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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, February 12, 2003

1525

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

1540

Ms. Phyllis Yaffe (Chief Executive Officer, Broadcasting Group, Alliance Atlantis Communications Inc.)

1545

1550

The Chair

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce)

1555

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. André Bureau (Chairman, Astral, Alliance Atlantis Communications Inc.)

1600

Mr. James Rajotte

Mr. Michael MacMillan (Chairman and Chief Executive Officer, Alliance Atlantis Communications Inc.)

Mr. James Rajotte

Ms. Phyllis Yaffe

1605

Mr. James Rajotte

Mr. André Bureau

Mr. Jay Switzer (President and Chief Executive Officer, CHUM Limited, Alliance Atlantis Communications Inc.)

1610

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

M. André Bureau

1615

Mr. Serge Marcil

1620

The Chair

Mr. Serge Marcil

Mr. Michael MacMillan

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

M. André Bureau

1625

Mr. Paul Crête

M. André Bureau

Mr. Paul Crête

M. André Bureau

Mr. Paul Crête

Mr. Michael Murphy

1630

The Chair

Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.)

Mr. David Johnston (President, University of Waterloo, As Individual)

Mr. Gilbert Normand

Mr. David Johnston

Mr. Gilbert Normand

Mr. André Bureau

Mr. Gilbert Normand

1635

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

1640

Mr. Michael MacMillan

1645

Mr. Brian Fitzpatrick

The Chair

Mr. Jay Switzer

The Chair

Mr. David Johnston

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

Ms. Phyllis Yaffe

1650

Mr. Brent St. Denis

Mr. Michael Murphy

Mr. Brent St. Denis

Mr. David Johnston

Mr. Brent St. Denis

Mr. David Johnston

Mr. Brent St. Denis

1655

Mr. David Johnston

The Chair

Mr. Paul Crête

M. André Bureau

1700

Mr. Paul Crête

M. André Bureau

Mr. Paul Crête

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Jay Switzer

Ms. Phyllis Yaffe

1705

Mr. Larry Bagnell

Mr. Jay Switzer

Mr. Larry Bagnell

Mr. David Johnston

Mr. Larry Bagnell

Mr. Michael Murphy

The Chair

Mr. Andy Savoy (Tobique—Mactaquac, Lib.)

1710

Mr. Michael MacMillan

The Chair

Mr. Michael Murphy

Mr. David Johnston

1715

The Chair

Mr. James Rajotte

Mr. Michael MacMillan

Mr. James Rajotte

Mr. Michael MacMillan

1720

Mr. James Rajotte

Mr. Michael MacMillan

Mr. James Rajotte

Mr. Michael MacMillan

The Chair

Mr. David Johnston

The Chair

Mr. André Bureau

1725

The Chair

Mr. Paul Crête

Mr. Andy Savoy

Mr. Paul Crête

1730

The Chair

Mr. Andy Savoy

Mr. Paul Crête

The Chair

Mr. Brian Fitzpatrick

Mr. Serge Marcil

The Chair

Mr. Serge Marcil

The Chair

Mr. Paul Crête

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Brian Fitzpatrick

Mr. Paul Crête

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 017

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, February 12, 2003

[Recorded by Electronic Apparatus]

¹ (1525)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Thank you.

We have, representing Alliance Atlantis Communications, Ms. Phyllis Yaffe.

¹ (1540)

Ms. Phyllis Yaffe (Chief Executive Officer, Broadcasting Group, Alliance Atlantis Communications Inc.): Thank you, Mr. Chairman, and good afternoon, members of the committee and staff. I am Phyllis Yaffe, chief executive officer of Alliance Atlantis Broadcasting.

We will have a joint presentation today. I am accompanied by Michael MacMillan, chairman and CEO of Alliance Atlantis Communications. We're also joined by André Bureau, chairman of Astral Media, and also with us is Jay Switzer, president and chief executive officer of CHUM Limited.

It's not often we find ourselves on the same side of the table. We generally compete with each other in providing attractive programming to Canadian viewing audiences. But today we come before you with a common purpose. We would like to focus our remarks today on the implications for the broadcast sector of liberalized ownership rules for telecoms.

The prospect of more relaxed ownership rules for telecommunications companies raises the question of whether such liberalized rules should be extended to Canada's cable companies and other broadcasting distribution undertakings such as satellites, given that both telecommunications and cable companies are involved in broadcasting activities.

In considering, as you are, liberalized ownership rules for telecom companies, you have heard and will hear from the cable industry, making its me-too case to you, asking to be brought along in any liberalization of the ownership rules for telecom companies. We are relieved, however, to see that no Canadian company has suggested to you that if ownership rules for broadcasting distribution undertakings, called BDUs, are relaxed, the rules for programming undertakings, that is, TV or radio channels, should also be changed. We support this approach.

Nevertheless, we wish to caution the members that there are several challenges raised by the proposed changes even if they are focused only on distribution. Today many Canadian media companies have combined ownership and control over BDU and programming undertakings. Members of the cable industry argue that companies involved in both carriage and content will face a business decision about whether or not to take advantage of any change in the rules by creating separate and distinct corporate entities with separate management and boards of directors and with no link between the two.

All this sounds simple in theory, but in reality there is more to it than just the technicalities of corporate reorganization and structural separation. Structural separation is a concept that has been borrowed from the telecommunications sector and has been used to deal with some fundamental accounting issues.

But in this case we are not talking about mere costing methodologies or accounting procedures. There's a unique relationship between broadcasting content companies and broadcasting distributors that has little to do with solutions of structural accounting separation. The role of a broadcast distribution undertaking in our system is difficult to surgically remove from the overall anatomy of our broadcasting system. Once the ownership distribution genie is let out of the bottle, the prospect of non-Canadian influence over programming services is raised.

No doubt you have heard representatives of telecoms explain that BDUs are not really the analog of common carriers. As they explain it, there is an established legal concept that says that a common carrier cannot control the content or influence the meaning of the content of what is being carried.

But when a broadcast distributor offers television programming to its subscribers, it does something very different. Unlike a phone company, the BDU does have an active role in controlling or influencing the content it offers. It makes critical decisions about which services to market, promote, and package, as well as about the appropriate level of resources that should be devoted to such marketing and promotion. It also negotiates vital wholesale prices, sets program packages, sets retail prices, and establishes program promotion channels--barker channels.

¹ (1545)

So BDUs make programming decisions every day. They play a fundamental role in the success or failure of Canadian programming services. That's how different the two functions of common carriage and broadcast distribution are. As we go to the world of hundreds of channels, the role of the BDU becomes even more important in choosing what gets carried, how each channel is offered, what people get to see and hear, how it's priced, how it's packaged, and how it's marketed.

As you know, under the current ownership rules, non-Canadian investors already enjoy significant minority interests in both BDUs and programming services. This reflects an assumption that all links in the broadcasting chain--production, acquisitions, presentation, scheduling, and distribution--are owned and controlled by Canadians.

At the time the foreign ownership rules were adopted and over the years amended, there was no vertical integration. Until relatively recently, the ownership patterns generally reflected silos in which distribution and programming were carried out by separate and distinct unaffiliated entities.

In today's highly concentrated environment, if you remove one of the links in the chain and permit non-Canadian control of the distribution pipeline, things will start to unravel. If you allow foreign control over BDUs, non-Canadian influence over the entire Canadian broadcasting system will be significant even if you leave the programming ownership rules unchanged. It is not simply a matter of a U.S.-owned BDU operating in Canada and complying with CRTC requirements.

Why? Because it is not just about access to capital. As you know, there's already a significant level of foreign investment in Canadian broadcasting companies. And while there is a limit on the voting side, there is no limit on ownership of non-voting equity.

Canadian BDUs are not in fact prevented from accessing foreign capital. If there are foreign companies who wish to invest in Canadian BDUs but are not satisfied with owning non-voting shares, it is presumably the strategic operating control they seek.

Let's be clear. This is not about accessing foreign mutual funds or pension funds or getting more access to stock markets in general. This is about ceding strategic operating control to non-Canadian media companies. If integrated foreign media companies were to gain control of a Canadian BDU--and remember, we're talking about strategic operating control--it would surely and quite understandably be driven by a different set of concerns.

Such companies are not just cable companies or Internet portals. They are generally dominant distributors of a large volume of television and film programming. They would have a natural incentive to promote their own content, whether on non-Canadian services currently available to Canadian BDU subscribers or on programs their other arms already sell to Canadian broadcasters. They have the means and the leverage to prefer their own properties.

The potential for influence is magnified by the fact that under the current rules they can take significant minority ownership stakes in Canadian programming services. Once you introduce non-Canadian BDU control alongside existing cross-ownership of programming services, it becomes far more difficult to ensure continued Canadian control over programming decisions.

Canadians know this, and that is why a recent Decima survey on the subject shows that most oppose the easing of foreign ownership restrictions in the media and telecommunication sectors, with the prevailing reasons for their opposition being loss of Canadian identity and culture, loss of control of important industries, and concerns about the economic impact.

We have managed under the current rules to strike a balance and allow a non-Canadian to enjoy significant minority ownership interests in both Canadian programming undertakings and BDUs. However, once a non-Canadian investor is also permitted to control the distribution platform, then we risk losing the checks and balances of our current system.

¹ (1550)

We've heard the cable industry's arguments for allowing BDUs to be treated in the same way as telecom. We believe that the ideal solution is to maintain the existing ownership rules for both broadcasting distribution and programming. However, if ultimately changes to the BDU ownership rules are recommended, we would urge policy-makers to recognize that a change made to one policy lever will inevitably have consequences for other policy goals. In such event we propose a limitation that prevents a non-Canadian who acquires control of a BDU from acquiring or retaining any interest in the Canadian programming service. This, in our view, is the bare minimum to reduce the inherent risk that foreign control of BDUs imposes on our existing broadcasting policy objectives.

Thank you for your time. We'd be happy to answer your questions in English or French.

The Chair: Thank you very much.

We'll now go to the Chamber of Commerce, Michael Murphy.

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): Merci, monsieur le président.

As usual, it is a pleasure to be here with you and your colleagues. I certainly want to thank you for the invitation. I will make a few brief remarks, and then I will be happy to answer questions.

With me today, representing both the Canadian Chamber of Commerce and the Canadian Council for International Business, is Mr. Daniel Roseman of Roseman Associates, a member of ours, who has extensive experience in trade policy and related issues and who will be helpful to the group today.

Our organization represents a variety of companies operating in the telecommunications industry as well as in the other areas of the communications sector, many of whom you've already heard speak on this topic and for whom the issue of foreign investment restrictions is of utmost importance.

As you have heard and will hear over the course of these hearings, there are differing and overlapping perspectives regarding the impact of the restrictions on competition, the access to capital, what should be the proper scope of this review, the international trade implications of any Canadian decision on our international obligations in the WTO and with our major trading partners, and the timing of any changes. I will not spend time outlining these various differences. We have outlined these in our submission, and you all have copies of that.

What I will do is move on and discuss our membership's fundamental overview position. First and foremost, the Canadian Chamber and the CCIB agree with the government that a review of foreign investment restrictions is timely. After extensive consultation among our members, we believe that in order to maintain a fully competitive and innovative telecommunications sector and enhance the overall business climate in Canada, the foreign investment restrictions should be fully liberalized symmetrically, meaning that no company should be placed at a competitive disadvantage by the liberalizing of the rules for some companies but not for others competing in those markets.

Second, an integral part of full liberalization of foreign investment restrictions would involve changes to Canadian legislation and regulation. Our members believe that any changes to the foreign investment restrictions must take care to maintain a transparent and predictable regulatory framework. This means that no new licensing measures should be introduced that would counteract the benefits that may be accrued through the lessening of foreign investment restrictions and that changes to regulations must be administered by a regulatory body, meaning in the context of Canada's well-developed regulatory regime by those regulatory agencies already in place.

The Canadian communications sector is governed by a variety of legislation, whether it be the Telecommunications Act, the Investment Canada Act, the Radiocommunication Act, the Competition Act, or the Broadcasting Act. All apply depending on the activity engaged in by a company. Replacing foreign investment restrictions with new regulations would not increase the attractiveness of Canada as a place to invest in telecommunications and in fact could prove to have the opposite effect.

The Canadian Chamber and the CCIB submit that the current regulatory regime adequately meets the stated goals of the government. It ensures that a certain level of quality service provision is maintained and allows the CRTC to effectively pursue its mandate of supervising and regulating the broadcasting and telecom industries with the aim of promoting competition in the telecom market.

Canada currently requires licences for carriers providing international telecommunications facilities. In terms of meeting the very goal of this review, which is the attraction of foreign investment, the establishment of a licensing regime with rigorous conditions for licensing could be counterproductive. This would be a step backward for Canada's regulatory system and would not stimulate greater foreign investment.

However, the Canadian Chamber and the CCIB note that there is scope for beneficial change to the current regime. This change could focus on rationalizing licensing procedures. For example, the procedure for obtaining a licence for wireless providers is quite onerous, yet those providers are often the same firms that provide wire line services. The application process for wireless licences could be simplified. Canada could also look to its trading partners. The EU, for example, has proposed that by this summer licences would be issued on a class basis.

Regulatory oversight should remain in the hands of regulators. Review of licence transfers or of mergers and acquisitions should be done by those agencies or bodies currently in place. Case-by-case ministerial approval or the creation of new regulatory entities would generate uncertainty for the international investment community and would deter rather than spur both foreign investment in Canadian companies and innovation.

¹ (1555)

Current Canadian law already encompasses many of the regulatory issues identified in the Industry Canada discussion paper. If the government contemplates further changes, the Canadian Chamber is available to engage in consultations on specific proposals.

The discussion paper also touches on the subject of broadband deployment. It is the policy of the chamber that broadband deployment as an important economic tool is also a key component of ensuring the competitiveness of the Canadian economy on a global level and of developing regional and local communities. However, it is imperative that the private sector drive this rollout.

In relying on competitive market forces, the role of the federal government on this deployment should be to ensure that any contributions required to facilitate broadband development are introduced in a manner that distorts the market as little as possible. Indeed, the government has already begun some projects to this end.

The government should focus, in this regard, on driving demand, specifically by ensuring, for example, that a percentage of government contributions to broadband are allocated towards encouraging adoption among small and medium enterprises. In the longer term the availability of additional capital for companies will permit for broadband rollout in rural and remote areas to continue on a business-case driven basis.

I'd like to thank the committee for the opportunity to speak today and I would certainly welcome questions.

The Chair: Thank you very much. I appreciate all of the witnesses sticking to the time limit.

I will allow Mr. Rajotte to have a good seven minutes for questions.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you very much, Mr. Chair, and thank you all for coming in today.

I do want to start off with the presentation by Alliance Atlantis. You stated in your presentation that you believed the ideal solution is to maintain the existing ownership rules for both broadcasting distribution and programming. Obviously that would include cable companies.

Just let me clarify this. Are you saying this even if content was divested from the ownership for cable companies such as Rogers or Shaw? Is this your basic position? You have sort of a follow-up position, but this is your basic position, even if there was divesture there.

Mr. André Bureau (Chairman, Astral, Alliance Atlantis Communications Inc.): This is our basic position because the system is working well. But what we are saying to you is that if telecom and BDUs can convince you of their clear and evident need to access foreign financial markets in order to allow them access to these financial markets outside of Canada--because we don't need it and there are some other dangers, inherent risks, attached to it--we suggest that there should be a limitation. We describe this at the end of the introduction to our presentation. There should be no link between the foreign ownership of a BDU and the foreign investment on the programming side.

In other words, if a U.S. company came in and bought Rogers Cable--100%, 90% or whatever, but the control of the company--we say that same company should not be the foreign investor on the Rogers Media side. Rogers could still have access to foreign investment on its media side. It could go to another company, but not the same one that controls the BDU.

º (1600)

Mr. James Rajotte: Second, I want to touch on the convergence going on between the broadcasting industry and the telecommunications industry, particularly some recent CRTC decisions that allow telecommunication companies to broadcast, such as TELUS, Manitoba Tel, SaskTel, Alliance, and Bell Canada through Bell ExpressVu. Would you apply this same standard or method to these companies that are broadcasting or are moving into the broadcasting field?

Mr. Michael MacMillan (Chairman and Chief Executive Officer, Alliance Atlantis Communications Inc.): Yes, exactly. This is the same theory, the same issue, the same problem; therefore, the same proposed solution would apply.

Mr. James Rajotte: I'm trying to be sensitive to some of your concerns. But this poses a question based on Mr. Johnston's very eloquent statement of what happened with the advent of the printing press and Machiavelli. We are in another revolution here--though I wish Machiavelli's Discourses was a better seller than his The Prince.

We are in a global village situation here. The Internet is knocking walls down. I'm all for having a healthy Canadian industry in terms of distribution, but looking 20 years ahead, where do you see Canadian industry going if we do maintain the current restrictions on investment, on programming, in terms of Canadian content?

Twenty years from now, if the Internet continues along its road, do you see a future for yourselves within that system, other than simply trying to protect it? Isn't this protection of it really just a short-term measure over the next two to three years?

Ms. Phyllis Yaffe: I'll start by answering at least today's problem for you. I guess your question is, is the industry run well? Are these rules applied? Are they solving any problems in the Canadian industry? Do we have a strong Canadian broadcast industry with these rules, and where will that lead us if the future changes and distribution becomes much more integrated with broadband and other technologies?

Right now the important point we want to stress is that this broadcast system is the envy of the world. We do happen to live right next door to the largest producer of television in the world, with the most exported programming around the world. And yet, we've crafted a very workable set of rules that allows Canadians access to almost every program made in the United States, certainly many of the best programs from around the world, and continues to build a very strong domestic broadcast industry, an industry that I suggest is one of the few that give young Canadians an opportunity to use knowledge and creativity and stay in Canada with a growing and exciting business. So, yes, I would say this is a system that happens to work very well, and it's a complicated system with a lot of rules.

The second part of your question is, how would those rules apply in the future when there are many more sources for programming? The industry itself has to resolve a lot of those issues. The recording industry is struggling with it. The television and film industries will struggle with it.

But if we allow distributors from other countries to own the system of distribution and the programming on those systems in an interrelated way, we risk giving up that very carefully preserved spot for Canadian broadcasting we've created over the last 50 years.

I don't know how the future will resolve itself, but I do think there is a lot at risk if, in the name of the future of technology--or even distribution--we give up the intricate system of checks and balances we have for Canadian television.

º (1605)

Mr. James Rajotte: Yes, I don't know if my question was clear; that's not really what I was trying to get at.

If you look at the first revolution that Mr. Johnston was talking about, you had Martin Luther in Germany and Machiavelli in Florence. That revolution knocked down a lot of walls. Well, the revolution of the Internet is knocking down walls faster than we can see.

I understand we have a healthy Canadian industry and I'm very supportive of that. But looking 20 years down the road, if we want to have a healthy Canadian industry where we can all pick any program we want off the Internet, how is the industry going to adapt to that? It's fine to say that we have a healthy industry today and a healthy distribution network. That's fine. But the industry has to adapt over the next 20 years to the new realities of the revolution that I think Mr. Johnston was pointing to.

Obviously my hope is that the industry would be bold and would seize upon this opportunity, even looking to an expansive North American market. I hope the industry would say we can go toe-to-toe with the Americans, we can compete with them or any other country in the world. We don't need to have these walls, which we use to shield ourselves.

In fact, I'd like you to comment on what Mr. Reitman said at a recent conference. He thinks Canadians can compete fully with anyone in the world and we do not need a system like this in place to shield and guide Canadian industry.

Mr. André Bureau: I will start, and I suppose my colleagues will add to that. I won't go as far back as Dr. Johnston did; I'm not of his age.

Some hon. members: Oh, oh!

Mr. André Bureau: But if you recall in 1968, much closer than those periods, we ran the risk of losing our Canadian broadcasting system at the time because the distribution in Canada was in the hands of foreign entities. We found solutions to tackle that. In the 1980s, when satellites started to go across the country here and have a spillover effect in Canada here, and cover Canada in fact, we thought we would lose every possibility of maintaining a Canadian broadcasting system because the coverage of satellites would wipe out all boundaries, and that after this we would not be able to maintain a flourishing and strong Canadian broadcasting system.

We found the ways to do it. We have not only survived, but I think the system is doing a pretty good job in Canada here. Nothing is perfect, but considering what was at risk, considering what we were fighting against, I think we've done a pretty good job.

What is happening today with the Internet is not new to us. We've been seeing that coming for years and years. So we are getting ready for that. You see everywhere around the world the studies that are being done, the discussions that are being done, on how to protect copyright, because if there is no protection for copyright, it's not just the Canadian broadcasting system that will be affected, it's every other copyright owner around the world. It's not just a question for us; it's the same question for everybody.

So I believe we will be able to do that, and we are currently doing it, finding solutions to continue to maintain the vibrancy of our system. In 20 years from now, God knows what will happen to all of us, but I believe that in the meantime we are getting ready for that. We are taking the steps that need to be taken. Technologically, commercially, in terms of copyright legislation and agreements and everything, we will be able to compete with anything like that. That's not the problem.

Mr. Jay Switzer (President and Chief Executive Officer, CHUM Limited, Alliance Atlantis Communications Inc.): May I add a slight angle to that, Mr. Chair. At CHUM last year, for example, in Vancouver, we hosted a concert with Alanis Morissette that we were very proud of. It was a great success. We were able to export that Canadian concert, shot in Vancouver by MuchMusic, to fellow broadcasters around the world; it was a huge export success story. In fact, the export of Canadian artists, musicians, actors, and so on has been a big part of the success you see before you. There's not a fear or lack of confidence of being able to do that. In fact, we think we're some of the best in the world at it. Canada has grown, I believe, to be the second-largest exporter of storytelling around the world.

But the power of the machine just south of the border, the sheer size, the order of magnitude, which is times 100, times 1,000, in terms of an economic engine, and the magnitude of scale and ability to--if I may use the words in quotation marks--“dump” completed product into Canada.... We're here today to talk about continuing the very well-balanced checks and balances that are in place that just ensure that Canadians have a chance, maybe not an advantage. But in the shadow of what we're dealing with, our proposals today just talk about ensuring that those chances continue. There's no fear here of tackling the world. We're very proud of the success story. We just want to not be disadvantaged by an economic giant, and even lose access.

º (1610)

The Chair: The disadvantage is that I must move on. You're going to have to perhaps meld some of your answers into some of the other questions.

Mr. Marcil.

[Translation]

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman.

We have met with other groups over the last few weeks and there are obviously mixed opinions. We have a tendency to believe that the large multilateral corporations are more in favour of deregulation, but their critics say that oft-times it is because they want to have access to capital in order to correct strategic investment errors. Therefore, the smaller companies are not necessarily in favour of the status quo, but they are telling us that there are perhaps steps to be taken before moving toward total deregulation, which would allow any large company to move in.

Others are saying that even if large corporations had access to foreign capital—and we are still talking mostly here of American capital, because the economy is so strong in that area—,they would not be interested in rural community development either, and they would therefore only target profitable sectors. But anyone who is familiar with our geography and the way in which the Canadian population is distributed knows that if we remove the major centres such as Toronto, Montreal, Vancouver—and we could add Calgary and Edmonton to the list... I would say that a major portion of the population lives in outlying areas. Therefore, access to services is not necessarily guaranteed by access to capital.

Today, you bring up another important point relating to cable service, in other words the cable industry, namely the difference between carriage and content. We do however know that there are some companies that are active in both areas, because the two go together. The Heritage Committee is also dealing with this because its concern is content.

The question I would like to ask you is the following: does cable as such come under carriage or content? Is there a distinction to be made? Structurally speaking, is there really a way to separate the two? There is often a world of difference between theoretical concepts and their application. I am inviting you to react to these issues, and I would perhaps also like to hear the views of the Chamber. Does cable come under carriage or content?

M. André Bureau: It is not as simple as that, Mr. Marcil. If we could answer your question by a yes or no, we would move on to the next question, but things are in fact more complicated than that. Cablecasting companies just like the distribution companies in Canada, whether the carriage is by satellite or by cable, have always, in the development of broadcasting systems, played a completely different role from that of the strictly telecommunications companies, because they have been partners in the development of a system given the benefits they would draw from the establishment over time of a monopoly in a given geographical area, for example. On the other hand or in exchange, they for example had to commit to extending their service to less developed and less well-served regions. They had an obligation to respect the rules in the context of their distributor role. For example, they were required to carry all of the services. They were asked to do so, whatever the service agreements were. They had to commit to carrying all the services, which is not necessarily a rule that could apply in the area of telephony or telecommunications, because they were considered to be pillars of the Canadian broadcasting system; this is still the case today. The distribution undertakings are one of the four major pillars of the Canadian broadcasting system.

But we see what is taking place at the present time and we, like you, are wondering if there is some way of finding a solution such that, if they need money, they might have access to foreign capital markets without there being a negative impact on the content side. We have found a compromise. It is not an ideal solution. We say that the ideal solution would be to maintain the present system, but if, for the future development of their distribution system, they really need additional capital, then we must at least ensure that in such a case the player who invests in distribution is not going to be the same player who invests in programming, so that there is not as great an influence as that which we described in our presentation this afternoon.

We are therefore trying to share this as well as possible. It will not be perfect, but we will at least be able to “protect“ the content from the influence of the distributor.

º (1615)

Mr. Serge Marcil: In that case, it will not be easy to distinguish one from the other. There is a control phenomenon which is gaining ground in the markets at present, and it will be rather difficult to draw the line and make the distinction. Are there not other solutions?

In fact, the problem of access to capital was brought up by Canadian companies. At least that is my belief. We are not going to gossip, but let us say that the problem was brought up by Canadian companies. Could something else be done? Could we do something else in the regulations that would allow present Canadian companies to be more profitable and to further develop, instead of moving to complete deregulation and allowing foreign multinationals to take control of these companies?

A certain number of things have been revealed to us here. We know that there are areas in which American companies have taken over Canadian companies, removed all of the management positions and transferred all of the R&D to the United States. We have therefore lost jobs, researchers, etc. All of this has been outlined, especially by small companies.

Are there one or several steps we might take in order to see if that might improve the profitability of our companies, or must we absolutely deregulate? The professor mentioned countries in Europe, but those countries all belong to one and the same market, the European Union for the most part. There is also talk these days of a European constitution. They are therefore creating a federation. That is paradoxical, given what is happening here, where certain provinces want to separate from Canada, from the federation per se. This is just a little joke in passing, Paul.

º (1620)

[English]

The Chair: You need to finalize your question. Is that it, Mr. Marcil?

[Translation]

Mr. Serge Marcil: Yes.

[English]

Mr. Michael MacMillan: If I may start off, perhaps, I think the other possibility is to maintain the system we have, because by permitting unlimited foreign ownership of non-voting equity of Canadian media companies, which is the current situation, I believe that Canadian media companies do have very ready access to capital--voting shares, non-voting shares--and an unlimited amount of the non-voting shares can be owned by non-Canadians.

We're not talking here about getting better access to the NASDAQ or to American mutual funds or pension funds. To be clear, we're talking about preventing foreign strategic operators from becoming the new strategic controlling shareholders of these companies.

You talked about the issue of whether service to rural areas would be sufficient. I think it's much larger than that. In our industry, if we don't have the kind of solution that we are proposing...and perhaps even if we do, but certainly if we don't have what we are proposing, what will happen? The strategic new controlling shareholder will already be in this industry. They're likely, therefore, an owner who wants to use the same content on their American channels as on their Canadian ones. They would naturally want to amortize a product, or dump a product that was being seen by 300 million Americans into this smaller market. Forget about making programming suitable for Saskatoon, when all of Canada would have the same concern.

Their other motivation for doing this would be to reduce the operating costs. Most of the functions could be centralized. They wouldn't be centralized here. The loss of jobs and infrastructure to this industry, let alone the loss of opportunity for programming, I think would be enormous.

We're talking about not some vague, theoretical, mysterious capital; we're talking about strategic operators already in the media industry. That's really what we're talking about.

The Chair: Anybody else?

Mr. Crête, s'il vous plaît.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman. We are not going to get into a constitutional debate over this, because that would certainly not work.

I would like to know if the proposal put forward by the Astral and CHUM alliance is a pedagogical endeavour, given that you are telling us that the ideal solution is what is taking place now, but that if we cannot live with the ideal solution, then you are proposing another one that should work.

Give me—and I am certain that you will be very honest here—an example of a significant player outside Canada who might want to invest and who would probably be involved in both sectors at once. Paint me a picture of that. There must surely be people in the United States or in other countries who are already involved in both sectors and who, confronted with a ban, with a condition such as that one, would decide to stay home. If that were the case, there would be no improvement on the investment front. I would like you to explain this further and to give us an example of what such a model might result in.

M. André Bureau: It is always difficult to find examples that are precise enough, that fit exactly right, but let us take the Liberty Media Corporation in the United States. Liberty Media is highly involved in distribution and highly involved in programming. Those people are aware of the situation here. They are even shareholders in a certain number of Canadian companies, but at the levels presently authorized. If a company such as Liberty Media decided to come to Canada and to buy a Canadian distribution company having assets in programming companies, then it would obviously be very pleased and would go into it saying that not only will it manage a distribution company but it will also exert considerable influence on the programming company that will eventually buy programs here over which it will be able to exercise some influence.

What we are saying is let us try to find a practical solution. I certainly would not volunteer to try and resolve the problem between the two of you, as a practical solution, but what I mean is that we will try to find a practical solution because it is possible that our distribution companies will indeed need to have access to foreign capital markets in order to be able to continue. You are aware that we are the leaders as far as television distribution in Canada is concerned. We are on the top of the heap because we are extraordinary at what we do. We have visionaries who have done this work for us and who have played the game over the years. They might need to have access to those markets in order to be able to continue to develop and to offer Canadians first class service. If they do indeed need that, what we are saying is that if that is their need and if you are convinced of it, then give them permission to change the rules on that side of things, but do not allow Liberty Media Corporation, because those people would move into Canadian distribution companies, to exercise the same influence on the content side of the business. If the owner of a content supplier needs foreign capital, it will go and talk to companies other than Liberty Media, so that the influence that is already there, inherent in the role of distributor, does not go beyond what is reasonable in terms of influence over content.

Does that answer your question?

º (1625)

Mr. Paul Crête: One question remains. Will your solution be attractive enough to appeal to those people? If our aim is to allow investment in distribution and if there are players who are already involved in both aspects, will it be interesting enough for them to come here solely to get involved in distribution?

M. André Bureau: That will be the real test. If they want to come here and buy up a distribution company in order to exercise influence over a programming company, then that is not what we want. They should stay home if that is what they are interested in. But if what they are interested in is investing in Canada because it is an interesting market, then they will get involved with a distribution company. But they will not move into the area of content.

Mr. Paul Crête: But if they decide to not come at all, because it is not worthwhile enough...

M. André Bureau: If they do not come, others will.

Mr. Paul Crête: Very well.

If I still have a little bit of time, I would have a question for the Canadian Chamber of Commerce. There is a short sentence dealing with broadband on page 8 of the English version of your brief that startled me, and I will read it to you:

However, it is imperative that the private sector drive this rollout, relying on competitive market forces.

Are you aware, Mr. Murphy, that with a sentence such as that, the people in Témiscouata will probably have access to broadband in the year 2525 and their companies will all have gone elsewhere, because they will have lost an important competitive element?

[English]

Mr. Michael Murphy: I will make two comments. One, specifically with respect to the overall view of the membership--and it's an issue that we spent quite a bit of time talking about here--I think there's very clear agreement that the private sector has, and has already demonstrated, a significant desire to continue to build networks in the country, and we have a record that I think is second to none. We clearly have challenges with respect to our geography in terms of rural and remote, and that applies to a number of communications services providers. This is a very difficult geography that we have to cope with.

We've also raised the prospect here, I think importantly, that as the prospect for public financing to be a part of this exercise in terms of a rollout of broadband presents itself, there are two things. One, if there is a be a role there--and we acknowledge that there could be a useful role there--you want to make sure that you're still going to allow the markets to work, but you're also going to want to make sure that you look at the demand side of the equation as well, not just in terms of supplying into different areas but also looking at small and medium enterprises, which is the example we use, as part of that demand side, that you think about that.

So from our standpoint, I recognize that in terms of the desirability of having equal levels of services in every region of Canada, it's clear that we,as a country, are not there yet. We made a reference in our submission to technology and some of the changes that can occur in technology, and the providers we have as members are certainly good examples of how much the evolution of technology has changed the ability to deliver into various parts of the geography of the country. I think that's only going to continue.

So if every area of the country is going to be done within the timeframe that everyone would like, that's probably not realistic, but certainly it is part of the equation here in terms of moving forward.

º (1630)

The Chair: Thank you, Mr. Crête.

Mr. Normand.

[Translation]

Mr. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): I have three little questions. The first one is for Mr. Johnston. You talk a lot about productivity and innovation. Several witnesses we have heard thus far have told us that they are not opposed to new investment, to the opening up of investment, but that for them this new capital is in no way a guarantee of more innovation or new technologies nor, as Mr. Crête mentioned earlier—and this is a very important point—of access to any new technologies, particularly in the case of Canadians living in remote areas.

I therefore fail to see how you can give us the insurance that new capital will indeed improve the technologies and give access to these new technologies.

Mr. David Johnston (President, University of Waterloo, As Individual): Thank you, Mr. Chairman.

I have a rather clear opinion on access. The simple fact is that the more sources of capital you have, the more sources of technology you have, the broader your pool of expertise is and the better it is, because there is not just competition but also innovation, creativity in the regions as well as solutions that are different depending on the region. Therefore, as far as I am concerned, in the interest of access, I prefer to see the broadest spectrum possible.

The second point, with regard to innovation, is dealt with on page 4 of my presentation. I refer to a study carried out by the Organisation for Economic Co-operation and Development.

[English]

Let me read it from page 4:

...countries are ranked on how well their regulatory regimes encourage innovation.

Overall, Canada ranks in the middle of the 10-country analysis and earns a high ranking for its regulatory regimes affecting firms already operating in Canada. A low administrative burden on firms gives Canada a second-place ranking behind the United Kingdom in administrative regulations, and due to economic regulations that encourage competitiveness and innovation, Canada places third, behind the United Kingdom and the United States, in the economic regulations comparison. But for regulations affecting foreign firms, Canada has the most restrictive climate among the 10 countries, and the gap between Canada and the other nine countries is significant....

Conference Board and Statistics Canada research shows foreign-owned companies are often more innovative than domestic firms in transferring new knowledge and technologies and in generating a greater share of revenues from new products, services, and processes.

[Translation]

Therefore, access is the primary purpose of the Telecommunications Act and, in this regard, of the Broadcasting Act as well, but my preference goes to the solution that would ensure the broadest possible range of solutions.

Mr. Gilbert Normand: If we wait for Mexico and the United States to harmonize, then that will take some time.

Mr. David Johnston: It is really a challenge.

Mr. Gilbert Normand: I would have another short question for the people from Alliance Atlantis Communications Inc. I understand somewhat your position and your desire to defend what I would call Canadian sovereignty in the area of multimedia. However, the role of the CRTC is nevertheless to guarantee content, depending upon the licences it grants. It guarantees content, that it be Canadian, etc.

If there is new capital, would that not allow for better content? And if the content is better, could we not export it, to the United States or to English-speaking or French-speaking countries, depending on where the content is produced?

Could the fact that the content might it too benefit from a greater influx of capital not serve to improve it? One way or another, people will zap and tune into American and other channels if they do not like the content.

Mr. André Bureau: In theory, I believe that we could say that any additional capital might translate into improved programming.

I believe that in practical terms we are already used to dealing with suppliers of American or French programs. We already know them very well. We are well aware of where their interest lies. We are well aware of the quality of their programming; we acknowledge and respect it. When we are able to get our hands on good programs, we are very pleased and very proud.

That being said, the three of us are all aware, in our having dealt with them for years, that their interest, if they managed to exert effective strategic influence over us through ownership, would lie in program budget approval, because when you look at a budget, you decide what will go to Canadian programming and what will go to foreign programming and what funds will be available. And here, if we want to have the best programs, oddly enough, we will have to pay quite a bit more than what was provided in the budget at the expense, most probably, of Canadian programming.

At that stage, they will have such an influence and such control over us that they will be able to say that this is the package they are offering us for the year and that if we want to have this film or this series that is really quite remarkable, then it is outside the package and we will have to pay a little bit more.

We will gradually become totally dependent not only with regard to our choices and our access but also through our becoming incapable of doing quality work as far as Canadian content is concerned. So here the effect would be the reverse. Based upon our experience, it would go in the opposition direction of what we would have imagined in theory.

What interests them—and we cannot blame them for it—is to come here in order to broaden their market. It is not simply to please us or to deliver programs to La Tuque or other less well-served regions, but to find markets for their products. It is as simple as that.

If they are able to “go all the way“ with us, they will do so. And if that is the case, then we might as well keep the leverage we have to be able to negotiate program purchases with them. We would thus be able to say, if we want such and such a program, that we will buy it, but it will be a client to program supplier relationship, and I will not be talking to my boss, my real boss, because he is the one who invested money in the company and who could decide the future of my job and the future of my company.

We must not forget that the programs we buy from the Americans or the French that we are talking about, coming from Europe, are the best programs we have on our channels.

If we were to allow a softening of the ownership rules in the area of content, what would they do? They would not come here to invest in our services, they would come to themselves apply for a license. They would simply come here for strictly dumping purposes. They would organize themselves and sprinkle small Canadian productions here and there, hidden in this crack and that, but they would come here and do it themselves. They would not come to pay to buy us.

Mr. Gilbert Normand: That means that...

º (1635)

[English]

The Chair: Mr. Normand, I'm sorry, your time is up. We'll come back.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): I might get into a little bit of a problem with political correctness on Canadian content here, so be on your guard. If we're into history, I think Confucius said a long time ago that it was a lot easier to swim downstream than upstream. When we're in a revolution, people who try to swim upstream are almost always losers. Albania tried to control culture, Cuba has tried to do it, the Iranians and many others have, and I think we all know what the verdict is on those experiments.

Somebody mentioned Alanis Morissette and how much money we're making in Canada by exporting her. I think she's probably made a lot more money in the United States producing CDs she sells worldwide and exports back to Canada than we've ever sold there. And I'd say, if you want to see Canadian content at its best, watch the halftime show of the Super Bowl. If you think Canadian content on the CBC is the Colorado Rockies playing the Detroit Red Wings in an NHL final, I'm sorry, I don't really see any great thing to jump up and down about on Canadian content on that basis.

In fact, if I'm really looking for some high-quality alternate programming on TV, my favourite without a doubt is public broadcasting. I remember Mr. Johnston used to be on the editor program with the Canadian-U.S. border thing, and that was an excellent program. I used to watch that every Sunday out in Saskatchewan, and I thought it was a first-class program.

It still boils down to the fact that if there's a Canadian cultural market and it's alive out there, somebody can produce a program that will sell in that market and create a dollar. Somebody in the U.S., I think, made a movie about curling, and it's actually doing quite well in Canada in certain markets and so on, yet it's a pickup on a Canadian piece of culture.

The question I'm going to get at is with Alliance Atlantis. To me, Canadian culture is everything from Shakespeare to the people Mr. Johnston mentioned. Even Bill Gates is a part of our revolution in culture here. You can't draw borders on this thing, and it's a very difficult thing to define or get into. I'm just wondering whether Alliance Atlantis is in the business of producing Canadian programming and whether you receive a lot of government money from the federal government to produce that programming.

º (1640)

Mr. Michael MacMillan: You were interested in that curling movie. We produced that film, and it was the highest-grossing English-language Canadian movie in many years, and we're proud of that. It's called Men with Brooms. By the way, through Telefilm Canada and indirectly through the CBC and other avenues, our channels and our productions do enjoy support from various federal government financial structures, absolutely.

You talk about our controlling culture. We're not asking to control culture. In fact, as to the television viewing choices Canadians have, we get more channels available on our TV sets than any other country in the world. We have more choice of television programming. This is not--let's be clear--about restricting choice or keeping programs out. It's making sure that if there's going to be a choice, then at least part of that Niagara of different channels and programs, at least part of that, is Canadian. Canadians do have a chance to choose to watch their own programs, their own stories, and their own news if they so wish. We're not forcing them to. We're not advocating that, but we are pleading that surely, amongst this wide choice, part of it should be Canadian.

You say it's easier to swim downstream than upstream. Well, yes, physically that is of course true, but we're the only country in the world that shares a language and a substantial degree of culture with America. And 300 million viewers and customers right next door is a heck of a thing to compete with. I would say that in this case, in order to ensure that there remains a Canadian choice, we need the system we have today, one that works so very well.

There are some cultural products--and TV shows and films are amongst those--that have a value beyond their simple manufactured value, beyond that of, say, a cup, a glass, or a piece of paper. This is a case where the pure market by itself is not sufficient.

If we wanted everything to be simply market-driven and wanted to swim downstream, we wouldn't have a country called Canada. Our original existence was in defiance of supposed north-south market forces. I think there are some things for which the market itself is not a sufficient guide, and this is one of them.

But to reiterate, we're not talking for a minute about keeping channels out of this country.

º (1645)

Mr. Brian Fitzpatrick: Just to correct one thing, I'm not talking about the market. Public broadcasting is not a commercial operation. It produces quality, non-commercial programming for a large market. Don't get me wrong on that point. If you're really looking for top-quality stuff, that's where a lot of it's coming from.

The Chair: Let's debate it. Would anybody else like to comment on it?

Mr. Jay Switzer: Mr. Fitzpatrick, I share your concern in some areas, but that is really a question of trying to understand the definitions of big-C culture and small-c culture. Our particular company doesn't have much time for some of those arguments, and occasionally it puts us at opposite ends with my friends here at the table. But we share a belief in trying to come up with a structure that can get stories made and to the market.

To specifically answer your question, I'll take the genre of science fiction. It's a genre that gets no respect from our cultural funding agencies; it gets no respect from some of the mandarins across the country. But we're financing a science fiction show that was created in Vancouver, that will be shot in Regina, and that will be exported to the U.S. and Europe. Three-quarters of the production will be done in Regina and one-quarter in Vancouver. The checks and balances that are in place, the benefits that allow us to be able to do that and at least get stories that will be set on planets outside our universe, they are as Canadian as anything else, because they're conceived and written in Canada and involve hundreds of actors and talented professionals from here.

Yes, I agree it's not an easy definition, but there's still a lot of business here we're trying to support, and that is still an export success story for Canada.

The Chair: Mr. Johnston.

Mr. David Johnston: Mr. Chairman, I agree with my friends here that it is difficult at times to make the distinction between content providers and carriers, contenu et transport, particularly with distribution undertakings and programming, but I would suggest it's not impossible. In fact, much of our framework for telecommunications and broadcasting turns on that very distinction. We have a Telecommunications Act that basically governs carriers, we have a Broadcasting Act that basically governs broadcasters, and they have somewhat different objectives.

One could argue about what the paramount objectives are, but certainly for telecommunications and the focus on carriers, it would be accessibility and, certainly in the early days, national security. My argument is that other values have overridden those; we can handle national security and in fact enhance accessibility by removing foreign ownership restrictions.

When we look at the Broadcasting Act and the focus on content, clearly a primary--probably the primary--objective of that act was to ensure that Canadian culture and sovereignty were protected, preserved, and enhanced. That's why I think that debate is properly in a different committee of the House of Commons; that's where it should be.

I come back to the point that the distinction can be difficult to make from time to time but not impossible. We have a CRTC that, under André's superb leadership and still, functions in two divisions...just to make that particular kind of focus. That's the way I would keep that debate.

The Chair: What's going to be difficult is my getting everybody in who wants to ask questions today.

Mr. St. Denis, I would ask you to proceed.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chairman, and thank you all for being here to discuss this very fascinating subject.

Speaking for myself, and I'm fairly new to this subject, I think it's coming down to three broad categories of groups: those who feel we should just eliminate the foreign ownership restrictions and basically see what happens; those who say, well, keep it open, but let's not forget the content issues--which I think is what two or three of you have made a great point about today--and another group that says, yes, do that, but let's make sure we have access to infrastructure; this is more of a telephone issue, I suppose.

I'll start by asking the Alliance Atlantis delegation something. You mentioned that to protect Canadian interests on the content side--and grudgingly, I guess--and if there were to be removal of the ownership limits, you would say it should only be done if we somehow can desegregate, for those companies, the broadcasting from the infrastructure, so to speak. Could that be accomplished, in your view, by a licensing regime as opposed to taking a Siamese twins approach and splitting the Siamese twins? I would ask your comment on whether a licensing approach would deal with your concerns there.

Ms. Phyllis Yaffe: I'll start answering that, and then I'll ask my colleagues to add if they wish.

We have lived through some of those suggestions of regulatory approaches to this, and I'm afraid to say I don't think it's as easy as it always looks from the outside when one tries to separate Chinese walls, to separate related businesses.

If this committee is convinced that more foreign ownership should be allowed on the BDU distribution side, our suggestion is that strict regulation only would not serve us well. We should approach it with the cross-ownership suggestions that we made in our presentation, which means disallow the foreign owner who would control the BDU to own related, though separate, programming services in that family of companies.

I think we do that with the understanding that a broadcast distributor plays such a significant role in the lives of programming services that we cannot leave it to regulation that gets reviewed every seven years. We cannot leave it to complaints from supplicants from the services who must go to a regulatory body and complain in front of everyone about their largest customer. Those rules make it extremely difficult to make significant changes in a speedy manner, if, unfortunately, things don't go as well as we think they might.

So, no, we don't think the regulatory process is sufficient and we believe this cross-ownership ban would be more useful and give us a better opportunity not to fall into some of the traps we've seen in the past.

º (1650)

Mr. Brent St. Denis: The chamber argued that a licensing regime might work.

I wonder, Mr. Murphy, if you would comment on the reverse, whether you think the splitting of the Siamese twins, the desegregation of a company that dealt with broadcast and had only infrastructure, would be a solution in lieu of licensing, because you suggested that a licensing regime might solve the content issue.

Mr. Michael Murphy: I think we raised the prospect that while there may be certain beneficial aspects to looking at the licensing regime as a whole, we're a long way from suggesting that increased licensing and an increased licensing burden on providers would be a useful thing. I think our brief speaks to that quite well.

I think the concern there is that you would move into a regime where you see liberalization, in terms of what has been proposed by a number of players--and we have outlined the various options in our brief--but somehow then you could recoup the ground a little bit and say you've created a more extensive foreign investment regime, but on the other hand, you're going to find a way to play a harder game in terms of hard-edged regulation and increasing the regulatory component.

We're looking at that as very much a negative. If the objective here is to do something constructive with respect to increasing the level of investment in the sector, adding a regulatory burden, if you do it in the wrong way, would clearly be a negative.

So if that was the interpretation you took from what I said, I didn't express myself as clearly as I should have.

Mr. Brent St. Denis: I just wanted to clarify that, because I possibly misunderstood the way you said it.

Professor Johnston, in your presentation, in the summary you used the term “definitional limits” in dealing with some of these issues. I wonder if I could ask your comment on whether a licensing regime would deal with the issues raised by the first group.

Mr. David Johnston: I share the comments that Mr. Murphy has just made. I would not be enthusiastic about a licensing regime. I have sympathy for the puzzles that our colleagues on the right have presented. They are real when one is sorting out the convergence of broadcasting distribution activities and programming. But we have a tradition of doing that in the two acts. In fact, the third act is the Radio Communications Act, and I would continue to live with that distinction.

Mr. Brent St. Denis: And the notion of segregating the two in some form, if a company owned broadcast equipment and infrastructure, is that...?

Mr. David Johnston: Yes, that would appeal to me, because that has been our tradition.

Mr. Brent St. Denis: Do I have another couple of minutes, Mr. Chair?

Very quickly, I would like to ask you, Professor Johnston, because of your experience leading the broadband task force, and you're at a university that is a world leader in technological development, I wonder if all this discussion, to whatever extent we discuss telecommunications regulation, is moot, considering that, as Mr. Rajotte has mentioned, with the walls falling down we always see some degree of Internet telephony and video. It simply comes down to protecting our copyrights around the world. Everything else is wide open. And issues of foreign ownership limits and regulating content....

Maybe this is your point, that we either play the game globally or we don't play it at all, because the limits and barriers within the industry are falling down.

º (1655)

Mr. David Johnston: My answer would be more complicated than that. I think we live in worlds within worlds within worlds. I believe there's an important role for promoting Canadian culture and sovereignty, and we have an enormously attractive tradition of doing that in some respects.

We live in a very rapidly moving globalized world. It's important that Canada play productively in that, certainly with respect to technology and carriage in particular. We should have as few restrictions as possible, because I believe Canada has the capacity to play very well in that world. Indeed, some of the Canadian artists that Michael, Phyllis, André, and Jay have referred to have shown we can do it on the content side as well.

When we come to broadband accessibility and rollout, I appreciated very much Michael Murphy's very carefully phrased position on the role of the marketplace and the role of public support. As I read the language, Mike, I am fully supportive of how you phrased it with the particular emphasis.

It's important to have foreign capital and foreign ideas or international ideas in a broadband rollout. Just as we linked every school and library in the country to the Internet in 1999 and were the first nation in the world to do it, every community will have broadband accessibility by 2005. We'll export to the rest of the world that technology and some of the content that goes with that technology.

I was struck by the example Minister Timms from Britain gave of a Hong Kong-based entrepreneur, Li Ka-shing, who came to Britain and made the investment in 3G, which nobody had been able to make work effectively--lots had gone bankrupt. If we can do that same kind of thing in Canada with capital from abroad or our own capital, with technology from abroad or our own technology, and with many good Canadians making it work, the globe will be our platform to do it in every corner.

[Translation]

The Chair: Mr. Crête.

Mr. Paul Crête: Thank you, Mr. Chairman.

I have a short question, once again dealing with your proposal. My view at the outset is that there are different market sensitivities in Quebec and in the rest of Canada with regard to programming. I would like to hear your views on this to see if you agree, because to my mind, in Quebec, for example, locally-produced films, serial dramas, etc. are part of the core programming, whereas in the anglophone Canadian market, several American programs are the big sellers. I would like to know if to your mind your proposal would have a greater impact in terms of protection on the English Canadian market or on the Quebec market or if it would not necessarily have any particular impact.

M. André Bureau: Obviously, foreign investment in the English-speaking Canadian market would come from the United States. Therefore, the measures we are suggesting would be aimed at maintaining in Canada what we already have within our system and the ability to continue to develop it. I obviously do not believe that Liberty Media will come running to buy up French-language channels in Quebec, but if it can pick them up at the same time, then it would be all the better for it. It will get the programs translated and broadcast them there as well. But my belief is that it would be less obvious, less immediate.

That being said, I believe that the principle in play or the ideas laid out before you could affect, perhaps at varying degrees, both the francophone market and the anglophone market. We are perhaps better equipped to resist in French, because of the language, because of the role we play within the program grid. The programs are produced at home, in Quebec. Among the top 20, 19 or perhaps even all 20 are produced in Quebec. It must be recognized that the situation is not the same in the anglophone market. The risks are therefore perhaps greater there.

» (1700)

Mr. Paul Crête: Would you like to see your proposal enforced under the act for a set period? If we were to move in the direction you have suggested, would you like the act to provide for a review of the system within ten or five years, so as to allow for a return to the ideal situation if yours does not work?

M. André Bureau: I believe that in our present system, anything can be reviewed if at any point it appears urgent to do so. Why five years? Why ten years? What do we do if within three years' time it appears it would be important to review things, or if this does not happen for 15 years? I see no great advantage in having some kind of a sunset clause because to my mind if there appears to be a need, someone will say that it must be changed. This could not be done overnight, but there is always this ability to change our laws: it is what you do. This is why the committee is meeting.

Mr. Paul Crête: Just joking, but I would say that five years is the minimum period we would need to adjust.

[English]

The Chair: Thank you.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Merci, monsieur le président, and thank you all for coming.

Alliance Atlantis, you don't think that Canadian content is protected enough by either existing regulations on content or things we could put in place if we had 100% foreign ownership?

Mr. Jay Switzer: There are strong rules in place and they are very effective, up to a point. There are other things that a cross-owned distributor would be able to do to create a competitive advantage--in fact, a disadvantage to smaller Canadian operators; things that are not easily regulated or dealt with in the current regulations; matters of marketing and wholesale price in some cases, retail price, channel position, appearances on the advertising and promotional barker channel; and whether you're mentioned on their websites or included in their envelopes or bill stuffers. Even people in companies of the best intentions would still feel pressure to prefer their own channels across those platforms.

Although there are strong successful Canadian broadcasters here, not all of the broadcasting landscape is going well at the moment. That's the case in radio, with small-market AM stations that many of you are aware of, and at the moment, small local-market television is frankly, in some cases, in jeopardy. It is not a good business now. For small markets in which we operate, such as Windsor, Wingham, London, Pembroke, or for a small market we might operate on Vancouver Island, the difference between profit and loss is very small. We're at the mercy of the distributor, fighting competitively against channels. Whether they own 30%, 60%, or 80%, there is an incredible advantage that regulation can only partially give us comfort with. For us, in the short term, that's the part of the equation that is most at jeopardy and most at risk.

Ms. Phyllis Yaffe: One of the most infuriating things to our viewers is when a distributor moves the channel to a different number. You wake up one morning and channel 39 is not Showcase; it is lost in space somewhere on another channel way up the dial. It's very bad for our business and totally at the discretion of the distributor. We cannot influence that decision.

I suppose if you had many of your own channels on your own system, you might have a predilection to do that more often than not. You might move your channels to a better number on a dial that people regularly go to, rather than leaving things in place as they are today.

So that's just an example of one of the protections you cannot build into regulation. That is the business of the distributors. For us, an important part of our business is to maintain that spot on the dial and use it to market our channels so people know where to find us. So I give you that as an example of things we cannot control that are not CRTC regulated but are there as part of what a distributor does every day.

» (1705)

Mr. Larry Bagnell: I guess if worse comes to worst, the list you gave us would be a good list of things to try to regulate, even though it would be difficult.

Mr. Jay Switzer: We have great comfort in dealing with occasionally having fierce arguments, but in dealing with Canadian operators, Mr. Rogers or Mr. Audet. We're not sure that, in dealing with Mr. Redstone or Mr. Malone in Denver or New York, at the end of the day we would have the same comfort.

Mr. Larry Bagnell: Mr. Johnston, you talked about the advantages this might give us in moving ahead in the new world, in all this innovation and everything. But is there not a chance that if you opened it up to foreign ownership the Americans would buy out the most profitable Canadian companies and move the head offices, research, and all the brain operations to the United States, and there would be less innovation done in Canada?

Mr. David Johnston: Yes, I think there's a real fear of the hollowing out of the best of Canadian enterprises and the loss of the high design and high engineering jobs to the U.S. or other larger centres. That said, my view would be to rely on very substantial Canadian entrepreneurial capacities and be prepared to play in a world and compete with that risk. My belief is that as we can compete on our own territory, we can compete in those lands as well and win those battles more times than we would lose.

Mr. Larry Bagnell: To the Canadian Chamber of Commerce, is there not a chance that the only difference would be that the great Canadian companies would be American owned and there would be no more investment? They would just buy out the things that are very profitable now.

Mr. Michael Murphy: I think you're talking about important investments in terms of the movement of capital, and we all know how flexible that is in terms of the ability of investors to choose. It's also true that the telecommunications sector, which is a vital component, is one of the most capital-intensive industries, not only in Canada but obviously on a worldwide basis. It's very capital intensive. I think the issue for the future is whether that is going to continue, and the answer is yes. It's a fundamental component of having network-based systems that you're going to have to require increased capital.

I think there is agreement, and we discussed this with our broad membership, that for telecommunications entities everybody is on board in terms of saying we think there is benefit in doing that. I think we have a wide variety of opinion, which we've tried to express in our brief, in terms of what the implications are of that. There are a lot of different views in terms of how far you would go beyond telecommunications, and we have all of those views expressed within our membership. I think one of the useful things we've been able to do through this discussion is bring that perspective to the table, that there is that kind of diversity.

In terms of the ability to get more capital into the industry, I saw some data the other day on the broader levels of foreign direct investments. Something that I think we and the government would agree on is the desirability of finding ways to attract investment into the country from outside of the country. I saw the numbers for 2001 the other day. About $320 billion in foreign capital was brought into the country. We're close to $400 billion now of Canadian investment abroad. I think those numbers have changed dramatically in the last number of years, and I think it's reflective of what's going on not only in that industry but in many others.

The Chair: Next is Mr. Savoy, then Mr. Rajotte, and Mr. McTeague will finish off.

Mr. Savoy.

Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you very much, Mr. Chair.

Welcome, ladies and gentlemen.

In previous meetings I have spoken of the productivity deficit we face in Canada and of the innovation deficit in terms of patent applications. I've also talked about the position Canada needs to look at internationally in terms of being an R and D cluster and also about another challenge we face, which is our IT infrastructure across this country. The BRAND program is a great start.

In addressing this, one of the fundamental assumptions that Alliance has made today is with regard to the impact of non-voting rights. In your presentation you say “If there are foreign companies who wish to invest in Canadian BDUs but are not satisfied with owning non-voting shares, presumably it is the strategic operating control which they seek.” Looking at this logically from a business background, if you are looking at a significant investment, you generally look at some type of input into the process or voting rights, if you will. You're assuming that if they're looking for voting rights, they're ultimately looking for a strategic takeover.

I think, Michael, you expressed that assumption. Could you expand on that? That hasn't been my experience, and I may be missing something on this. I'd also like to get input from the chamber and Mr. Johnston.

» (1710)

Mr. Michael MacMillan: I think we'd agree with you entirely, and we don't blame them for it for one second. It's only logical for a media company to want to take a significant financial stake in another one. Of course they want to have some influence; they'd be crazy not to. So we entirely agree. Our point merely was to say that what we're talking about here are other media companies, not passive pension funds.

So we agree entirely. That's why we're saying you have to look beyond that, beyond the mere arrival of additional capital, to what the operating impact would be. Presumably the operating impact would be much like Jay was describing a few minutes ago.

The relationship between a BDU and the channels it carries is not one of a common carrier but, in fact, one where there is significant influence exerted over the channels--pricing, placement, packaging, and so on. Also, in terms of ownership of a channel company or a broadcaster, there would be issues of program supply.

So we agree entirely. We don't blame the motives. If we were in their shoes, we'd have the same concept in mind, and that's at the heart of our concern.

The Chair: Mr. Murphy.

Mr. Michael Murphy: Thank you, Mr. Chairman.

I don't think I can comment on the specific business strategies and motivations in terms of potential investors, but if you'll permit me, I would like to talk a little bit about the base of your question in terms of enhancing productivity, competitiveness, and investment in the country. I think that is very much at the heart of not only the paper that Industry Canada prepared but also the discussions that are taking place here.

It seems to me there is a number of layers that you can cut this with. Investment is very much a key into that. You can also talk in terms of research and development and what needs to be done to make that better. You also talked about infrastructure development, and you can tie that directly to investment. Fiscal and regulatory policy would be two others that I would mention. When you put them all together, you're talking about a more productive and more competitive economy. In this case we're very much focused on the investment component.

I won't repeat my previous remark, but it seems to me that in terms of the analysis we've done by speaking to a very broad cross-section of members, there is a fundamental agreement here on the need to find ways to be more creative in terms of increasing investment in these sectors. The opportunity is sitting there before us.

While we have a paper that came out late last year, this is not a subject that has just popped out of the woodwork and we're wondering why we are all talking about this. This thing has been on the agenda in Canada for quite some time. We've gone through international negotiations in terms of having this on the agenda in the 1990s. It has been around for a long, long time.

Ultimately, though, I think you're quite right in terms of basing the discussion with respect to productivity and competitiveness within the economy. Those are very much concerns here, from our standpoint.

Mr. David Johnston: The only thing I would add is that, again, I would make a distinction between carriage and content for the purposes of this hearing.

When we look at carriage, technological productivity is so important. We do happen to be a world leader in many respects.

This morning I attended a breakfast of a young entrepreneur heading up a company called Sandvine, which comes out of an earlier Waterloo company called PixStream. PixStream started in 1996 with some early investment by Terry Matthews in three young entrepreneurs and was sold to Cisco in August 2000 for $565 million Canadian, a really remarkable development in four years.

The entrepreneurs from PixStream have now begun a new company. There are about 75 people that they've brought together as a talent pool, and they are providing cost reduction and revenue enhancement services to carriers worldwide. I would expect they'll repeat the experience they had with PixStream.

The wonderful thing is that $560 million has come into our community by a foreign-owned operation and continues there, and these young entrepreneurs now have their own funds to start something again.

I come back to Terry Matthews' name. It's arguable that Terry Matthews is responsible for more direct job creation in this country than anyone alive today. Terry is an immigrant from Wales, who came here to work for Nortel, was attracted with Michael Cowpland by virtue of powerful, intense intellectual capital in that organization.

He started three or four organizations. One of them, of course, is Newbridge, purchased by Alcatel for--what is the figure?--$8 billion Canadian. That company continues to function here for North America. Alcatel has shrunk its employment to about 40% of what it had three and a half years ago, but one of the least affected parts of its worldwide empire is Alcatel Canada. Why is that so? Because the quality of the engineering and design and the worldwide sales are so good.

What has Terry done with what he has realized from the sale of Newbridge to Alcatel? We could name a number of companies that he has started, and his continuation of Mitel and others, on three or four sets of hands. Guess who is the new investor back in Waterloo in Sandvine, the repeat of the company that came out of PixStream? It's Terry Matthews. When Cisco bought that company, he was the first on the phone to these young entrepreneurs and said, go and have your celebration, and tomorrow morning I want you to start a new company so that I can invest in it.

It's really that kind of support of talent that we have in abundance in this country that I think permits us to function very competitively on a world stage.

» (1715)

The Chair: We'll go until 4:25, and then we'll deal with Mr. Crête's motion.

Mr. James Rajotte: Okay, thank you, Mr. Chairman.

I have two very quick questions, and then one broader question particularly for Alliance Atlantis.

Is one of your main concerns the U.S. restrictions on broadcasting? If Canada could somehow negotiate at least a relaxation in those restrictions, how much would that alleviate your concerns?

Secondly, what if there was some sort of a condition where there was a percentage cap on how much one individual investor could own, if you did relax the foreign ownership restriction, so that you did not have one majority investor from the U.S.? Would that address some of your concerns as well?

Mr. Michael MacMillan: I don't think the relaxing of the current U.S. foreign ownership broadcasting restriction, which, as you know, is 25%.... Non-Americans are limited to 25% ownership of a U.S. broadcaster. That's why Murdoch renounced his Australian citizenship to become an American in order to qualify.

But I don't think their relaxing their rules would actually change anything. It would still be a market of 300 million people. It would still be the overwhelming dominant force in our industry worldwide, and particularly difficult for us, sharing a border and a language with them. So my view is that it would not be a trade-off worth negotiating for, because I don't think we'd get anything out of that.

I'm sorry, what was the second part of your question?

Mr. James Rajotte: The second part was, if we said one person could not own a majority stake themselves, similar to what you have with Air Canada....

You can have a certain percentage only. That way you at least try to address some of the concerns with respect to possible foreign takeovers.

Mr. Michael MacMillan: Probably instead of an individual, one is talking about companies. But in any event, whatever that is, again I'm not really sure. It's difficult to know; when is it too much? Is 10% okay? What about 12% or 15%? There certainly would be an influence felt. It would be an odd management team that would not feel the pressure exerted by the BDU if it was related to a significant shareholder in the company, even it was less than control.

» (1720)

Mr. James Rajotte: I have a bigger and a broader question. We're meeting with the heritage committee tomorrow, and it was interesting that when the deputy minister appeared before us he said this review applies to the ownership of telecommunications carriers, that content is not covered by this review; it is just the pipes.

I think we've all seen that's not true, because we've had a lot of witnesses come before us who say there is definitely a linkage here. And I think the department was really incorrect in trying to say we can just focus it. There are some bigger and broader issues here. Other companies have said you have to look at the regulatory framework; you can't just look at foreign ownership restrictions.

So I'd like to ask all the witnesses a bigger, broader question. We have the Telecommunications Act and the Radiocommunication Act within Industry, and the Broadcasting Act within Heritage, and I'm sure, as witnesses, you must get very frustrated going from one committee to another, which often have different flavours and different temperaments. Our concern on this committee, I think, on both sides, is that even if we recommend something, you could get two ministers fighting, you could get two departments fighting, and then where does it go? From a public policy point of view it may go nowhere. Is there a better way to deal with these issues? Should we bring them under one act? Should we bring them under one department? Is there a new department that should be created? I'd really like your overall philosophy on where we should go.

Mr. Michael MacMillan: I'm not sure that we'd want to wade into the suggestion of how to reorganize government.

Mr. James Rajotte: Please do.

Mr. Michael MacMillan: But I would say that even though we understand that the remit of this committee is to deal with telecom really, first of all, and certainly BDUs, we want to make sure the discussion does go right to the end of the line to content. Otherwise, if we don't analyze the whole thing up front ahead of time, we're all being disingenuous to each other and we're all avoiding the fact that if you change the rules for telecom, then cable, perfectly rightly, would say, hey, what about us? We ought to have the same rules. We'd be shocked if they didn't.

So that, for sure, is the next step. It would take about five minutes after the first step. And once that second step, properly taken, came along, we'd then be right into this content discussion anyway, because they are inextricably linked for the reasons that we and I think many other presenters have said.

So I don't know how you reorganize, or if one needs to, Industry vis-à-vis Heritage and so on, but for sure, I believe it has to be considered all together; otherwise, we're just kidding ourselves and heading into a mess.

The Chair: Thank you.

Mr. David Johnston: I have a less ambitious view on that subject. One would love to have a simple world that one could regulate with one act, with one ministry, with one department. And of course we had that in this area before. Life simply isn't that simple. We have a complex enough world, looking at carriage providers as opposed to content providers, that I wouldn't attempt to unscramble that egg and bring them together.

If you look at patterns around the world, you see similar kinds of difficulty. There are imperatives that drive our concern about our culture in this country that are different from those that drive our concern about accessibility to telecommunications. They overlap in some respects, but they are fundamentally different. That's why we've expressed somewhat different policy objectives in the Telecommunications Act, the Broadcasting Act, and the Radiocommunication Act, and that's why the drive for deregulation of telecom and carriers around the world has been more rapid, more dynamic, and more possible than that for content providers. Because when you get to content, it's your soul you're dealing with, not just trade in goods and services. It's a different matter.

I sat down with three wonderful former students about ten years ago and we wrote a book called Communications Law in Canada. It has four sections. The first is on carriers, focusing on the Telecommunications Act; the second is on broadcasting, focusing on the Broadcasting Act; the third is on convergence, in which we attempt to deal with the forces that Michael and others have spoken about so eloquently of bringing these things together--AOL-Time Warner is a very good example--and the fourth is on competition. Those are three very different areas of law traditionally. They have been thrust together.

But I wouldn't think the solution is for you to write one act that is for the information highway and attempt to regulate the different pieces of that information highway by the same simple maxims. I think it's simply too complicated.

The Chair: Thank you very much.

I apologize to Mr. McTeague for his not being allowed to ask questions today, but we are getting close to the end and I must close off.

Mr. Bureau, do you want to close off with a short remark?

Mr. André Bureau: I want to make one point. In 1976, the government was smart enough to determine that all of these elements should be together in one department so that people responsible for that department would see the development of all these things, because they saw immediately that they were all interconnected. One thing was missing, the Competition Bureau, which was not there. I would suggest that in the future we may want to look at a new department that would include telecom and the Broadcasting Act, and not have to put them in the same act. We should give the jurisdiction to one department to avoid multiple jurisdictions. The CRTC is doing it between telecom and broadcast to the benefit of those people who have to deal with the regulatory regime.

» (1725)

The Chair: Thank you very much. I'm sure we could have been here for another couple of hours asking more questions, but the two hours went fast, and we have a lot of work to do from now into March. So I want to thank you very much for being with us today. Your testimony has been very valuable to the committee.

I would like to adjourn this portion of the meeting and go into the next one, which is a motion we have on the floor. I would ask that it be distributed.

I will allow the witnesses, and others who wish, to leave quietly, so we can carry on our business.

Thank you very much for being quiet at the back.

We will deal with the motion on the floor. Mr. Crête informed the clerk and me this afternoon around 1 p.m. that he had a motion he wanted to put forward. Does everybody have a copy?

You know the process. Normally when we receive motions, the clerk circulates them and 48 hours later we deal with them. As you know, our schedule is very busy, even busier starting next week.

I would ask Mr. Crête to bring forward his motion.

[Translation]

Mr. Paul Crête: Thank you very much for your patience. I am well aware that the rules say that the normal requirement is 48 hours' notice. But given the situation with the price of gas, if we had unanimous consent today to debate the issue, then this would allow us to act quickly, because our schedule is very tight over the coming weeks. Therefore, if we were to agree to deal with this quickly, then we could set a date to have the oil companies appear sooner.

You have the motion itself before you. The text is quite precise. I think we should first deal with the matter of consent. I am calling upon your good will. I am really counting on your good will here, because without it we will be dealing with this 48 hours from now. But that would move things much further back, whereas if we were to decide now, then we could have a decision this week and call witnesses next week.

The other thing I wanted to tell you is that I have been in touch with Mr. Pat Martin from the NDP and Mr. André Bachand from the Conservative Party, and they are both in favour of the motion. They were not able to be here this afternoon, but between the time I sent out the motion and now...

[English]

Mr. Andy Savoy: They have to be present, though.

[Translation]

Mr. Paul Crête: Fine, but I am giving you the information.

» (1730)

[English]

The Chair: Would anybody like to make a comment?

[Translation]

Mr. Andy Savoy: It is a lengthy study; it is not just going to be a couple of weeks.

Mr. Paul Crête: I believe that it would require a general meeting with the oil companies.

A voice: All of them together?

Mr. Paul Crête: Possibly all of them together, yes. We would need to have a good working session with them, even if it means that we come back to the issue at another time as a committee.

[English]

The Chair: For those who are new members of the committee, we did study this area once before. I just wanted to make sure there's documentation on that.

I'll go to Mr. Fitzpatrick, and then to Brent St. Denis.

Mr. Brian Fitzpatrick: I don't know how much this thing has been studied. It seems to me that the one area would be under competition law, if you think there's some sort of collusion.

I haven't been on this committee before, but I think I can take judicial notice of the fact that Venezuela isn't in the market for oil these days. We do have a war factor, and so on, and the price is very high for a barrel of oil. So I'm not exactly sure we need a study to understand what everybody probably knows already.

Mr. Serge Marcil: Excuse me, Brian.

[Translation]

In order to discuss this, Mr. Chairman, we would at least need unanimous consent; otherwise, this will have to be dealt with 48 hours from now. We therefore cannot discuss this right away.

[English]

The Chair: My intention was just to inform the committee that we had studied this once before.

Do we have unanimous consent?

[Translation]

Mr. Serge Marcil: I am not giving my consent to discuss this, Mr. Chairman.

[English]

The Chair: We will deal with it at another meeting.

[Translation]

Mr. Paul Crête: At the next meeting of the committee, with the 48 hours' notice.

Mr. Serge Marcil: That is what I said.

Mr. Paul Crête: Monday?

[English]

The Chair: I will probably have to schedule a meeting outside of the meetings that have been scheduled. It'll probably be Monday.

Mr. Brian Fitzpatrick: Can I just raise a point on this?

The Chair: Just on timing.

Mr. Brian Fitzpatrick: Somewhere in our agenda we're going to be talking about Kyoto implementation and all that.

The Chair: Yes, we are.

Mr. Brian Fitzpatrick: I think everybody may as well understand that Kyoto will mean higher fuel prices. We could deal with that in that context, could we not?

[Translation]

Mr. Paul Crête: We cannot have a debate if...

[English]

The Chair: We'll leave it for 48 hours, then we'll be back to you.

Just as a reminder, tomorrow we have the heritage committee for discussion at 9 o'clock, right here.

The meeting is adjourned.