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                       SUBJECT / SUJET:

                     EXAMINING NEW MEDIA /

HELD AT:                                TENUE À:

Conference Centre                       Centre des conférences
Outaouais Room                          Salle Outaouais
Place du Portage                        Place du Portage
Phase IV                                Phase IV
Hull, Quebec                            Hull (Québec)

February 9, 1999                        9 février 1999

                          Volume 13
tel: 613-521-0703         StenoTran         fax: 613-521-7668


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.

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

                 Canadian Radio-television and
                 Telecommunications Commission

              Conseil de la radiodiffusion et des
                télécommunications canadiennes

                  Transcript / Transcription

                 Final Phase of Public Hearing
                     Examining New Media /
              Étape finale de l'audience publique
            portant sur l'examen des nouveaux médias


David Colville                          Chairperson / Président
                                        Telecommunications /
Françoise Bertrand                      Chairperson of the
                                        Commission / Présidente du
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
Carole Bénard /                         Secretaries/Secrétaires
Diane Santerre

HELD AT:                                TENUE À:

Conference Centre                       Centre des conférences
Outaouais Room                          Salle Outaouais
Place du Portage                        Place du Portage
Phase IV                                Phase IV
Hull, Quebec                            Hull (Québec)

February 9, 1999                        9 février 1999

                          Volume 13
tel: 613-521-0703         StenoTran         fax: 613-521-7668



Presentation by / Présentation par:

TELUS Communications                                      3110

Canadian Association of Broadcasters /                    3142
L'Association canadienne des radiodiffuseurs

Bell Canada, Island Telecom Inc., MTS                     3159
Communications Inc., Maritime Tel & Tel 
Limited, MediaLinx Interactive Inc., NBTel, 
New Tel Communications Inc., Northwestel Inc., 
Québec-Téléphone, SaskTel

Call-Net Enterprises Inc.                                 3177

Canadian Cable Television Association /                   3193
L'Association canadienne de télévision par câble

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


 1                               Hull, Quebec / Hull (Québec)
 2     --- Upon resuming on Tuesday, February 9, 1999,
 3         at 0900 / L'audience reprend le mardi
 4         9 février 1999 à 0900
 5  13687                THE CHAIRPERSON:  Good morning,
 6     ladies and gentlemen.
 7  13688                We will return to our proceeding now,
 8     the final comments on the issues related to new media.
 9  13689                Madam Secretary, would you call the
10     next presenter, please.
11  13690                MS BÉNARD:  Thank you, Mr. Chairman.
12  13691                The next presentation will be by
13     TELUS Communications.
15  13692                MR. GRIEVE:  Thank you, Mr. Chairman.
16  13693                Good morning, Mr. Chairman and
17     Members of the Commission Panel.  My name is
18     Willie Grieve.  I am Vice-President, Regulatory Affairs
19     at BCT.TELUS Communications.  With me today is
20     Mr. Mark Kolesar, Director, Regulatory Services at
21     TELUS Communications.
22  13694                We are pleased to be here today to
23     present this final argument on behalf of TELUS
24     Communications Inc.
25  13695                It is not my intention to take you


 1     through a precis of our written final argument. 
 2     Instead, I would like to take this opportunity to touch
 3     on the telecommunications issues and what seems to have
 4     emerged as the broadcasting issues.
 5  13696                To reverse the order, first, the
 6     telecommunications issues.
 7  13697                As you know, we have asked the
 8     Commission to initiate a proceeding to rationalize all
 9     interconnection and unbundling arrangements and to
10     include ISP interconnection in that proceeding.  This
11     has not exactly been a burning issue in this
12     proceeding.
13  13698                I think everyone would agree that the
14     telecommunications issues took a back seat to the
15     broadcasting issues.  Perhaps that is because all
16     parties turned their attention to the obvious impacts
17     that new media will have on the broadcasting sector. 
18     But we believe the carriage issues are just as
19     important.  They are important because the approach the
20     Commission takes to competition in the
21     telecommunications industry, including broadcast
22     carriers, will have a tremendous impact on the speed
23     with which new higher bandwidth local networks are
24     built and the prices consumers and businesses will be
25     asked to pay for those carriage services.


 1  13699                We believe that as relative prices
 2     come down and bandwidth increases, consumers will have
 3     greater access to ever more desirable new media
 4     services.
 5  13700                In the local competition proceeding,
 6     the Commission firmly adopted a facilities-based
 7     competition model.  In doing so, you recognized that
 8     the full benefits of competition can only be realized
 9     through competition in facilities as well as the
10     services offered through those facilities.  Many
11     parties to that proceeding argued that the Commission
12     should order the unbundling of any telephone company
13     network elements that competitors wanted.
14  13701                The Commission rejected those
15     arguments.  It rejected them because it recognized that
16     accepting them would likely shut down competition in
17     the facilities market.  So, competitive local exchange
18     carriers are on notice that the Commission expects
19     facilities to be built and the Commission's policies
20     maximize the economic incentives for them to do so and
21     to compete in the facilities market -- and, of course,
22     it is already having the effect you intended.
23  13702                In that proceeding, Stentor presented
24     the CCTA witness panel with an exhibit showing fourteen
25     separate interconnection arrangements in a flow chart


 1     type of configuration.  I have one here.  Trust me, I
 2     am not going to take you through all of these.  It is
 3     at the back of your package there.
 4  13703                Some of the interconnection
 5     arrangements had already been dealt with in other
 6     proceedings.  The purpose of the exhibit was to take an
 7     inventory of the various interconnection arrangements
 8     that would have to be dealt with in the Commission's
 9     decisions in that proceedings and the Commission did
10     so.  But looking back at it now, two things are
11     striking.
12  13704                First, even though the Commission has
13     dealt with all of those arrangements, the rules for
14     many of them were established at different times.  They
15     are now out of date because the assumption of natural
16     monopoly in the local network on which they were based
17     has been put to rest by the Commission.  If the full
18     benefits of facilities-based competition are to be
19     realized, they should all now be rationalized.
20  13705                But the most striking thing about
21     looking at the exhibit is what is not there.  ISPs are
22     not there and broadcast carriers are not there because
23     they were not an issue in that proceeding.  But ISPs
24     were not there because when we started the proceeding,
25     and even by the time we finished it, the Internet was


 1     not a factor.  Well it is now.
 2  13706                As we said in our opening statement
 3     at the hearing, ISPs are coming up the middle, poised
 4     to compete with both the broadcasters and the telephone
 5     companies but claiming to be neither.  But while they
 6     claim to be neither, they make exactly the same
 7     arguments for unbundling of anything they want from the
 8     telephone and cable company networks as those made by
 9     new entrants in the local exchange market.
10  13707                In their opening round comments they
11     went even further.  They not only demanded "unfettered
12     access" to anything they wanted but they went so far as
13     to demand that the cable and telephone companies be
14     responsible for the provision of "appropriate and
15     timely" upgrades of those networks for their benefit. 
16     Quite simply, why should they even consider investing
17     themselves if they can get a regulator to order someone
18     else to do it for them?
19  13708                One can only imagine the ISPs arguing
20     for more timely network upgrades to be performed by the
21     telcos and cablecos and sitting in a proceeding urging
22     the Commission to order that one technology be adopted
23     over another or, like the old construction program
24     reviews, questioning whether the investments were
25     prudently made.


 1  13709                So here we are.  The Commission and
 2     the federal government have a policy that favours
 3     facilities-based competition.  The Commission has put
 4     in place the rules necessary to deliver on that policy
 5     and yet the ISPs continue to make the same demands that
 6     the Commission rejected in the local competition
 7     decision.
 8  13710                We believe the Commission should
 9     reject those arguments again.  But we also recognize
10     that there may be a need for the Commission to consider
11     the same types of time-certain transition arrangements
12     for ISPs and other market participants that it put in
13     place for competitive local exchange carriers. 
14     Notably, Mr. Stursberg, on behalf of the CCTA agreed
15     with this approach during the hearing in this
16     proceeding.
17  13711                In our written final argument, we
18     have addressed the types of issues we believe the
19     Commission should address in that proceeding as well as
20     who should be made a party.  It will not come as a
21     surprise to you that we prefer a full telecom-style
22     proceeding including interrogatories and cross-
23     examination.
24  13712                To us, this proceeding would be the
25     quintessential convergence proceeding.  It would be a


 1     proceeding in which the Commission would establish
 2     clear and consistent rules and principles that reach
 3     across all types of mandated interconnection and
 4     unbundling arrangements, and it would replace the
 5     myriad of orders and decisions of the past.  It would
 6     establish the foundation for a fully competitive
 7     communications market.
 8  13713                This would not be the first time the
 9     Commission recognized a need for regulatory reform and
10     acted to reconsider its past regulatory practices.  For
11     example, it did so after the introduction of long
12     distance competition when it initiated a proceeding to
13     consider the regulatory framework for the telephone
14     companies.  Now that the entire telecommunications
15     market has been opened to competition, we submit it is
16     time to take the initiative again by commencing a
17     proceeding to rationalize all interconnection and
18     unbundling arrangements.  Use this as an opportunity to
19     put in place the incentives for facilities-based
20     competition, not only in traditional telecommunications
21     facilities and networks but in new broadband facilities
22     and networks as well.
23  13714                Now to the broadcasting issues.  As
24     you know, we have recommended a proceeding here too
25     and, in our written final argument, we have described


 1     the types of questions the Commission should ask the
 2     parties.
 3  13715                We believe that new media will
 4     transform the Canadian broadcasting sector.  Everything
 5     we have heard in this proceeding supports our
 6     conclusion that, at the very least, it will certainly
 7     have an impact on the broadcasting sector.  Consumers
 8     will be increasingly drawn to new media because of the
 9     new interactive opportunities it affords them.  We are
10     already seeing evidence that consumers are substituting
11     their television time for time on the Internet, and
12     Dr. Carey, whose professional career is devoted to
13     studying these types of trends, explained that
14     consumers want new media services and they have been
15     conditioned for some time to use them and are willing
16     to pay.
17  13716                You will recall the pricing analysis
18     based on today's rates -- $20 for basic phone service,
19     $20 for basic Internet, $30 for basic cable.  Add in
20     some features, long distance and a couple of tiers and
21     we are already up to $100 or more.
22  13717                We agree with most of the parties to
23     this proceeding that widespread availability of
24     broadband to the home through new media technologies
25     sufficient to deliver broadcast quality video is not


 1     here now and won't likely be here for at least five
 2     years and maybe ten.  The outside estimate is 15 years.
 3  13718                Of course we find it difficult to
 4     understand that anyone would argue that it will never
 5     be here, especially when consumers will demand it and
 6     pay for it.  And, of course, from our perspective, when
 7     the telecom hearing we are asking you to initiate
 8     establishes the foundation for full facilities-based
 9     competition across the entire communications network,
10     you will have created the incentives for competitors to
11     seek out less and less expensive technology with more
12     and more capabilities instead of seeking out more and
13     more regulatory orders.
14  13719                So if we agree that we are five to
15     ten years away from broadcast quality video to the home
16     through new media technologies, why are we asking for a
17     proceeding?  Quite simply, unlike other parties to this
18     proceeding, we don't think that this is just a question
19     of when new media technologies will deliver broadcast
20     video to the home.  To us, it's not just a question of
21     technology.  It's also a question of consumer
22     substitution of time, the effects on advertising
23     revenue and the need to give the broadcasting industry
24     a fair chance to adapt.
25  13720                Dr. Carey described the typical


 1     responses of industries confronted with something new: 
 2     first denial, then panic, and then they are forced to
 3     adapt and find their own niche.  He also testified that
 4     it typically takes ten years for an industry to adapt. 
 5     That's what Dr. Carey predicts here, and we have not
 6     heard anything that would prompt us to discount
 7     Dr. Carey's expert opinion.  Also, on the basis of his
 8     research, he predicts that advertising revenues will
 9     follow consumers to new media, not in a slow dribble
10     but like a dam breaking.
11  13721                Interestingly, and we note this in
12     our written argument, the advertising executives
13     disagreed with Dr. Carey but at the same time filed
14     data showing that Internet advertising revenue is
15     growing at a rate of about 100 per cent a year.  That
16     doesn't sound like a dribble to us.  It is exponential
17     growth.
18  13722                Dr. Carey also testified that a loss
19     of 10 to 20 per cent of advertising revenue would have
20     a significant impact on what traditional broadcasters
21     produce.  It will also have a significant impact on the
22     Commission's ability to pursue its section 3 objectives
23     through traditional means.
24  13723                Will there be an increase in the
25     total amount of advertising revenue available?  Maybe,


 1     but the advertising executives you heard didn't know. 
 2     They talked about advertising budgets, finding their
 3     niche markets and incremental sales justifying
 4     incremental dollars.  But the issue there is not just
 5     whether advertisers will continue to spend on
 6     traditional media, it is whether they will be willing
 7     to pay the same advertising rates they do today when
 8     the audiences are smaller.
 9  13724                When we sat back and tried to get a
10     handle on all of the data, opinions and legal
11     interpretations on the record of this proceeding, we
12     noticed that there are really three approaches to new
13     media being offered for your consideration.  The first
14     is the "don't worry" approach.  Don't worry, the
15     Internet and other new media will have little or no
16     effect on traditional broadcasting.  Don't worry, the
17     consumers aren't there and they won't be in big enough
18     numbers to have an effect on broadcasting advertising
19     revenues, and the technology is not there and may never
20     be.  Just exempt Internet service providers if you
21     think they might be broadcasting because they can't be
22     regulated and just keep doing what you are doing.  If
23     something happens down the road, then look at your
24     options.  There will be lots of time.
25  13725                Of course, our view is that it is


 1     better to be out in front and prepared than being
 2     forced to react.  As Dr. Carey has said, when it
 3     happens, it happens quickly.  By the time you actually
 4     see it, it is probably too late.
 5  13726                The two other approaches before you
 6     are interesting in their similarities and differences. 
 7     One is the regulation approach -- that is the Directors
 8     Guild, among others; the other is the deregulation
 9     approach -- that's us.  The similarity is that both
10     proceed from the view that sometime in the future new
11     media is likely to have a direct impact on traditional
12     broadcasting, in particular, television.
13  13727                Mr. Grant for the Directors Guild
14     proceeded on the assumption that this is only a
15     technology issue, and one that won't arise for five to
16     ten years.  He argued that only then will new media
17     have a direct impact on broadcasters so, until then,
18     all you need to do is exempt Internet service
19     providers.  Then, when you see a significant impact on
20     television market share, regulate them by using a
21     complaint process to police service providers and by
22     requiring the carriers to collect payments for a
23     production fund from major players as a condition of
24     their tariffs.  That assumes of course that the major
25     players to which he refers are not also carriers and


 1     that carriers will still have regulated tariffs.
 2  13728                The second proposal requires one
 3     competitor to police another while the first proposal
 4     requires investigation and reports by the Commission or
 5     Inquiry Officers.
 6  13729                The only purpose we can see to this
 7     proposal is to protect and preserve the broadcasting
 8     industry in its current form so that there is money
 9     available to pay into a production fund.  Of course, it
10     assumes that the current advertising revenues will not
11     be eroded by anyone other than service providers
12     offering identical television-like services.  Not
13     surprisingly, we do not agree with this approach, nor
14     do we accept the assumptions underlying it.  Even if
15     you wanted to do it, you couldn't.  This approach
16     simply does not address the more fundamental issues we
17     have identified and it assumes that these service
18     providers will never be able to move away.  We have
19     provided even more evidence in our written argument
20     that they can and will leave.
21  13730                But what is really interesting here
22     is where Commissioner McKendry's questioning took
23     Mr. Grant.
24  13731                The Directors Guild had suggested in
25     its written submissions that the Commission could


 1     require ISPs to provide their customers with
 2     information on Canadian sites on their home pages. 
 3     When Commissioner McKendry asked Mr. Grant about all
 4     the evidence on the record of the proceeding that
 5     Canadian Web sites are already available and
 6     accessible, Mr. Grant agreed that, based on the
 7     evidence, there is no point in the Commission requiring
 8     it if it's happening anyway.
 9  13732                Well, that is precisely the point. 
10     The purpose of regulation is to achieve a desired
11     outcome that the market, in the absence of regulation,
12     would not achieve.  The desired outcome here is the
13     section 3 objectives.  There is a great deal of
14     evidence on the record of this proceeding that those
15     objectives are being met on the Internet already,
16     without content regulation.
17  13733                There is demand for Canadian content. 
18     Canadian content is being produced.  One party, Rogers,
19     even said it can't keep up with all the new sites and
20     it is always looking for new Canadian content to add. 
21     Therefore, even if the Commission could regulate the
22     ISPs there is no need to do it to achieve the
23     objectives.
24  13734                The real issue was described by
25     Netstar quite succinctly:


 1                            "it isn't so much a matter down
 2                            the road of regulating the
 3                            Internet but rather making sure
 4                            that, by not regulating it, you
 5                            haven't put the regulated system
 6                            at a severe competitive
 7                            disadvantage."
 8  13735                That's the point.  You can't regulate
 9     the Internet but it's effects will be felt by the
10     current broadcasting system.  Even if you could
11     regulate it, you don't need to because the section 3
12     objectives are already being met.
13  13736                As the current broadcasters begin to
14     feel the effects of new media more directly, they will
15     need to devote more time, energy and resources to it
16     and they will have to compete for Canadian consumers. 
17     They will have to acquire Canadian content.  All they
18     need is a fair chance to adapt.  That's why we are
19     proposing a proceeding to look at how you might remove
20     the regulatory requirements on them as they move over
21     to a market where there is no apparent requirement for
22     regulation.
23  13737                With the approach we suggest, there
24     is no danger that you will lose what you have by moving
25     too quickly.  Much like the Directors Guild approach,


 1     you can wait for milestones to appear, although our
 2     milestones would probably be different than theirs. 
 3     But instead of using the milestones as a trigger to
 4     regulate, you use them as a trigger to free up the
 5     broadcasting industry.  If the milestones don't appear
 6     as expected, you have lost nothing.  If they do appear
 7     and you are not out in front anticipating, as you are
 8     now, you will have placed the Canadian broadcasting
 9     system at a severe competitive disadvantage.
10  13738                Those are all our comments this
11     morning, Mr. Chairman.  Thank you.
12  13739                THE CHAIRPERSON:  Thank you,
13     Mr. Grieve.
14  13740                If I take the point you made at the
15     bottom of page 10 of your presentation this morning,
16     and accept for a moment I haven't read your written
17     final argument so you may well have detailed this issue
18     a lot more in your written comment, you say:
19                            "The purpose of regulation is to
20                            achieve a desired outcome that
21                            the market, in the absence of
22                            regulation, would not achieve."
23  13741                Then, if I go back to the points you
24     were raising on page 5 respecting the telecom issues,
25     we are of course aware that there are discussions going


 1     on between some, at least, of the current and/or former
 2     Stentor member telephone companies -- I am not sure how
 3     to characterize them any more --
 4  13742                MR. GRIEVE:  Telcos.
 5  13743                THE CHAIRPERSON:  -- and the ISPS.
 6  13744                Assuming that some sort of
 7     satisfactory market-based solution is reached in the
 8     context of those discussions, and that the cable issue
 9     is dealt with in the proceeding that we had already
10     initiated there, would you still be calling for this
11     proceeding?  If that is the case, I wonder if you might
12     just describe a little more precisely what you would
13     have in mind in that event.
14                                                        0915
15  13745                MR. GRIEVE:  Well, to the first point
16     on the negotiations, certainly there are negotiations. 
17     I think it's interesting that in Alberta we don't seem
18     to have the complaints that other parts of the country
19     have from the ISPs.
20  13746                I do know that some of the decisions
21     the company has made were based on looking at previous
22     Commission orders made in other parts of the country.
23     Therefore, the outcome there is not a market outcome. 
24     It's a regulatory outcome.
25  13747                I don't know what the outcome might


 1     have been without a regulatory order.  I think there
 2     was one in New Brunswick in this particular case.  The
 3     fact that the Commission in one part or the country
 4     orders something, it has an impact on other parts of
 5     the country and on the decisions you make when you are
 6     negotiating.  In fact, it kind of puts a hammer over
 7     your head.
 8  13748                Our concern is that there is a
 9     difference between when you have something that is
10     voluntarily undertaken in a negotiated setting and
11     something that is undertaken under the threat of
12     regulation or because you are afraid of it being
13     mandated.
14  13749                The distinction between us is not
15     what is tariffed and what is not tariffed.  It is a
16     distinction between what is mandated and what is not
17     mandated.
18  13750                I look at this, would we still be
19     calling for the proceeding.  Well, first of all the
20     proceeding is not just to deal with ISPs, as you know. 
21     There are many other things there.  We and the other
22     Stentor companies at the time did ask for this kind of
23     proceeding in the WSP trunk side interconnection tariff
24     proceeding.
25  13751                We added the ISPs to it in this


 1     proceeding because we saw the same kinds of arguments
 2     we saw from the local exchange carriers in the local
 3     competition case.  There is an expectation that they
 4     don't have to do anything in what they call the last
 5     mile, that it's up to the telcos, up to the cable
 6     companies to do that, and it's up to the Commission to
 7     order them to do all that, order the upgrades.
 8  13752                We think that if you put the right
 9     rules in place, that if you tell them "Well, this might
10     be the case now, you might be negotiating now, but five
11     years, seven years down the road we're not going to
12     mandate this stuff any more".
13  13753                Then what's going to happen?  Well,
14     then you are going to put the same incentives you have
15     in place in the local market where people are going to
16     go "Gee, I have options now.  I can wait five years in
17     that case.  At the end of the five years I will look at
18     that and I will go boy, I haven't built anything. 
19     There's not even a threat that I will build something". 
20     You have a kind of a funny negotiating situation.
21  13754                I think if you put those kinds of
22     incentives into place you will see the telephone
23     companies and the cable companies reacting because the
24     economics of networks is once you build them, you want
25     to fill them up.  You are not going to build them just


 1     to say "Well, I'm only going to use this for my own
 2     customers".  They are going to look at ways to fill up
 3     that network.  They have to be careful with the
 4     relationship between retail and wholesale prices.
 5  13755                It's not like every ISP in the
 6     country, like we would ever expect every ISP or every
 7     collective ever to build entirely their own network. 
 8     In fact, we expect the telephone companies, the
 9     metranets of the world, the cable companies, to be
10     buying and leasing stuff from each other as a matter of
11     course in ten years.
12  13756                It sounds like a strange thing to
13     say.  It would have sounded like a real strange thing
14     ten years ago, but we kind of expected it.
15  13757                We still call for the proceeding,
16     yes, because it changes the expectations.
17  13758                THE CHAIRPERSON:  Thank you very
18     much.
19  13759                Madam Secretary.
20  13760                MS BÉNARD:  Thank you, Mr. Chairman.
21  13761                The next presentation will be by the
22     Society or Composers, Authors and Music Publishers of
23     Canada, la Société canadienne des auteurs, compositeurs
24     et éditeurs de musique.
25  13762                M. VALIQUETTE:  Monsieur le


 1     Président, Mesdames et Messieurs les Commissaires,
 2     bonjour.  Mon nom est Gilles Valiquette.
 3  13763                Comme je l'ai mentionné lors de notre
 4     dernière comparution devant vous le 1er décembre
 5     dernier, je suis auteur-compositeur et président de la
 6     Société canadienne des auteurs, compositeurs et
 7     éditeurs de musique, mieux connue sous le nom de la
 8     SOCAN.  Je suis accompagné aujourd'hui du chef du
 9     Contentieux de la SOCAN, mon bon ami M. Paul Spurgeon.
10  13764                Je sais que le Conseil a déjà
11     accueilli des représentants de plusieurs associations,
12     mais avant d'aller plus loin j'aimerais quand même
13     prendre quelques instants pour vous décrire brièvement
14     la nôtre.
15  13765                La SOCAN est une association
16     canadienne sans but lucratif qui représente les
17     compositeurs, les paroliers, les auteurs-compositeurs
18     et les éditeurs d'oeuvres musicales non seulement au
19     Canada mais aussi à l'échelle mondiale.  Au nom de ses
20     membres canadiens actifs, qui sont aujourd'hui au
21     nombre de plus de 18 000, la SOCAN administre les
22     droits d'exécution liés aux paroles et à la musique.
23  13766                Le droit d'exécution, qui appartient
24     à la famille des droits d'auteur, est celui qui accorde
25     au propriétaire de l'oeuvre musicale le privilège


 1     exclusif d'exécuter ou de diffuser son oeuvre, ou
 2     d'autoriser ces actes en contrepartie d'une redevance à
 3     payer.  En d'autres mots -- et j'aime bien le dire,
 4     Monsieur le Président -- le droit d'auteur, c'est le
 5     salaire du créateur.
 6  13767                En tant que créateurs de musique
 7     canadienne, nous portons un vif intérêt à la Loi sur la
 8     radiodiffusion ainsi qu'aux règlements du Conseil en
 9     matière de contenu canadien.  Puisque les oeuvres de
10     nos membres sont utilisés de plus en plus souvent sur
11     Internet, nous sommes très heureux que le Conseil ait
12     entrepris le présent examen des nouveaux médias.  Nous
13     y avons d'ailleurs participé avec le plus grand intérêt
14     dès le départ.
15  13768                En plus du plaidoyer que nous sommes
16     venus faire ici même le 1er décembre dernier, nous
17     avons déposé deux mémoires relatifs à votre examen: 
18     notre mémoire préliminaire du 30 septembre 1998 et
19     notre second mémoire du 2 novembre 1998.  Nous ne
20     déposons pas de mémoire complémentaire aujourd'hui pour
21     la bonne raison que les deux mémoires que je viens de
22     mentionner décrivent parfaitement notre position sur
23     les nouveaux médias.  Nous nous contenterons donc de
24     mettre en relief certains arguments que nous avons déjà
25     présentés en les mettant en contraste avec d'autres


 1     opinions qui ont été exprimées au cours des derniers
 2     mois.
 3  13769                Pour commencer, je voudrais dire
 4     quelques mots sur les commentaires sur la phase II qui
 5     ont été déposés par l'Association canadienne des
 6     fournisseurs Internet en novembre dernier.
 7  13770                Dans ses commentaires l'ACFI énonçait
 8     sept points qui, selon elle, représentent un accord
 9     général sur les questions essentielles.  Pour rendre ça
10     officiel, permettez-moi de vous dire que la SOCAN ne
11     partage pas la prétendue opinion générale que décrit
12     l'ACFI.  Il n'est d'ailleurs même pas dit que les
13     opinions de l'ACFI sont entièrement partagées par la
14     totalité de ses propres membres, comme fait foi la
15     lettre couverture du 2 novembre de la présidente de
16     cette association, dans laquelle celle-ci se contentait
17     d'affirmer que les membres de l'ACFI étaient pas mal
18     d'accord avec son mémoire, whatever that means,
19     Mr. Chairman.
20  13771                L'un des points sur lesquels tout le
21     monde s'entend selon l'ACFI est que la nature
22     planétaire de l'Internet en fait un service difficile
23     sinon impossible à réglementer.  Il s'agit là d'un
24     argument assez intéressant qui revient à dire que, même
25     si le Parlement et le Conseil peuvent penser qu'il y va


 1     de l'intérêt national de réglementer l'Internet, eh,
 2     bien, il faut oublier ça parce que c'est une chose
 3     difficile ou impossible.
 4  13772                Monsieur le Président, l'ACFI n'est
 5     pas la seule à avoir exprimé cette opinion; d'autres
 6     commentateurs l'ont reprise.  Je crois qu'il est temps
 7     qu'on se pose d'autres questions et qu'on pousse ce
 8     raisonnement jusqu'à sa conclusion logique.
 9  13773                La prétendue opinion générale dont
10     parle l'ACFI veut-elle dire, par exemple, que les
11     gouvernements ne peuvent pas taxer l'Internet?  Si
12     c'était le cas, alors la loi qui vient d'être passée
13     aux États-Unis, le United States Internet Tax Freedom
14     Act, aurait reconnu en permanence que l'Internet ne
15     peut pas être taxé, mais elle s'en est bien gardée,
16     Monsieur le Président.  Ce qu'a plutôt fait le
17     président Clinton, c'est d'annoncer le lancement d'un
18     projet de recherche destiné à trouver des solutions à
19     long terme aux questions fiscales soulevées par le
20     commerce électronique.  Le Congrès américain, de son
21     côté, a mis sur pied le Blue Ribbon Internet Tax Panel,
22     une commission justement chargée d'étudier la même
23     question.  Il est donc bien évident que les Américains
24     ne partagent pas l'avis de l'ACFI que la réglementation
25     de l'Internet est une entreprise impossible.


 1  13774                Ici, au Canada, lorsque notre
 2     ministre de l'Industrie, M. John Manley, a accueilli la
 3     réunion de l'OCDE sur le commerce électronique
 4     l'automne dernier, lui et ses collègues n'ont pas
 5     conclu que l'absence de réglementation de l'Internet
 6     revenait à dire que celui-ci est impossible à taxer. 
 7     Ce qu'ils ont plutôt fait, c'est d'établir une
 8     collaboration qui fera surgir de nouvelles idées afin
 9     d'adapter les instruments de politique actuelle aux
10     nouvelles réalités.  Qu'on ne vienne donc pas nous
11     dire, Monsieur le Président, que l'Internet n'est pas
12     réglementable.
13  13775                Parallèlement, on cherche
14     présentement des moyens de réglementer la pornographie,
15     par exemple, les pamphlets mal intentionnés et
16     plusieurs autres formes de contenu du même genre
17     publiés sur l'Internet.  Nous vous prions donc
18     instamment de continuer à réglementer les contenus qui
19     sont diffusés au public, et ce, quel que soit le moyen
20     de communication employé.
21  13776                J'aimerais conclure en vous rappelant
22     que la SOCAN ne parle pas à travers son chapeau.  Ça
23     fait déjà près de 70 ans qu'elle fait face à des défis
24     technologiques à des attributions du genre de ceux
25     auxquels le Conseil est confronté aujourd'hui. 


 1     Qu'entendons-nous par là?  Nous voulons dire que la
 2     musique, comme l'Internet, est une entreprise de pointe
 3     qui a toujours été sans frontières.
 4  13777                Pour protéger la musique d'ici la
 5     SOCAN a établi des collaborations avec les sociétés de
 6     droits d'exécution du monde entier afin de mettre sur
 7     pied un système de licences qui inclut de nombreux
 8     éléments constitutifs:  la législation canadienne, les
 9     traités internationaux et un réseau d'ententes avec de
10     nombreuses organisations nationales et internationales.
11  13778                Qu'on le veuille ou non, Monsieur le
12     Président, l'Internet peut se réglementer et il sera
13     réglementé par les gouvernements à l'échelle mondiale. 
14     Nous sommes donc convaincus que le Parlement et le
15     Conseil continueront de jouer un rôle important dans
16     cette démarche.
17  13779                Permettez-moi en terminant de
18     souligner un principe sous-jacent à tout ce que je
19     viens de dire:  le fait que le média a évolué ne veut
20     pas dire que le Conseil doit renoncer à en réglementer
21     le contenu.
22  13780                Je vous remercie de nous avoir
23     invités à vous présenter de vive voix notre plaidoyer
24     final.  J'aimerais céder maintenant le microphone au
25     chef du Contentieux de la SOCAN, M. Paul Spurgeon.


 1  13781                MR. SPURGEON:  Thank you, Gilles.
 2  13782                Mr. Chairman, in addition to the
 3     Canadian Association of Internet Providers' argument
 4     that it is impossible to regulate the Internet, we have
 5     also heard some argue that the Commission's Canadian
 6     content rules should be abandoned.
 7  13783                For example, on January 29 the
 8     Financial Post published an article by a University of
 9     British Columbia Professor, Mr. William Stanbury, which
10     was entitled "CRTC Should Use the Net to Kick the
11     Cancom Habit".
12  13784                Last December the Professor also
13     published a study for the Fraser Institute which was
14     entitled "Overweening ambition, Assessing the CRTC's
15     Plans to Regulate the Internet".
16                                                        0930
17  13785                The Financial Post published an
18     article by a University of British Columbia professor,
19     a Mr. William Stanbury, which was entitled "CRTC should
20     use the Net to kick the CanCon habit".
21  13786                Last December, the professor also
22     published a study for the Fraser Institute, which was
23     entitled "Overweening Ambition:  Assessing the CRTC's
24     Plans to Regulate the Internet".
25  13787                In the Financial Post,


 1     Professor Stanbury argued that the Commission's new
 2     media call for comments, and I quote:
 3                            "...appears to be the result of
 4                            the CRTC's own agenda and
 5                            discretionary power."
 6  13788                With all due respect to the professor
 7     and the Fraser Institute, I think they are missing the
 8     point.  Canadian Content rules and this inquiry are not
 9     the result of the CRTC's own agenda and discretionary
10     power.  Rather, they are the result of legislation that
11     has been duly enacted by Canada's elected
12     representatives.
13  13789                For example, Parliament, and not the
14     Commission, decided that each broadcasting undertaking
15     shall make maximum use of Canadian creative and other
16     resources in the creation and presentation of
17     programming.
18  13790                Contrary to the professor's views,
19     the Commission's own agenda and discretionary power are
20     not driving this review.
21  13791                In paragraph 13 of the Notice that
22     gave rise to this review, the Commission stated, and I
23     quote:
24                            "In its 19 May 1995 report to
25                            the Government entitled


 1                            Competition and Culture on
 2                            Canada's Information Highway: 
 3                            Managing the Realities of
 4                            Transition (the Convergence
 5                            Report), the Commission noted,
 6                            among other things, that the
 7                            current definitions in the
 8                            Broadcasting Act will likely
 9                            capture many new and emerging
10                            services, for example, on-line
11                            commercial multimedia services."
12  13792                SOCAN agrees that, under the current
13     Broadcasting Act, many new media services, including
14     Internet radio undertakings, constitute broadcasting
15     services.
16  13793                As we pointed out in our preliminary
17     submission, the Broadcasting Act does not confine
18     "broadcasting" to transmission by radio waves.
19  13794                In addition, to broadly defining the
20     manner in which broadcast programs may be transmitted,
21     Parliament has not confined the term "broadcasting
22     receiving apparatus" to mean only radios and
23     televisions.  The current Broadcasting Act definition
24     of "broadcasting receiving apparatus" is broad enough
25     to cover multimedia computers, or whatever new devices


 1     may be invented.
 2  13795                As a result of the definitions
 3     Parliament enacted in the Broadcasting Act, SOCAN
 4     submits that new media that include our members'
 5     musical works constitute broadcasting services. 
 6     Therefore, they are subject to the Commission's
 7     Canadian content rules.
 8  13796                In sum, whether Professor Stanbury,
 9     the Fraser Institute or others like Canadian content
10     rules is not relevant to this review.  They do not
11     decide how the Commission should regulate traditional
12     broadcasting or the new media.  Instead, these
13     decisions have been taken by successive governments and
14     are clearly expressed in a statute duly enacted by
15     Parliament -- the Broadcasting Act.
16  13797                In other words, in this new media
17     review, we believe that the Commission should focus on
18     how the current statutory framework affects certain
19     Internet activities.  Whether or not this framework is
20     in the national interest is something that ultimately
21     Parliament must decide.
22  13798                I would now like to address another
23     argument you have heard during this review, which is
24     that the Internet is too new or fragile, too fragile to
25     be regulated, and therefore it must be allowed to


 1     further develop without regulation.
 2  13799                Again, we believe that if the
 3     Broadcasting Act requires the Commission to regulate
 4     certain new media activities, then the Commission
 5     should take action -- now.
 6  13800                If some believe that such action is
 7     inappropriate, they should request that Parliament
 8     amend its legislation.
 9  13801                In any event, it is ironic that it
10     was one of Professor Stanbury's colleagues at the
11     University of British Columbia who debunked this
12     argument in an article that appeared in the Financial
13     Post on December 1.
14  13802                The article was written by a
15     professor of business at the same university,
16     Mr. Paul Kedrosky, and was aptly entitled "Now's the
17     time to regulate the Internet -- Claims that it's `too
18     young' are poppycock".  I have copies of the article in
19     the event that the Commission didn't have the
20     opportunity to read the article and I will pass them on
21     to the Secretary.
22  13803                In that article, Professor Kedrosky
23     stressed the point that the Internet, for all its
24     newness, is just another communications medium.  He
25     also suggested that it is possible to control what


 1     programming most Canadians see and he provided the
 2     example of giving "Made in Canada" pages special
 3     prominence and search tools.
 4  13804                This brings me to my last point.
 5  13805                One of the reasons SOCAN is so
 6     interested in this review is because we believe it
 7     could affect the right of Canadians to choose to hear
 8     and see the creative expressions of their fellow
 9     Canadians.
10  13806                From the outset, we have argued that
11     to promote the exhibit of Canadian programming, the
12     Commission must ensure it has access to shelf space
13     that is located where Canadians can easily find it.
14  13807                SOCAN therefore believes that both
15     distribution channels and the growing numbers of
16     content aggregators must allocate some of their shelf
17     space to Canadian programming.  The best way to ensure
18     this shelf space exists is to apply Canadian
19     programming exhibition requirements to new media like
20     the Internet.
21  13808                And if I could use another term from
22     retailing -- I am out in the retailing business --
23     along with "shelf space" we could say "front rack". 
24     That is an expression that the music business uses when
25     they put the recordings of certain artists in the front


 1     rack of the stores.
 2  13809                In the past, Canadian programming
 3     rules have been an effective policy instrument and we
 4     believe they have an important role to play in the
 5     future.
 6  13810                For example, the Commission just
 7     announced a new commercial radio policy which contains
 8     a renewed commitment to Canadian content.  SOCAN shares
 9     this commitment and we again urge you to pursue it in
10     your new media review.
11  13811                On behalf of SOCAN's members, thank
12     you again for this opportunity to express our views.
13  13812                We would be pleased to answer any
14     questions that you may have.
15  13813                Thank you.
16  13814                THE CHAIRPERSON:  I don't think we
17     have any questions.
18  13815                Thank you very much.  Merci beaucoup.
19  13816                Madam Secretary.
20  13817                MS BÉNARD:  Thank you, Mr. Chairman,
21     the next presentation will be the Canadian Association
22     of Broadcasters, l'Association canadienne des
23     radiodiffuseurs.
25  13818                THE CHAIRPERSON:  Good morning,


 1     Mr. McCabe.
 2  13819                MR. McCABE:  Good morning, everybody.
 3  13820                I am Michael McCabe, President and
 4     CEO of the Canadian Association of Broadcasters.  With
 5     me today are Cynthia Rothwell, our Vice-President,
 6     Legal Affairs; and Ken Goldstein, President of
 7     Communications Management Inc.
 8  13821                At the outset, let me thank the
 9     Commission not only for the opportunity to appear here
10     today to present a summary of the CAB's position, but
11     also for the fact that the Commission has undertaken
12     this process.  We are truly standing at the entrance of
13     a new world of media and of commerce, and the process
14     you have initiated can help us make the transition to
15     that very different future.
16  13822                In the written submission that we
17     filed with you yesterday, we stated that:
18                            " media is an exploding
19                            phenomenon that will change the
20                            face of the entertainment and
21                            information media as we know
22                            them today."
23  13823                In fact, new media will impact on
24     conventional media in three ways:
25  13824                First, new media will increasingly


 1     become a competitor for time that consumers currently
 2     spend viewing, listening and reading with traditional
 3     media.  That is already beginning to happen today.
 4  13825                Second, as the capacity of the new
 5     media evolves, over time it will become a substitute
 6     production and delivery mechanism for the content that
 7     is currently carried by conventional media.  Because of
 8     bandwidth considerations, that will likely happen first
 9     with radio and then with television.
10  13826                Third, new media are already changing
11     the nature of the underlying world of commerce on which
12     all media depend for advertising.  Quite aside from the
13     competition from the Internet as a medium, if the
14     Internet leads to a reduction in the number of retail
15     outlets for automobiles or other products, as it may
16     well, that will have a significant impact on the way
17     that advertising is bought and sold, and on the amount
18     of advertising in traditional media.
19  13827                Of course, the difficulty in planning
20     for this transition is that all three of those impacts
21     -- the competition for consumers' attention, the future
22     delivery of content, and the changing world of commerce
23     -- will be happening at the same time.
24  13828                As most of the parties to this
25     proceeding observed, the Internet knows no geographic


 1     boundaries or business boundaries.  How, then, should
 2     we approach the regulatory issues raised by new media
 3     and the Internet?
 4  13829                Again, most parties to this
 5     proceeding have argued against attempts to regulate new
 6     media and the Internet in the manner that has been used
 7     for conventional broadcasting.  The CAB agrees with
 8     that consensus.
 9  13830                But what of the impact on Canadian
10     radio and television broadcasters that will continue to
11     carry significant public interest obligations at a time
12     when technology will be undermining our ability to
13     continue to fulfil those obligations?
14  13831                One of the most thoughtful assessment
15     of this issue was contained in the May 1998 report of
16     the Culture, Media and Sports Committee of the United
17     Kingdom House of Commons.  In its report the Committee
18     observed:
19                            "The Internet will become
20                            increasingly a platform for
21                            audio-visual content barely
22                            distinguishable from broadcast
23                            content.  This does not mean it
24                            can be subject to regulation
25                            comparable to broadcasting..."


 1  13832                The U.K. report went on to say:
 2                            "Notwithstanding the justifiably
 3                            different approach to the
 4                            Internet and a growing emphasis
 5                            on control within the home, the
 6                            case for retaining content
 7                            regulation on broadcasting
 8                            remains, so long as this
 9                            continues to be feasible."
10  13833                This is essentially the same as the
11     CAB's message during the earlier phases of this
12     hearing, that at a certain point the existing
13     regulatory framework for traditional broadcasters will
14     also have to be re-evaluated.  Yet, when this
15     observation was made by the CAB, critics like Friends
16     of Canadian Broadcasting were quick to claim that this
17     was somehow nothing more than a self-interested
18     argument for a reduction in regulatory obligations.
19  13834                This is an overly simplistic and
20     short-sighted criticism, for it suggests that the CAB
21     is calling for deregulation today.  On the contrary, we
22     have simply recognized that, as new media develops,
23     current regulatory tools will be increasingly
24     impractical means of achieving the objectives of the
25     Broadcasting Act and new approaches will be required.


 1  13835                We are saying, in two words, "be
 2     prepared".  To do otherwise would be irresponsible. 
 3     The growth in new media is occurring at a time when
 4     traditional radio and television have been responding
 5     to the challenges of an increasingly competitive 
 6     market.
 7  13836                For television, the entry into the
 8     market of Canadian and U.S. speciality services has
 9     resulted in fragmentation of the available audience and
10     advertising revenues.  There has also been a decline in
11     television viewing.
12  13837                The audience for radio has also seen
13     a decline, and radio faces fragmentation from
14     CD players, music video services, pay audio radio,
15     border radio, the growth of audio on the Internet, and
16     the imminent arrival of U.S. satellite radio services
17     aimed at listeners in cars.
18  13838                That is the context for considering
19     the impact of new media.  Obviously, many of the
20     developments in new media technology and electronic
21     commerce will not happen in neat, predictable straight
22     lines.  It is therefore important to set out a series
23     of possible thresholds for consideration by the
24     Commission as trigger points that will bring about a
25     re-evaluation of current broadcasting regulation.


 1  13839                The CAB would like to suggest at
 2     least five such trigger points and we would welcome
 3     other suggestions as we develop these new measuring
 4     tools for the future.
 5  13840                Re-evaluation could occur as each of
 6     these triggers is activated:
 7  13841                First, if Internet advertising
 8     revenues equal 10 per cent of total advertising in
 9     traditional broadcast media in Canada and the United
10     States.  Because the Internet knows no boundaries,
11     multinational corporations with operations in both
12     countries can reach Canadian consumers via Internet
13     sites in the U.S.  For that reason, separate measures
14     of Canadian versus U.S. revenues may no longer be as
15     useful, and a combined approach may be more
16     appropriate.
17  13842                Second, if there was a rapid decline
18     in either television viewing or radio listening within
19     a defined period; for example, a decline of one hour
20     per week in a three-year period.
21  13843                Third, if there is further evidence
22     of the breakdown of the exclusive Canadian rights
23     market.  That might be determined if there is evidence
24     that Canadian broadcasters are unable to acquire
25     Canadian rights to one or two of the top 30 U.S.


 1     programs or to a popular recent theatrical release.
 2  13844                Fourth, once there is 5 per cent
 3     penetration of high speed access in all Canadian
 4     households.  As indicated in the study by
 5     Communications Management Inc. and the MultiMediator
 6     Strategy Group, which was part of the CAB's first phase
 7     submission, the 5 per cent level has historically been
 8     a threshold for rapid growth for a number of new
 9     technologies including colour television, VCRs and CD
10     players.
11  13845                And fifth, if there is a widespread
12     availability in new media of U.S. broadcast or cable
13     services that are not on the eligible satellite list.
14  13846                As we have stated, this list is not
15     exhaustive.  As noted in the CMI/MMSG report for the
16     CAB, a Statistics Canada survey in October 1997 found
17     that 40 per cent of Canadians in on-line households
18     were spending 20 or more hours per month on line.  The
19     second survey on this subject by StatsCan was conducted
20     in the fall of 1998, but the results have not yet been
21     released.
22  13847                If surveys of this type come to be
23     scheduled on a regular basis, then data from such
24     surveys might also become one of the possible trigger
25     points for regulatory re-evaluation -- perhaps a


 1     trigger set at the point when the time spent on the
 2     Internet reaches some proportion of the time spent with
 3     radio or television.
 4  13848                We know that young people -- the next
 5     generation of viewers and listeners -- see the
 6     Internet, in its current form, as a medium of
 7     entertainment as well as a medium of information.  In
 8     fact, many young people have already created their own
 9     form of convergence:  they are surfing the net on a PC
10     and watching television on a TV at the same time.
11  13849                We know that many parties to this
12     proceeding have placed on the record information that
13     indicates that the Internet is already impacting the
14     time people spend with conventional media.
15  13850                And we know that the number of
16     Canadian households connected to the Internet is likely
17     to grow from 2.5 million in 1998 to 5 million in 2001.
18  13851                We believe that the trigger points
19     outlined above represent a realistic starting point for
20     developing a new set of tools to measuring the impact
21     of the rapidly-evolving new media.
22  13852                What, then, should we do about new
23     media:  in the short term, before the thresholds listed
24     above reach the trigger points; and, in the longer
25     term, if and when those trigger points are reached?


 1  13853                We believe, as did many other parties
 2     in this process, that what the CAB calls an incentive-
 3     based public policy framework to encourage Canadian
 4     firms to invest in new media is the best response to
 5     the emergence of new media.
 6  13854                In light of the well-documented
 7     growth in new media, we believe it is essential that
 8     Canada establish a strong and lasting presence in the
 9     new media.
10  13855                The CAB's view that traditional
11     content regulation is impractical with respect to new
12     media does not mean that we believe there is no role
13     for public policy in ensuring the development of a
14     strong Canadian new media content and distribution
15     sector.  However, if we are to ensure a continued
16     Canadian presence, we must create an environment that
17     encourages investment and innovation.
18  13856                Currently, American media powerhouses
19     are investing large amounts of money to determine how
20     to take advantage of this new medium.  For Canada's
21     media players to remain competitive, the Commission
22     must take a proactive yet practical approach to the
23     change the industry is undergoing.
24  13857                To enable the new media sector to
25     grow and develop, the CAB has urged the implementation


 1     of an incentive-based public policy framework outside
 2     of the scope of traditional content regulation. 
 3     Incentive-based proposals have received wide support
 4     from other parties to this proceeding and will
 5     encourage risk-taking and economic investment in this
 6     emerging industry.
 7  13858                This plan would provide public
 8     funding and tax credits for both Canadian new media
 9     content and the research and development of technology
10     to be used in this area.  The CAB also advocates
11     industry self-regulation to deal with offensive content
12     on the Internet.
13  13859                While the CAB's proposals for broad
14     public policy framework do not include CRTC regulation,
15     the Commission can take a leadership role by offering
16     insight and recommendations in its report into what
17     actions other areas of government should pursue.
18  13860                Canada already has a strong presence
19     in new media, and it may be true that Canadian sites
20     comprised of text and graphics will continue to
21     proliferate on the Internet.
22  13861                This larger concern, however, and the
23     one with the most important ramifications for Canadian
24     culture, is the development of high-end new media
25     content and the sophisticated technology needed to


 1     deliver it.  As in traditional broadcasting,
 2     distinctively Canadian new media content with high
 3     production values that can compete with the new media
 4     content of multinational media giants is, and will
 5     continue to be, expensive to produce.
 6  13862                Many different proposals have been
 7     put forth to increase the amount of Canadian content on
 8     the Internet.  Aside from the practical issues of the
 9     extent to which the Commission can regulate new media,
10     the CAB questions the underlying assumption of
11     proposals that focus only on the amount of Canadian
12     content on the Internet, regardless of its quality.
13  13863                On the contrary, it is the CAB's
14     position that it is more important to focus our public
15     policy efforts on generating high quality new media
16     content.
17  13864                The basis for this argument is
18     twofold:  first, as the Internet will eventually
19     provide users with an unlimited amount of entertainment
20     options from all over the world, it is essential to
21     have a product that can attract Canadian audiences;
22     and, second, high quality content with universal appeal
23     can be marketed not only in Canada but abroad, turning
24     Canadian content into a money-making not money-losing
25     proposition.


 1  13865                At the hearing, several parties
 2     stressed the importance of developing and producing
 3     internationally competitive Canadian new media content. 
 4     In particular, Telefilm noted the following:
 5                            " is important when
 6                            developing public policies for
 7                            new media that we develop them
 8                            in the context of this global
 9                            marketplace which we believe can
10                            contain distinctively Canadian
11                            new media content but which is
12                            also universally appealing and
13                            viable."
14  13866                Given the right public policy
15     framework, broadcasters are well-positioned to produce
16     this material, just as they have repeatedly
17     demonstrated their ability to engage the public while
18     contributing to policy goals.  Their established brands
19     and programming expertise put them in a position to be
20     the leaders in the new media.
21                                                        0950
22  13867                There was general consensus amongst
23     interveners that new media content is not yet
24     profitable.  Industry players are being encouraged to
25     invest now for an uncertain future.


 1  13868                All parties agree that involvement in
 2     new media is crucial if Canada is to remain competitive
 3     and maintain a real presence in a globalized
 4     entertainment industry.  As a result, Canada's policy
 5     on new media must create incentives that foster growth
 6     and development, not impede it.
 7  13869                As the CAB identified in its Phase II
 8     submission, new media represents a marriage of
 9     technology and content.  Traditional media use
10     essentially standardized technologies.  In contrast,
11     advances in technology are constantly causing the new
12     media environment to change and evolve.
13  13870                As a result, it is the CAB's position
14     that any government assistance should not only
15     encourage the development of distinctively Canadian new
16     media content, but technological innovation as well.
17  13871                Content, though, should be a
18     priority.  As it becomes less possible to restrict
19     access to entertainment choices from outside our
20     borders, the production of high quality, competitive
21     Canadian content is more important than ever.  Canadian
22     content must be able to hold its own in an increasingly
23     flooded marketplace.
24  13872                Government can use a variety of
25     incentives to spur new media growth.  The CAB has


 1     modeled its suggestions on effective government support
 2     mechanisms already in existence.  These include:
 3  13873                Production tax credits, both federal
 4     and provincial, to bolster the production of Canadian
 5     new media content and encourage Canadian firms to
 6     develop novel new media technologies.  The idea of a
 7     tax credit system for new system received widespread
 8     support from broadcasters, specialty services, the
 9     newspaper industry and multimedia groups such as IMAT.
10  13874                Research and development tax credits
11     to encourage technical experimentation or development,
12     projects for which the underlying rights are owned by
13     Canadians, would qualify for additional R&D credits.
14  13875                Advertising tax deductibility to
15     permit Canadian advertisers to deduct spending on
16     Internet advertising on when that advertising is placed
17     on a Canadian site, through amendments to section 19 of
18     the Income Tax Act.  Several interveners, including
19     specialty services and newspapers, supported this
20     proposal.
21  13876                Job creation programs to train and
22     employ workers in this vibrant new industry and to
23     prevent a Canadian brain-drain.  It is the CAB's
24     position that new media projects that will create jobs
25     could receive Job Creation Program Funds, either


 1     through loans or grants.
 2  13877                This will not only reduce
 3     unemployment, but will help train people for jobs in a
 4     sector of increasing importance.  Centres of excellence
 5     like Sheridan College and Ryerson should also be
 6     encouraged to participate directly in projects,
 7     creating valuable work experience for their students.
 8  13878                Loan and equity investment programs
 9     for new media content to ensure that cultural policy
10     objectives are met.  As with traditional broadcast
11     media, high-end multimedia content is expensive to
12     produce.  At the same time, the availability or a
13     multitude of American entertainment options makes it
14     essential  that this content be competitive.
15  13879                The CAB has suggested a $25 million
16     annual equity fund be established to support the
17     creation of high-end indigenous Canadian new media
18     content.  It is the CAB's position that all industry
19     players should have access to this fund, including new
20     media companies, broadcasters, cable companies,
21     newspapers, telephone companies and ISPs.
22  13880                These funds should not be used to
23     artificially support one sector of an industry only,
24     nor should access to such funds byu licensed
25     broadcasters be tied to any additional regulatory


 1     obligations.
 2  13881                If some new media participants have a
 3     strengthened opportunity in new media because of their
 4     achievements in other business areas, these
 5     participants must be encouraged to realize those
 6     opportunities, not deterred by the imposition of new
 7     obligations.  If Canada does not build on any natural
 8     advantages it may have in new media, it will find
 9     itself without a meaningful new media presence.
10  13882                Incentives should be available to all
11     projects that meet the cultural criteria.  Any proposal
12     to limit access by qualified persons to new media
13     public policy incentives will undermine our broader
14     national goal to achieve a strong Canadian new media
15     presence.
16  13883                And that, after all, is what this
17     process should be about:  a strong place for Canada in
18     new media; a policy framework that builds on our
19     strengths; and a forward-looking approach to changing
20     regulatory models at a time of transition unprecedented
21     in the history of the media.
22  13884                Thank you again for the opportunity
23     to participate in this proceeding.  We would be pleased
24     to answer any questions you may have.
25  13885                THE CHAIRPERSON:  Thank you very


 1     much, Mr. McCabe.  I don't think we have any questions.
 2  13886                Thank you.
 3  13887                MR. McCABE:  Thank you very much.
 4  13888                THE CHAIRPERSON:  We will hear one
 5     more group and then we will take our morning break and
 6     then hear from the last two.
 7  13889                Madam Secretary.
 8  13890                MS BÉNARD:  Thank you, Mr. Chairman.
 9  13891                The next presentation will be by Bell
10     Canada, Island Telecom Inc., MTS Communications Inc.,
11     Maritime Tel & Tel Limited, MediaLinx Interactive Inc.,
12     NBTel, New Tel Communications Inc., Northwestel Inc.,
13     Québec-Téléphone, SaskTel.
15  13892                MR. CHAPMAN:  Good morning, Mr.
16     Chairman, Commissioners.
17  13893                I guess I will shorten our speech by
18     a couple of minutes.  I won't repeat the companies'
19     names.  We will just head into our presentation.
20  13894                Me COURTOIS:  Merci.
21  13895                L'information présentée durant les
22     trois premières phases de la présente instance a permis
23     d'évaluer la condition actuelle et future de
24     l'industrie des services de nouveaux médias canadiens
25     et d'Internet.  Il en ressort un portrait optimiste de


 1     cette industrie et un avenir prometteur pour le Canada,
 2     tant du point de vue économique que culturel.
 3  13896                Le nombre de ménages canadiens
 4     raccordés à Internet continue d'augmenter à une vitesse
 5     impressionnante.  Les projections pour 2001 montrent
 6     que 40 pour cent des ménages utiliseront Internet, soit
 7     le double par rapport à 1998.  L'augmentation soutenue
 8     du nombre d'utilisateurs devrait se poursuivre en
 9     fonction des baisses de prix des PC et de la
10     performance accrue des services d'accès à haute vitesse
11     à Internet grâce aux modems câbles ou à la technologie
12     LNPA.
13  13897                Les fournisseurs de services de
14     nouveaux médias répondent à cette vague d'utilisateurs
15     canadiens en leur offrant le contenu canadien qu'ils
16     demandent.  Ils ont des bons motifs commerciaux de le
17     faire.  En effet, on vous a dit que le nombre total de
18     sites Web canadiens est évalué à environ 5 pour cent de
19     tous les sites Web au monde, bien au-delà de notre
20     proportion démographique, même parmi les pays
21     développés.  C'est là une preuve convaincante du rôle
22     de leadership du Canada dans le développement
23     d'Internet et de sa forte présence dans ce secteur.
24  13898                Durant l'audience publique, de
25     nombreux témoins, dont les nôtres, ont expliqué que


 1     leurs plans d'affaires reposaient sur la fourniture
 2     d'un contenu canadien aux utilisateurs Internet
 3     canadiens.  Ils sont convaincus que leurs clients
 4     préfèrent nettement le contenu canadien.  Leur but est
 5     de satisfaire cette demande, y compris pour ceux qui
 6     exercent leurs activités à partir de plates-formes
 7     élaborées aux États-Unis.
 8  13899                Durant la présente instance, de
 9     nombreuses parties ont souligné l'importance d'adopter
10     un cadre politique approprié pour assurer la croissance
11     du secteur des nouveaux médias et pour que le Canada
12     tire parti de nos activités et de nos avantages
13     concurrentiels.  Le Conseil est dans une position
14     unique pour éliminer l'incertitude réglementaire
15     actuelle à l'égard des services de nouveaux médias.
16  13900                Vu la variété et l'importance des
17     questions sur les nouveaux médias posées par le
18     Conseil, et la diversité des répondants, on pouvait
19     s'attendre ou on aurait pu s'attendre à des opinions
20     bien polarisées.  Toutefois, il est intéressant de voir
21     que la présente instance a recueilli un large consensus
22     pragmatique sur la nécessité d'éviter un excès de
23     réglementation pour réaliser ces promesses de
24     croissance économique et culturelle.
25  13901                MR. CHAPMAN:  In the Public Notice,


 1     the Commission asked parties to address the impact that
 2     new media might have on existing broadcasting services. 
 3     In that vein, at the public hearing the Commission
 4     asked many parties to estimate when broadcast-quality
 5     video would be available over the Internet.
 6  13902                State-of-the-art Internet video
 7     remains primitive and unreliable.  The viewing
 8     experience is limited to a credit card sized window
 9     featuring pictures of very low resolution.  This is the
10     reality even for users of high-speed access services. 
11     Most parties to this proceeding have acknowledged that
12     no competitive substitute to tradition,
13     point-to-multipoint, broadcast-quality video
14     programming yet exists.
15  13903                The question remains:  if not now,
16     when?  Many parties believe that the deployment of
17     broadcast-quality video as a characteristic of the
18     Internet will happen later than sooner, with estimates
19     ranging from five to ten years and beyond.  As the
20     benchmark for broadcast-quality video evolves towards
21     high definition TV, even more bandwidth will be needed
22     on the Internet to duplicate a TV viewing experience. 
23     This pushes the timeframe out further still.
24  13904                The companies conclude that this will
25     not materialize for many years.  Even then, the content


 1     in question is unlikely to be directly substitutable in
 2     any truly competitive sense since end-users are not
 3     looking for broadcasting-type experiences on the
 4     Internet.
 5  13905                A central issue to this proceeding is
 6     one of jurisdiction.  Does the Broadcasting Act confer
 7     on the Commission regulatory authority over new media
 8     services?  If the answer is yes, then a secondary
 9     question arises as to how best for the Commission to
10     exercise its supervisory authority.
11  13906                Our view, and the view of many
12     others, is that most if not all new media services do
13     not constitute broadcasting within the meaning of the
14     Act.  There are a number of reasons for this.
15  13907                First, new media services do not
16     involve the transmission of programs.  Most current new
17     media services consist predominantly of alphanumeric
18     text and are, therefore, not programs within the
19     meaning of the Broadcasting Act.
20  13908                Accordingly, they fall outside of the
21     Commission's regulatory jurisdiction.  Even if content
22     is not predominantly alphanumeric, it must still be
23     presented in a linear or otherwise coherent way in
24     order to be considered a program within the meaning of
25     the Act.


 1  13909                Second, the definition of
 2     broadcasting requires that any programs transmitted
 3     must be for reception by the public.  However, a
 4     service cannot be intended for reception by the public
 5     when members of the public accessing such a service
 6     view different images, hear different sounds and read
 7     different text.
 8  13910                An interactive experience falls
 9     outside the definition of broadcasting.  Almost any
10     interactivity that affords a user control over content
11     is sufficient to render the content customized and,
12     therefore, outside the purview of the Act.
13  13911                Third, the definition of broadcasting
14     requires that programs be received by means of
15     broadcasting receiving apparatus.  In this regard, the
16     intent of the 1991 Act was to capture only programs
17     received by devices designed to receive traditional,
18     mass media-oriented broadcasting.  The Act was not
19     intended to capture personal computers or even Web TV
20     boxes when used to access the Internet.
21  13912                In addition to the definitional
22     issue, Internet service providers, or ISPs, can not be
23     considered broadcasting distribution undertakings,
24     BDUs.
25  13913                When an ISP provides network


 1     connectivity, it does only that, provide connectivity. 
 2     Virtually all of the traffic on the Internet is the
 3     result of private communications and transactional
 4     activities that do not involve the transmission of
 5     programs for reception by the public.
 6  13914                Further, even where programs may be
 7     transmitted, it is only when an undertaking engages in
 8     true gatekeeping activity, such as setting the roster
 9     of TV channels which users can select, that it should
10     be considered a distribution undertaking.  Therefore,
11     since this is not the role of an ISP, it does not
12     require licensing or exempting.
13  13915                If, despite this, the Commission
14     still finds some new media services to be broadcasting,
15     then such services should be exempted from a licensing
16     requirement.  The new media services industry is an
17     emerging and highly competitive one that holds great
18     economic and cultural promise for Canadians.
19  13916                Current indications are that the
20     broad objectives of the Broadcasting Act are already
21     being met without government intervention.  The
22     imposition of a licensing requirement would have a
23     negative effect on the industry's development and would
24     seem to be at odds with other government policies, such
25     as Industry Canada's enabling approach to electronic


 1     commerce.  Indeed, a licensing requirement would tend
 2     to disadvantage Canadian sites in competition with
 3     unlicensed international rivals.
 4  13917                The Commission should properly find
 5     that broadcasting does not include the transmission of
 6     multimedia content online, available on demand or
 7     non-simultaneously, whether or not the content consists
 8     predominantly of audio/visual elements.
 9  13918                Accordingly, to the extent that this
10     interpretation is adopted, no exemption order is
11     required for the vast majority of new media services.
12  13919                Those few services that would remain
13     as potentially being captured by the Broadcasting Act
14     could be subject to a general exemption order and could
15     be defined as follows:  the simultaneous transmission
16     online to the public of non-interactive multimedia
17     content, over which users have minimal or no control
18     beyond channel/site selection, where such services are
19     akin to conventional radio and television broadcasting.
20  13920                The exemption order should be general
21     and unconditional and should exempt undertakings that
22     engage in the activities defined above.  An
23     unconditional exemption is required, not only because
24     the imposition of substantive conditions will have some
25     of the same chilling effect on the development of


 1     Canadian new media services as would licensing, but
 2     also because it is difficult to envisage useful and
 3     viable conditions of exemption.
 4  13921                MR. COURTOIS:  Turning to
 5     telecommunications issues, some parties have argued
 6     that the Commission should implement regulatory
 7     measures pursuant to the Telecommunications Act to
 8     achieve Canadian cultural policy objectives.  The
 9     companies disagree with both the policy and
10     jurisdictional aspects of these suggestions.
11  13922                By far the most critical issue is
12     whether online distributors of new media content should
13     be required to contribute to the production of Canadian
14     new media products and services.  A large majority of
15     the parties expressed the view that a content
16     development tax on ISPs is not required because there
17     is no shortage of Canadian new media content.
18  13923                As well, such a tax would send the
19     wrong signal.  In contrast to the supportive efforts of
20     other countries, Canada would be viewed in a bad light
21     as a hostile environment for the Internet.
22  13924                In any event, the Internet is
23     primarily a telecommunications vehicle used for
24     applications such as e-mail and business-to-business
25     electronic commerce.  There is little, if anything,


 1     here that involves the type of cultural content that
 2     warrants a tax-financed support mechanism.
 3  13925                The vast majority of ISPs are not
 4     subject to the Broadcasting Act or the
 5     Telecommunications Act.  Consequently, the Commission
 6     would have no authority to impose a content development
 7     tax on these ISPs.
 8  13926                For those relatively few ISPs that
 9     own and operate transmission facilities and are
10     Canadian carriers subject to the Telecommunications
11     Act, there is no authority to mandate financial
12     contributions to the funding of Canadian content.
13  13927                The regulatory jurisdiction for
14     promoting Canadian content is in the Broadcasting Act. 
15     The Telecommunications Act does not encompass mandating
16     financial support of content to achieve cultural
17     objectives.
18  13928                There has been broad agreement among
19     interested parties regarding the desire for Canadian
20     new media content to be highly visible and readily
21     accessible on the Internet.  This naturally prompts the
22     question as to the best way to see this happen.
23  13929                A small number of parties argued for
24     an approach that would impose traditional
25     broadcasting-style regulatory obligations to ensure a


 1     prominence or predominance of both Canadian content and
 2     Canadian links.  However, the companies, and indeed the
 3     majority of interveners from a variety of industry
 4     sectors, maintain that such a regulatory initiative is
 5     unnecessary over and above the fact that it would be
 6     infeasible and outside the Commission's jurisdiction.
 7  13930                Three conclusions regarding the
 8     Internet are indisputable.  First, there is a great
 9     deal of Canadian content already on the Internet. 
10     Second, this content is being prominently featured by
11     major Canadian ISPs and portals as their business
12     raison d'étre.
13  13931                Third, content has been created by
14     Canadian entrepreneurs absent any regulatory
15     requirement to do so.  Consequently, there is no public
16     policy rationale for prominence regulations to be
17     imposed on the Internet.
18  13932                Other telecommunications issues have
19     also surfaced.  Some of these are service issues.  We
20     spoke to these during our appearance before you at the
21     public hearing in November.  They are further addressed
22     in our written final argument and we will not repeat
23     our positions here.
24  13933                However, it must be emphasized that
25     the local telecommunications market, as well as the


 1     rest of the telecommunications market, is open to
 2     competition and ISPs in major centres have a choice of
 3     suppliers.  Telephone companies are strongly motivated
 4     to provide excellent service to ISPs or risk losing
 5     their business.
 6  13934                As another issue, some large,
 7     foreign-owned or controlled ISPs have requested during
 8     the proceeding that Canada's telecommunications foreign
 9     ownership rules be changed.  They did not call for the
10     elimination of these rules, but rather for an amendment
11     that would allow them, on an exceptional basis, to own
12     and operate transmission facilities in Canada.
13  13935                However, no justification was
14     provided as to why they should be given special
15     treatment relative to other service providers facing
16     the same restrictions.  There is nothing in the record
17     of this proceeding that would support the Commission's
18     recommending to government that the telecommunications
19     foreign ownership rules be amended in this way.
20  13936                These ISPs have also requested that
21     the Commission amend its rules for local competition
22     and grant ISPs the rights that have ben extended to
23     competitive local exchange carriers, CLECs.  However,
24     they did not offer to assume the responsibilities that
25     the Commission has imposed on CLECs.


 1  13937                Indeed, implicit in their testimony
 2     is the proposal that they not be bound by these
 3     responsibilities.  Moreover, these ISPs did not address
 4     why they alone of all non-facilities-based service
 5     providers should be granted such rights.  Therefore,
 6     this request should be rejected.
 7  13938                Some ISPs have also complained about
 8     arrangements to provide access and in particular,
 9     high-speed access, to the Internet.  We note that cable
10     companies are the dominant providers of high-speed
11     Internet to the residential market.  However, despite
12     years of effort and Commission directions, ISPs have
13     still not been able to obtain access to cable networks. 
14     By contrast, ISPs can use telephone networks in a
15     variety of ways.
16  13939                Nonetheless, these ISPs seem to be
17     focusing their complaints on the telephone companies
18     and have sought  regulatory intervention against
19     telephone companies.  We note that there is a Part VII
20     application, filed by some ISPs regarding Bell Canada,
21     pending in front of the Commission.  We will not
22     comment in this forum on the regulatory issues raised
23     in the application as they are being dealt with in that
24     proceeding.
25  13940                In terms of the business issues, we


 1     have expended considerable effort to address the cost
 2     and technology challenges of high-speed access to the
 3     Internet on telephone networks.  In the case of the
 4     one-Mb modem high speed service, not only have great
 5     strides been made in respect of the modem at the
 6     customer end, but Bell can also advise that pursuant to
 7     field trials currently underway, a significant
 8     technology breakthrough on the network side has been
 9     achieved.
10                                                        1015
11  13941                We have had discussions with ISPs,
12     and they have indicated that there are still a number
13     of issues to address in making high-speed access
14     profitable, even with these breakthroughs.  We are
15     taking their comments and suggestions into account and
16     will be diligently working on what we can do with the
17     capabilities of our various affiliates and businesses
18     to help tackle these problems within the art of the
19     possible.
20  13942                Now, on a different topic, a number
21     of parties commented on regulation of the Internet
22     regarding issues such as illegal content and copyright. 
23     I think here another consensus has emerged that it is
24     not a question of whether you have zero regulation or
25     broadcast type regulation; the Internet is not immune


 1     to legal remedies even despite the fact that it is a
 2     new and unique technology.
 3  13943                Like most parties, we submit that
 4     existing Canadian laws remain capable of dealing with
 5     criminal conduct on the Internet and that existing
 6     criminal legislation remains the best avenue to deal
 7     with matters such as hate-based material and child
 8     pornography.  As far as copyright is concerned, there
 9     may be a need to adapt current legislation or
10     international treaties, but the record of this
11     proceeding is not developed enough to resolve these
12     matters.
13  13944                The companies have read and listened
14     to the comments of hundreds of interested parties, and
15     we find that what is most striking is the large number
16     of individual and cross-country voices articulating a
17     similar perception of the Canadian new media industry
18     upon which to base a common vision for its future. 
19     That perception is of a young and dynamic industry
20     encouraged by early success yet aware of the challenges
21     that lie ahead.
22  13945                A number of parties have expressed
23     the need for elimination of regulatory uncertainty. 
24     The Commission has an important contribution to make in
25     determining the status of new media services with


 1     respect to the definition of "broadcasting". 
 2     Confirming that the Internet and the vast majority of
 3     new media services are not captured by the relevant
 4     definitions of the Broadcasting Act, and exempting
 5     unconditionally the few remaining services that might
 6     not be so excluded, would be a positive and
 7     constructive step that the Commission could take in
 8     support of this industry sector.
 9  13946                A second key issue focuses on what
10     policy framework would best serve the needs of the new
11     media services industry.  Most parties share the
12     conviction that the strong forces behind the early
13     success of the industry should be what we count on to
14     drive growth opportunities.  There was concern that the
15     imposition of a broadcasting style regulatory
16     framework, even if possible, would only frustrate
17     industry players and constrain their abilities and
18     inclination to build upon the success that they have
19     already realized.  The companies join this majority in
20     urging the adoption of a public policy approach that
21     relies upon encouragement and promotion rather than
22     attempting to control what is offered on the Internet.
23  13947                Driven by consumer demand, Canadian
24     new media content is featured prominently on Canadian
25     Web sites.  The Commission can contribute its own


 1     acknowledgement that such prominence is a reality and
 2     that there is no need, and indeed no practical means,
 3     to regulate this result into existence.  It is already
 4     happening on its own.
 5  13948                The consensus of interested parties
 6     is that broadcast quality video will not be a
 7     characteristic of the Internet for years to come.  The
 8     companies agree.  This cross-industry consensus should
 9     allay concern the Commission may have regarding the
10     threat of substitutability that such Internet-based
11     video might pose to the traditional broadcasting
12     industry.  There should be no motivation to regulate
13     the Internet in response to such an unlikely threat.
14  13949                In the future, should the Commission
15     see a need to revisit this question based on its
16     monitoring of developments in the new media services
17     marketplace, then it is, of course, free to do so.  At
18     that time, a new and different broadcast regulatory
19     framework may be called for in light of those
20     developments.
21  13950                Il est aussi généralement convenu
22     qu'un autre enjeu clé, bien qu'il échappe à la
23     compétence du Conseil, profiterait d'une recommandation
24     appropriée du Conseil auprès du gouvernement.  La taxe
25     sur l'élaboration de contenu imposée aux fournisseurs


 1     de services Internet est en effet perçue par la plupart
 2     des parties, dont nos compagnies, comme une mesure
 3     négative propre à décourager les investissements, la
 4     création d'emplois et l'expansion d'Internet.  Elle
 5     ferait du Canada un environnement commercial hostile et
 6     contraire à l'orientation de la politique de ses
 7     principaux partenaires commerciaux.  Par conséquent,
 8     nous invitons le Conseil à appuyer l'orientation de la
 9     politique opposée à toute nouvelle taxe Internet,
10     récemment annoncée par M. Manley, le ministre de
11     l'Industrie.
12  13951                En conclusion, l'accord assez
13     généralisé sur les enjeux clés de la présente instance
14     dans l'industrie devrait inciter le Conseil à élaborer
15     des réponses définitives aux questions posées dans
16     l'avis public relatif aux nouveaux médias.  Le Conseil
17     est bien placé pour contribuer de façon positive à la
18     santé à long terme de l'industrie des nouveaux médias,
19     dans l'intérêt de tous les Canadiens.
20  13952                Merci.
21  13953                LE PRÉSIDENT:  Merci, Monsieur
22     Courtois and Mr. Chapman.  I don't think we have any
23     questions.  Thank you very much.
24  13954                We will take our morning break at
25     this point and reconvene at twenty to eleven, at which


 1     point we will hear the final two submissions.
 2     --- Short recess at / Courte suspension à 1020
 3     --- Upon resuming at / Reprise à 1043
 4  13955                THE CHAIRPERSON:  We will return to
 5     our proceeding now.
 6  13956                Madam Secretary, the next presenter,
 7     please.
 8  13957                MS BÉNARD:  Thank you, Mr. Chairman.
 9  13958                The next presentation will be by
10     Call-Net Enterprises Inc.
12  13959                MR. SCOTT:  Good morning, Mr. Vice-
13     Chairman, Madam Chairperson and Commissioners.  My name
14     is Ian Scott and I am Vice-President, Government
15     Affairs of Call-Net Enterprises Inc.  With me today is
16     Jonathan Daniels, Director, Regulatory Affairs of Call-
17     Net.
18  13960                As evidenced by our active
19     involvement in all stages of this proceeding, Call-Net
20     is keenly interested in the Commission's deliberations
21     respecting the new media, which I will sometimes refer
22     to also as the Internet.
23  13961                Call-Net, as you know, is a Canadian
24     owned and controlled corporation and is the sole
25     shareholder of Sprint Canada, one of Canada's largest


 1     long distance providers.  In addition to its long
 2     distance offerings, Sprint Canada operates the second
 3     largest Internet service provider, The Most Online, or
 4     TMO.  Through TMO we provide Internet access to more
 5     than 100,000 customers across the country.
 6  13962                As well as providing retail dial-up
 7     Internet access through TMO, Call-Net is also a major
 8     provider of Internet backbone facilities to other ISPs
 9     on its optical fibre network traversing North America. 
10     As of last week, Call-Net's subsidiary, CNCI, also
11     commenced operation as a local exchange operator in the
12     province of Alberta.
13  13963                As a part of its plan for the roll-
14     out of its local exchange service, Call-Net intends to
15     offer high-speed Internet access service to residential
16     and business customers alike through the use of digital
17     subscriber line, or DSL, technology.
18  13964                As already acknowledged by the
19     Commission, this proceeding represents an opportunity
20     to step back and assess the impacts of this significant
21     technology, not only on the broadcasting and
22     telecommunications industries but also on Canada's
23     economy and society.
24  13965                The record of this proceeding reveals
25     three fundamental facts from which we submit your


 1     regulatory framework should take its shape:
 2  13966                First, the Internet is
 3     revolutionizing the use of telecommunications networks.
 4  13967                Second, certain limited uses of the
 5     Internet do fall within the definition of
 6     "broadcasting"; however, the Internet is not about
 7     broadcasting.
 8  13968                Third, the reasons why you regulate
 9     traditional broadcasting undertakings are absent from
10     the Internet.
11  13969                I will address each of these points
12     in turn.
13  13970                The Internet is revolutionizing
14     telecommunications networks.
15  13971                In our Phase I comments in this
16     proceeding, we described how telecommunications are
17     being revolutionized by the advent of Internet Protocol
18     and packet-switching technologies, as well as the
19     explosive growth of Internet and other data traffic
20     being carried over these networks.
21  13972                Networks were previously separated
22     into data and voice components.  However, IP and
23     packet-switching technology are increasingly being used
24     to consolidate traffic on converged networks capable of
25     carrying both voice and data.  This blurring of the


 1     lines which traditionally existed between voice and
 2     data traffic is occurring at the same time as the
 3     development of increasingly innovative and more
 4     powerful communications services delivered over the
 5     Internet.
 6  13973                These new telecommunications
 7     services, such as e-mail and Internet telephony, which
 8     we refer to in our written submissions as "telecom
 9     analogous" services, are being adopted by consumers as
10     less expensive and more powerful alternatives to
11     traditional telecommunications services such as
12     circuit-switched fax and voice.  This is but one way in
13     which telecommunications undertakings which you
14     regulate are being affected by the new media.
15  13974                A second way in which the advent of
16     new media is affecting telecommunications undertakings
17     is through the explosive growth of traffic that has
18     been occasioned in large part by Internet usage.  This
19     growth in data traffic is driven by the migration of
20     services onto data networks and the substitution of
21     traditional telecommunications services by telecom
22     analogous new media services.  It is also driven by the
23     diversity of powerful new services available over the
24     Internet, which I will come to in a moment.
25  13975                So what implications do these


 1     developments have for the Commission's jurisdiction
 2     under the Telecommunications Act?
 3  13976                In its public notice the Commission
 4     acknowledged that the existing system of
 5     telecommunications subsidies may not be appropriate to
 6     the emerging environment.  As the Commission is aware,
 7     Call-Net is strongly of the view that the existing
 8     subsidy collection mechanism is no longer sustainable
 9     in light of the dynamic pace of change affecting
10     telecommunications networks in Canada and around the
11     world.
12  13977                In this regard, we acknowledge the
13     Commission's recently issued public notice relating to
14     a review of the frozen contribution charges applicable
15     to interexchange services.  In that notice, the
16     Commission also reiterated its intention to commence a
17     proceeding shortly to examine the existing collection
18     mechanism.  Call-Net looks forward to participating in
19     that proceeding to assist the Commission in preserving
20     the sustainability of the funding of affordable local
21     service.
22  13978                I come now to my second point.
23  13979                Certain limited uses of the Internet
24     do fall within the definition of "broadcasting", but
25     the Internet is not about broadcasting.


 1  13980                Much of the discussion in this
 2     proceeding has focused on the question of whether the
 3     Commission has jurisdiction to regulate the Internet.
 4  13981                We are of the view that certain
 5     limited uses of the Internet do fall within the
 6     definition of broadcasting.  For instance, Web sites
 7     currently exist which transmit the very same
 8     programming as is transmitted by radio programming
 9     undertakings licensed by the Commission.  In our view,
10     the mere fact that the transmission of these programs
11     takes place by means of the Internet does not remove
12     that transmission from the Commission's jurisdiction.
13  13982                However, we are of the view that very
14     little of what is transmitted over the Internet does
15     consist of "programs" as intended by Parliament.  This
16     is what we mean when we say "the Internet is not about
17     broadcasting".
18  13983                In our submissions we have outlined
19     for the Commission our approach to the categorization
20     of new media services transmitted over the Internet. 
21     In addition to the telecom analogous services which I
22     have already described, we list the additional
23     categories of interactive services and broadcast
24     analogous services.
25  13984                Interactive services are often


 1     predominantly alphanumeric, which takes them outside
 2     the definition of "programs" under the Broadcasting
 3     Act.  These services generally feature multimedia
 4     content which is interactive with, and customizable by,
 5     the user.  This category covers a broad range of new
 6     services, delivered primarily over the World Wide Web,
 7     which are transforming not only communications, but the
 8     economy in general.  They include electronic commerce
 9     applications such as book retailing, personal computer
10     banking and on-line securities trading.  They also
11     include a broad range of corporate and informational
12     sites through which the user cannot actually transact
13     business but which provide the user with valuable
14     information regarding the site-owner's business or
15     institution.
16  13985                The services falling within this
17     category form the true genius and "value-add" of the
18     Internet.  Along with telecom analogous services, these
19     services also make up the overwhelming bulk of the
20     traffic carried on the Internet.
21  13986                As we have explained previously in
22     our written submissions and during our appearance
23     before you in November, these services lack the
24     linearity or unity to be considered programs.  The user
25     adapts these services to his or her needs.  Within the


 1     parameters set by their creators, these services take
 2     on the look, feel and content determined by the user. 
 3     In other words, the role of the user in interacting
 4     with the content is so significant that it is not
 5     meaningful to speak of what is ultimately being
 6     transmitted as a program.
 7  13987                I would like now to turn briefly to
 8     services which do meet the definition of "program" in
 9     the Broadcasting Act, which we categorize as "broadcast
10     analogous services".
11  13988                It may be technologically feasible to
12     deliver streamed video over the Internet. 
13     Technological feasibility, however, does not equate
14     with practical reality, as the recent history of cable
15     with digital video compression proves.
16  13989                No participant in this proceeding has
17     made a credible case for the proposition that the
18     Internet is poised to become a viable competitor to
19     existing programming and distribution undertakings.  In
20     fact, there was near unanimity in this proceeding that
21     such a development will not occur on a widespread basis
22     within the foreseeable future.  The technological
23     impediment to widespread deployment of broadcasting-
24     capable access was confirmed at the hearing by the
25     chief technology officer, for example, of BC Tel,


 1     Susanna Reardon.  The Commission may recall from
 2     Ms Reardon's testimony that not even the ITU-approved
 3     standard for universal ADSL will be able to transmit
 4     long-form programming on a practical basis.  Other
 5     participants such as the Directors' Guild and
 6     advertising groups stressed the lack of any
 7     arrangements for the clearance of copyright or a
 8     workable advertising model as other significant
 9     impediments to the roll-out of commercially viable
10     services.
11  13990                The simple fact that most of what is
12     being transmitted over the Internet does not constitute
13     broadcasting is the reason why we say that the Internet
14     is not about broadcasting.  In other words, although a
15     small amount of broadcasting does take place over the
16     Internet, the Internet is not primarily a broadcasting
17     medium.
18  13991                The fact that some broadcasting does
19     take place over the Internet raises the question,
20     however, of which persons are carrying on broadcasting
21     undertakings.  In our submission, this is where it
22     becomes very difficult to analogize from the
23     traditional broadcasting model to the Internet.  It is
24     also where the practical difficulty of regulating the
25     Internet looms most large.


 1  13992                A person who controls a Web site from
 2     which a broadcasting analogous service can be
 3     downloaded is carrying on a broadcasting undertaking. 
 4     However, Web sites may be numerous and may be located
 5     anywhere on the globe.  Accordingly, it would be
 6     impractical for the Commission to regulate those
 7     carrying on these undertakings.
 8  13993                Certain participants have therefore
 9     turned their attention to the ISPs.  In our view, ISPs
10     cannot be properly characterized as broadcasting
11     undertakings.  ISPs provide a transmission path that
12     allows a user to communicate with other persons
13     connected to the Internet and with sites on the Web. 
14     However, ISPs do not generally control the content that
15     their customers access in the same fashion, for
16     instance, as a cable television undertaking, which
17     controls what services its subscribers can access over
18     its limited channel capacity.
19  13994                Furthermore, given the small amount
20     of broadcasting available over the Internet, we are of
21     the view that the Commission should take into
22     consideration the fact that an ISP's primary function
23     is not broadcasting.  In light of this fact, we are of
24     the view that it would not be appropriate to
25     characterize ISPs as broadcasting undertakings.


 1  13995                Before leaving this issue, I note
 2     that the Broadcasting Act specifically does not apply
 3     to telecommunications common carriers acting solely in
 4     that capacity.
 5  13996                I come now to our third point:  The
 6     reasons why you regulate traditional broadcasting
 7     undertakings are absent from the Internet.
 8  13997                This point is a good-news story.  The
 9     good news is twofold.  The first piece of good news is
10     that the Internet is a unique technology which
11     alleviates many of the concerns which motivated
12     Parliament to mandate the licensing of broadcasting
13     undertakings.  The second piece of good news is that
14     the marketplace is promoting Parliament's objective of
15     ensuring that Canadians have access to a diversity of
16     quality new media services and therefore there is no
17     need for regulation.
18  13998                As outlined already, we do not share
19     the view of some that transmission over the Internet
20     can never be broadcasting.  However, we are of the view
21     that the unique characteristics of the Internet,
22     combined with the reality of what is occurring in the
23     marketplace, dictate that regulation of any
24     broadcasting taking place over the Internet would not
25     contribute materially to the implementation of


 1     broadcasting policy.
 2  13999                The Internet and new media services
 3     differ from traditional broadcast media in several
 4     important respects.
 5  14000                First, barriers to entry in the new
 6     media production sector are much lower than in relation
 7     to the production of traditional long-form programming. 
 8     Moreover, the relatively low cost of developing,
 9     publishing and distributing services on the Web has a
10     levelling effect among organizations of different sizes
11     and strengths.
12  14001                Second, the cost of distributing
13     materials over the Web is much lower than for
14     traditional broadcasting undertakings.  In return for a
15     relatively low monthly fee or the cost of operating an
16     Internet server, an organization can post material on
17     the Web, thereby gaining access to a potential
18     international audience of millions of people.
19  14002                Third, because of the low costs of
20     both producing and distributing new media services over
21     the Internet, it is uniquely geared towards
22     narrowcasting type services, which might not otherwise
23     find a home on traditional broadcast media because of
24     their limited audience.
25  14003                The role of ISPs is also unique. 


 1     ISPs exist primarily to provide a transmission path to
 2     the Internet.  In traditional forms of media such as
 3     television or radio, the broadcaster or distribution
 4     undertaking selects the information that will be
 5     provided to the audience.  Over the Internet, however,
 6     it is not possible to predict, let alone control, the
 7     sites that a user may access over the vast
 8     interconnected network.  The fact that the Internet has
 9     no limitations in terms of the number of sites that can
10     be accessed by an individual user is perhaps its most
11     significant distinguishing feature.
12  14004                These features of the Internet and
13     the new media have resulted in a healthy Canadian new
14     media industry that has succeeded in finding
15     international markets without the benefit of regulatory
16     intervention.  In particular, we note that most of the
17     relatively few participants in this proceeding who
18     called for levies to fund new media production belonged
19     not to the new media industry but to the traditional
20     production industry or trades.
21  14005                In terms of distribution and access,
22     the fact that the Internet does not have limited
23     channel capacity has ensured free access to Canadian
24     new media services of every description.
25  14006                More significantly, however, the


 1     marketplace has recognized that providing Canadian
 2     users with access to Canadian sites is simply good
 3     business.  The marketplace has provided this access
 4     through ISPs, like The Most Online, which have portal
 5     sites that feature Canadian sites of interest to their
 6     users.  In fact, among the various services featured on
 7     the TMO site, there is an all-Canadian palette of
 8     electronic commerce sites.
 9  14007                The marketplace has also taken
10     advantage of the fact that the Internet remains
11     primarily an informational, rather than entertainment,
12     medium.  Accordingly, Canadians have access to
13     excellent content aggregator sites such as CANOE or
14  Finally, even in the realm of strictly
15     entertainment services, there is a significant Canadian
16     presence on the Web with such sites as Virtually
17 and the Web sites of major Canadian media
18     outlets.
19  14008                The good news, therefore, is that a
20     problem does not exist for the creation of Canadian
21     content for the Internet, the access of content
22     creators to the Internet as a distribution vehicle and
23     the access of Canadians to that content.  That is why
24     Call-Net submits that the Commission should issue a
25     broad exemption order.


 1  14009                We have attached to our final written
 2     argument a draft exemption order for the Commission's
 3     consideration.  This exemption order is meant to
 4     provide the Commission with the greatest amount of
 5     flexibility on a going-forward basis.  The Commission
 6     will be able to deal with broadcasting over the
 7     Internet if and when it becomes a viable commercial
 8     service and if and when there is evidence before the
 9     Commission that regulation of the Internet would
10     contribute materially to the implementation of the
11     broadcasting policy.  The exemption order has been
12     drafted to avoid the Commission having to determine
13     today which specific Web sites might constitute
14     broadcasting and which persons might be carrying on
15     broadcasting undertakings.  In our view, this exemption
16     order also provides sufficient certainty for the
17     marketplace.
18  14010                A small number of participants in
19     this proceeding have suggested that the Commission
20     could issue an exemption order containing substantive
21     conditions requiring portal sites to provide eye-level
22     shelf space to Canadian sites or requiring ISPs to make
23     contributions towards the funding of the production of
24     new media services.  In our view, these measures are
25     unnecessary in light of the nature of the Internet and


 1     the wealth of Canadian new media services actually
 2     available to Canadians.
 3  14011                Moreover, in our respectful
 4     submission, such substantive conditions attaching to an
 5     exemption order would set a dangerous precedent from
 6     the point of view of regulatory policy.  Such
 7     conditions, and in particular a requirement that ISPs
 8     contribute a percentage of their revenues to the
 9     production of new media services, would require
10     considerable supervision by the Commission. 
11     Effectively, this would create a category of semi-
12     regulated undertakings.  As well, in our view, because
13     of the doubt surrounding the question of whether ISPs
14     are in fact broadcasting undertakings, imposing a
15     substantive obligation on ISPs, even by way of an
16     exemption order, would be highly controversial.
17  14012                As I have already indicated, the good
18     news in the marketplace is that the marketplace appears
19     to be fulfilling the policy objectives outlined by
20     Parliament and further regulation would not contribute
21     materially to the implementation of those objectives.
22  14013                Call-Net believes that the Canadian
23     new media industry, including the Canadian Internet
24     industry, are vital to Canada's competitiveness and
25     pride of place in the new knowledge-based economy. 


 1     While Call-Net is of the view that the marketplace is
 2     working to provide Canadians with the new media
 3     services they both need and want, Call-Net would
 4     support the view expressed by a number of other
 5     participants in this proceeding that if the government
 6     feels it is in Canada's best interest to subsidize a
 7     new media industry, that goal should be accomplished
 8     through the use of tax incentives and funding from the
 9     government's general tax revenues.
10  14014                Thank you for your attention
11     throughout this proceeding.  We wish you well in your
12     deliberations and would be happy to answer any
13     questions you may have.
14  14015                THE CHAIRPERSON:  Thank you,
15     Mr. Scott and Mr. Daniels.  I don't think we have any
16     questions.
17  14016                MR. SCOTT:  Thank you.
18  14017                THE CHAIRPERSON:  Madam Secretary.
19  14018                MS BÉNARD:  Thank you, Mr. Chairman.
20  14019                The next presentation will be by the
21     Canadian Cable Television Association, l'Association
22     canadienne de télévision par câble.
24  14020                MR. STURSBERG:  Good morning.  I
25     understand I am the last -- great relief to all


 1     concerned, no doubt.
 2  14021                LA PRÉSIDENTE DU CONSEIL:  Le
 3     dessert.
 4  14022                M. STURSBERG:  Le dessert.
 5  14023                My name is Richard Stursberg, and I
 6     am the President of the Canadian Cable Television
 7     Association.
 8  14024                We came into this proceeding to
 9     review with the Commission the issues surrounding
10     regulation of the new media industry.
11  14025                As you know, we don't believe that
12     the CRTC should try to regulate this industry.  Indeed,
13     should you find that the associated services, described
14     in detail in our first round submission, are caught
15     under the Broadcasting Act, we believe that you should
16     take the necessary steps to exempt them.  This is
17     important in order that the greatest possible business
18     certainty be established in the new media marketplace. 
19     In turn, a free market approach with business certainty
20     will ensure the most innovative services and benefits
21     for the Canadian economy.
22  14026                In our written argument which we
23     filed yesterday afternoon we have responded to your
24     questions on these and other issues surrounding the
25     regulation of the new media industry.


 1  14027                Today, what I want to speak to you
 2     about -- and I have actually one thing that I want to
 3     talk to you about today -- is different from that but
 4     it is related to it.  It is related in the sense that
 5     it demands the same level of business certainty and for
 6     many of the same reasons:  so that the industry and the
 7     industry players can have a full understanding of the
 8     future regulatory and economic environment and thereby
 9     make sensible investment decisions.
10  14028                On numerous occasions, parties to
11     this proceeding have indicated that the issue of access
12     to facilities is a critical matter in the new media
13     industry.  Indeed, as a result of these suggestions,
14     the Panel has addressed a variety of access-related
15     questions to various interveners.  The answers that you
16     have received have touched on a number of different
17     issues and in our view have created considerable
18     confusion.
19  14029                Today I want to clarify this issue --
20     at least I want to try to clarify this issue --
21     particularly as it relates to providing third-party
22     access to our networks for the purposes of providing
23     high-speed Internet service.
24  14030                Through various proceedings and
25     filings, we have been providing you with detailed


 1     reports and information on the roll-out of this access. 
 2     We have appended copies of these reports to our written
 3     argument; there is a long description of where we are
 4     in technical terms vis-à-vis our discussions with the
 5     ISPs.  These reports are self-explanatory, both with
 6     respect to the technical issues being addressed and the
 7     timing of the laboratory trials, field trials, related
 8     development work and so on.  Rather than focus on the
 9     technical details of third-party access today, I would
10     like to examine with you the regulatory and economic
11     logic underpinning these activities.
12  14031                First, in your consideration of these
13     issues you have treated cable companies facilities used
14     in the provision of Internet services as
15     telecommunications facilities and have therefore
16     brought us under an established set of rules and
17     policies.
18  14032                As you know, Mr. Chairman, this set
19     of rules and policies includes a number of economic
20     elements.  One of the most important of them has been
21     focused on the resolution of issues involving essential
22     facilities.  Essential facilities, as the Panel will
23     recall, are typically defined as facilities that are
24     monopoly controlled and that cannot be readily
25     duplicated by others.  This is probably, I dare say,


 1     the most fundamental concept in telecommunications
 2     regulation and has been at the centre of the
 3     Commission's findings over the course of the last 10
 4     years.
 5  14033                In your past examinations of
 6     essential facilities issues you have carefully
 7     considered the issue of requiring tariffed access to
 8     these facilities.  Typically, you have refused to
 9     require access if the facilities involved were not
10     essential.  Your reasoning has been that, since they
11     are monopoly controlled and they can be duplicated by
12     other competitors, it would be both economically and
13     competitively harmful to require tariffed access.  It
14     is far better to encourage competitive entry on its own
15     merits using facilities that can be easily built by the
16     new competitors rather than creating artificial
17     arrangements to prop them up.
18  14034                In your Decision 98-9 last year,
19     which is the decision that mandates access to the cable
20     networks by the ISPs, you did not find cable company
21     facilities used in the provision of high-speed Internet
22     services to be essential.  Nonetheless, in view of what
23     you perceived to be dominance on our part in the high-
24     speed access market, you ordered a tariff for access to
25     our facilities.


 1  14035                This was quite a revolutionary
 2     approach, since it was a dramatic change from your
 3     historical regulatory approach and since such access
 4     was not even technically understood and certainly not
 5     commercially available anywhere else in North America. 
 6     Indeed, in the U.S., this access is still not available
 7     and it seems unlikely that the FCC will order it any
 8     time soon.
 9  14036                Nevertheless, we have been working
10     hard to develop the necessary technical means and
11     business systems that will enable this third-party
12     access.  This implementation is occurring through
13     several channels, including technical committee
14     meetings with ISPs, where CRTC observers are present,
15     as well as through CRTC proceedings.  As I mentioned
16     earlier, we have attached a copy of our latest
17     technical report on this matter to our written
18     argument.
19  14037                At the same time we have also been
20     negotiating access rates with the ISPs.  Our next
21     meeting on this subject will be held on the 26th of
22     February.
23  14038                Unfortunately, Decision 98-9, the one
24     that mandates access to our network through the ISPs,
25     did not establish the time frame within which tariffing


 1     of access would apply.  This is different from what you
 2     did in the local telephone market.  There, although you
 3     also took a non-traditional approach to non-essential
 4     facilities, you established very precise guidelines. 
 5     You made clear that the telephone companies would only
 6     have to provide access to their facilities -- and this
 7     is in the A and B bands --  for five years from the
 8     date of Decision 97-8.
 9  14039                You went this route with respect to
10     these non-essential telephone company services and
11     facilities for a specific reason:  because you believed
12     that facilities-based entry was the only way to obtain
13     real competition in the marketplace.  As you said:
14                            "While resale competition can
15                            help promote the development of
16                            a competitive market, it is the
17                            Commission's view that the full
18                            benefits of competition can only
19                            be realized with facilities-
20                            based competition."
21  14040                In addition, you noted that in order
22     to obtain facilities-based entry, entrants must be
23     encouraged to undertake construction or acquisition of
24     facilities by providing them with a regulatory leg-up
25     for a very clearly specified and limited time period. 


 1     As you said -- and I quote again:
 2                            "After this five-year period,
 3                            these facilities will not be
 4                            subject to mandatory unbundling
 5                            or essential facilities rating. 
 6                            In the Commission's view, this
 7                            approach will permit entry at a
 8                            pace that will better serve the
 9                            public interest and, at the same
10                            time, provide incentives to
11                            CLECs to undertake construction
12                            or acquisition of facilities...
13                            The Commission is of the view
14                            that resale can promote the
15                            development of a competitive
16                            market while allowing
17                            competitors time to construct
18                            their own facilities."
19  14041                With this advance notice, local
20     telephone entrants have the certainty and the
21     understanding of the critical regulatory and economic
22     parameters for their business plans, both in the short
23     run and in the long run.
24                                                        1115
25  14042                As to the result of this approach,


 1     regulatory risk in the local telephone market case has
 2     been eliminated.  You have indicated very clearly that
 3     five years from the date of the local competition
 4     decision, entrants will face real market forces with
 5     respect to obtaining access to non-essential services
 6     and facilities such as certain unbundled loops in the A
 7     and B bands.
 8  14043                Now, as I mentioned earlier, you
 9     provided no such time limits in your decision regarding
10     third-party access to cable company facilities.
11  14044                This is unfortunate because ISPs are
12     currently not being given the proper investment signals
13     that would allow them to help create a truly
14     competitive Internet market in Canada.  As you have
15     concluded in the local telephone case, facilities-based
16     entry is the only way to achieve the full benefits of
17     competition.
18  14045                The key economic condition, that is,
19     the ability to purchase or build facilities, exists in
20     the high-speed Internet market as it does in the case
21     of the local telephone market.  There are no reasons
22     why companies providing Internet services cannot pursue
23     the same facilities-based approach to entry that is
24     being pursued by entrants in the local market.  Indeed,
25     as you recognized in the local telephone decision, for


 1     the public policy reason of achieving the full benefits
 2     of competition, these companies should be pursuing a
 3     facilities-based approach to entry.
 4  14046                The five-year rule has clearly worked
 5     well in the local telephone market.  The new entrants
 6     are currently responding to the signals provided in the
 7     local competition decision with respect to the
 8     construction and acquisition of facilities.
 9  14047                These companies already know that
10     access to non-essential facilities at tariffed rates
11     will not exist indefinitely, and that they must
12     ultimately construct or acquire their own facilities.
13  14048                In many cases, starting with very
14     little, these companies have either already invested or
15     are planning to invest significant amounts of capital
16     that will be used to provide a number of
17     telecommunications services, including local telephony
18     and high-speed Internet.
19  14049                Since the companies that we currently
20     recognize as ISPs are not being provided by the
21     Commission with the same signals, they are not pursuing
22     the same strategy.  Indeed, public statements by some
23     of these ISPs suggest that they believe that once
24     access is available, they will forever have use of
25     cable company and telephone company facilities for the


 1     purpose of providing Internet services.
 2  14050                With local competitors and a variety
 3     of other facilities-based providers now emerging on the
 4     scene, this belief is unfounded and will simply not be
 5     realized.  The Commission is likely before very long to
 6     find that cable companies and telephone companies are
 7     not dominant providers of access facilities for the
 8     provision of Internet services, and that tariffing of
 9     access is no longer required.  Not only are we
10     confident of this outcome from a market evolution point
11     of view, but it should also be emphasized that this is
12     in fact the Commission's fundamental public policy
13     goal.
14  14051                Regulation does not control or drive
15     competition.  Regulation is intended to help establish
16     competition and once this competition is established
17     regulation should retreat from the marketplace.  The
18     Commission has recognized and implemented this
19     principle on numerous occasions and with great success.
20  14052                Unless the ISPs understand this
21     market reality and public policy goal now, these
22     companies will in the future find that they are not
23     able to compete effectively because they have not made
24     the necessary investments in facilities.
25  14053                The Commission was right to concluded


 1     that the cable companies did not control essential
 2     facilities.
 3  14054                Now I just direct you -- actually, we
 4     have brought one tiny attachment, which is at the back. 
 5     If you open it up here, on page 1, this is just a
 6     listing of the various facilities-based providers of
 7     access to the Internet that are already in the
 8     marketplace.
 9  14055                So you were right to conclude that
10     these are non-essential facilities.  Not only is there
11     no monopoly on them, there are lots and lots of people
12     out there who are building them.
13  14056                In fact, I just noted, when I was
14     reading the paper this morning -- if you don't mind my
15     boring you with this but it's quite interesting, it is
16     in today's Citizen -- "Internet giants go wireless". 
17     Microsoft Corp's Cisco Systems Inc. and Netscape have
18     announced that they are pouring, you know, the usual
19     billions of dollars into the development of wireless
20     Internet and data services; Microsoft and British
21     Telecommunications will develop wireless Internet
22     access, and so on, and it describes the various people
23     who are doing this, so that you could add to this chart
24     now all the cellular companies of one variety or
25     another.


 1  14057                You can see that there is a number of
 2     facilities-based providers that are already in the
 3     marketplace and even more will soon be in operation.
 4  14058                These entrants represent a number of
 5     diverse companies with keen interests in the access
 6     market in Canada.  Indeed, as you can see, there are
 7     more facilities-based entrants now in this market than
 8     in the local telephone market where the five-year rule
 9     applies -- if you would just turn to page 2 of the
10     attachment, this is our general view -- this is also
11     shown on page 2 of the attachment.  There you can see
12     that, by our estimates, the dial-up market will
13     continue to be an important element in this marketplace
14     for a number of years, but that others are going to
15     capture a very substantial share of the high-speed
16     market over time.
17  14059                The conclusion to be drawn from this
18     information is that the Commission will not be required
19     to intervene in this marketplace for very long. 
20     Consequently, unless ISPs are incented to build, they
21     will not be around for very long.  Indeed, other
22     providers, those with facilities, will become the ISPs
23     of the future.
24  14060                The statistics in the attachment are
25     also representative of the rapidly developing access


 1     market in the United States.  In that country, third-
 2     party access, as I mentioned earlier, is not being made
 3     available through tariffs.  U.S. entrants are, as a
 4     result, responding to market forces with immediate
 5     investment decisions.
 6  14061                Two weeks ago, the FCC concluded that
 7     broadband is being deployed in the U.S. in a reasonable
 8     and timely fashion, and that this deployment will
 9     accelerate in the coming years.  Consistent with the
10     data that we have just seen for Canada, the FCC was
11     also encouraged that methods for delivering digital
12     information at high speeds to consumers are emerging in
13     virtually all segments of the communications industry,
14     including wireline telephone, land-based, satellite,
15     wireless and cable -- as I mentioned just from this
16     morning, cellular as well.
17  14062                In conclusion, if the Commission is
18     to encourage companies that are currently successful
19     ISPs to continue to provide innovative and useful
20     services in the new media industry and in the Canadian
21     economy, these companies must be given the proper
22     investment signals.
23  14063                As it did in the local market for
24     non-essential facilities, the Commission in this case
25     should signal to entrants that access to cable


 1     facilities obtained from regulatory intervention will
 2     be available for a limited period of time such as five
 3     years.  This is sufficient time for these entrants to
 4     organize themselves to become full competitors in the
 5     Internet market, to the benefit of that marketplace and
 6     to the benefit of the public interest and the Canadian
 7     economy.
 8  14064                Thank you very much.
 9  14065                THE CHAIRPERSON:  Thank you,
10     Mr. Stursberg.
11  14066                One of the things I think that we had
12     indicated when we rendered our decision on local
13     competition was that we would mandate a tariff for the
14     five-year period for access to telephone company
15     infrastructure at tariffed rates and define the
16     parameters around those tariffs.  As you correctly
17     pointed out, we had indicated that we were adopting
18     this philosophy because we wanted to encourage
19     facilities-based competition, but did recognize that
20     access to the telephone companies' facilities would
21     likely be a business proposition for the phone
22     companies in any event, and that at the end of the
23     five-year period it would be likely that that access
24     would continue but at what one might characterize as
25     market-based rates, whatever they might be.


 1  14067                I am wondering what the view is of
 2     your members in terms of -- regardless of what the
 3     regulatory arrangement might be and what timelines one
 4     might be talking about, about whether your members
 5     would be providing access to third parties for high-
 6     speed Internet access at some rate?
 7  14068                MR. STURSBERG:  As I mentioned
 8     earlier, we are in the process of a negotiation which
 9     has been going on with the ISPs for some time to do
10     precisely that.  The discussions are subject to certain
11     non-disclosures but, you know, they have a view as to
12     what the price should be and we have a view as to what
13     the price should be, so we are still working on that.
14  14069                My general sense is that we would
15     like to be able to conclude those arrangements.  I
16     think personally that there is going to be -- it is
17     advantageous to be able to have a sensible arrangement
18     with the ISPs because suddenly they bring to bear their
19     marketing force and their customer base, and obviously
20     we would rather have them rolled over onto cable high
21     speed than onto telephone high speed.  So my personal
22     view is that that is a good thing to do and that would
23     substantially enhance our position in the market.
24  14070                I think that we are going to find
25     over time that this is going to become a market share


 1     race between those people who are capable of providing
 2     high-speed access.  As I mentioned earlier, there are
 3     lots of them who are coming into the market and,
 4     precisely for that reason, that the quicker you can
 5     establish a significant share in that market the harder
 6     it will make it to dislodge you later on because then
 7     you will be the incumbent.
 8  14071                THE CHAIRPERSON:  I presume,
 9     notwithstanding your comments here about the Commission
10     encouraging facilities-based competition, your members
11     would see this as a business proposition to in fact
12     encourage them to use your network rather than create
13     another network or two or three?
14  14072                MR. STURSBERG:  That's right.  Yes. 
15     And rolling them over that way would be a good thing.
16  14073                But I think that over the longer term
17     it's like anything else.  It is like what we saw for
18     resale operations in the inner exchange markets.  If
19     you exist purely on that basis, though, you are going
20     to be subject to margin squeezing inevitably, and that
21     the better course for anybody who wants to be in this
22     business for the long term is to own your own
23     facilities.
24  14074                I think it is going to be true of the
25     ISPs.  It's obviously going to be true of anybody else


 1     who comes into it, otherwise you are going to get
 2     caught in that kind of margin squeezing.
 3  14075                THE CHAIRPERSON:  I think those are
 4     all our questions.
 5  14076                Thank you very much.
 6  14077                MR. STURSBERG:  Great.  Thank you.
 7  14078                THE CHAIRPERSON:  Madam Secretary, I
 8     think those are all the parties who registered to
 9     appear.
10  14079                MS BÉNARD:  Yes, Mr. Chairman.
11  14080                THE CHAIRPERSON:  Okay.  On behalf of
12     my colleagues on the Panel and the staff, I would like
13     to thank all of those who appeared today and yesterday
14     for their thoughtful representations, and to all the
15     others who have filed written comments as part of this
16     final comment period or the final phase of the public
17     proceeding regarding new media.
18  14081                I think we have all found this
19     particular hearing to be particularly interesting and
20     informative, educating us on both the technical and
21     policy issues surrounding the whole development of new
22     media.
23  14082                I guess anybody's guess is either
24     right or wrong as to where we are going in the future
25     of all of this thing, but we certainly have a wealth of


 1     information to deal with now, and the hard part that
 2     comes for us now is to take all of this information and
 3     figure out where we are going to go with it.  I guess
 4     it is our expectation we should have a decision out on
 5     this sometime during the second quarter of this year,
 6     before we go on to other things over the summer.
 7  14083                So with that I will close this
 8     proceeding, or this stage of it.
 9  14084                I would again like to thank our
10     translators and court reporters, and again thank
11     everybody for their participation.
12  14085                As I say, we will take all the
13     information we have now and figure out what we are
14     going to do with it.
15  14086                Thank you very much.  This proceeding
16     is adjourned.
17     --- Whereupon the hearing concluded at / L'audience se
18         termine à 1128

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