Yes.
  1690. COMMISSIONER PENNEFATHER: I am assuming that you are not referring to the Internet as that universal mass medium, are you?
  1691. MS SIEGEL: Not necessarily, I'm not.
  1692. COMMISSIONER PENNEFATHER: Okay. So that delivery system still offers the opportunity as you see it for access to different cultural goods.
  1693. MS SIEGEL: Yes.
  1694. COMMISSIONER PENNEFATHER: Is it changing those cultural goods into one -- eroding into one sort of good? That I assumed was what you meant by this sentence. I was wrong.
  1695. MS SIEGEL: You raise an interesting point. When you talk about one sort of cultural good, I mean these are discussions which are occurring right now at a high academic level.
  1696. Are we seeing the creation of a global culture? Many would agree that in fact we are. Unfortunately, right now because the Americans have such a presence in the world of new technology and new media services and over the Internet, that universal culture is taking on a very American flavour. It's based in English. We see this predominance.
  1697. This is not an irreversible trend in any way. I think that's what's so unique about the Internet. I think there are countries which are displaying a very strong presence and in fact other provinces which have a very strong presence on the Internet.
  1698. Some of the very best sites I access, although in English, were coming out of Quebec. Even though they were based at institutions which are predominantly French institutions, they always provided you with the ability to access the information in either English or French. I chose English. That's what we are seeing.
  1699. Are we seeing the creation of a universal culture? I think to some extent we may be. Right now that universal culture predominantly speaks English, has some American flavourings. However, as more countries participate, it takes on different flavours. I don't know what the end result will be.
  1700. COMMISSIONER PENNEFATHER: Let me then go to your recommendations. They are quite clearly lined up, a review of various policies, a multilevel strategy and a task force.
  1701. Do you want to just elaborate on why you are suggesting this approach?
  1702. MS SIEGEL: Yes. I think one of the most difficult aspects in terms of getting a handle on the Internet, and this is something that the Commission may or may not be seeing, are the complexities of the technology itself.
  1703. You need people who have both the technical expertise and can stay ahead of the criminals who want to take advantage of our lack of technological sophistication. There's a need to always be a step ahead.
  1704. There's the need for some sort of international and interprovincial coordination. I think this became very evident at the level of recent discussions pertaining to the World Trade Organization when the government itself was involved in this trade negotiation process.
  1705. We began the process. It had a very interesting consultative process with industry. I raised the question "Well, don't you think this department should be here? Shouldn't this department be here? There are all sorts of implications for a whole variety of departments and stakeholders which aren't at this meeting today. How can you possibly design a negotiating strategy which doesn't really involve all these other stakeholders?"
  1706. I think the same is true in the case of new media. I think you have so many stakeholders. I think right now there is no chart. This is what you need. You need a chart of well, there are all these laws in all these different jurisdictions.
  1707. Somehow we have to make sure that they are all being adjusted to meet the realities posted by new technologies. This is a process that is beginning in Canada. We see it with the new privacy legislation that was just tabled.
  1708. There is no coordinated body that is sitting down and saying "This needs to be dealt with and that needs to be dealt with". In some part at the national level that's occurring, but not at the provincial level and certainly not at the international level.
  1709. We see a need for some sort of coordinated task force to really be able to point out what needs to be done, these are the technologies that are in place that you can monitor and use to enforce this.
  1710. One of the reasons we saw perhaps the CRTC as a useful repository for such a task force because it obviously does have (a) the history and (b) the technological expertise.
  1711. COMMISSIONER PENNEFATHER: Thank you very much. I appreciate you bringing the views of your members to our deliberations.
  1712. We are in fact now in a course of exploration of what you say are complex issues. Your contribution is much appreciated.
  1713. My only concern is time is moving on, I don't mean of the day, but of the whole process dealing with new media. As we were told earlier -- somebody referred to the time as dog's lives. That meant a lot to me as to how quickly this is all going.
  1714. MS SIEGEL: Yes.
  1715. COMMISSIONER PENNEFATHER: That may be one of the major differences we will have to consider as we try to bring all the balancing of priorities together, as you so well said earlier.
  1716. Thank you.
  1717. MS SIEGEL: Thank you for your time.
  1718. THE CHAIRPERSON: Thank you, Ms Siegel. We appreciate your coming here today.
  1719. MS SIEGEL: You're welcome.
  1720. THE CHAIRPERSON: That will conclude our work for today. We will resume tomorrow at nine o'clock.

--- Whereupon the hearing adjourned at 1851, to resume

on Thursday, November 26, 1998 at 0900 / L'audience

est adjournée à 1851, pour reprendre le jeudi,

26 novembre 1998 à 0900

Date modified: