INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 17, 1998

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[Translation]

The Vice-Chairman (Mr. Eugène Bellemare (Carleton—Gloucester, Lib.)): Now that we have a quorum we shall begin the meeting.

[English]

Pursuant to Standing Order 108, we will continue our study on information technology and preparedness for year 2000. The meeting will begin when the true chair will be sitting.

The Chair (Ms. Susan Whelan (Essex, Lib.)): We have before us today several witnesses: from the Canadian Radio-television and Telecommunications Commission, Mr. Elie Thimot; from Bell Canada, Mr. Denis Lalonde; and from Nortel, Mr. Michael Cooke.

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I understand that we have just one brief before us, from Bell. We'll have opening comments from all three witnesses before we turn it over to questions. I'll begin in the order the witnesses are listed, first with Mr. Thimot.

Mr. Elie Thimot (Manager, Independent Telephone Companies, Financial Analysis, Canadian Radio-television and Telecommunications Commission): I'm representing the CRTC. I don't have a formal presentation to make on behalf of the CRTC. There are really just two messages that I wanted to pass on.

First, from a regulation perspective, the CRTC has come to the conclusion that any expenses associated with the year 2000 that are incurred by any of the members regulated by the CRTC have been judged to be completely legitimate expenses that are subject to recovery by the subscriber base through the application of rates. Therefore, as decisions are being made by the commission relative to rate applications, expenses associated with this issue are considered to be appropriate for passing through to the subscriber base.

It is recognized that the benefit to be gained by this is not necessarily a benefit to the individual companies that are spending the money, but really a benefit that will accrue to every single subscriber and customer out there. That's sort of the position of the CRTC relative to this issue.

Apart from that, the only thing to this point that the commission has done is that it has written a letter to 187 different organizations, I think the number is, which is basically its total list of sort of base of people the CRTC tends to deal with both in the regulation of telecommunications and in the regulation of the broadcast industry. This includes the telephone companies and the new resellers, as well as the potential future competitive industries that are talking about coming into either the broadcast or the telecommunications business.

The letter that was sent to these 180-some organizations was not really a letter telling anybody what to do or how to do it. It was more a letter of reminder to everyone of the importance of this issue, and sort of gentle encouragement to make sure that the issue is being pursued in each and every one of their organizations in order to meet the requirements.

That's about it from the CRTC perspective.

The Chair: Thank you, Mr. Thimot.

Mr. Lalonde from Bell Canada, please.

Mr. Denis G. Lalonde (Assistant Vice-President, Year 2000 Project, Bell Canada): Thank you. It's a pleasure to be here today. I'll take the next 10 minutes to go over some of the key elements of our program at Bell.

[Translation]

Although my presentation will be in English, I will be pleased to answer any questions in either English or French.

[English]

Essentially, if we look at the outline in the brief before you, I'll talk about Bell Canada but I'll also talk a little bit about Stentor, and then about the industry as a whole, because we are collaborating on this issue. I'll go into some of the key milestones we have set for ourselves. I'll give you a status update about where we stand at this point in time on the year 2000 project. Then I'll get into some communications issues that are important to all of us, and some concerns and issues that obviously need to be addressed as we go forward on this project.

On page 3, I'm really talking about the fact that this project is not new to Bell. We've been at it officially since October 1996, but there was some work being done in certain areas of the company before that. So this has been a project that's been officially under way for over a year and a half.

It is our highest-priority project at this point in time. This is the first project in my 28 years at Bell that goes to the board of directors at each of their regularly scheduled meetings. It also is reviewed monthly by the president and the executive council to ensure that we are on track with the plan that has been laid out.

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In addition to that, we have appointed a vice-president in charge of the year 2000 project. He was appointed back in July of 1997, Mr. Michael Feldstein. Michael has a corporate-wide mandate to look at all the aspects of Bell, as well as our subsidiaries, to make sure everybody is following the plan that has been laid out and ensure that any roadblocks are removed as expeditiously as possible.

It really provides us with a centralized command-and-control approach to the whole project, so we have a corporate view and not just an individual department view of the initiative. Each week, the vice-presidents responsible for the program get together to review status, project roadblocks, removal of roadblocks, if such be the case.

Page 4 gives you just a bit of a structure for how we're organized. You see the various vice-presidents who are involved in this weekly meeting. Each of these vice-presidents essentially represents all of the corporation in its many facets.

We also interface with Stentor and the various subsidiaries of the Stentor Alliance. So we have a complete national picture on this project.

The Stentor Alliance has also recognized that this is an important issue. We established a national project management office to oversee the year 2000 project. This was done, again in 1997, primarily to look at our national systems, the network elements we all interconnect with on a regular daily basis, and our national products and services. There are certain products each of the companies offers as national products, and it's important that we all look at these products in a common way.

The reason we set up the central Stentor program office is really to maximize the use of resources. Nobody has enough resources to do everything on their own. What we decided to do is to look at all the applications that have to be done nationally and to assign a certain portion of these applications for renovations across the country to various companies. Bell Canada, through its subsidiary Bell Sygma, is doing the lion's share of the work, but B.C. Tel is doing some work, Telus in Alberta is doing some work, and so on.

Again, the project is reviewed weekly by each of the program office primes across Canada and it's reviewed monthly by a senior advisory council of the Stentor Alliance. Again, here, on a monthly basis, the report or a status update is given to the board of directors.

Some of you may already have seen that this is a substantial investment for Bell and for Stentor. The Stentor number right now is estimated at $500 million right through to the year 2000.

Page 6 is simply to give you an idea of how we are structured on this. We do have an executive office and an executive sponsor in the person of Mr. George Petty, who is chairman and CEO of Telus. Then Mr. Tom Hope, president of SCNM, is one of the executive leaders, along with Gary Hopkins, who is the vice-president at Bell responsible for national products.

As you can see, all the companies have a structure similar to that of Bell. They have a senior manager responsible for the program. These are the senior managers who get together on a weekly basis to review the program.

We also collaborate on an industry perspective. Back last summer it was felt we can't do it alone, only Stentor. This is a worldwide problem, and certainly in Canada we wanted to make sure we were ready. So what we have done is formed the Canadian Year 2000 Telecom Industry Forum. You'll see on the next slide that it's attended by representatives from the major who's who of telecom in Canada. We really wanted to get together to collaborate to ensure we have seamless communications going into the year 2000. The entire industry is taking this very seriously.

Work teams have been established in three critical areas: management of the discussion with common vendors, testing of interconnected networks, and contingency planning. We also link with the U.S.-based Telco 2000 Forum, a similar forum they have set up in the States to address this issue on a national scale.

Here is the structure. As I said, all the major players in Canada, AT&T Canada, Cantel, Fonorola, Rogers Telecom, and so on, are sitting at the table. The three main members from Stentor who will participate are Bell, Telus, and B.C. Tel, but the information is shared with all the members of the alliance.

Back to the Bell story. The way we've approached it is really to focus on some critical elements. As we can appreciate, the network is central to our operation, but everything else that makes the network work is actually considered: information systems, products and services, communications, and supplier management.

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The way we did it is much like most industries are doing it: inventory assessment. You determine a strategy, and the strategy could be to either renovate, replace, or discard the application or the product. Then we implement, we test, and we deploy.

Page 10 gives you a sense of the timeline we're working to. Our objective at Stentor and at Bell is to target October 1998 to have our mission-critical or business-critical applications converted. At this point in time we're on target to achieve that. I'll get into more detail in a few minutes.

As you can see, the heaviest period is really 1998, and we're right into that right now. Bell Canada alone has over 600 people working on this, not full-time but on a part-time basis, including outside contractors, who have been hired to help us do all of the conversions necessary to be year 2000-ready in time for us to do all the appropriate tests.

Page 11 gives you an idea of some of the key milestones. I won't go through all of them. Suffice it to say we did the assessment and inventory in 1996-97. We had to convert some applications in 1997, because they were going to fail January 1, 1998. A lot of people don't recognize that they could fail as early as 1998. So we had to convert something like 17 applications before December 31, which we did successfully.

In the January and February timeframe, we're starting now with the aggressive deployment of all of our switches, and we also launched some Internet sites so our customers could very easily get information on what's happening at Stentor and Bell. These sites are being built up as we go, with new information almost monthly. By the end of this month we'll have some product compliance information available to our customers on our major product lines.

In the April to October timeframe of this year, it's continued deployment and completion of the deployment of our network elements. Our information systems for mission-critical are also going to be completed.

The customer validation process is an interesting concept. A lot of our customers are saying “You have to prove to me that you are year-2000-ready”. So what we're doing is collecting a few customers from each industry grouping, and they are going to participate with us in elaborating a validation plan such that we can use the information and results from that and communicate it to the rest of our customers through various media.

We're reserving the year 1999 for testing. There's still going to be some conversion going on in 1999 of priority applications, but really it's a year of tests, tests, tests. You want to make sure you haven't missed anything in your program.

Page 13 talks about communication. One of my roles is to talk to various groups on what Bell and Stentor are doing on the year 2000. I must tell you that when I address large groups.... Two weeks ago I was at the Owen Sound annual meeting of the chamber of commerce. There were about 150 people in the room, and when the meeting was over, I'd say half of them were quite taken aback at the work that has to be done to get ready for the year 2000. A lot of them, small and medium-sized businesses, have not started yet. When I was speaking of the magnitude we have at Bell, their eyes were opening, and the more I talked, the more you could see sweat beads starting to develop on some heads.

What we have done to communicate the message is we sent a letter to our 800,000 business accounts in the December-January timeframe to do two things: one, to inform our customers that this was a major issue and they had to do something about it; and two, to let them know what Bell was doing and that we would have more information coming in the next few months.

As I indicated, I've been out to talk to several major customers as well, and we've participated in various forums. There was a Deloitte & Touche conference in Montreal in December, and we spoke there to a group of CEOs, presidents, and CIOs who were very interested in the subject. Also, I'm a member of the Fédération de l'informatique du Québec, which has created an offshoot of people looking specifically at year 2000 issues, and we're trying to communicate the issue to the people in Quebec and the importance of getting ready, especially the people involved in the ISIT world. We've been at other forums, such as the Canadian Banking Association, the CBTA, and some chambers of commerce, as I mentioned.

The other thing we're doing at the end of this month or in early April is collaborating with Industry Canada to send another letter out, and this is Stentor-wide this time. Each Stentor company has agreed to use its distribution system to communicate with all small and medium-sized business customers to let them know this is an issue. In collaboration with Industry Canada, we have prepared a brochure that will be attached to a covering letter from our president, indicating that this is a serious issue, and if you haven't started, you have to start now.

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There are obviously some concerns and issues on page 14 of the brief. Not all businesses are taking this issue seriously. They haven't recognized it primarily as an issue yet. We're doing our best to sensitize our customers to the fact that this is an issue.

The larger customers have already recognized it as an issue. They are the people I'm dealing with most of the time. They certainly have a game plan in place, most of them. If not, they recognize very quickly that they have to put a plan in place.

There's a fear growing, however, in the business community about the legal liability of saying anything on year 2000. This is causing concerns throughout the supply chain. That's because if our suppliers have a legal disclaimer on their information, we cannot, in our own right approach, pass that information on without a legal disclaimer. So what happens is that you have a legal disclaimer that starts at the front end of the supply chain and it carries right through to the customer.

Customers are telling us, as a supplier to them, that we have to at some point get rid of this legal disclaimer. They are going to be investing large sums of money to upgrade their environments, and if we consistently say that this is subject to change without notice, it's really of no value to them. This is an issue that we're tackling within Bell and the alliance, and also with our suppliers.

Worldwide mobilization is not yet evident. In my reading of the various articles and in talking to various people, it's certainly clear that North America—that means the United States and Canada—and the major European countries, France and the U.K., as well as Australia are taking this seriously, but when you talk to people in Africa, South America, and eastern Europe, this isn't an issue for them at this point. They're thinking that the fourth quarter of 1999 is good enough to get started, and that's of great concern to all of us. Time may be running out for a lot of industries.

The year 2000 domino effect could significantly impact the world economy because it really starts with the smallest supplier to the largest supplier and ultimately goes to the consumer of products and services. If something starts failing in the domino chain of the supply chain, then obviously we could all be in for a great surprise.

That's what we're trying to do. We have a vendor management program that has been in place since January 1, 1997, in which we're performing due diligence with all of our suppliers. We're ensuring that as we go forward we will have appropriate information from our suppliers.

The last slide, on page 15, is that collaboration is the key to success on this issue. We're making that clear to our customers and they're making it clear to us. It's not the problem of one person or industry, it's everybody's problem. The more we work together, the better we're all going to be in the end. This is particularly important from a telecommunications point of view for large users of telecommunications, such as financial institutions, governments, major retailers, and transportation companies.

I was at CN just a few days ago. I can tell you that they take the matter very seriously. They know that, like everybody else, they offer a very viable, economic product to Canada and the United States, so certainly, if that fails, if the telecommunications fail, we may have a big fiasco on our hands. We're both working together on this issue to make sure things get resolved in time.

Obviously, in terms of communications companies—that's our lifeblood—if we fail, obviously our customers fail, but more importantly, I think Canada as a whole will fail if communications companies can't be ready for the year 2000.

The Chair: Thank you very much, Mr. Lalonde.

I'll now turn to Mr. Michael Cooke, senior manager of millennium compliance at Nortel.

Mr. Michael Cooke (Senior Manager, Millenium Compliance, Nortel): Madam Chair, thank you very much for the opportunity to assist this committee.

As you all know, I'm with Nortel, which is a company of approximately 73,000 people worldwide. We design and manufacture telecommunications systems that range from the very largest to the very smallest. Some of this we sell in quantities of hundreds of thousands, while we sell others in rather small quantities. The 1997 revenue for the company was $15.5 billion U.S.

As for my location within the company, I'm on the technical side of Nortel, I'm not in the sales or marketing side, although I may come across that way occasionally. I'm certainly not on the side of setting strategic policy. I'm really concentrating on the technical issues.

When Jean Monty was CEO of Nortel in 1995-96, he established this program. It was going as an unofficial program in 1995, and it was brought to formal status in 1996. What Jean Monty did was to allocate responsibility for the program to two key people. The business systems and computing part, which is really the internal issue of Nortel that keep the company running, were allocated to the sponsor.

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Our sponsor was Keith Powell, who's the chief information officer. For the products we produce and sell to companies such as Bell Canada, the sponsorship for that aspect of the issue was assigned to Geta Sakus, who is the president of technology with Nortel.

My role is to coordinate the program for the product side of the program worldwide. As such, I report to Geta Sakus and through him to John Roth, who is the current CEO of Nortel.

As I said, Nortel has been working on this issue since 1995 and we've committed to have the whole company, its internal system and its products, ready for year 2000 by October 1998. We're well along in that program. An important part of this to recognize is that in order for us to meet the needs of the supply chain we have to have the product part available earlier than October 1998. So we have to be able to supply much earlier in order to be able to meet Bell Canada's needs, who are going to meet the customers' needs.

As well as verifying that Nortel has year 2000 solutions in place, we at Nortel will be actively working in the supply chain, both nationally and internationally, to ensure that business continues smoothly into the year 2000 and beyond. I'd like to briefly expand on that in three areas.

First, and this may be new to some of you and to others it may not, I'd like to just remind everybody that this issue is not just about January 1, 2000, nor is it about the leap year in the year 2000. We've heard already that some systems in Bell had the potential to fail in January 1998. I know of systems in the network today that will start to show symptoms of failure in July 1998.

There are attributes that are not obviously recognized. It's not just to do with two-digit years, but programmers, for example, had a very bad habit of using 99 as some kind of terminator, infinite, forever, end of record or whatever. So January 1, 1999, is going to be important.

Similarly, September 9, which is 9999, is also going to be important. If that's important, September 10 is going to be important, because we need to be able to get into September 10 in 1999. So there are a whole pile of dates like that that are important.

Also, the various processors that are around, whether they're in personal computers, telephone systems or elsewhere, have clocks in them. These clocks will start to expire at various times. Some of the clocks will reset and continue running. Some of them will reset but be pretty well useless. For example, in the GPS systems, their clocks run out on August 21, midnight, 1999. If you have a later GPS system it will reset correctly, and you'll still be in the same location in the world that you were just before it failed. But if you got one of the older systems you're going to suddenly jump from the middle of the Atlantic to probably the middle of Australia.

So there are lots of individual cases around. For the telecom industry there are about 20 key dates that are floating around, and they stretch out as far as the year 2038, when the clocks on the UNIX processors start to go bad. This is not just a single-point problem. This is a long-term problem that we're having to deal with right now. So that was my first point on my previous statement.

The second point I'd like to make is again to reiterate what was said from Bell Canada. Nortel is very concerned about its partnerships upstream in the supply chain. We're very actively working with our joint ventures around the world, with our third-party suppliers, with our suppliers of any equipment. Can they continue to supply hardware equipment? Can they continue to supply us with the third-party software that we integrate into our systems and so on and so on?

We've also been pulling in expert help from outside. I'll quote you one example that we're rather happy with, and that's a company called Cognicase in Montreal. It started out as a small research type of company. They had some technology that we found was useful. They worked with us. We worked with them. It's helping us a lot. It's helping them to make this technology available to other companies throughout Canada and around the world.

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This technology will actually be quite useful to them beyond the year 2000. We think they actually have quite a viable, growing business there as a result of this, so we're quite happy to have been partners with them on that one.

So we've been looking upstream in the supply chain, but we're also looking downstream in the supply chain at our customers, and we're looking into the standards bodies. One of the key standards for the telecom industry is the Bellcore standard general requirement 2945. We were part of the team that worked with Bellcore and some of the telecom companies in the United States to write that document and to get it out onto the street as early as possible. It has essentially become the de facto standard for the telecom industry. You've heard already that Stentor is working actively on this. We've been working with Stentor on this for close to the two years that I've now been involved, and we've meeting with them on a regular basis. And we've worked with the Canadian Interbank Working Group.

We have a process in place in Nortel called our customer-by-customer 2000 campaign. Our account executives are going out to all our customers and distributors to make sure they are well aware of the problem in general and any particular problems that we have with Nortel equipment, and we're working with them to find solutions.

We've been working beyond Canadian borders and into the United States. I have a meeting tomorrow with the U.S. government's telecom security committee. We've worked with the FCC to bring them up to speed. In fact they consulted us, not the other way around. And we're also working with Caribbean telecom companies.

As was mentioned, the U.S. equivalent to Stentor is the U.S. Telecom Y2K Forum. We've been very active with them, and my colleagues around the world have also been working with similar groups in Europe and out into Asia. We've also just discovered through Telstra that there is a forum growing in the Pacific Rim, and we'll certainly be getting active with that as soon as that forms.

If I could just wrap up here, our approach has been to be very open and proactive with the information that we have, and to share it with anybody that's in the supply chain, anybody who needs to know. We're dealing with how things are going to happen, what's happening with Nortel products, how we are solving problems, when they are being solved and so on. We are considered leaders in the telecom industry. This has been made public in statements and through letters that we've received, written both by our customers and our competitors.

In summary, our program has been in three parts. From 1995-98 we worked on remedial work and verification. Since 1997, with the emphasis in 1998 and rolling over into 1999, we have been and will be concentrating on deployment of solutions to all our customers. And from 1998 through to 1999 we'll be concentrating on business continuity planning, contingency crisis management, etc.

If I have one concern that I can pass on to you out of this, the one thing that causes me to lose sleep at night is worrying that all the customers out there may have difficulty deploying the solutions into their networks, whether they are private networks in universities, hospitals or hotels, or whether they're in the public network—and it's worldwide that I'm talking about here. I just don't believe it's going to be an easy task for them to acquire all the equipment and to get it deployed out there by the year 2000, whether it's for personal computers, new elevators, telecom equipment or whatever. We're seeing a lot of people who are just denying that it's a problem, they aren't aware of the problem, or they're holding back for whatever reason. That's my one concern.

I expect this is going to crop up in large part in Asia and Africa, but I'm happy to say that Stentor and all of the other telcos in Canada—and particularly the small co-ops across Canada—are moving ahead in their programs. They're acquiring equipment and are putting it into the network, and I'm confident Canada will be in good shape.

The Chair: Thank you very much, Mr. Cooke.

Just so the committee members know this before we begin questions, Mr. Cooke's time with us today is limited. He has to leave by about 4.30. If you have questions for Mr. Cooke, I would ask that you keep that in mind. I will adhere strictly to the time limits.

Mr. Schmidt, please.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you, Madam Chair. Was that last comment directed at me?

The Chair: No, it was for everyone in general.

Mr. Werner Schmidt: Good, I'm so glad.

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Gentlemen, thank you very much for appearing. It's interesting that the longer we get into this thing, the more the fear seems to mount that people aren't paying as much attention to this problem as they should be. It would seem to me it should be the other way around, but apparently it's still very much the case.

Mr. Cooke, you're essentially a manufacturer and supplier of some of the hardware and equipment necessary to do this. If these other people aren't going to be able to deploy, that assumes there will be enough inventory of equipment and materials for you to supply them so they can deploy. Are you sure you will have all the up-to-date equipment and it will be ready at the right time?

Mr. Michael Cooke: As I said, we've been working in the supply chain and we're certainly confident we can get the equipment we need to manufacture. Where we're seeing potential delays right now is with customers who believe this is a North American plot—we've heard that, frankly—or who think they can deal with this in the fourth quarter of 1999 and therefore are not placing orders right now. We can manufacture it, and we can manufacture it in sufficient quantities if we receive the orders in time. But if the equipment is not ordered in time, it is not going to make it into the network in time.

Mr. Werner Schmidt: I think the assumption is also made that there will be no particular technological advances between now and the year 2000. Part of the deployment that's necessary, land lines, for example, is going to assume the analogue type of operation rather than digital, and advances will be made in this area. Especially some of the developing countries will probably leapfrog over the land line installation thing in transmitting messages and using telecoms and go directly to wireless. How does that affect your manufacturing processes?

Mr. Michael Cooke: From a capacity point of view, I don't think we will have a problem delivering so long as it doesn't suddenly become a bow wave in December 1999. The fact that we will have accounts that have been dormant for many years and are resurrected, or they are new accounts that are coming to Nortel as opposed to going with their traditional supplier—we believe we can absorb that.

Mr. Werner Schmidt: The other part of that is the business of promoting and advancing the cause and the case for Nortel and getting people to buy your particular product and equipment. These companies are going to have to buy this either from you or from someone else. Could they be interpreting it, unless this is promoted in the appropriate spirit, as indeed simply a mechanism for getting them to direct their attention and their purchasing plans in your direction rather than somewhere else?

Mr. Michael Cooke: The approach we've taken there is that we're working as part of the industry. We've not been going out deliberately to individual customers with our competition, but we've certainly been to public forums with our competition and spread that message jointly together.

Mr. Werner Schmidt: It seems to me that would be a very critical issue. If there's going to be acceptance, then there has to be the awareness that this problem is not unique to Nortel, this problem is industry-wide and it's our problem. We're going to have to buy from someone, and there shouldn't be confrontation among the various suppliers in dealing with the problem. I think that is a very significant issue for you as a supplier in a particular way, because you almost have to be clairvoyant at this point, don't you?

Mr. Michael Cooke: True.

Mr. Werner Schmidt: How successful are you in being clairvoyant?

Mr. Michael Cooke: I'll decline to answer that one, if I may.

Mr. Werner Schmidt: You have to be. Obviously you're making some plans, and you did make some plans in 1995-97, and you have been singularly successful. Nortel didn't grow because it didn't have plans about future directions.

Mr. Michael Cooke: I go back to the customer-by-customer 2000 campaign. We trained the account executives in this issue and we've added this to their portfolio of knowledge. We have them going out continuously to all the accounts around the world, bringing this issue to their attention, and particularly identifying the Nortel equipment they have and the likely impact that will occur from that equipment, making sure they are aware of it.

Mr. Werner Schmidt: Thank you very much.

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The Chair: Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chair.

Mr. Cooke, you were talking about how people are denying that this is a problem. A lot of people just won't accept that this is a problem. Is there any way it can be demonstrated to them by, for example, speeding up some of the clocks you talked about that are going to be useless at a certain point and showing them equipment actually failing? Is that a possibility in the industry, to show the non-believers?

Mr. Michael Cooke: It takes a little time. In the early days, I've known it to be as long as six months to get people to realize what's going on and to realize they do have a problem.

Yes, you can do things by demonstrating. Often the trick is to get past the senior executives and to get past the decision-makers and to get to the technical people. Once you get to the technical people, very often the acceptance starts to ramp up fairly quickly. So we're using any and every device we can to get it out.

Mr. Ian Murray: So you could actually demonstrate a feature failing on a switch by pretending it was the year 2000?

Mr. Michael Cooke: We can demonstrate that, but once you get to the technical people and you explain to them what will happen and why it will happen, they catch on very quickly. It's getting through that layer.

Mr. Ian Murray: We've also been told there'll be problems up to say the year 2038.

Mr. Michael Cooke: Correct.

Mr. Ian Murray: Once this year 2000 problem is remedied—I won't say solved, but let's say a remedy has been found—not just in your industry, but the elevator companies, the airlines and everybody else, will we have learned a lesson about technology so that, as a result, this will never happen again? Is this because of the capacity now for computers to...? There's much more memory, and so on. They don't need to take shortcuts, perhaps, as they did in the past.

Mr. Michael Cooke: You're getting into the philosophical question of whether we'll ever have more computing power than we have brain power to challenge it, and I think the answer is probably no. I think we'll always be able to challenge the computers to run faster than they're running for us today. So I think that's always going to be a trade-off that the design teams are going to make.

We have one city in the U.K. that has asked us to modify the systems to deal with the year 10,000. I don't think I'll worry about that one, but some people believe the right solution is to go immediately to a four-digit year. For some industries, that may be the right solution. For the telecom industry that is absolutely the wrong solution. The telecom industry will stay with a two-digit year, and the reasons for that are that you can make changes into the network without disrupting the whole network. You can make the changes in the network one at a time, as you find solutions and put them in place. Once you've made those corrections, they will run right up to the year 9999.

Mr. Ian Murray: I want to ask about the cost. Stentor, for example, has identified $500 million as a potential cost for correcting this problem. If I understood correctly, the CRTC has said it will be paid for by subscribers.

Is that an accurate assessment of what you said, Mr. Thimot?

I wonder what the potential hit may be for subscribers. The year 2000 problem may be a very large political problem as well, if that's the case.

Mr. Elie Thimot: The fact is, of the $500 million that the Stentor Company has identified, that's for the telecom industry. I guess what I'd have to say is that once you remove from the telecom industry the whole portion that is sort of a non-regulated part of the business, you already remove more than half of what's there today. So from a regulated portion of the business, you're talking about somewhat less, or approximately half of that $500 million.

The way the CRTC has handled this in a recent decision, as recent as March 5, they have established what they call the price cap or quasi-frozen rates as of January 1, 1998, over the next four years. The forecasted amount the telecom industry is planning to spend has already been taken into consideration, so that the rates being charged to telecommunication customers, as we speak, already include a recovery for the telecommunications industry of almost half of this $500 million.

• 1615

Mr. Ian Murray: Thanks.

The Chair: Thank you very much, Mr. Murray.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde (Mercier, BQ): Mr. Cooke, this is the first time that a producer of your size has appeared before us. You stated that Mr. Monty had set up a program beginning in 1995-96. Since when has your company been aware of the year 2000 problem?

[English]

Mr. Michael Cooke: We first discovered the problem and started investigating it very seriously in 1995. Some of our products, by the nature of the product, used four-digit years from the very beginning of the development of those products. That was done much earlier than that; some of those products were done as early as 1976. But it was not done because of the year 2000 issue; it was done because there were no constraints of the type that our larger systems imposed, which require that you go to two digits for the year.

If the systems were extremely real-time-sensitive or memory-sensitive, it would have been, in the 1970s and 1980s, a fairly automatic decision to go to a two-digit year.

[Translation]

Ms. Francine Lalonde: Your company, like many others, has sold products which it produced before 1995 and which will be outdated or will cause problems for clients in the year 2000 and perhaps even earlier.

[English]

Mr. Michael Cooke: Decisions were made to trade off the solution of using two-digit years against the real-time requirements, the memory constraint requirements, and the capacity requirements that the customers were demanding of us. Those kinds of techniques were required in order to be able to deliver what the customer was wanting at the time.

[Translation]

Ms. Francine Lalonde: After 1995?

[English]

Mr. Michael Cooke: That is correct, after 1995. The background to that is it takes anything from 18 months to two and a half years per cycle to develop a product or to develop an extra lease of a product. Therefore we may have had something in the works prior to 1995 that was beyond the point of remediation and that had to be delivered after 1995 to meet obligations.

[Translation]

Ms. Francine Lalonde: Have you advised all of your clients who have purchased products made before 1995 regarding the problems they might have?

[English]

Mr. Michael Cooke: That is the process that is under way at the moment through the customer-by-customer 2000 campaign. Some necessary work was done before that, and it's part of the process of finding year 2000 solutions.

Not all products will have problems, but what you have to do is for every product, first of all, you have to get your inventory together. Then you have to do a very thorough analysis, regardless of whether the system has a problem or not. That analysis is extremely intensive. In a nutshell, it requires reading every line of code, and we have roughly 90 million lines of code that we have to go through. Only when you have gone through those 90 million lines of code do you then understand the full extent of what the problems will be. There may be no problems—that's the good news—but you still have to go through that to prove that.

If you do discover issues, then you have to translate that into three things: what corrections you have to make, what tests you have to run to verify that you've in fact made the corrections properly, and what impact this will have on the customer. A lot of work has gone on to go through that exercise in order to come up with those impact statements and to make those impact statements available to the customers.

• 1620

As information as been available to us, we've fed it out to the customers. We've not been able to feed all of the information out at the beginning, but whenever we've had anything we've fed it out to them to make sure that they have what we have so they could start making preliminary plans and then more detailed plans.

The Chair: Thank you, Mr. Cooke.

[Translation]

Thank you, Ms. Lalonde. Mr. Bellemare, please.

Ms. Francine Lalonde: I still have questions.

[English]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): My question will obviously have to be addressed first to Michael Cooke, whom I don't see as a clairvoyant, but a performer and a futurist. Just looking at the buildings going up and after reading the local papers, I think we should all stand and salute you—at least the Ottawa boys should.

Is the U.S. behind us or ahead of us when it comes to year 2000 problem solving?

Mr. Michael Cooke: I'd say it's neck and neck. There are some areas where they seem to be a little behind and some where they seem to be a little ahead, even within single industries. And obviously one of their big industries is the government, where it looks like a 50:50 split. Let me just leave it at that. I think they're about where we are, but are maybe ahead in different areas and behind in other areas.

Mr. Eugène Bellemare: Okay. So we're not lagging behind like a poor cousin.

Mr. Michael Cooke: No. In fact, I attended a conference in Atlanta a couple of weeks ago where.... They have about 500 telephone co-ops in the States, and they get together through an industry forum called the NTCA, the National Telephone Co-operative Association. It has about 500 co-ops, which run from small little groups in villages that maybe have only 300 or 400 subscribers up to all of Palm Beach down in Florida with maybe 50,000 subscribers.

But they're independent of the big telcos. At the beginning, we always thought that the difficult area to get into would be what we call the little mom-and-pop shops, but it turns out that they're extremely knowledgeable about what's going on, and because they're relatively small and are so hands-on managed, very often they can cut right through and just say, “I know I have to go and buy the equipment. I can order it now and I can install it now.” They can get on with it. I've been very impressed with the way they're attacking that.

We don't have quite the same situation in Canada. I think we have only 28 co-ops in Ontario, a couple in Quebec and one in B.C., and the Ontario Telephone Association, which represents most of the ones in Ontario told me that in fact they're right up to speed on this. They've already ordered equipment from Nortel and their other suppliers and already have it into their network.

So I'm confident that in those areas we're level, and for the things where we expected that there might be problems, we're actually ahead of the game, from our expectations.

Mr. Eugène Bellemare: We were aware of the 9999 problem but you certainly gave us a wake-up call with January 1, 1998, and July 19, 1998, as important dates vis-à-vis problems. Has a system been devised to address the problem of these dates?

Mr. Michael Cooke: I'm not quite sure what you mean when you say “a system devised to address them”, but let me just add a couple of things, okay?

Mr. Eugène Bellemare: I mean a program, a system in the sense that it is on its way to being corrected. First you have a game plan, which is a system or a process of procedure, a program, and second, it's been tested.

Mr. Michael Cooke: Okay. If you have a company that says it has tested its systems, found some problems, fixed those problems and is therefore year-2000 ready, I don't think it has done a complete job. I think you have to do the architectural analysis and the code inspection route. That gets you closer to 100%. You cannot put the brightest people in a room and expect them to dream up all of the test cases necessary to find the problems that may be lurking around in there. Mathematically that's just not possible.

Mr. Eugène Bellemare: Would you explain to us what you mean by architectural analysis and code inspections?

Mr. Michael Cooke: With respect to the large DMS-100 switch, which runs most of the public switching networks, and a lucent number 5 ESS, the same kind of device, the Nortel one has 20 million lines of code in it, and it's broken up into several thousand modules.

• 1625

What you do is you take your architects, who design this stuff and change it on a daily basis year in, year out, and sit them down in a room in teams of four or five. You always have four or five so that they cross-check one another and things don't slip through the cracks. They go architecturally through the design and they say “Look, this does not deal with dates. Let's take that off the table.”

They can do that based on their knowledge, because they're always active in it. This is not latent code that's been not touched for 20 years. This is stuff that is active every day. It is very well documented, and they have a lot of tools that will allow them to scan through to find things. So they'll take that off the table.

For the rest that has any date-sensitive stuff in it all, you take similar four- or five-man teams, but a different group of people—and this is part of their normal job, day in, day out as programmers—and you put them to read through the lines of code and to use their imaginations and to challenge one another: “If this does this, what's going to happen down the stream?” That's what is called code inspection, and that's how they go through it.

What we've done is we've taken the Bellcore GR 2945, which a lot of the telcos in North America worked on. When requirements have come in from customers, we've added those to the requirements. We've had substantial requirements from GTE and from British Telecom. We have some requirements from the Government of Canada.

We met with Telstra out of Australia just two weeks ago. I never cease to be amazed—they brought to the table a couple more extra things that are important to them. We simply add to the list. We thought there were 20 dates we had to worry about; they threw in three more. In our opinion, those extra three are local to their market; they are really to do with January 2, 3, 4, 5 and 6, and to do with the way they run vacations and so on—

Mr. Eugène Bellemare: You mentioned one date, January 1, 1998—

The Chair: Mr. Bellemare, I have to apologize, but I must move on to the next question. Thank you, Mr. Bellemare.

Mr. Jones.

Mr. Jim Jones (Markham, PC): Thank you.

All the products that are being delivered by both Bell and Nortel, are they year-2000-compliant now?

Mr. Denis Lalonde: I could go first.

No, they're not. About 56% of our product line is compliant today, and the balance is still under investigation. We're hoping that by the end of this month we will have an answer on all or most of our products, and at that point we'll be able to communicate with our customers. But definitely not all products are compliant.

Mr. Michael Cooke: I want to qualify “compliant” just a little bit. We prefer the words “year-2000-ready”. There is no prescription one can measure compliance against. There's no little checklist that one can go down and say “checkmark, checkmark, checkmark”, and you get to the bottom and get your little gold star of compliance. The industry understands that.

We're really looking at those dates that I mentioned, and all those little pointers that Bellcore has given us and that we've given ourselves, and so on, to try to trap all the things that are going to go wrong.

Having said that, I want to strengthen that concept further, so I will go back to the word “compliance”, because I think we all understand what we're really trying to do.

When we deliver product to a customer, normally we test it within the labs, and we have some very rigorous testing and the customers accept that testing. What we have done is we have pushed that boundary out further and said it's not good enough for Nortel to accept that the product is year-2000-ready. We really want to have the customer come and check it out with us and come on side, and for the customer to stand up and say “Nortel's product is year-2000-ready”. So we've pushed it that far.

If I use that measure, out of the 250 plus or minus products that I'm worrying about as Nortel's product portfolio, as of the February checkpoint, close to 70% have a year-2000-ready solution on the shelf, waiting for customers to acquire it and deploy it into their network. My next checkpoint is at the end of this month, to find out how that has improved.

Mr. Jim Jones: Are all customers made aware that the products are not 2000-ready? What is your policy? When your product is ready, are you going back in and replacing them or fixing them so that they are 2000-ready, for products that you're putting out there that are not ready?

• 1630

Mr. Denis Lalonde: In the case of products that are under contract, a lot of customers are now asking for a clause in the contract that says you will make it compliant and ready to accept year 2000 when the product is available.

That is in one scenario. In another scenario, customers are fully aware that they are purchasing equipment that is not year 2000 ready, but they still have a business to run and they have to go ahead and purchase equipment from whatever supplier. They are making that decision knowing they may have to upgrade in going forward.

In answer to your question on cost, who pays, it all depends. If our supplier is providing us with an upgrade free of charge, we will pass on that free upgrade to our customers, with perhaps some maintenance fees we charge to do the conversion. If we're getting the upgrade at a cost from our supplier, we are passing that cost on to the consumer and the consumer is aware of that fact.

About warranties we offer, our standard warranties apply. Sometimes it's covered through a contractual clause. At other times it's covered through our terms of service. In both cases we warrant that the product will work as specified, and if it doesn't, we will go in there and fix it, as we would normally.

The same thing with our maintenance contracts. A lot of our maintenance contracts have what I'll call a performance clause, a clause that says this product will work beyond year 2000. Again, we will make good on those products because we have a contract with the customer that says he or she will have a compliant product.

Mr. Jim Jones: On your chart you had a whole bunch of other companies you meet with regularly. Are they adhering to the same policies as Bell?

Mr. Denis Lalonde: In how we're going to treat the cost of upgrades and in contracts, by and large yes, all the Stentor Alliance—I wouldn't speak for all the industry, but the Stentor Alliance—has a common approach to tackling this issue.

Mr. Jim Jones: One of the things I think we've heard many times is that the small and medium-size businesses don't seem to be aware of the problem, or they think they don't have to do anything about it. What do you think we have to do, or what has to be done in this arena, to make them aware and get support?

Mr. Denis Lalonde: In our case, what we think we need to do and what we continue doing, is simply communicate, communicate, communicate. The initiative we undertook in December is one example. The initiative that has been undertaken by the Industry Canada year 2000 task force, where each member of various industry groupings is undertaking the task of informing their customers of the year 2000 problem.... I understand the banking industry is going to be sending a communiqué similar to what the telecommunications industry is doing. I think through the media, through these kinds of efforts, more and more people will open their eyes and be sensitized to the fact that it is a problem for everyone, not just large corporations.

Certainly in our efforts to communicate to customers through various forums, that is one of the main things I always talk about: the fact that it does impact on everybody in the supply chain, from the smallest customer onward. Even on the residential side, although less so, but certainly on the business side, I'm making sure I deliver that message, and it's a message we're delivering throughout Bell and through various forums.

So I think it's just continue communicating. Any industry association should also take it upon themselves to communicate to their association. I know Industry Canada recently sent a letter to association representatives, asking them to do just that. It's just spreading the gospel, so to speak, to get the message out.

The Chairman: Mr. Cooke.

Mr. Michael Cooke: Thank you very much, Madam Chair. My apologies for leaving early. I do have a flight.

The Chair: I understand. Thank you very much.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): My questions were going to be to Mr. Cooke. Maybe he could tell us about 2038 in a letter or or something. That's the first time it's come up. He talked about 2038 being a crucial item.

Mr. Thimot, from the CRTC, I take it when you talked about the 180 organizations, those were organizations regulated under the CRTC and so forth. My question is about the CRTC itself. I didn't hear whether you yourselves, with your contractors and people who are involved with the CRTC, are ready. Maybe you could answer that first question.

Mr. Elie Thimot: The CRTC itself, as you know, is a very small body. Where we primarily need to get ready is with our own internal PC-based information system. We are looking at ourselves much more as the customer of the industry, and we are looking for the PC-based vendors to provide the necessary upgrades and products that will allow us to upgrade our own internal IT material in order to be ready for the year 2000.

• 1635

Unfortunately, I'm not in a position to answer any more clearly than that. I'd have to refer this back to our own informatics groups.

Mr. Walt Lastewka: I know you subcontract certain responsibilities to other people to help you in the regulation process. Is that not true?

Mr. Eli Thimot: Very little.

Mr. Walt Lastewka: Very little.

Mr. Elie Thimot: On occasion, for a specific regulatory proceeding, we may hire the services of a consultant to do a specific study for us. In terms of contracting some of the functions of the CRTC, though, there's practically none of that.

Mr. Walt Lastewka: I guess I'd like to switch over to Mr. Lalonde.

I'm really concerned about the message to the SMEs, number one. Also important is that there are many critical dates to be met as we go further. Mr. Cooke mentioned July 1998. I wasn't sure what things are critical for July 1998, but you also mentioned certain other dates. To me, it's very important that we head off and inform people of certain things that could happen, that they need to be prepared in order for us to continue to get the message to them.

Could you expand on some of the critical dates and what your company is doing—and maybe the Stentor group as well—to inform the greater number of people?

Mr. Denis Lalonde: With respect to our own environment, on January 1, 1998, we had some internal applications that could have failed. For example, we have extended warranty plans. When an extended warranty plan is purchased by a customer it usually lasts for two years, or maybe three. Normally the duration is two years, though, and we use a two-digit field to represent the date in our systems. When we would have put in 00 to reflect an expiry date of 2000, it would have simply kicked out some of those systems. That wouldn't have impacted our customers. They probably wouldn't have known it until the year 2000, and then only by the fact that they probably wouldn't receive their bills any more. In our case, however, our systems might have simply stranded that order and we would never have found it again. We had to correct that, and it was an internal thing.

Most of the systems we corrected in 1997 were internal to Bell, with no real, direct customer impact per se. As we move into 1999, though, more and more systems use a one-year look-forward to process an order, to transact a network transaction of any kind. As a result, January 1, 1999, is also another possible fail date in our environment.

September 9, 1999, is a critical date for all industries because of that famous coding using 9999 as a sort of end-of-program facility.

So those are the dates that we are aware of. When we're talking to our customers, we're finding that most of them are already aware of these dates. Because there are some standards that have been established in the computing industry, these dates are quite well publicized in terms of what you have to look for.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Lastewka.

Mr. Lowther, please.

Mr. Eric Lowther (Calgary Centre, Ref.): I just have a couple of questions.

We have the assistant vice-president for the year 2000 with Bell here, affiliated with Stentor. We have the CRTC here. Let's just focus in on the central office switch that actually handles all the POTS network, the plain old telephone system. We're recording what goes on in this committee. I'd like to know if you can tell us whether or not, on the morning of the year 2000, people will be able to place a phone call.

• 1640

Mr. Denis Lalonde: I can certainly answer that. Yes, they will be able to place a phone call and receive a phone call, and I'll tell you why. The switches that control the local network are already year 2000 compliant. They have been ready since September 1997 because we use Nortel switches in most of our environment, if not all of it.

The DMS-100, which is the heart of the local network, has been compliant since September. We put it into a series of tests over three or four months in our verification office, and we are now deploying in the network. We have roughly, I think, 20 DMS-100s already deployed. We are deploying another 144 in the next two months. Yes, the switch itself will definitely be able to handle the calls.

Mr. Eric Lowther: You're telling me the answer to my question is yes. Does that include long-distance calls?

Mr. Denis Lalonde: Long distance is a different story because it uses a different platform. The compliance switch, which is the DMS-250, will be available in the April-May timeframe, and then we will make sure it's fully deployed by the October timeframe. We're working closely with our partners who provide us with some platforms on the local—

Mr. Eric Lowther: A long-distance call is a maybe; the local call is a yes.

Mr. Denis Lalonde: I can't answer you today that it is being deployed, because it is not; it will be deployed in the October-December timeframe.

Mr. Eric Lowther: Are you confident then that I'll be able to make a long-distance call in the year 2000?

Mr. Denis Lalonde: Yes.

Mr. Eric Lowther: You're telling me I will be able to do that.

Mr. Denis Lalonde: Yes. What has to happen is that you have to look at all of the operating systems that hang off the network.

Mr. Eric Lowther: I understand that, but I don't want to get into that. I just want an assurance from you that the people of Canada, including me, on the morning of the year 2000, will be able to make a call. People don't care about all this other stuff. They want to know whether they can make a call.

I think it's incumbent upon you and the organizations you represent.... I'm not picking on you per se, but you're in that position where people are looking for you to say yes or no, and not all this other stuff. Right?

Mr. Denis Lalonde: Yes.

Mr. Eric Lowther: You're saying yes to me about that for the record.

Mr. Denis Lalonde: All indications are that there will not be a problem making local or long-distance phone calls in Canada.

When you get other countries, elsewhere in the world, I cannot speak for them. I can only speak for the Stentor Alliance, and also through an association with the industry forum, that every effort is being made for you in Canada not to have to worry about making long-distance or local phone calls in Canada come January 1, 2000. Again, with our linkages through the U.S. telco forum, we will again ensure that you can call.

Here's what I can't tell you. I certainly can't guarantee that you will be able to make a call to Malaysia or an African country. At this point in time, I cannot foresee that.

Mr. Eric Lowther: Along that line, in most system projects, I appreciate that there are thousands of variables, and nobody knows if you've actually touched them all. And this is the mother of all system projects, if there ever was one.

I can understand there'll be some unknowns when the date rolls over, but what frustrates me in all of this is that while we all recognize that there are going to be some unknowns, nobody is preparing a parallel path of what we should do when something doesn't work.

We're all just sort of hoping that when they flick the switch and close their eyes, they will say it worked. Or it may not work, and then what? No one is saying what we should do as an escalation process. You're telling me I may not be able to make a call to Malaysia. So what's the work-around? Is anybody working on the work-around if it doesn't work here?

Mr. Denis Lalonde: Yes, I mentioned in my brief that as part of the industry forum, one of the tasks we asked the folks to work on was contingency planning. By the end of this quarter or the next—I'll have to check my notes—they will have a list of those things that are to be treated in terms of a contingency plan. Obviously, international communication or international calling, in my view, would be one of those items that would be on the contingency planning list.

Mr. Eric Lowther: On a slightly different vein, I know that the Stentor group of companies has strong software development expertise. In fact, it even owns companies that do software development and such things. I'm surprised that somebody hasn't glommed onto this as a bit of a business opportunity. They could go to an SME and say that for a small fee they will critique their systems and tell them what they do and don't need.

In fact, I read in a brief here that the Royal Bank actually has a software fix for SMEs to run through their systems—that's if they're small systems, admittedly—that does a sort of diagnostic check and updates it and all this kind of good stuff.

• 1645

Why don't you guys jump on and make this a business, a revenue-generator, and be proactive rather than thinking let's make sure the dam doesn't give way here?

Mr. Denis Lalonde: It's interesting that you mention that, because we have a professional consulting services group that is in fact ready to do just that for those customers who require that kind of expertise.

I must say, however, that because of the magnitude of the task, with our resources you have that kind of expertise already working on this project to some extent. So we've had to use our own internal resources to address our issue. We've had to hire contractors ourselves, because it was just such a humongous task that we couldn't do it ourselves, and there were a lot of good tools out in the industry.

So we are approaching that, but it's not something we're really promoting as a new venture, simply because the resources that are needed to do that kind of analysis are being used internally to satisfy our own needs.

Mr. Eric Lowther: Well, I want to applaud you. You're the first group that said to us that definitely something is going to work on the morning of the year 2000. That's going to help me sleep a little better tonight. Thanks.

The Chair: Thank you, Mr. Lowther, and thank you, Mr. Lalonde.

[Translation]

Mr. Bellemare.

Mr. Eugène Bellemare: I am happy to learn today that the Reform Party will have a good night's sleep tonight and a joyful awakening in the morning.

Bell Canada stated that they had solved the year 2000 problem didn't they?

Mr. Denis Lalonde: I wouldn't say that we have solved everything, simply because there are so many software applications and each one has to be checked individually to be sure that the problem has been solved.

As far as Bell is concerned, we had to review 125 million lines of code to make sure that everything will work in the year 2000. We had to convert and to renew 71 million codes to face the year 2000. To get this job done, we looked over the applications and classified them according to their critical, priority or non-critical role in the organization. In the critical applications, new aspects that have to be solved, crop up every day.

We cannot say that we have the solution. No, we do not have it. Nonetheless we have solved the problem for certain parts of the network because the software was delivered by Nortel.

Mr. Eugène Bellemare: Are you convinced that your suppliers will always have or do already have the solution and that when you'll be dealing with them there will not be any problems because you'll have set up some ground rules to make sure that they deliver the products correctly?

Mr. Denis Lalonde: That is not the case. We are not presently satisfied with the response from all our suppliers simply because some of them don't yet have a fully defined working plan. Some suppliers have not advised us of any date when we could receive year-2000-compliant products and services.

Mr. Eugène Bellemare: Does the government have any way to help you solve that problem?

Mr. Denis Lalonde: There have been many initiatives, for instance those of Industry Canada and of the year 2000 project team. I am confident that the representatives of the different industries taking part in the work done by this group will be able to influence suppliers on both sides and make sure that we get compliant products and services. On the other hand, none of this guarantees that overseas suppliers will be able to respond in the same way as the Canadian or American suppliers. This is a global problem and we cannot guarantee that any given supplier will be able to provide compliant services to us when the time comes.

Mr. Eugène Bellemare: The CRTC representatives said that they had allowed different telephone companies to increase their rates over the next three years.

Mr. Elie Thimot: Over the last four years, yes.

Mr. Eugène Bellemare: There was an expenditure forecast in there.

Mr. Elie Thimot: One part, yes.

Mr. Eugène Bellemare: There was one part. I'm going to go back to Mr. Lalonde. Will you spend this $500 million on in-house programs or for outside suppliers?

Mr. Denis Lalonde: What do you mean by in-house?

Mr. Eugène Bellemare: For example, let us assume that Bell Canada decides to spend $200 million and that the other companies decide to spend $300 million. Let us suppose that you estimate that you need to spend $200 million. Will that money be used to cover contracts with outside suppliers or will it be used to pay your own employees in-house?

• 1650

Mr. Denis Lalonde: I do not have the exact details to give you on what portion of the money will be applied to each. There is no doubt that part of the amount will be applied in-house and will be used to cover the salaries of our employees doing the work. In other cases, we are calling on suppliers to help us. I do not have those figures and I cannot give you the exact percentage of the money that will be spent on outside suppliers to make sure that our environments are year-2000-ready.

Mr. Eugène Bellemare: One last question, Madam Chair. I know that in private industry, when there is talk of being taken to court, people get very worried and with reason. The good thing is that, in Canada, we are much less inclined to sue than people in the US.

Mr. Thimot, given the fact that the CRTC has already approved rate increases, customers are expecting 100% service and not 50%, and some businesses might run into difficulties because of companies like Bell, would it be reasonable to say that "you charge, then you're liable"?

Mr. Elie Thimot: Yes, I think so.

Mr. Eugène Bellemare: What are you doing to protect yourself against possible court cases? I know that you cannot really be sued, since you are the government. But it seems a little cavalier. You are putting everything on Bell's shoulders, and Bell can be taken to court. Businesses may face major difficulties, which are not inherent to their operations but rather result from the fact that a product they have paid 100% for has not really been delivered.

Mr. Elie Thimot: The CRTC has not looked into that specific point, simply because industry, in particular telecommunications, is already on the road to finding solutions to the problems. A great deal of money, $500 million across Canada, as we indicated, is to be spent on this.

The present objective is the end of 1998. If I remember correctly, the plan is to have the capacity to meet the year 2000 requirements by October 1998. That leaves another 15 months before the critical period. It is assumed that the system will work. We have therefore not spent time on the other eventuality.

In my opinion, the telecommunications sector has historically always worked across the country. We think that the industry is powerful enough to ensure that it will continue to function.

Mr. Eugène Bellemare: May I ask one last question?

[English]

The Chair: No, that was your last question. Thank you.

[Translation]

Madam Lalonde, please.

Ms. Francine Lalonde: Mr. Lalonde, you say that consumers are aware that products will not be year-2000-compliant. I beg to differ. Should there not be an indication on certain products that they are not guaranteed against year 2000 problems?

You said that 56% of the products that you mentioned are compliant. I imagine that those products include telephones, since there are now all sorts of programmable telephones.

Mr. Denis Lalonde: Yes.

Ms. Francine Lalonde: So if we pay a certain price and buy a telephone, we have no assurance that it will meet year 2000 requirements. The same can be said of fax machines.

I will now do you a favour. If a company like Bell, which is working closely with Nortel, cannot guarantee all its products right now, what are people to think about all the other products on the market? Do you not think that consumers should be warned? If not all companies are aware of the importance of the problem, imagine what the situation is among consumers.

• 1655

Mr. Denis Lalonde: In order to let our customers know which products are compliant and which are not, we are planning in the next few weeks to put on our Internet site a list of our various products and their compliance status. If the product is already compliant, we will indicate the date on which it became so, and if it isn't, we will indicate that it is being studied or give the date on which it will be compliant.

In today's market, one has to assume that not everything is compliant. Customers who have contacted us up to now are saying that nothing is compliant. They are asking us to prove otherwise, to give them evidence that the product is year-2000-ready. Even customers who are not aware of the year 2000 problem are telling us that they cannot assume that everything is compliant. On the contrary, they take it for granted that nothing is compliant and that they have to take steps to make their products compliant. We will try to provide information to our customers on our Internet site in the next few weeks.

Ms. Francine Lalonde: Might I point out that not everyone is connected to the Internet?

Mr. Denis Lalonde: Yes.

Ms. Francine Lalonde: The average person is not. Far from it, and even those who are connected see that the messages they send their friends are not replied to two months after being sent.

Mr. Thimot, since you say that you took this into account, how much did you estimate the cost of compliance would be?

Mr. Elie Thimot: How much have we estimated the cost would be?

Ms. Francine Lalonde: If you took this into account in the rate increases, you must have estimated the cost.

Mr. Elie Thimot: The regulatory process includes a system for questioning the company. During a regulatory procedure in 1996 and 1997, which ended at the beginning of this year, the companies provided us, at our request, with an estimate of the amounts that they will spend on the system. Mr. Lalonde mentioned 500 million dollars, which is quite close to the total that was provided to us in 1997. As I said, about half of the 500 million dollars must be spent on strictly competitive services, which have nothing to do with the regulatory process or the CRTC, in a sense. We are therefore talking about 200 or 250 million dollars.

In setting the cost ceilings that came into effect on January 1st, 1998, and that will apply for the next four years, we allow the Stentor companies to recover approximately 25 million dollars a year at the national level. This is a pay-off period. The initial investment of 200 or 225 million dollars will be recovered through subscriber telephone rates in the coming years, at a certain amortization rate. The total for the companies is about 25 million dollars a year.

Ms. Francine Lalonde: Here is my last question. An international expert who appeared here last week told us that as companies and governments get further on in the assessment, they are realizing that they have underestimated the costs. What will happen if the costs are two or three times higher than predicted?

Mr. Elie Thimot: That will be the problem of the Stentor companies, if they have assessed their costs incorrectly, since we have already determined their ceilings and prices for the next four years.

Ms. Francine Lalonde: So you did not establish a principle, but rather set an amount.

Mr. Elie Thimot: Yes, it is an amount.

Ms. Francine Lalonde: Thank you, madam Chair.

The Chairman: Thank you, Ms. Lalonde. Ms. Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): You mentioned a number of countries outside of Canada where you cannot guarantee that we will be able to make long distance calls. In the year 2000, will I be able to call Mexico? Can you assure me that I will be able to call Mexico?

Mr. Denis Lalonde: No, I cannot provide you with this assurance today, because I don't know how Mexico is progressing towards the year 2000.

Ms. Marlene Jennings: Fine. Do you know if I will be able to call Italy?

Mr. Denis Lalonde: Once again, I cannot answer this specific question. No.

Ms. Marlene Jennings: Belgium?

Mr. Denis Lalonde: No, again.

Ms. Marlene Jennings: Germany?

Mr. Denis Lalonde: No, again.

Ms. Marlene Jennings: China?

Mr. Denis Lalonde: No, again.

• 1700

Ms. Marlene Jennings: You are more or less aware of what is happening here in Canada.

Mr. Denis Lalonde: Yes.

Ms. Marlene Jennings: Are you well enough informed about the situation to be able to tell us that Canadians will be able to make long distance calls anywhere in Canada on the first day of the year 2000, but that anywhere else, we will have to take our chances?

Mr. Denis Lalonde: Yes, that's it.

Ms. Marlene Jennings: Mr. Thimot, do the rates that you have set apply only to local calls?

Mr. Elie Thimot: Yes, only to local calls.

Ms. Marlene Jennings: Only. If I tried to call Belgium on the first day of the year 2000, and I couldn't get through because Belgium has not done what it was supposed to do, I could not sue Bell with whom I have a contract for long distance service. I could not sue you by claiming that I had already paid for the service.

Mr. Elie Thimot: As I was saying to Ms. Lalonde, the Stentor companies had estimated that it will cost approximately 500 million dollars. The part that the CRTC said was justified in the telephone rate procedure applies only to local service. Long distance service is now completely competitive, and, since January 1, it is no longer regulated by the CRTC.

Ms. Marlene Jennings: Yes, that's true. Thank you very much. I have two other questions.

I have just bought a telephone from Bell, the latest model that is equipped for faxing and allows for a wide range of programming. It looks like a minicomputer system. Will this telephone operate properly in the year 2000 or will it be a mess?

Mr. Denis Lalonde: I don't know exactly what you bought.

Ms. Marlene Jennings: Bell told me it was the latest model. A black set with a large screen and all sorts of buttons. It sells for 200 to $300. The salesperson told me it was the top model.

Mr. Denis Lalonde: OK.

Ms. Marlene Jennings: I want to know if my telephone will operate properly. A lot of consumers are asking themselves the same question.

Mr. Denis Lalonde: I cannot answer your question today without knowing exactly what you bought and without consulting the list of products and services. I hope that everything will work. That is why we are currently completing the review of all our products and services.

Ms. Lalonde, to get back to your question, the information won't be posted only on the Internet, it will also be available in our business offices and through our sales representatives. We will also use other means to disseminate the information.

Ms. Francine Lalonde: That's a very good idea.

Mr. Denis Lalonde: So, I am sorry that I cannot answer your question.

Ms. Marlene Jennings: My last question deals with the 911 system. Is this system vulnerable to the year 2000 problem? If so, what is being done to deal with it?

Mr. Denis Lalonde: There is certainly a problem with the 911 system, as there is with any other software or platform. We are currently conducting studies with the suppliers of 911 components to ensure that everything will operate properly. This assessment should be completed in the coming weeks, and we should be able to determine whether or not there is a problem. If there is a problem, we will obviously correct it to ensure that everything works properly. The 911 system is a national security system. It is a priority for Bell and Stentor.

Ms. Marlene Jennings: Thank you very much.

[English]

The Chairman: Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

I have three different sets of questions. The first one is on the CRTC, and also Bell. The question has to do with the cost that's involved there, about $500 million, and the allocation or the allowance you have made as the CRTC to adjust the rate schedule to include this. There has been a lot of discussion about whether this cost is not really a cost of doing business, being up to date, and why this ought to be treated as a special deal.

That's one side of the argument. The other side of the argument is this. Is this a one-time cost or is it a perpetual cost? How long will this cost carry on? It's $500 million now. What period does that cover, 1997, 1998, or...? Could both of you answer that question?

• 1705

Mr. Elie Thimot: Maybe I can start. I think the first part of your question was about whether this investment that's been required by the industry to become compliant to year 2000 requirements is a special cost or is it the cost of doing of business.

From a regulatory point of view, I'd say it's a cost of doing business and the way that rates are set to subscribers is based on what is the “legitimate cost of doing business and the legitimate cost of the industry to provide the service to its subscribers”. That is the logic through which the CRTC has arrived at the conclusion that it is fair to pass this on to the subscribers because the subscribers as well as the competitors, as well as the whole industry, as well as the whole public basically, are going to benefit from the industry having made this investment because the alternative is a hardship for everybody.

Mr. Werner Schmidt: Could we ask Mr. Lalonde whether this is a one-time cost?

Mr. Denis Lalonde: It's a one-time cost in the sense that the cost I'm talking about, the $500 million, covers the period 1997 to year 2000, and these are not additional moneys that we just pulled out of the sky that we are directing to this project. What we had to do is reprioritize a lot of other projects that had to be shelved for the time being so that we could invest in the year 2000.

So this is not a brand-new budget that is being set aside for year 2000 of brand-new money. It's existing money that was within the telephone company budgets that is now directed to this particular task.

Mr. Werner Schmidt: If that's the case, then why do the rates go up because of this?

Mr. Elie Thimot: Rates are reflective of total company costs or total company expenses.

Mr. Werner Schmidt: No, I appreciate that, but the implication you've given us here is that because this is additional cost it will increase the rates. Yet we've just heard that this is normal cost, it's not new money. Therefore why should the rates go up?

Mr. Elie Thimot: The CRTC has embarked—and this started in 1995—on a change in regulation from what's called a rate of return or rate-base regulation to a price-cap regulation. In other words, regulate the industry's price as opposed to the rate of return that they are—

Mr. Werner Schmidt: Then may I rephrase the question in another way? Will the rates be affected upward or downward or will they stay the same as a result of this exercise?

Mr. Elie Thimot: The only way I can answer that question is if Mr. Lalonde tells me that in his total expenses to operate his entire company the bottom cost is the same as it would have been had there not been a requirement to spend this money for the project 2000 by reallocating priorities. Then the rates are identical—

Mr. Werner Schmidt: You just heard Mr. Lalonde say that. Therefore, given what Mr. Lalonde just said, that this is not new money, will the rates be affected positively?

Mr. Elie Thimot: I guess the answer is no if it's not new money.

Mr. Werner Schmidt: I think that's very significant, Madam Chair.

Mr. Denis Lalonde: I would just mention that I'm not a rate witness. I don't know exactly the regulatory treatment of the moneys. What I've just mentioned to you is that from a total investment perspective to handle year 2000 we did not look for new money, for a new budget pot, to do that. How the funds are treated from a regulatory perspective, unfortunately I'm not the expert who can answer that question.

Mr. Werner Schmidt: No, I don't want to embarrass you in any way, and neither do I want to put Mr. Thimot in a difficult position. I want to establish very clearly though that while the rates are affected on the total costs of doing business for Bell Canada and all the other telephone companies.... And we've heard this from other companies as well, that they have built this into their regular cost pattern. Therefore this element alone should not cause the rates to go up.

If the overall costs go up, okay, that's a different question, and I'm certainly not going to call you to account on that one, but I do want to call you to account on this particular issue. I think the point has been made.

• 1710

Mr. Elie Thimot: I think the way I would answer that is this. As the CRTC was analysing the submissions of the various Stentor companies during the past year to arrive at what was called the “going-in” rates on January 1, 1998, which were to be capped for the next four years, there were all the cost submissions of all the companies. What the CRTC could have done in its analysis is looked at the fact that Stentor is spending $500 million over the next two or three years to comply with 2000, said “but that's not a legitimate expense, therefore we are going to remove that from the expense base”, and calculated the rates our customers would be charged after having removed it. What the CRTC did in its analysis is it said that is a legitimate expense; it's part of the pot.

Is the rate more or less because of that? It's very difficult to say. As Mr. Lalonde said, in Bell Canada's case they say, well, this is going to cost us, say, $250 million over the next two years; we don't have an extra $250 million, so we're going to cut $250 million from somewhere else. Under that scenario the rates would be the same.

Mr. Werner Schmidt: Changing the direction completely, as the CRTC you are a regulatory body. You are also a licensing body, which gives to broadcasters and telcos the right to broadcast or to provide telephone service. The question now is, will you use a punitive method which says if you're not ready in the year 2000 your programs go off the air or you can't provide long-distance telephone calls, your licence is suspended? Will you do that?

Mr. Elie Thimot: I'm not a lawyer, so it's going to be very difficult for me to provide you with a clean answer on this one. All I can give you is my interpretation. I believe under the current acts which regulate the CRTC, or under which the CRTC falls, I guess it would be more precise to say, I don't believe we would have the authority to establish a punitive measure against a company that does not comply.

I mentioned earlier that what we did was to send a letter to some 180 of our customer base out there, as we like to call it. The furthest we felt we were able to go at this point was to remind people of the importance of it and to encourage people to make sure by the time 1 January 2000 arrives they are ready for it.

Mr. Werner Schmidt: But human beings being what they are, doesn't it sometimes help to have a bit of an instigator as to what the consequences might be if they don't comply?

Mr. Elie Thimot: I believe the big stick over the head is probably much bigger from being able to operate in that environment than from just having the CRTC say to them, if you don't comply, we're going to cut your licence, or we're going to do this or that. I think a company that will not be able to meet the requirements of 1 January 2000 is just not going to be able to function when 1 January 2000 comes around. I don't think you need to have someone in the background holding a big stick over the head. I think just the environment is there to do that.

Mr. Werner Schmidt: The other question has to do with convergence. That's the business of the telephones and the cable companies working together. A whole new set of switching is going to be involved in that particular issue. That's a new set of technologies.

This question is for Mr. Lalonde. When this happens, are you at the current time building all those switches so they are going to be absolutely compatible and there's going to be no problem in that area?

Mr. Denis Lalonde: If I understood your question correctly, you're asking whether they are going to be compatible with a convergent technology.

Mr. Werner Schmidt: No, compatible with the year 2000.

Mr. Denis Lalonde: I really can't answer that for a total operation from a broadcaster convergence perspective. I can certainly talk from a network perspective. The switches we are deploying as we speak are already year-2000-ready, and they will continue to be so as we go forward.

I'm not sure I fully understood your question.

Mr. Werner Schmidt: That's what is happening, but convergence is also happening right now. Will some of the switches that will be used later, as the convergence is completed, be the same switches, or will they be new switches? The old switches may not be compatible with the year 2000. The new ones I suspect will be. What will the transition be to make sure this system will work?

• 1715

Mr. Denis Lalonde: I can't answer that question, because I don't have intimate knowledge of what new switches are coming on board.

Mr. Werner Schmidt: Are you working on that now?

Mr. Denis Lalonde: Perhaps Mr. Cooke would have a better answer.

Mr. Werner Schmidt: Yes, it's too bad he isn't here.

Mr. Denis Lalonde: I'm sorry, I don't have any knowledge of that particular environment to know what's coming on board. I suspect, though—and this is only a supposition on my part—whatever we are putting in our network going forward has to be fully year-2000-ready or year-2000-compliant.

We've had a program since January 1, 1997, that says to all of our suppliers: You are either compliant now or you promise to be compliant as you go forward. So I suspect anything we're buying today is year-2000-ready or will be before the year 2000.

Mr. Werner Schmidt: I hate these nebulous words like “suspect” and “believe”. Where's the confidence in this thing?

It's data that's going to be lost here. Voice communications is one thing; that's probably the least important. The most important part is the information that's being processed, like the E-commerce that's coming, for sure, the Internet and the transactions taking place here, the transmission of data, from the gathering of data to the manipulation centre, if you will. That's my real concern. Even one nanosecond of material...my goodness, you can change your whole balance sheet on the basis of that one nanosecond.

Mr. Denis Lalonde: I'd like to stand here before you and say everything is going to work perfectly, but there are no guarantees that anyone is giving on this issue. We will only know for sure when we hit January 1, 2000, if things work the way they should.

Mr. Werner Schmidt: I guess we'd better take our money out of the banks, eh?

Mr. Denis Lalonde: We're making our best effort, and I can tell you it's a very diligent effort to make sure everything will be running as it does today, come the year 2000.

Mr. Werner Schmidt: Do you think we can sleep well now?

The Chair: I want to remind members we may have bells ending our meeting—I don't want to say “rather abruptly”, but I'm anticipating a vote at 5.30, which means the bells may start at any moment.

Mr. Jones, you had a question.

Mr. Jim Jones: Yes, it's kind of a question.

You mentioned that you did it for the industry and you had to do it, and therefore you had to have a rate increase. What that really tells me is maybe we should be doing something for the industry out there, the small and medium-sized businesses, that we should be giving them a tax write-off. Really, if all the other businesses out there were doing it for themselves and to survive, then I would think the Bell systems should be under the same rules as everybody else.

I found it strange that, first of all, we got a rate increase through to allow the Bell system to upgrade their facilities, a $500-million rate increase. Then you sort of said you did it for the industry. I really think you did it for yourselves, to survive, unless there is no alternative out there other than to use the Bell switching systems.

Mr. Elie Thimot: I think the only way I can address this point is where the CRTC has sort of allowed an increase in tariffs or an increase in rates is in the area that continues to be a monopoly-type service, which at this time represents about half of the industry's cost for providing for this 2000-ready stuff.

However, the other half of it, which is in the pure competitive world out there, is at the same mercy as everybody else. It's going to have to be passed through, somehow, to the purchasers of everything. You're going to find that when you go to the bank, when you do a lot of business with what I'll call the non-monopoly world out there.

I think the CRTC has allowed that incremental cost to be recognized in the rate-setting process because the rate-setting process in a regulatory environment is really nothing more than a proxy for competition. Therefore, if you'd let the industry alone and not regulate the amount they charge, I've no idea what the industry would have charged to its subscribers.

• 1720

What happened is that the CRTC, in its role as sort of a substitute for competition, has made an assessment of how much of this cost should be passed on to subscribers, and at what rate and over what period of time.

Mr. Jim Jones: But Bell would have fixed the problem whether it got a rate increase or not. Correct?

Mr. Elie Thimot: They would have had no choice but to fix the problem if they wanted to stay in business, but the mandate of the CRTC is to make sure that in the area where they regulate they still ensure that fair and reasonable rates are charged to subscribers. And when I say “fair”, it doesn't necessarily mean the lowest possible rate for your subscribers; it has to be fair to both your subscribers and to the provider of the service.

The Chair: Thank you, Mr. Jones.

I want to thank our witnesses, Mr. Thimot and Mr. Lalonde, for being here today, as well as Mr. Cooke, who had to leave early. It's been an enlightening conversation, and we know Mr. Lowther is going to sleep better. And we hope we all can use the phone system on January 1, 2000.

I don't want to make anyone late for the anticipated vote, so thank you very much. The meeting is now adjourned.