[Recorded by Electronic Apparatus]

Thursday, June 15, 1995

.1533

[English]

The Chair: Ladies and gentlemen, welcome back to our hearings on DTH satellites.

For those of you who have their offices in the West Block, I'm sorry the building is burning down, but that's life. Those of us who are in Confederation don't care.

The other thing I should say about the fire truck is that when it appeared, it roared up, noted there was a one-way sign around the parliamentary hill loop, and though the fire was on one side, it obeyed the law and went solemnly...did the square. Then they decided that the fire was really in the Centre Block. They had to be talked out of that. Finally it backed up and went to the right building. That may be why you've lost your office.

We are delighted to welcome back our friend Keith Kelly, from the Canadian Conference of the Arts. Mr. Kelly has appeared before us. I think we have a submission, a wonderfully terse two-pager. I would invite Mr. Kelly to speak to it so we can get on with the questions.

Welcome.

Mr. Keith Kelly (National Director, Canadian Conference of the Arts): Thank you,Mr. Chairman. It's nice to be back with the committee this afternoon. The Canadian Conference of the Arts has been involved in discussions on the development of direct-to-home satellite broadcasting for a quite a time. It is for that reason that we're happy to present some of our views to you on this issue today.

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The brief you have was actually submitted to Minister Dupuy as part of the comment on the proposed directive. Essentially, I think it's fair to say that when this topic comes up for discussion at our board, most board members' eyes glaze over very quickly. They really are baffled by the competing views about whose dish is smaller than whose and who should own the nuts and bolts and hardware.

For us, DTH represents another development in the Canadian broadcasting system that can be of ultimate benefit to creators and should be of ultimate benefit to creators and content providers. As a result of Canadian broadcasting policy, we have seen the CBC play an incredible role in developing content and supporting creators. We've seen the private broadcasters do an important share of program development. And, of course, there are the cable undertakings, who through their contribution to production funds have provided some important support to Canadian creators and content providers.

Our interest in the DTH issue is really in ensuring that the impressive benefits our community has been able to extract from other players in the broadcasting system are obtained from new players as they emerge. Today, the topic is DTH, but soon we'll probably be talking about the role of the telephone companies in the broadcasting system, eventually video on demand and other distribution technologies, as they develop.

So it was very much from this perspective that we approached the DTH discussions. What we have suggested is that what would serve our creators and content providers best is one set of rules applied fairly and evenly to all participants in the broadcasting and program delivery industry. Some of those rules are effective Canadian ownership and control, a predominance of Canadian programming as the basis of operation, the respect for the spirit and the letter of the copyright legislation, the distinction of the Canadian market as a distinct field of rights holders, compliance with the spirit and letter of status of the artists legislation at both the provincial and federal levels, and also a direct contribution to the production industry.

We therefore take a very focused approach when we talk about DTH policy. It is certainly not our intention to come before you and say that we would like to see a direction that favours one undertaking over another. We think the field is going to fill out in terms of competitors, and I think it's in our long-term interest to look at the rules under which new participants in the broadcasting system are added.

In particular reference to the proposed directive, our points are, as you said, quite limited, but they focus on those elements that have typified the Canadian Conference of the Arts approach to DTH, which is that the contribution levels that the undertaking will make to the production industry should probably be included in the direction and should be at a higher level than the review panel indicated. It is for this reason that we support the position of the Directors Guild, et al., in their submission to the minister on DTH policy.

We also believe it's important for any undertaking to acquire the rights for programming from Canadian distributors. We also support the position of the Directors Guild, et al., in that regard.

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We think it is entirely appropriate for the government to use directives to the CRTC to refine broadcasting policy. The CRTC is there to implement government policy and to operate as a regulator in a relatively unfettered way, but it is also, clearly, the responsibility of the government to develop policy, especially in an area as critical and as rapidly changing as the current broadcasting environment.

Essentially, those are the principal points we would like to bring before you today.

The Chair: Thank you very much. It's very helpful, very succinctly put, and admirably brief in its written form.

[Translation]

We will start with Mr. de Savoye, from the Bloc Quebecois, who will have seven minutes.

Mr. de Savoye (Portneuf): Thank you very much Mr. Kelly. Your presentations are always informative and interesting.

I note that you recommend that the production fund be administered independently. You also say that the level of contribution should be increased and you insist on a timely implementation; fall has been mentioned.

But I am interested in your professional opinion. Yesterday ADISO expressed deep concerns with regard to the use of directives which could in the next few years - over a period of five or six years - drastically reduce Canadian source programming if not eliminate it completely. How do you feel about those concerns?

[English]

Mr. Kelly: Our position is that one of the fundamental principles that guide the introduction of new undertakings into the Canadian system has to be a predominant use of Canadian programming as the basis of those operations.

We think the only way we can ensure that potential undertakings are going to live up to their commitments in terms of Canadian programming and be accountable is through a formal licensing process where we can all have a look at their plans, where there is a public examination of their proposals and the CRTC can attach to the licence conditions that would exact from them commitments for Canadian programming.

My concern is that the exemption order route is probably a faster trail to that increase in foreign programming and a slippage of Canadian presence in the broadcasting system than is a full licensing process where we can examine the undertakings in a public forum and ensure that the CRTC attaches to the licence sufficient conditions to guarantee a healthy state of Canadian programming on the system.

[Translation]

Mr. de Savoye: As I said ealier, you recommend an increase in the level of contribution to Canadian productions. In fact you say that it should be a minimum of 10%. Other witnesses have said that it should be left to the CRTC to decide. In your opinion what would be the risk or the benefits in giving this responsibility to the CRTC?

[English]

Mr. Kelly: One of the things that has happened in the past is that the CRTC has not really been able to be in a very strong position to enforce those contributions. If it was a formal policy directed to the CRTC, and if they were at a sufficient level, 10% or 15%, then those who are considering entering as distribution or program delivery undertakings will know that they have to incorporate that into their business plan before they appear at a licence hearing rather than leaving it to the discretion of the commission to set what they see as a realistic level of contribution. It comes back to the notion of creating one set of rules applied fairly to everyone. That is why we have included this as what we would hope to be the eventual directive to the CRTC.

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[Translation]

Mr. de Savoye: I would like to go on now to the question of authors' rights and copyrights. I use both terms because there is a great distinction between the rights of authors and the rights of copiers.

Basically, some organizations fear that in a continental market served by a number of satellites Canada's ability to carry out its responsibilities with regard to authors' rights would be diminished and be replaced by continental negotiations. What are your views on this?

[English]

Mr. Kelly: Those are very legitimate concerns, and they're ones we have addressed.

We think anyone who is involved in program delivery or broadcasting should be able to distinguish the rights in the Canadian domain, as separate from a North American rights model. We have said that this should be one of the conditions the CRTC imposes as it examines potential new players. It's one of the reasons why we've also endorsed the position of the Directors Guild, et al., that they should acquire programming from Canadian distributors as opposed to American ones.

There is a very important principle behind this, and we would certainly hope that both the government and the CRTC will find a way to ensure that can be respected as these different distribution technologies unfold.

[Translation]

Mr. de Savoye: That leads me to the next question. An independently administered production fund will have to give money to producers so that authors can create the works that will then be produced. We know that producers appear and disappear overnight, and sometimes the same ones show up again.

What kind of system would you envisage to allow for a healthy competition - and I'm thinking here of the risks related to vertical integration in order to avoid the market being taken over by major players - and to allow new players to come in and to act in a responsible manner? What is your view on the issue?

[English]

Mr. Kelly: If we're talking about the administration of the fund as a tool to address that problem, we have been putting forward, for about a year now, a proposal that all the contributions by new undertakings to production funds should be administered through established agencies such as Telefilm or the National Film Board, where the agencies are in place, they have a delivery system that has worked, they are generally trusted, and they can target support at all levels of achievement in the production industry.

One of the risks we run by creating tiny funds based on 10% of revenues of this or that undertaking is that by the time those funds end up in the production community, they're not 10% any more - they've opened an office, hired a director, and incurred expenses just to administer that fund - whereas if they are flowed through agencies such as Telefilm and the NFB, which have been created to address problems such as the ones you've mentioned, we have a much better chance of having the best benefit from those funds. That's our position.

We would trust the judgment of agencies such as NFB and Telefilm to spread the resources effectively, to encourage the development of new talent, and to support, perhaps to a lesser degree, the activities of the larger producers who may be close to self-sufficiency.

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Mr. Hanrahan (Edmonton - Strathcona): Thank you for your presence.

I would like to continue my colleague's line of questioning. We've seen different figures from 5% to 20%; 5% seems to be relatively common. You're suggesting 10%, and you're saying it should be be administered through the National Film Board and Telefilm because of the structure that's already established and because they have established themselves a reputation for fairness among the artistic community.

Let me ask you this. If Telefilm or the National Film Board were given $1 million through this fund, what would your estimate be in terms of how much of that would get down to the artistic community, the producing community?

Mr. Kelly: My sense is that most of it would end up back in the production sector, either with a producer or through support for individual film-makers.

At the NFB, as you know, one of the most important programs they have is making their facilities available to new and developing film-makers so they can come in and they don't have to incur large capital costs. They take advantage of the equipment and the facilities of the National Film Board to produce their work. They're very cost-efficient in that way.

You're not inventing new infrastructure; that's the other thing. It would be my earnest hope that the $1 million would almost entirely end up back in the production sector in that regard.

Mr. Hanrahan: If, for example, three different artists went to the National Film Board or to Telefilm with a project, what process would they go through in order to get funding?

What concerns me here is that with all government agencies a kind of old boys' network tends to develop, a pecking order of things, if you will. How do you avoid that? How do you look at the merits of what is artistic, what is worth producing, and so forth?

Mr. Kelly: Well, any number of mechanisms are used. There are outside assessors who will look at an idea and decide whether it's worth while. There's the fundamental evaluation of how the applicant meets the fundamental criteria laid out by the agency for participation in the program.

In the case of the NFB, I'm not fully familiar with all the selection processes, but I know that independent film-makers regard the support of the NFB as a very critical stepping stone in their own professional development.

I think what I'm hearing is essentially your fear of cronyism. My sense is that there's enough activity in the Canadian production sector right now that the judgments are really made on the basis of excellence rather than on cronyism. Especially at a time when all national cultural institutions are being required to ensure that they get the absolute best impact from the resources they have, I think it's not an environment that is terribly conducive to cronyism or this sort of old boys' network.

Mr. Hanrahan: Okay. Let me turn it around entirely.

Hypothetically, let's say there was no fund. I'm a consumer. I pay my cable fee or my satellite fee or whatever it is. You are suggesting right now that within the business plan they include this 10% or 5%. But let's say there was no fee whatsoever and I'm an artist who wants to produce a film. What would be the negative side of me getting financing for that film, by reputation, talent or whatever, producing it, and then shopping it around to the various agencies? How would that have a net effect on the production community, the artistic community in Canada?

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Mr. Kelly: I think that would be a very good approach to ensure that cronyism was the rule of the day, because basically you're talking about people who would have the financial wherewithal to invest in production, have a finished product to bring to the television agencies or the television stations, distribution undertakings, and say okay, it's in the can, let's talk. I don't think it's a situation that would be particularly open to new film-makers, new film-makers who may not have access to financing, who may not even have established themselves with a long history of artistic credentials.

I think, for example, of Atom Egoyan as a very good example of a film-maker who was initially assisted by the Canada Council. I doubt if he applies for very many Canada Council grants now, but with that initial leg-up he received from the Canada Council he was able to hone his skills to the point at which he is a world-acclaimed film-maker.

Mr. Hanrahan: Which he receives the profits from. He got off the ground from the taxpayer.

Mr. Kelly: The taxpayers benefit in a number of ways. They certainly benefit from having one of our own reach a point of self-sufficiency. Not only that, but the sale of his films represents an important source of export for Canadian films and television.

Mr. Hanrahan: CBC doesn't.... [Inaudible - Editor]

Mr. Kelly: Yes.

Mr. Hanrahan: Again, for the sake of analysis.... An author writes a book. He brings it around to various publishing houses. If the publishing house thinks it can make a dollar from it, he will. There is no subsidy. No taxpayers' money is involved. Why can that analogy not be applied to this situation here?

Mr. Kelly: The costs are considerably greater in the production of film or video product than they are in the development of a script, although some books and scripts probably take years to develop. Funds are available to sustain writers and scriptwriters in that process.

Mr. Hanrahan: In my example I'm assuming there are not.

Mr. Kelly: I see.

But the development of a film or video production is a very complicated, very expensive undertaking. There's equipment. There's talent. There's insurance. There's laboratory work. It's a very expensive undertaking. Therefore it's hard to compare an individual scriptwriter trafficking a script or a manuscript to a book publisher with a film-maker, especially an independent film-maker, who undertakes the production of a film and then tries to shop it around. That privilege would be open to only very well-established film-makers or studios with the resources to support the development and the production of the property before it is available for sale.

Mr. Hanrahan: You don't see, then, that this fund is a form of indirect taxation on the Canadian public?

Mr. Kelly: No, I don't. What I see it as is a guarantee that the Canadian system will always have a fresh supply of Canadian content and that we're building health into the production community. This becomes very important not only for our specific goals for the Canadian broadcasting system but also for ensuring our production industry is in a very strong position to compete internationally and to place Canadian materials abroad, which has an additional benefit for Canada, not only culturally but economically.

Mr. Hanrahan: And do you see our free trade agreements with the United States and Mexico as having implications for this down the road, in terms of subsidizing the cultural industry?

Mr. Kelly: As far as I understand it, the issue of subsidy has not yet been addressed within the context of either the free trade agreement or the North American Free Trade Agreement. I think there is some concern in the cultural sector that when and if those discussions begin, a lot of these issues will certainly be discussed. But they're totally defensible. They're not new measures; they're just a continuation of measures we have already put in place for cultural production in the country.

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Mr. Hanrahan: The Tariff Board.

Mr. Kelly: Absolutely.

The Chair: Perhaps I might just ask a couple of questions myself. I normally count on Mr. Ianno, but he's let me down. No, he hasn't let me down.

Mr. Ianno (Trinity - Spadina): What was that, Mr. Chairman?

The Chair: I always wait for your questions, but you're out of the room, so I get to ask a couple.

Mr. Hanrahan: Why not Albina?

The Chair: I keep waiting. If there's a hand, I see the hand.

Here are my questions, and there's room for others to join in on this, obviously.

The 10% figure intrigued me. One rationale I've heard for that figure for DTH is that admittedly the net public benefits the cable companies are asked to put forward are voluntary, but you might say roughly up to 5% would go to community cable stations and then 5% possibly for the Canadian Production Fund. When you put those two together, that's 10%, and since by definition a direct-to-home satellite cannot support a community cable station, that creates a roughly level playing field. I didn't hear you use that argument, but is that the rationale?

Mr. Kelly: I wish I had one as refined as that.

The Chair: Feel free, by the way, if it helps.

Mr. Kelly: Thank you, Mr. Chairman. That's exactly my thinking.

Some hon. members: Oh, oh.

The Chair: My other question relates to something I think Monsieur de Savoye asked. Provided the regulatory framework is in place and we have enough support for the production side, along the lines you proposed of 10% or whatever it is, as you face this multi-channel universe and what we used to call the deathstars and all the rest of it, are you more optimistic or less optimistic about the fate of Canadian creators and producers? We hear that carriage is less important now than content. Where do you come down on that as you look at the future?

Mr. Kelly: The CCA is very optimistic about the future. One thing that unites all of these technologies is unless there is content, they won't survive. We can talk about dish size, transponder space, digital video compression, and all the rest of it, but if these technologies are going to survive in the marketplace, they are dependent on content. We think the Canadian production community is in a very strong position to not only meet the needs of the Canadian system but also offer very attractive products to the world market.

We have to recognize that because of the current financial situation, we have seen a steady erosion of the resources that have been available through the public purse, through Telefilm, NFB, Canada Council, and others. Certainly the cuts to the CBC have been particularly harmful to the production industry.

So what we're looking at now is a very hard-nosed approach to sustaining the production capacity in this country. If we can do it in partnership with broadcasters, undertakings such as DTH and the telephone companies once they're admitted to the broadcasting family, certainly we'll be looking to apply the same sort of logic to them so we can sustain the production capability.

If we can't sustain that - if we cannot ensure there's at least a minimal public investment in the production industry - then it's very clear the undertakings will turn to producers outside of Canada. That will not be of benefit to our community, it won't be of benefit to Canada, and it won't be of benefit to our overall economic picture.

The Chair: Thank you very much. I want to look around the room to see if there are any last questions on any of this.

Mr. Hanrahan.

Mr. Hanrahan: I have just one last question, since you brought it up, on the cuts to the CBC in terms of its influence on production. Canadian content and Canadian production are the essence of what it should be about, I think. The first place they cut was production, not the top level of administration or whatever. I saw something today about another group being laid off. What's your reaction to that?

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Mr. Kelly: We're in a bit of a difficult position on this, because we're one of the groups in the cultural community who said to the CBC ``You should really become more reliant on independent producers as a source of content.'' We can't on one hand ask the CBC to develop a greater reliance on independent producers as a source of content and at the same time complain bitterly when they lay off the staff producers because they're using more independent production.

It's very early to see what the impact of these cuts will be. Some of them are very disturbing. The only arts reporter for CBC in Vancouver has been let go. British Columbia is a major centre of cultural activity. It's very hard to rationalize in my own mind why that person would be dismissed.

Mr. Hanrahan: You did indicate the cuts were disastrous for production.

Mr. Kelly: Absolutely.

Nobody has told him this is absolutely certain, but Mr. Beatty has now said he is working on the logic of the federal program review exercise that in three years CBC will have $350 million less in terms of its parliamentary allocation. The CBC currently spends roughly $250 million a year on production or hiring creators or what have you -

Mr. Hanrahan: In house?

Mr. Kelly: - and that's going to diminish.

Our artists, cultural workers, and producers are certainly going to feel the impact of those very serious reductions. There's no question about it. Even if we say they're developing a greater reliance on independent production, they're doing so with a greatly reduced allowance.

Mr. Hanrahan: Thank you.

[Translation]

Mr. de Savoye: We've mentioned an amount of 10 percent of gross revenue to insure the renewal of productions. You also indicated that you would see organizations such as the National Film Board take responsibility for the distribution of these amounts.

Of course, an organization like the NFB must receive a mandate. Do you feel that such a mandate should include a directive that would ensure a fair distribution of productions with regard to the two official languages?

I'm thinking of the situation of the SRC which, with a viewing audience equal to that of the CBC, has a budget twice as small as CBC's. Thus, if 10 percent of the revenue comes from a francophone audience, shouldn't that percentage be reinvested in French language productions and not prorated to the population, but to the number of viewers or listeners? How do you feel about this?

[English]

The Chair: Good luck.

Mr. Kelly: And to think I was just about out of here.

Some hon. members: Oh, oh.

Mr. Kelly: First of all, in general I think the funds should be spent in the community from which they were gathered. I think that is probably a better approach than, say, 50:50. Let me tell you why.

I would hate for any agency to be locked into the notion that they must spend exactly 50% of their resources on projects in one discipline or in one community or another if it means part of that 50% is going to projects that aren't truly excellent but are there. In these days of very scarce resources, it's imperative that the funds that are invested are invested in projects that have real excellence and real quality rather than just in projects that happened to be there when they were divvying up the resources.

We haven't taken a firm position on this, but now that you've asked the question, I'm sure our board will be wrestling with it in the very near future.

Thank you.

Mr. de Savoye: Thank you.

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The Chair: On that note, we thank you for coming before us once again. It was very helpful and very interesting. We hope we do the right thing for the artistic and creative community of this country.

As has been our habit in this room because of the nature of television, we will have a two-minute pause while the next witnesses prepare.

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PAUSE

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The Chair: Welcome back. We are now going to hear from the Canadian Cable Television Association. Its president and chief executive officer, Richard Stursberg, is here. We very much look forward to hearing from him and his colleagues and then having our questions.

Welcome, all.

[Translation]

Mr. Richard Stursberg (President and Chief Executive Officer, Canadian Cable Television Association): With your permission, I will start with a few remarks.

My name is Richard Stursberg and I am the president of the Canadian Cable Television Association.

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With me this afternoon are Elizabeth Roscoe, senior vice-president at CCTA, and Jay Thomson, the Association's vice-president, Legal and Regulatory affairs. Also with me this afternoon is Linda Ahern, chairperson of the Association des câblodistributeurs du Québec. The ACQ is our affiliated provincial association in Quebec. Ms Ahern is available to answer any question you may have regarding the impact of DTH on Quebec and French language programming.

I'm sure that it will come as no surprise to members of this committee that CCTA and the Canadian Cable Television Industry have followed the recent developments regarding DTH with a great deal of interest. The industry recognizes that Canadians are demanding competition in the distribution of broadcasting services and that government policy favours such competition.

We believe, as do others, that DTH services will provide effective competition for cable television.

[English]

Contrary to what some may think or say, the cable television industry does not oppose competition from DTH or any other potential Canadian broadcasting distributor. The position of the industry is that fair and sustainable competition is in the public interest and in our customers' interest, because it stimulates innovation and increases efficiency. We believe Canadians can benefit from competition in broadcasting distribution through increased choice, lower prices, and better service.

The key words here, of course, are ``fair'' and ``sustainable''. In the context of DTH competition, as we outlined in our submissions to the DTH review panel, fair and sustainable competition means simply that all players must play by the same rules.

More specifically, this means that new DTH undertakings must share the same obligations to support the Canadian broadcasting system that are currently borne by the Canadian cable television industry. It also means both DTH undertakings and cable television undertakings must have the same opportunities to increase the attractiveness, and therefore the competitiveness, of their product.

For the most part the recommendations of the DTH review panel and the proposed policy directions the panel included in its report are consistent with the goal of fair and sustainable competition. For this reason we are supportive of the recommendations and proposed directions now being considered by this committee.

That being said, it is our position that the proposed directions are deficient in three aspects. Two of these deficiencies relate to the DTH Distribution Undertakings Order and one to the pay-per-view directions. We outlined these concerns in our June 2 submission to the Minister of Canadian Heritage. I believe members of the committee have copies of that submission.

With respect to the proposed DTH Distribution Undertakings Order, we have suggested amendments to two sections, and I might say, frankly, they are very technical amendments. They are designed simply to confirm that there is to be regulatory symmetry between DTH and cable.

Specifically we have recommended that subsection 3(a) of the DTH Distribution Undertakings Order be amended to ensure that the same ownership rules that currently apply to cable licensees also apply to DTH distribution undertakings. This proposed amendment would also clarify that the CRTC's rules relating to such matters as the distribution of predominantly Canadian programming services and the tiering and linkage of Canadian and non-Canadian satellite programming services would apply to DTH distribution undertakings, as would appropriate rules relating to priority signal carriage and signal curtailment or substitution.

We have also recommended that subsection 3(e) of the DTH Distribution Undertakings Order be amended to ensure that, in the interest of fairness, DTH undertakings would not only be protected from other distributors acquiring exclusive rights to distribute programming services, but would themselves also be prevented from acquiring such exclusive rights to the competitive disadvantage of other distributors.

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With respect to the proposed pay-per-view direction, we suggested an amendment to correct what appears to have been an inadvertent drafting error. If left in place, that error would serve to grant DTH undertakings, and only DTH undertakings, the opportunity to own and operate their own competitive pay-per-view programming services.

Conferring such an important competitive advantage solely to DTH undertakings would of course be inconsistent with both the government's goal of preserving and expanding fair competition and the DTH review panel's recommendation that to ensure fair competition the rules should broadly be the same for all distributors.

For this reason we proposed a simple amendment to the pay-per-view direction that would make it possible for the CRTC to issue licences to operate pay-per-view services to licensees of all classes of distribution undertakings.

[Translation]

Ms Ahern.

Ms Linda Ahern (President, Association des câblodistributeurs du Québec): The solution we propose to address this issue of pay-per-view may be a simple one, but we wish to emphasize the problem itself is a very serious one.

As Mr. Stursberg said at the outset, we regard DTH as a serious competitive threat to our business. There are two reasons for this. First, because it is already digital, DTH, in the short term, will offer much better signal and sound quality than cable; second, DTH will initially offer significantly more pay-per-view channels than cable, and thereby provide the closest thing to video on demand currently possible.

When it comes then to pay-per-view, DTH will not be competing with us. We'll have to compete with them. To give DTH undertakings the further, exclusive opportunity to own and control their own pay-per-view services will only magnify and solidify their competitive advantage in an area which many believe will be the key generator of discretionary revenues in the future.

To return to our theme - and that of the government and the DTH revue panel - competition in broadcasting delivery must be fair and sustainable, and this means not conferring an exclusive benefit upon one player to the clear competitive disadvantage of all others.

[English]

Mr. Stursberg: Finally, Mr. Chairman, I would like to say that we have been following the proceedings of this committee and its questioning of other witnesses on these proposed policy directions.

We note that there have been questions regarding the use by DTH undertakings of U.S. satellites to deliver U.S. services. Many have argued that since cable can use U.S. satellites, DTH undertakings should be able to as well.

I wish to clarify, Mr. Chairman, that while cable undertakings may receive a limited number of authorized U.S. speciality services from U.S. satellites, we are required to distribute those signals to our customers using Canadian facilities.

Under the terms of the proposed DTH directions, DTH undertakings would, unlike cable, be able to use U.S. satellites for both the reception and distribution of U.S. signals.

This much being said, and recognizing the technological differences between cable and DTH distribution, we did not, in our submission to the DTH review panel, oppose the use by DTH of U.S. satellites, nor do we wish to do so now.

[Translation]

Those are our comments. We would be pleased to answer any of your questions. Thank you.

The Chairman: Thank you, Mr. Stursberg and company. Mrs. Tremblay, you have approximately six minutes.

Mrs. Tremblay (Rimouski - Témiscouata): You just said that you did not oppose this and you don't wish to do so now. However, I would like some explanation regarding certain differences that will exist from now on between the cable and satellite distribution systems if the orders are implemented.

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Ever since the draft orders were issued, and even beforehand, when you knew that the experts were preparing for what we call a ready-to-wear for Power Corporation, the arguments invoked by the government are always the same: ``We did this to allow for competition.'' We are to understand that the competition is between Expressvu and Power Corporation.

What I understand now, following the hearings and by reading the briefs, is that competition will be between cable and satellites. In my opinion, that's where the true competition lies.

We're told that this is being done so that everybody would be on an equal footing, but I discover here that cable will be at a disadvantage vis-à-vis satellites and that if Expressvu goes ahead with its project as it stands now, it will not use American satellites for distribution but only for reception. How can you possibly tell me that everyone will be on an equal footing? Is it true that it can be an advantage to use an American satellite to obtain the service and provide distribution or is it a drawback? What's our position in all this? Do you understand my question?

Mr. Stursberg: If I understand your question correctly, you wanted to know whether satellite companies have an advantage or whether they can use American satellites to compete against us. The answer is yes. Are we opposed to this? The answer is no.

First of all, we are in favour of competition. We are not prepared to block access to satellite services to American satellites in order to facilitate competition with the cable industry. This is essential.

Secondly, our technologies are different. I'm in favour of satellite services, and it will be more difficult to compete if they don't have access to American satellites, especially in the case of Power DirecTv. Because although there are technical differences between our systems, we are not opposed to access to American satellites. Is it an advantage? Yes.

Mrs. Tremblay: You're saying that you're not opposed to the use of satellites for distribution?

Mr. Stursberg: Exactly.

Mrs. Tremblay: In your document, you do say nevertheless that you want fair and sustainable competition.

Mr. Stursberg: Yes.

Mrs. Tremblay: And the words ``fair and sustainable'' are in bold face. Those are the two features of competition that you think are important.

Mr. Stursberg: Yes.

Mrs. Tremblay: If your competitor has an advantage, is that fair?

Mr. Stursberg: Frankly, I agree with you, but this is not something we've sought to change. All we're asking the committee is to provide us with the same opportunity to apply for pay-per-view CRTC licenses, as set out in the directive for satellite services.

As you say, we're seeking to strike a balance between the cable industry and satellite services. That's our only request, except for a few minor changes that would guarantee that the requirements are the same.

Mr. de Savoye: You have expertise and experience in designing a range of programs that provide a certain amount of Canadian content to the public.

Witnesses who appeared here before you - and I'm thinking in particular of ADISQ - fear that the approach that allows the use of American satellites will lead us into a situation where Canadian content will be a thing of the past within a few years. You are in a competitive situation. How do you feel about this? Do you fear the same phenomenon?

Mr. Stursberg: We are proposing that the satellite services respect the same rules we do. That means that first and foremost, they must give priority to Canadian signals.

.1630

Secondly, they have to do a matching between American services offered by satellite and Canadian services. That's a one-to-one matching.

Thirdly, they have to choose American services solely from a list prepared by the CRTC. If they are prepared to respect those conditions with regard to traditional broadcasting services and specialty services, they will be on an equal footing with us. Personally, I don't think there will be a problem concerning Canadian content.

Now with regard to pay-per-view, our position is exactly the same. If they are prepared to respect the CRTC rules, the same rules that were issued for Astral or Allarcom, then there would be no problem with Canadian content.

Mr. de Savoye: If I understand you correctly, you're saying that the rules for content matching must be the same for all service providers, regardless of the distribution vehicle used.

Mr. Stursberg: That's exactly right. We believe that the rules set out by the CRTC are very well formulated to respect two things: freedom of expression and access to foreign services on the one hand, and support for Canadian services and Canadian content on the other hand. If others are prepared to respect the same rules we do, and in the case of Astral or Allarcom, the same as for pay-per-view services, we are perfectly comfortable with the applications for Canadian content.

Mrs. Tremblay: We've heard a lot of talk about that fund for the production of Canadian programs. Many people tell us that 5% was not sufficient, that you have to start with 10% and eventually increase that to 20%, given the millions of dollars to be made by companies who will get into the satellite business. How do you feel about the increase of this tariff to 10% and eventuallay 20%?

Mr. Stursberg: Right now, we pay almost 10%, in the sense that 5% of our gross revenue is paid to support community channels offered through our services. We produce almost 250 000 hours of original Canadian programming per year through these community channels. That represents 5%. We contribute - and this is a bit different according to the system - almost another 5% of our gross basic revenue to this fund for television production, not only in English, but also in French in a proportion of 60-40. So that represents almost 10% of our gross basic revenue.

The Chair: We must now give the floor to Mrs. Brown.

[English]

Welcome back from your wanderings across the country.

Mrs. Brown (Calgary Southeast): Thank you. It's good to be back.

Welcome to the meeting today.

I come here with a fair degree of cynicism this afternoon. With all due respect to the chairman and the members of the committee, I think we've been going around and around this issue of competition with respect to DTH for weeks, if not months. You can come here and you can plead your case, but quite frankly, I don't know where all this paper is ultimately going to end up, because we know, based on the actions of the government over the past months, that ultimately the cabinet is going to make the decision on competition with respect to DTH. Who, what, when, and where that is going to take place will be determined around the cabinet table.

What do you think is really going to happen? Do you think we are going to have an opportunity to step into this whole area of competition on the basis of what you offer to the consumer, that the marketplace is ready to accept a wide-open distribution system? Indeed, do you have any faith in this whole committee process in any event? Quite frankly, I don't think I do at this time.

.1635

We sit around here and we talk about it and continue to talk about it and there's never any action. Mr. Spicer comes and he gives his presentation. All the players come in and they give their presentations. Who even knows where any of this stuff goes?

So I would like to know what the scuttlebutt is on the street. I just ask you what you think is ultimately going to happen.

The Chair: If you could relieve the burden of Mrs. Brown's cynicism, that would be much appreciated.

Mrs. Brown (Calgary Southeast): I have much.

Mr. Stursberg: I have no idea what the government will do with the committee's report. I presume the government will listen with care to what the committee has to say. I think the committee has an important role to play. These are important hearings. A number of amendments could usefully be proposed to strengthen the extent of competition along the lines we've suggested.

I don't think our amendments are particularly radical. They're simply designed to make sure everybody really is on the same playing field and everybody does have to support the same level of obligations to Canadian programming as we were discussing earlier on.

Mrs. Brown (Calgary Southeast): But what are they really saying out on the street? What are they really saying? You come and you plead your case and the words are wonderful and the amendments are carefully crafted, but what do you hear, really, when you're talking to your colleagues in the industry? Does anybody really give a rat's stomach what happens around here?

Mr. Stursberg: I would say they give at least a rat's stomach. They're very hard to get because they're very small. You need a very sharp knife to get them out.

My general impression is that this issue is interesting. I've been around the area for quite a long time and this is one of the most interesting and most controversial communications issues we've seen for a long time.

This certainly has been ventilated and discussed with a level of intensity and a level of thoroughness that I don't think we've seen for many issues. I don't doubt for a second that the deliberations of this committee will be a very important contribution to that. I think that's what people expect, and personally, I would hope that's what's going to happen.

Mrs. Brown (Calgary Southeast): So you have an expectation for action.

Mr. Stursberg: I have an expectation for action. Certain amendments need to made to these directions, and I hope the government will, obviously, take into account the views of the committee and what we've proposed here today by way of amendments.

Mrs. Brown (Calgary Southeast): Great. Thank you.

Mr. Ianno: I was just reading that you're not against competition. That was made very obvious.

At the beginning stages some of your members were part of the Expressvu group. Can you tell me why they pulled out?

Mr. Stursberg: I was not here at the time, so frankly I'm not close to it.

Mr. Ianno: So you don't know the history of DTH?

Mr. Stursberg: I know some of the history of DTH, but I don't know the history of their relationship to the Expressvu group.

Mr. Ianno: I see. So you didn't hear the earlier statements of Expressvu and company when they saw that Expressvu would become competitors of your industry. Some of the agreement was that they would deal only with rural distribution and not compete with the cable companies in the urban centres. You're not aware of that.

Mr. Stursberg: I know there was a discussion. I know there was originally a consortium that consisted of cable operators and the Expressvu people and that consortium was broken up.

Mr. Ianno: But for the reason I stated?

Mr. Stursberg: For the reason you stated...I think that's in part right, but Elizabeth can probably comment more. She was here at the time.

Ms Elizabeth Roscoe (Senior Vice-President, Public Affairs, Canadian Cable Television Association): The only clarification I would add is that you might have heard from the Expressvu people that the cable operators were trying to extend their service to rural areas through a system called Head End in the Sky. That is the initiative cable operators have gone forward with.

Mr. Ianno: So you've continued with that so that way you can have both the urban and the rural.

Ms Roscoe: That's right.

Mr. Ianno: But it's nothing to do with the -

Mr. Stursberg: It's a little different, in the sense that Head End in the Sky is essentially a delivery mechanism to guarantee that small cable companies can pick up pay-per-view television, so the level of service will be the same for small cable companies as it will be for large ones in urban areas.

.1640

Mr. Ianno: On the same point re competition, in terms of the cable companies, do you also get your U.S. programs from U.S. satellites?

Mr. Stursberg: Yes, we do. We pick up U.S. services off U.S. satellites, the ones who are authorized to carry by the CRTC, and then we distribute them - which is what I was saying earlier - through the cables.

Mr. Ianno: So, in effect, the Power DirecTv approach would be having the U.S. satellite for the U.S. programs and then distributing them from their central, or is it done from -

Mr. Stursberg: As I understand the Power approach, they are going to pick up U.S. signals from U.S. satellites and Canadian signals from Canadian satellites. To do that, they are going to have to construct a so-called dual-horn dish.

Mr. Ianno: And then distribute it.

Mr. Stursberg: Well, then the dish will sit on the house.

Mr. Ianno: Right.

Mr. Stursberg: Then they will program the dish in whatever way they want.

But that's right; it will have two -

Mr. Ianno: So, in effect, there is really no difference in terms of the U.S. programming coming from the U.S. satellites, for cable or for Power DirecTv?

Mr. Stursberg: No.

The only difference, as I mentioned earlier, is that -

Mr. Ianno: One is cable and the other is a box.

Mr. Stursberg: That's exactly what I was saying. There are technological differences between the two. We didn't object if they wanted to do that.

We don't distribute directly to our own customers. We pick it up and then treat it like a Canadian signal and then distribute it over Canadian facilities.

Mr. Ianno: When will your boxes be ready?

Mr. Stursberg: The DVC boxes?

Mr. Ianno: Yes.

Mr. Stursberg: This is a problem not unique to the Canadian cable industry.

Maybe I'll back up for one second. What Mr. Ianno is speaking about is -

Mr. Ianno: No, it's okay. Deal just with mine. Are you trying to inform the -

Mr. Stursberg: I was just going to tell them what DVC is.

Mr. Ianno: That's okay. I have limited time. I'm sorry.

Mr. Stursberg: All right.

We hope next year.

Mr. Ianno: Is my understanding correct that at that point, once the box is ready, you can give them direct access on some of the U.S. satellite information, the programming?

Mr. Stursberg: No. The boxes will allow us to do two things in the cable industry that we cannot currently do. One is that they will significantly increase the capacity that's available. Many of our systems right now have about 60 channels. We'll now go up into the numbers of hundreds of channels.

Mr. Ianno: And the interaction?

Mr. Stursberg: Secondly, we'll make it interactive, so we'll be able to offer interactive services.

Mr. Ianno: From a slightly different perspective, since your association believes in competition, how do you feel about the situation that in my area my constituents don't have any competition re cable companies? In other words, within a region it was either Rogers or another company, but I could not ask for two within my house. Is that part of the philosophy of competition?

Mr. Stursberg: No.

Our view about this is that, first, of course there will be competition in the form of direct-to-home satellites this year -

Mr. Ianno: But within your industry.

Mr. Stursberg: Within our industry the position we've taken is that if anybody wants to enter and compete against us right now, they are welcome to do so. Whether they are direct-to-home satellite providers.... Or there are other kinds of technologies that are coming onto the market, so-called multi-point distributors -

Mr. Ianno: I'm talking about cable companies competing with each other to give the consumer a choice within cable companies.

The Chair: You mean on the same physical territory.

Mr. Ianno: Yes, so within a house I can have two different services or either services of cable, either from Shaw or from Rogers.

Mr. Stursberg: We're not planning to do that now, but I think others will be coming along.

I was going to go on to say that the telephone companies have also indicated that they would like to be able to compete with the cable industry. We've said that's fine. We don't have a problem with that so long as we can compete against them in terms of local telephone service. So long as there are no head-starts, blah, blah, blah....

Mr. Ianno: I guess competition then means that you as an association don't mind competing with the other forms of distribution but you don't necessarily believe in competition from within to allow the consumer to have choice. Is my understanding correct?

Mr. Stursberg: No, I don't think that's right.

Originally cable was licensed as a series of territorial monopolies, exactly in the same way as local telephony was licensed. In fact, then people built out their systems -

.1645

Mr. Ianno: Now that the monopolies are existing and because you believe in competition - and I read in your paper that the association sees it your way - since you came from the telephone industry, are you and your association now willing to open up the cable industry so there is competition and we no longer have monopolies within regions, so my constituents can have choices and hopefully better pricing?

Mr. Stursberg: I think the problem that confronts us here is I'm not actually from the telephone industry. I was involved in the competitive long-distance industry -

Mr. Ianno: Yes, but it's telephone to me.

Mr. Stursberg: Well, it is and it isn't.

In any event, the cable television industry is going to be competing against the largest, richest industry in the country, which is the telephone industry. The telephone industry's total revenues last year were in excess of $13 billion.

Mr. Ianno: So you need protection?

Mr. Stursberg: No, we're not asking for protection. Our revenues were about $2 billion. The telephone industry is approximately seven times our size, its cashflow is ten times our size.

All I'm saying here is that with competition from DTH coming in, competition from microwave-to-base distribution systems, and then ultimately competition from the telephone companies, I'm not sure whether the best strategy for us as an industry, when facing competitors very substantially larger than ourselves, would be to compete against ourselves as well.

Mr. Ianno: Did I understand correctly that you want competition within the DTH? In other words, you prefer Expressvu and Power DirecTv to anything else so you'd prefer to see that compared to the concern of sustainability.

Mr. Stursberg: I'm not in the DTH business. I'm just saying that as far as the cable television business is concerned we're perfectly happy to have people compete against us. Whether they would like to have multiple entrants on their side, I don't have a view about that.

Mr. Ianno: No, I was just wondering if you had a view.

The Chair: I would like to put a couple of questions. I know Mr. de Savoye has a few.

My questions relate to some remarks you made about Head End in the Sky. I understand that's a way of helping smaller cable systems. Is that also what is meant by the word we were confronted with by our friends from Expressvu, ``CableSat'', or is that something different?

Mr. Stursberg: It's the same thing. The new name for it is CableSat.

The Chair: So that does not apply to large urban systems. It really applies to smaller systems and it's really for pay-for-view. Is that the focus?

Mr. Stursberg: That's right.

The Chair: There's something else I've heard of in the United States that deals with pay-for-view and seems to be controlled by the cable business. It is called PRIMESTAR. How does that work?

Mr. Stursberg: PRIMESTAR is a direct-to-home service organized by TCI, which is the largest cable group in the United States.

The Chair: So in this case the cable industry is going to use satellite technology for pay-for-view service.

Mr. Stursberg: Yes.

The Chair: I understand that large Canadian cable companies, specifically Rogers, have already struck or are striking some kind of deal with PRIMESTAR in the United States to provide that service starting next spring in this country. I also understand the money that is going to be used for that would come out of the social benefit package that was organized when Rogers bought Maclean Hunter, to the tune of something like $28 million.

Is it your understanding that kind of a deal is either under way or already signed?

Mr. Stursberg: I don't know that any kind of deal like that is under way, let alone signed. I don't believe a deal like that could be financed out of the benefits package.

One thing that's worth noting about the United States is that the level of penetration of cable in the United States is much lower than it is in Canada. In rural and remote areas there's less cable television available than there is in Canada. So maybe they think it's good business to go into the direct-to-home satellite business to serve those areas in the United States. But we already have cable, so our preference is to make sure the cable companies in those more remote areas can effectively compete against companies like Expressvu and DirecTv through the use of the HITS technology.

I should mention that HITS is being financed - it's an interesting arrangement - by the largest cable companies on behalf of the smallest ones. Rogers, Shaw, and COGECO are financing this initiative.

.1650

The Chair: I want to make certain I understand this. Would it make sense with or without the use of the social benefit money - the Rogers $28 million - for a large cable company for an urban area to come up with a service similar to what PRIMESTAR seems to offer in the United States, in which you have a twin service coming into the house? Is that a likely development in the cable business?

Mr. Stursberg: This relates to the DVC boxes I was talking to Mr. Ianno about. DVC stands for Digital Video Compression boxes. When we put in the DVC boxes we'll be able to offer hundreds more channels. We will be able to offer near video-on-demand services and very sophisticated pay-per-view services. We may be carrying more than two or three of these kinds of services depending on the availability of services as licensed by the commission and on the amount of capacity we can actually wring out of these boxes.

The Chair: You do not predict that any major Canadian cable player in the near future will be linking up to a satellite pay-per-view service along the PRIME lines.

Mr. Stursberg: PRIMESTAR.

The Chair: Yes, the PRIMESTAR lines.

Mr. Stursberg: To be honest with you, this is not currently the plan. If it were the case that we were allowed to participate in the next round of pay licensing, we would have a number of options. We could say we're not interested in participating because we have very good services already from Astral and Allarcom. We could make a joint venture with others. We could set something up independently. We could look to further partnerships with people who are already in the business in the United States. But PRIMESTAR.... We're not interested in getting into the direct-to-home television business.

The Chair: Thank you.

Mr. de Savoye.

[Translation]

Mr. de Savoye: My question is for Ms Ahern. Considering that direct-to-home television is certainly going to cause a cultural shock that will undoubtedly impact on Quebec, it might be easier to assess short and long term impact in Quebec since this is a market clearly defined by language.

The fundamental question is what is the future for cable? Who will serve the market? We have the cable companies, the telephone companies will be moving in, we now have direct-to-home service, and we cannot forget television stations that still exist and broadcast.

So, what is your future? How will the market be fragmented? Are you going to move towards services related to the electronic highway? Are you going to use the digital video compression technology to broadcast locally yourselves? Are you considering the possibility of using a satellite owned by all the cable companies? Could you benefit from a value added if you were to offer local programming with local advertisers?

Direct broadcast satellite will in no way reflect the reality of the community. If I want to know whether there were accidents in Quebec City, because that's were I live, it is not a satellite somewhere above the United States that will give me the information I want. Therefore, how do you see your future? Could you define in broad terms what the situation will be in the Quebec of tomorrow, taking into account the cable companies and other television distribution technologies?

Ms Ahern: There are several parts to your question. I will attempt to answer to the best of my knowledge.

Cable penetration in Quebec has always been somewhat less than for Canada as a whole. Seventy percent of Quebec homes subscribe to cable, whereas for Canada the percentage is 80%.

.1655

How do we anticipate our future? I like to believe it will be outstanding. At a time when a number of broadcasters are leaving the regions for profitability reasons, community programming offered by cable companies will substitute for local programming. We intend to play a major role in this regard, and we believe this is an exclusive service offered by cable distributors. Our subscribers like a service that gives them access to local and regional information, information which may be no longer provided by a traditional broadcasting undertaking. Therefore, to give a general answer to your question, we believe we have a bright future ahead of us.

We favour competition, since we believe that it will make our services even better because we are already doing a very good job. You did mention the electronic highway, and, during the most recent hearings, cable companies made their position rather clear. We definitely want to be on the electronic highway and offer multi media services along with our competitors.

Mr. de Savoye: Thank you.

[English]

The Chair: On that note I'm going to thank you for coming. It's been very interesting, and I dare say we'll see you wearing the same hats in different situations somewhere down the road.

We'll now have a five-minute break until our next witnesses are in place.

.1656

PAUSE

.1703

The Chair: We're back in business. I was going to say these were to be our last witnesses, but in fact, because we had to scrap two of our witnesses yesterday because of the endless vote, we have rescheduled Allarcom and Astral for 3:30 p.m. on Monday to accommodate them. The committee will then be meeting in camera at 9 a.m. on Tuesday to discuss what form our recommendations or a letter might take in terms of summarizing our work here.

With that housekeeping matter over, I'm also informed that for those of you who like to vote around here and have the right to, we are on deck this evening at 10 p.m. for the vote, unless the debate collapses beforehand. I understand there is no vote tomorrow and then we vote again Monday.

Mrs. Tremblay: Monday night at 11:30.

The Chair: So do keep your schedules open at 11:30 Monday night.

All of which means that unless something dreadful happens in the House, which of course it may well, we have an hour to enjoy with the witnesses from Power DirecTv. I want to welcome both of them and ask them to make their initial presentation.

Mr. Bell, are you going to speaking to us or are you going to split the honours here?

Mr. Joel Bell (Chairman of the Board, Power DirecTv): I'll make some introductory comments and then we'll both answer your questions.

[Translation]

The Chairman: It is your brief, I believe, isn't it?

[English]

Mr. Bell: Yes, we did distribute a fairly lengthy report.

The Chair: Yes. Is this it?

.1705

Mr. Bell: It appears that some of you have not received the full document, and I will be happy to make copies available to any who haven't. It contains our submission, some clause-by-clause analysis of the order with suggested changes and any explanation of them, and some discussion of the issues that seem to be at stake.

The Chair: Why don't you just walk us through the principal points, and then we'll get into that.

Mr. Bell: It might be helpful, Mr. Chairman, if I made just a few comments about the fundamentals of our project so that we're all talking from the same sort of factual background. I think it's understood that our proposal is to deliver a direct-to-home service in Canada that would be drawn from two satellites, from Canadian satellites for Canadian programming and U.S. satellites for the allowed eligible U.S. programming.

It happens that the two satellites are 6 degrees apart, one at 101 degrees, one at 107 degrees, west longitude, so that a single fixed dish with two horns to pick up the two signals will be able to serve the consumer from, in our case, a 24-inch dish that won't have to move and will be capable of drawing the best from both systems.

It's our proposal that we would offer all of the Canadian networks and services in both English and French. We would offer only the eligible U.S. programming and nothing more than that. We would meet all the Canadian content rules of tiering and linkage and preponderance in order to ensure that Canadian cultural and broadcast policy is observed and enforced, and we would make contributions to Canadian production funds like everyone else.

Today, what we have is a grey market that to an 18-inch dish is serving only U.S. content from U.S. facilities. There is no Canadian component, no Canadian contribution, and no role for Canadian satellites or other infrastructure. Our proposal is to try to change that.

I might say to start with that we get a little bit agitated when we are told that we're not Canadian or we're not as Canadian as some others, and I would put the question to you as to what makes us less Canadian than Expressvu. We make an allowable use under long-standing government policy of U.S. satellites. We have an allowable level of U.S. participation in the ownership of our venture. Is Rogers or Unitel any less Canadian because AT&T owns a share? We are as Canadian and as entitled to be treated as Canadian as anyone else if we live within the allowed levels of non-Canadian inputs, and that is all we propose to do.

By making use of this degree of foreign input, we are able to control the grey market, which otherwise inevitably spills into Canada to the detriment of our broadcasting policy. We will not be able in this country to enforce a broadcasting policy if U.S. signals can simply spill over and not be controlled. We harness in our relationship with the U.S. participant, DirecTv, to not only block out anything that is not eligible for distribution in Canada but also to use the fact of a cross-border system to not only have certain signals coming from the U.S. to Canada but to go the other way and to capitalize on an opportunity for exports in that cross-border system.

But our approach is very Canadian. It is in fact, I think, the only proposal that is put forward in a practical way to deal with the grey market. The only alternative, really, is to ignore the grey market and to encourage Expressvu as the Canadian alternative. This in fact was the approach taken in 1981, the early 1980s, when the first cross-border satellite signal started to arrive to big backyard dishes, and the policy was to license one exclusive supplier, Cancom, to deliver Canadian signals to that type of backyard dish.

.1710

The result we see today is that we have 500,000 of these backyard dishes in Canada. Of those subscribers, 32,000 are participating in the Canadian system. They buy the Cancom package. The rest are not subscribers to Cancom and are receiving signals without Canadian content, without making contributions to the Canadian system. For all intents and purposes they're part of the United States broadcasting system. We've lost the control of their having the package of services that represent the Canadian voice and the Canadian broadcasting policy. Moreover, by those 500,000 subscribers not buying the Canadian services, we lose some $150 million to $200 million a year that would otherwise be going to Canadian program suppliers, to Canadian program producers, and to Canadian distribution systems. This will only continue and grow when you have a system that is widely available, costs a fraction of the cost to install, and is convenient to install, an 18-inch dish that you can pick up in any convenient consumer electronics outlet.

What are the policy issues to which we have made comments and on which I think the committee has been deliberating? First, we would urge upon you the view that prompt implementation is what is needed. If we're going to get control over the grey market before it's too late, we have to act quickly. It's growing. It's growing strongly. It's growing to our detriment as a company. It's growing to the detriment of the Canadian broadcasting policy.

Some have alleged that it's our market, one that we can suddenly control and turn off. Telesat has told you otherwise, and they know the technology. You don't simply go out and repatriate those people. They're not easy to find, and the installation they have receives a single signal from the U.S. satellites and has to be replaced in order to receive the dual satellite delivery system that we want to put in place so we can deliver the U.S. and the Canadian signals in proper balance.

This is not something that we are creating or that our American associates are creating; it's Canadian consumers who are voting by their purchases to participate in that grey market sourcing.

The second reason for urgency is that we need the benefits of competition. If the policy of competition is good, we should have it now. There is no case for delay except for perpetuation of the existing monopolies. The consumers would benefit from price competition, flexibility, and choice. Producers would get more outlets. There would be more sources of funding support. There would be some efficiency brought into the system by some competition and technology with more channels that lower the cost of distribution.

Today, the cable system, which is a major part of our distribution, uses 85% of the $2 billion a year that goes into that system for the costs and profits of distribution. Only 15% makes its way to content, to programming. It's a very inefficient system, and we need to shift that balance if we're going to maintain the Canadian voice in the 200- or 500-channel universe that may be coming.

The other benefits to producers, other than more outlets and funding support and lower costs of getting their product to market, would be the opportunity for exports and the closure of the grey market that undermines their position.

The bottom line is we are entirely compliant with the Canadian cultural policy and supportive of it.

The third reason for speed, aside from closure or control of the grey market and the capturing of the benefits at an early date, is that if you want effective competition, you want both entrants that have announced some months ago their availability to operate to get into the market. We don't argue for holding Expressvu back. But we have been delayed as well, and we've been at it for longer. We've been at it now for 14 months. We've been at it since before Expressvu was created. Our appeal to you is to let us proceed on an equal footing with Expressvu and anyone else who wishes to apply and enter the market and is ready to do so. So the third reason would be effective competition and fairness between the parties.

In this submission we show you a number of precedents where the CRTC has been able to act with speed. Our request of you would be to recommend that the order be amended to say because of the policy interest in this, because of the importance of competition, because of fairness between the parties, get on with the licensing process now as recommended by the panel, but make it more precise by saying there is no reason that the order should not include a licence date by September 1. That holds no one back. It permits Expressvu to keep its business plans and us to work on our business plans, which have already been delayed for 14 months.

.1715

You've been presented with so-called compromises, and be careful. The notion that the extension of the exemption order solves anything...as the exemption order now stands we cannot operate. If the exemption order were amended to provide that the Canadian satellite usage policy, which permits the usage of U.S. satellites for U.S. signals, be put in, we still would not have a viable project. What that would permit us to do would be to offer direct-to-home service from the two satellites, but we would be able to offer the scheduled U.S. services, the networks and speciality services that are authorized, the scheduled Canadian services, but no pay-per-view product.

We would ask the consumer to pay $1,000, to buy the dish and the box and the controls, in return for which they would have the advantage of getting less than they can get from cable, because cable already has pay-per-view. CableSat has just announced that they're going to be going ahead with a bigger pay-per-view program, and we'd tell them maybe in the future, if we're lucky and the CRTC approves, we might be able to offer them a pay-per-view product. DTH is inherently pay-per-view.

When you have a dedicated satellite with 200 channels and all you can use of it is 14 channels, you don't have a viable economic proposition.

What makes this a competitive prod in the market is the fact that you use that additional technological capacity to do something new for the consumer. What you do for him that is new is you tell him you'll give him a broad array of films and sports and events that he can choose from at a time of his choosing from a broad range, and he will pay only for what he chooses to watch. If you haven't got that and all you can offer is less than cable, it's an illusory proposition that we are giving the chance to go ahead.

So the solution is let us both go ahead on September 1 and amend the order to make clear that what the report of the panel recommended, what is in the preamble that was not tabled with the order of their draft, what has been adopted by government in the way of a pro-competition policy - quickly adopted - is accomplished.

The second major point that I would urge upon you to include is the statement that competition is to prevail in the considerations of the CRTC when looking at licence applications. It's been the basis of the policy statement. It's been the basis of the recommendations. It is not in the orders you have. Read those orders - competition isn't mentioned; unrestricted entry isn't mentioned. Unless those orders are amended the status quo can be fully maintained with the orders in place.

What is needed is to say we want competition. We therefore say to the CRTC, don't look at the economic viability of a business proposition; let us decide; we have a right to fail. If we are foolish enough to make investments that don't work, we're going to fail. But we have a right to try, and the consumer has the right to make that decision.

We have to eliminate the opportunity for the CRTC to ask the question, what's the impact of allowing a new player in on the existing players, because that's just a formula for saying, well, if it's negative on the existing players, we won't allow new players in. So there would be no competition unless we eliminate those tests.

There are other issues, and I'll leave them largely to the question period. I might just very briefly point out that if you want competition to work, the new entrants have to have access to the program services. They have to have access not only to the delivery of those services, but also to their delivery at the same price as others. The order says that every new entrant should have access to the services. It doesn't say what is the necessary logical concomitant of that - at the same price.

If someone offers us a service for $2 per subscriber when cable can get it for $1 per subscriber, we can't compete. So there's a minor addition needed there, I think, for fair terms, competitive terms, on the access to programming.

.1720

Secondly, I think there have to be uniform conditions for everyone. There shouldn't be two routes of entry; there should be one. There shouldn't be one rule for one group and another set of rules for another; there should be the same rules for everyone.

Lastly, I would say that if we're interested in exports - and incidentally, I think exports are of critical importance and value to producers and distributors in this country to earn revenue to help them produce more Canadian product - we need to be able to use the cross-border systems to get into the U.S. households. We negotiated with our U.S. associates, DirecTv, the opportunity to put Canadian content, pay-per-view, not on the Canadian satellite but on their satellite so that it goes into a market ten times the size. It goes into every subscribing U.S. household.

In Canadian traffic on the Canadian satellite to do that, we lose one-third of a transponder of traffic. We as a project double the direct-to-home volume on those satellites, but we don't double it plus one-third of a transponder, we just double it. The third of a transponder means $1 million a year to Telesat. The transponder is $3 million a year, so one-third is $1 million a year.

The industry estimate, which is considered a very conservative estimate in the take-up rate that's occurring in the United States, of what could happen in the 10 million subscribing households of DirecTv, the number that's expected by the year 2000, means that $20 million, or three times what Canadian film producers and distributors earn from their theatrical distribution in this country, could be earned from that export market. The tradeoff is enormous and of great value for Canadian producers and distributors.

I'll end there. I haven't addressed the issue of program rights and the Canadian market for those rights. I hope that will come up during the question period, and if not, Mr. Chairman, I'd like to make a few comments on it before we close.

The Chair: Thank you.

[Translation]

I do not know how you're going to share your time.

Mrs. Tremblay: Mr. de Savoye will begin.

The Chairman: You have eight minutes for the first round.

Mr. de Savoye: Mr. Bell, Mr. Kruyt, you are very good components of the interests of your corporation and your business is motivated by profit. This is normal.

However, I will put to you difficult questions, as I did to other groups, in particular to your competition, Expressvu, and at the same time, I will question some of the assertions of Mr. Manley, the Industry minister. I would like to have your opinion on all of those in order to enlighten us.

The Industry minister, Mr. Manley, tells us that those two orders were guaranteeing competition and that the consumer will benefit from it.

First of all, you will not exclusively use a Canadian satellite; you will also use a US satellite. If I understand correctly, it is because it is more economical for you, Power DirecTv, to purchase that American service than to put in place a Canadian resource to offer, by satellite, the same program opportunities.

On the other hand, the transmission protocol that you use differs from the one used by Expressvu. As a consequence, correct me if I am wrong, it will be difficult for a subscriber to leave Power DirecTv to go to Expressvu or vice versa.

Therefore, I can say that two corporations will share the Canadian market and that each one will keep relatively captive its market share, that is its share of consumers, and that in reality, we are before a new virtual reality, i.e. two virtual but real monopolies, none interactive and the clientele of which is captive. It is very far from the belief of the Industry minister and very far from being a blessing for the consumer. I'm ready to hear you.

.1725

Mr. Bell: You've asked two questions: first of all, concerning the use of American satellites for part of our services and secondly, concerning the technology that separates us from others and leads to restrictions on consumers who want to move from one service provider to another.

As to satellites, it's true that we use American satellites for part of our services, as do broadcasters and cable companies today. It's a long-standing Canadian policy.

Mr. de Savoye: May I interrupt you? The cable companies use the American satellite signal and therefore get it at wholesale prices and then have it re-delivered at retail prices via Canadian installations which use Canadian workers and which are maintained by Canadians. Therefore, the operation of this infrastructure has an impact on Canada. This isn't the case with an American satellite.

Mr. Bell: We pick up signals with a dish. We send the signal on to a decoder, to television, by coaxial cable. That's exactly what cable companies do. There is, however, a difference. We have a fairly short line whereas they have a longer line. There is no technological distinction, except that the technology is developing to the point when you can pick up signals efficiently and economically in each house rather than at a centre.

It's true that we, as a company and as a country, are benefitting, as far as efficience is concerned, from an infrastructure that uses part of a Canadian infrastructure and part of the American infrastructure.

Mr. de Savoye: May I ask you to specify this efficiency? As a company, it's an efficiency because, at a lesser cost, you obtain the same results. For the country, for the nation, there isn't any efficiency because there isn't the same result; you'll pay for the services you use in the United States and that money will not come back to Canada. If, for instance, you use an Anik satellite, the efficiency results will be very different for Canada.

Mr. Bell: We are a Canadian carrier, we receive payments here and we pay for services that we buy elsewhere, but we still turn a financial profit here, I hope.

If we insist, as a country, that all services and all installations be based in Canada, our carriage costs will increase to an incredible level. We won't be efficient compared to any other country and our consumers will buy their services directly from the Americans, where they'll get better service at a lesser cost.

Mr. de Savoye: Please clarify this for me, as you are well aware of all these matters: Expressvu will use an exclusively Canadian satellite and as a result, if I understand you correctly, its costs will be exhorbitant and it will be doomed to failure.

Mr. Bell: It's neither my fault nor the choice I've made. It's up to them to decide. If they feel that they can buy all their services through a Canadian satellite, that's great.

Mr. de Savoye: So what you're telling me is that they feel they are able to do things that you consider you aren't able to do yourselves.

Mr. Bell: Why aren't cable companies and broadcasters forced to only use Canadian satellites? Will we be compelled to take on operating costs and methods that don't apply to anyone else? Why?

Mrs. Tremblay: Mr. Bell, your argument doesn't apply. Cable companies use American satellites to pick up American programs, but that is sent through their centers.

.1730

You use an American satellite to pick up and also to send out, which cable companies don't do. Don't compare yourselves to cable companies. Your American product will be delivered by Americans. The Canadian product will be delivered by Canadians, which isn't the case with cable. They explained it to us earlier. They preceded you.

Mr. Bell: It's because technology is advancing so quickly that it's not economically necessary to supply satellite broadcasting only through a central station. Previously, the cost of satellite broadcasting was too heavy to be borne by each household. Presently, it's possible to deliver directly to the home. If we persist in saying that we can't do it directly, we'll force our consumers to remain in the grey market, and they'll still buy the product, but without us. They'll buy, at a lesser cost, the Americans' service, without Canadian content and without any Canadian contribution to the production.

I should also add that the companies that, as a monopoly, handle satellite services in Canada suggested that our policy insist that signals originating from Canada, with a Canadian destination, be sent through a Canadian satellite, and not that American services be sent out through a Canadian system. That isn't necessary for our infrastructure to be viable.

Mr. de Savoye: Mr. Bell, perhaps we could move on to the other aspect of my question. I concluded by speaking of two virtual monopolies. Do you agree with me that you would have a monopoly and that Expressvu would have a monopoly and that customers will not easily be able to go from one supplier to the other?

The Chair: That's the last question for this part of our proceedings.

Mr. Bell: If our choice is accepted, we'll insist that there only be one technology which would give consumers the choice of starting with one supplier and moving later on to another supplier. We told our American colleagues that we insisted on being able to use the technology that existed prior to our arrival in order to control the grey market. If we don't accept the technology of Thomson, RCA, Sony and Toshiba, which was set up by Hughes and Thomson Electronics, we won't be able to control the grey market. It won't be possible because we have to use their technology to pick up their signals. Therefore, we don't have a choice.

The others chose another technology for their own reasons, which I can understand, actually. You're quite right to say that this sets limits on competition. But it doesn't completely eliminate competition. We'll compete with cable companies, with Expressvu, to attract subscribers when they make their decision.

Secondly, we must continue to provide something that is attractive to consumers, not only our own but also the subscribers who haven't decided yet, who haven't made their choice. There will therefore be the advantages of competition.

I buy a car every five or ten years. I don't buy a car every day. However, I see the benefit of competition. It would clearly be better if we had a competition which would allow the consumer to change from a cable system to a DTH system, from one DTC supplier to another. Within three or five years, we may be able to do so because the market will choose one of the technologies or probably because the manufacturers will come up with decoders able to pick up signals from different systems with different technologies. This will take some time, however, and the consumer must currently pay $1000 for the whole setup.

.1735

Take for instance the cellular phones or the VCRs. Their cost was initially over $1000 and it is now $200. Therefore, three or four years from now, any decision to switch won't be as costly and there might even be a second-hand market enabling us to resell our box to somebody else.

[English]

The Chair: I'm going to have to intervene because the two minutes became fourteen. I'm going to have to recognize that fairness across the room.

Mrs. Brown.

Mrs. Brown (Calgary Southeast): Thank you and welcome.

Mr. Bell, I want to take you back to May or June of 1994. Did you table to this committee a policy document, which I believe you drafted and delivered to the Minister of Canadian Heritage in late May or early June 1994? It's about 25 pages in length and it sets out a policy direction for government regarding DTH services. Do you recall that?

Mr. Bell: I cannot recall a particular document. I can tell you that we started communicating in December 1993 with the CRTC when we first formulated our approach to this project with Hughes DirecTv.

We then approached the CRTC again when we concluded the deal. We also approached government and started informing them of what our proposals were and how we proposed to comply with Canadian policy on cultural content, on broadcasting systems, on satellite infrastructure usage, etc.

Undoubtedly we put some of that on paper. If you have a particular piece of paper you would like me to identify or to answer questions about I would be happy to do that. I don't have any documents with me that date back to that time.

I can assure you that I don't recall anything that would have been put on paper that hasn't appeared in the submission we made in January 1995 to the government in the context of the DTH policy review conducted by the panel, and again in February, in the second round of reply submissions, and then again on June 2, in the document we mentioned earlier today.

We set out in extreme detail - in fact, we were accused of putting in too much detail. We were told our document was written like we were making an application for a licence. They asked us why we had to tell them so much about our project. We laid it all out.

Mrs. Brown (Calgary Southeast): Okay. I have some questions for the record.

So you don't recall this document. Did you ever at any time receive any solicitation from other officials? You said you have talked to government - the CRTC and the government in that timeframe that began in late 1993 - and I don't quite know what that means.

Were you ever solicited by any other government members or ministers with respect to Power DirecTv and the formulation you would like to see for the policy direction with respect to direct-to-home satellite?

Mr. Bell: I don't know what you mean by solicited.

We don't need much encouragement to talk to anyone -

Mrs. Brown (Calgary Southeast): Okay.

Mr. Bell: - who'll give us the time of day so we can tell them what we think about our policy views.

Mrs. Brown (Calgary Southeast): Was Mr. Goldenberg in the Prime Minister's Office ever involved in any of this?

Mr. Bell: Yes, I did meet with Mr. Goldenberg.

Mrs. Brown (Calgary Southeast): And when did you meet with him?

Mr. Bell: I would have to check my calendar, but at one point we told him we were making this policy project presentation around town and wanted him to be informed that we were doing so.

As I say, we talked to everyone who would listen to us because we wanted our proposal well understood. We don't know who participates in all the decision-making, but we certainly have laid everything out fully and publicly and to everyone in the various departments involved.

.1740

Mrs. Brown (Calgary Southeast): I just have one final point. I find it extremely illogical that you did not make a submission to the CRTC during the exemption hearings, if indeed you started this process back in late 1993. You even indicated in your earlier comments that you've been at this for 14 months. So I find it illogical in the extreme that you didn't participate in those exemption hearings.

Mr. Bell: That's a very good question and a good point. The exemption hearings required submissions by April 15, 1994. Actually it wasn't hearings, it was a written submission process. We had extensive negotiations with Hughes that were not easy negotiations. We were taking them through the need to give up control and accept Canadian content and block out much of their U.S. content and use Canadian infrastructure and satellites to accept Canadian projects, to give us the full control over which of their signals and programs come into Canada and which don't, so we can be made to comply by the CRTC with Canadian policy. It was a long and difficult discussion. We finally concluded our deal about ten days or two weeks after the closing of the submissions for the exemption order at the end of April.

Mrs. Brown (Calgary Southeast): Does this mean that Expressvu had started much before you, that you were looking at this -

Mr. Bell: No, Expressvu didn't make a submission to that process. Expressvu didn't exist until very late in that year.

Mrs. Brown (Calgary Southeast): No, pardon me, but the opportunity to participate. If you knew that you were going to be involved in this at some point, and obviously late 1993 -

Mr. Bell: We had approached the CRTC to tell them that we were in discussions with Hughes DirecTv aimed at this kind of proposal, to bring it into compliance. This was as a courtesy, so that they would know they do have broad responsibilities in the management of broadcasting in this country, and we wanted them to know what was going on. The grey market was being debated. We wanted to inform them.

We didn't exist as a legal entity and we didn't know if we would be successful in concluding a deal. As I said, this was not an easily come-by transaction. We had hoped to finish before April 15 and to put in a submission, but we were not able to. DirecTv did.

Subsequently several interest groups went to the CRTC and said ``We made submissions on April 15 in the context of deathstar. The U.S. service is filling in and it's not a Canadian service. Now we have Power DirecTv. That's going to make the Canadian service fully within Canadian policy reopen, and we'd like to resubmit our views.'' We would have submitted to that process. The CRTC said no, understandably perhaps. They had set a schedule and they had closed the submissions and it was too late. So there was no opportunity for us to do so, regrettably.

Mrs. Brown (Calgary Southeast): Okay. The point I really would like to close on here is that the process has been so compromised by intervention from cabinet, with the CRTC decision being overturned. I'm just trying to get to the bottom of how a process that really is supposed to be fair.... I have no problem with the whole notion of competition. We support competition and endorse it and want to see it unfold in a fair and equitable manner, but it is process that has really been compromised. I think that's been a very unfortunate element of this whole discussion.

Anyway, thank you, Mr. Chairman. I'm done.

Mr. Bell: Can I just make a very brief response?

First, this has been a long debate on this policy. I don't see anything having been overturned or reversed or abridged. And nothing's happened yet.

Second, what has gone on has been an extremely open process for 14 months of public debate, open submissions, independent panel reviews. I don't think there has been a more studied project in the history of Canadian broadcasting. I would defy you to show me one. We've had a government paper in 1984, a licence policy of the CRTC in 1987, a broadcast summit in 1991, a structural hearing that addressed this extensively in 1992-93, an exemption order process in 1993-94, the review panel in 1994-95 with a variety of submissions, hearings in the Senate, and hearings here, and we are still not at first base. Now if there have been interventions that have somehow been advantageous to us I'd like to see where they are. We are the victims of a very long and open process.

.1745

Mrs. Brown (Calgary Southeast): I would be interested then to know when you did actually meet with Mr. Goldenberg. I think that might shed some light on this whole process in terms of the timing and your involvement.

Mr. Bell: I'll find that out but I can tell you that when I arrived in Mr. Goldenberg's office, he said to me ``You're actually late. I have met with the other parties before you, but I'm happy to met with you too.''

Mrs. Brown (Calgary Southeast): Could you tell me the date, though? Could you find that out?

Mr. Bell: I'd have to review -

Mrs. Brown (Calgary Southeast): I would appreciate that.

The Chair: That will go into the record.

Mr. Ianno: Thank you very much, gentlemen, for coming.

Could I bring you back to the process of the signal, because I think that as many times as it has been explained, somewhere down the line most of us go back to our original impressions, from all our perspectives.

I'm curious about this. When the American signal comes in, where does it go before you have control of it? Not the Canadian one, but the American one.

Mr. Bell: The signal is up there now.

Mr. Ianno: Okay.

Mr. Bell: In fact, in the so-called grey market it's being received by a lot of people.

When we are in business we will have the exclusive right to authorize the boxes in Canada and to authorize which services can come in and which cannot. We have the on/off switch in our control, even in terms of authorizing which programs can come in.

So the signal is up there and the question is simply, which signals are viewable through a Canadian box? That box is controlled by a central authorization centre that sends an electronic signal from the satellite to the dish to the box, and says this box can see this service, and not that, or the program at this hour, and not that. So our control is electronic, and in the box. The signal doesn't go anywhere but comes from the sky to the box.

Mr. Ianno: And the control is controlling the box, in the dish, which is sitting in someone's home.

Mr. Bell: That's right. Every box is fully addressable. You can speak collectively or individually to every box and program it for what it can allow through to the television set.

Mr. Ianno: So instead of having one central place from which you'd send the signal to 100,000 individual subscriber dishes, what is happening is you have a control switch that in effect allows you to direct to the 100,000 homes what programs, etc., you would like them to achieve.

Mr. Bell: That's correct. It is in a central place. You call into that central place and you select -

Mr. Ianno: Right. Now let me go back to the cable.

Cable has the U.S. satellite signal that's sitting up there. It has a central place from which it gets the signal. It then, through its cable distribution network, sends it out to the individual home. So that control centre that the cable company has, and your control centre - let's say it's next door - in effect is receiving the same American signal. It might be a different services.

Mr. Bell: That's correct and, in fact, on most cable systems all of the signals are actually on the cable at all times just as the signals are in the satellite system in the air. They control, if they have addressable boxes, what your TV will see. More traditionally, they simply ``trap out'' certain of the signals today so that it goes through.

Mr. Ianno: Okay. Now the difference between yourselves and the cable companies and Expressvu is that Expressvu is using Telesat. Is that correct?

Mr. Bell: They're using uniquely Telesat, as I understand it, and we're using Telesat as well.

Mr. Ianno: Yes, I know that you also use Telesat with your Canadian programming. I'm just trying to deal with the American one.

So in effect then, where is Expressvu getting the initial signal from? With the cable, and with yourselves, you said there's an American signal up there that goes down to your central control switches. Is Expressvu also gathering an American signal?

Mr. Bell: Yes, they have to receive the American signal. I don't know exactly what their system architecture is, whether they bring it over land or from a U.S. satellite to their central point and re-uplink it. It's probably from a U.S. satellite, because some of the services are not available except by satellite.

.1750

Mr. Ianno: Let me ask this then. Take that same American satellite. Let's give the number one. Let's assume it's servicing the cable companies, yourselves, and Expressvu. Is that possible? Let's assume that's aside from exclusivity and all of the rest that goes along with it.

Mr. Bell: No. There's one simple reason, which is that we really have the first digital satellite system in a technology that requires us to look at the one U.S. satellite that has the same technology.

But, conceptually, yes -

Mr. Ianno: Conceptually is what I'm trying to get at. At that point then, Expressvu would beam it down somewhere. I think they told us it would be in Edmonton, and a couple of other places. Then they would beam it back up to Telesat?

Mr. Bell: That's my understanding.

Mr. Ianno: Then, from Telesat, it would go directly to the homes?

Mr. Bell: That's my understanding.

Mr. Ianno: So the big difference the CRTC is putting forward is that because you, along with the cable companies, are getting it directly to the dish - in cable circumstance, it would be to their gathering place - they really would have wanted you to beam it down somewhere, beam it back up, then beam it directly. Is that the big difference with just the American side, aside from the Canadian side?

Mr. Bell: That's my understanding of what they would have us do.

Mr. Ianno: What would the cost of that be?

Mr. Bell: My recollection is that, over the 12-year life of a satellite, to re-uplink the eligible U.S. service would run in the order of $300 million. That's to re-uplink and buy the space component of transponder capacity for those services for a period of 12 years, which is sort of the normal life of a satellite.

Mr. Ianno: Let me ask another question. I wonder if this is possible. Say you beamed it down, which is similar to Expressvu, then you beamed it back up to Telesat. I gather you're using three to six transponders.

Mr. Bell: We are using six.

Mr. Ianno: So that part is constant.

Mr. Bell: Right.

Mr. Ianno: That would be solely for Canadian usage, would it not?

Mr. Bell: We'd be using six transponders for the Canadian segments.

Mr. Ianno: If you wanted to use the American system in a similar way, whether you do it directly up in the air, or down and up, how many transponders would be needed?

Mr. Bell: In the $300-million number I've given you, I assumed there are the 14 or 15 eligible U.S. services. Those are the currently eligible U.S. services that the CRTC authorizes for distribution in Canada. If you assume a compression of three or four to one for those services, you're talking about something like five transponders at $3 million a year. So that's $15 million times 12 years.

Mr. Ianno: So I guess the real issue, if I understand it correctly -

Mr. Bell: In that, I included some pay-for-view channels, as well. So I was using more than three transponders. There would be three transponders, plus a 50-channel pay-for-view service. I would need another five transponders, because you can compress at about 10:1 for most of the pay-for-view products.

Mr. Ianno: So it would be approximately eight transponders at $3 million, which is $24 million.

Mr. Bell: It's something in that order.

Mr. Ianno: You would also need something on the ground that would get it and then send it back up?

Mr. Bell: That's correct. All of these numbers were in our original submission. I think that's right: it was $24 million a year times 12 years or so, plus the ground installation.

Mr. Ianno: So I guess the only loser would be Telesat. That's if somehow the CRTC went back and changed the exemption or the licensing or however else the CRTC decides to do it.

Mr. Bell: Not really, because if we come along as a second customer for Telesat, and we add six transponders of demand, then we double their DTH demand by our arrival. Under the formulation that is before us, we couldn't be here, because DirecTv would say they didn't need that; they'll live in the grey market.

Then you would have the Canadian consumer buying that service in the grey market, which is not in Telesat's interest. If you ask Telesat, they'll say that the thing they need is to control the grey market, and not allow it to operate, in order to ensure that Canadian consumers buy from the signals that come off earth.

.1755

Mr. Ianno: So if you don't come on stream, in effect, they lose $18 million a year.

Mr. Bell: They would lose $18 million a year, and they would be exposed to the erosion of their revenue base of their customers through the grey market.

Mr. Ianno: [Inaudible - Editor] and all the rest that goes along with it.

Mr. Bell: Yes. They are better off with our arrival, and I think they would say so.

Mr. Ianno: Just this morning when we were speaking, Mrs. Tremblay was alluding to some of this. I think this has cleared up something. In effect, cable and yourselves, along with Expressvu, would use the U.S. satellite. It's just how the switch gets turned on. It may be the cable, or eventually telephones, or whatever else it happens to be, but in effect it's all coming from American programming for the American part.

Mr. Bell: American programming comes from the American infrastructure for every delivery system in Canada.

Mr. Ianno: What we are dealing with here is having systems that will in effect turn on the system with a control switch, whether it be through cable, telephone, or your box switch turn-ons. So that is the part we're discussing.

In effect, Canadian consumers will not lose out with the competition and the percentage of contribution toward program funding.

Telesat doesn't lose out because they also get the $18 million a year in terms of transponder -

Mr. Bell: It does not lose out. I think Telesat is a very substantial winner from this. Telesat, I think, has testified to that effect. In their submissions, they put forward the proposition that if we can have a cost-efficient, competitive DTH business, they are more assured of a healthy, long-term DTH business to use their capacity. In that efficient, economic system of lower distribution costs, they predict that more Canadian services will be able to come out to use more capacity.

However, if we have an inefficient distribution system because we force the second uplinking and we don't control the grey market, they will have higher costs, a less attractive product, undermining from the grey market, and a system in which there will be less of an economic possibility for new Canadian programming services to be put up economically. They would lose on all those fronts, and they have said so.

Mr. Ianno: If, by September 1, the CRTC asked you to submit information along with Expressvu so that, in effect, it's licensing versus an exemption order, would you be able to begin your operations on September 1?

Mr. Bell: First, we are hoping for and seeking licence decisions by September 1.

Would we be able to operate at that date? No.

Mr. Ianno: How long would it take?

Mr. Bell: It would take us some months longer. We would start marketing to say that we're coming soon, but we would have to do the detailed drawings and manufacturing of double receiving dishes and boxes. That would take us some months.

The estimate we have had from our suppliers is disturbingly long. It's like nine months, and we are looking to try to find ways to shorten that. Certainly it is not on for September 1.

Mr. Ianno: If Expressvu were given, in a sense, a licence to operate by September 1, and you were also given that, Expressvu would still be first in the market.

Mr. Bell: There's no doubt that despite the fact we started a lot sooner, we are now at a disadvantage. They will have a head start on the basis of being able to operate September 1. There's no way we can operate by that date.

Mr. Ianno: That doesn't concern you?

Mr. Bell: Oh, it does.

Mr. Ianno: No, I'm not talking from a marketing and business perspective; what I am getting at is strictly from a regulatory perspective.

Mr. Bell: We asked in our submission to the government for it to establish a policy that was the same as what it did with cellular telephones. Although the telephone companies were ready to go ahead and Rogers Cantel was not, it decided not to allow the telephone companies to go ahead. It held them back and said that there would be a common start date.

We asked for that same policy for fairness and effective competition. We were turned down on that. The report said to just get on with the licensing quickly.

We could reargue the case we made in front of the government and the panel. We prefer to put a closure on this issue and say we can live with this policy. It is balanced, fair, and reasonable if it happens quickly, but if we delay this by a longer debate that takes another six months, we're out of the ballpark anyway. We will not be able to start. We will not be in business. The policy attempt will have failed. So we said put closure to the debate; let's get on with it, and we'll live with those rules. We'll come in later, but we'll start marketing right away to say, coming soon, here's what we're going to be able to offer you. That's all we're seeking.

.1800

The Chair: On the list I have several remaining questioners - Madam Tremblay, Mrs. Brown, the other Mrs. Brown, and myself - and a teeny-weeny question from Mr. McKinnon.

[Translation]

Mrs. Tremblay: As time goes by, the number of questions grows. That's the tragedy of it.

[English]

The Chair: It's your last chance.

Mrs. Tremblay: My last chance; probably after you I will have another question.

[Translation]

Mr. Bell, from what I heard you apparently said that the exemption had been tailor-made for Expressvu. Could you give us any proof that some people from the CRTC and former CRTC employees have plotted that kind of thing?

Mr. Bell: I never said anything of the kind. I said that the exemptions had created a situation which was such that Expressvu could start in business while we couldn't. I do not believe that this has been expressly done for Expressvu. But it was clear that they could act while we could not.

Mrs. Tremblay: You're going to be able to have a button made saying that you too belong to the club of misquoted people.

When you appeared in front of the other House's committee on Transport and Communications, Senator Lowell Murray asked you a few questions regarding a secret document which had been circulated, and which, by the way, I have here, where we can read...

The Chair: Not so secret.

Mrs. Tremblay: Right, not so secret.

Mr. Bell: It seems to me our arguments are never kept secret.

Mrs. Tremblay: We have more and more questions to ask. That worries me.

[English]

If it is not done by April 24, Power DirecTv will be denied a fair start action and will be delayed at least an extra three or four months, etc.

It also says here since a direction is put before the parliamentary committee, it would be wise to talk with the chairman of the appropriate committee.

The Chair: Very wise.

Mrs. Tremblay: If the prospective time of start-up is a competitive position vis-à-vis Expressvu and cable...and the delay of Power Corporation will be abandoned, etc....

[Translation]

You need nine months to start up. You told Senator Murray that you were writing so many things that, right off your head, you could not remember and that you would have to read the document over to know whether it was you who wrote it or not. It has been quite a while between the time you appeared in front of the Senate committee and today. Did you have time to read the document which you are supposed to have offered?

[English]

Mr. Bell: What I said to Senator Murray at the time.... He was waving a document at me and asked me if I had written that; my colleague piped up and said it was long enough for me to have written it, but I couldn't identify from the waving whether it was indeed mine.

That particular document, and I can't vouch for the one you're holding -

Mrs. Tremblay: It's probably the same.

Mr. Bell: That particular document I did review. He gave me a copy of it. I took it home and reviewed it and then did put on the record with the Senate committee that, indeed, it had originated from me. It had gone to points in governments that I could identify because it was one of a different variety from others. I identified that it had gone to officials in two departments. So yes, I have indicated that it was our document.

[Translation]

Mrs. Tremblay: Can you tell me for how long you have been in business with Power DirecTv?

Mr. Bell: Me?

Mrs. Temblay: Yes.

Mr. Bell: I am involved in this since the beginning of the negotiations with Hughes. This was before Power DirecTv was established.

.1805

However, I have been working longer with Mr. Kruyt, who is chairman of the Power branch and Chairman of Power DirecTv.

Power DirecTv was set up in April, but I was involved before that in negotiations with Hughes DirecTv.

Mrs. Tremblay: I have a more sensitive question now, and I hope I won't make any mistakes in asking it. The information I received indicates that the grey market isn't as big as we are being led to believe. There are approximately 30,000 to 50,000 people who had the very bad idea of buying dishes. I hope there are enough TV viewers who will tell all those who go to the United States this summer: "Please, don't buy dishes; it's too soon because they won't be of any use even if you bought the least expensive one, because they're on the verge of becoming obsolete".

It would seem to me that the grey market you are targeting was mainly caused by DirecTv, your American associate, so of course it will be easy for you to get around it when you're in business with DirecTv and to find a way to compensate people, to allow them to buy your stuff cut rate or whatever.

In any case, concerning this grey market, I think we're on the wrong track, and it is not your main goal. Personally, I'm still worried. You haven't convinced me that using your American satellites will really cause Canadian culture and the cultural exemption - signed with the Unites States and in the context of NAFTA, to be vulnerable. Personally, I'm still convinced that it's worrisome.

The Chairman: I'm waiting for your answer.

Mr. Bell: Mr. Kruyt will answer.

Mr. Peter Kruyt (Chairman, Power Broadcasting Inc., Power DirecTv): Mrs. Tremblay, if the grey market is of no importance, the thing that we suggested doesn't merit a quick response, isn't worth a change in policy. You could end your work very soon, if that's what your research indicates.

Mrs. Tremblay: May I tell you that you don't make laws because cigarettes, drinks and other things are smuggled? That is not the point of laws, of policies and of regulations. You're trying to make us believe that this is very, very big, that there are 27 million Canadians and that 30,000 have a small illegal dish, when we know that the switch will be turned off. It's not such a catastrophe.

Mr. Kruyt: Madam, we've heard two figures: approximately 500,000...

Mrs. Tremblay: That figure of 500,000 has to do with large dishes which aren't illegal. The 30,000 has to do with small dishes.

Mr. Kruyt: There's no difference between the legality of a large dish and that of a small dish.

Mrs. Tremblay: I disagree. People in Quebec and Canada buy the large dishes because they're available. They aren't as large as...

Mr. Bell: But from a legal point of view, there is no distinction.

Mr. Kruyt: The grey market...

Mrs. Tremblay: As to the grey market, they turn their things, that's obvious. To the others, they're getting their feed from the Americans. When large dishes were bought by Canadians, they were bought in Canada. They paid taxes in Canada. They pay for things. The large dishes weren't bought in the United States.

Mr. Kruyt: They don't have to go to the U.S. because there are Canadian suppliers.

Mrs. Tremblay: They're authorized to sell those large dishes, but the small ones, that Canadians buy fraudulently in the U.S., are not legal. We're not talking about the same dishes.

Mr. Kruyt: You can go to retailers here, in Ottawa, and find small dishes. You can find ads in the "Financial Post" almost every day. You could get legal opinions on this matter but, in our opinion, there's absolutely no difference between the two.

We contacted an American journalist who had carried out research on the size of the market and who told us, as a result of an information poll he carried out on dish suppliers, that our market estimates were wrong. According to him, by the end of this year, there will be between 100,000 and 125,000 people in the grey market.

.1810

Mrs. Tremblay: Mr. Kruyt, do you agree that the real grey market you want to eliminate is all these people who, right now, are trilled by an American company because they fraudulently got a postal box on the other side of the border? They are billed in U.S. dollars and they don't pay any taxes in Canada. They don't pay anything here and all this goes to the States, because somebody there, with the help of others, sells them a service they are not supposed to sell them.

Don't you think the matter would be much more easily dealt with through a bilateral agreement between Canada and the United States whereby no American whatsoever would be authorized to sell a Canadian service? It would be much simpler than using Power orders in Council... I'm sorry, government orders in council.

The Chairman: I believe that's the final word.

Mr. Kruyt: If you do a little research, you'll see that it's Canadians who sell American satellite dishes and who organize the subscription to American services for Canadians, by Canadians, and that that situation exists since the beginning of the grey market for large dishes.

Some companies advertise everywhere. They have thousands and thousands of Canadian subscribers and they act as entrepreneurs and go-betweens to facilitate what you have just mentioned. People don't have to go to Plattsburg to buy their dishes. They can find them in stores here, in Canada, and get them to be delivered by go-betweens.

That's where the problem lies. It's so easy and so prefitable for retailers to sell these boxes that we believe it's important for us to start right away and offer them something which can be combined with the American service and which will put an and to the grey market.

[English]

The Chair: Thank you very much.

[Translation]

Mr. Bell: I'd like to add that we cannot identify anybody as a Canadian resident receiving an American service. Some entrepreneurs recommend that Canadians not use their own telephone lines. That way, it can't be determined whether they're in Canada or in the United States.

Second, they found ways to identify subscribers as American residents. If we ask the owner of a little black box to call our telephone central, the number that will be indicated will be an American number. That way, it's impossible to identify people who are located in Canada. Nobody in Canada gets the DirecTv service.

[English]

Mr. de Savoye: I must correct something that is not exact. Actually when you have a forwarded call - and we have this on the Hill - you have on the little screen the number you've called, and if it's forwarded somewhere you have the new number, right?

So if you have an American number as the first number to be called by DirecTv to download from the little black box the billing information, and if that call is being forwarded to a Canadian address, now DirecTv knows that, because it received the signal from the telephone company, and it could cut the signal from that box. This costs the Canadian economy taxes of $750,000 per month. That is what DirecTv is doing to this economy.

I would like the record to be put straight here.

The Chair: I will give a last response to Mr. Bell, and then we really have to move along.

Mr. Bell: I'm not an engineer, but it is not in our interests for this grey market to be growing, because these are not our subscribers. They are the people we would like to keep from buying this equipment so they'll buy it from us.

Mr. de Savoye: I agree with you, and you can do it quite easily.

.1815

Mr. Bell: We are told by the technologists we talk to that with the modern systems available, that is not possible. Certainly those who are advised not to plug into the phone line cannot be identified as to their location. We don't know where they are.

Mr. de Savoye: I could help you there.

Some hon. members: Oh, oh.

The Chair: He'll help for a fine fee. No, we can't have that.

Bonnie Brown.

Ms Brown (Oakville - Milton): Thank you, Mr. Chairman.

I got the answer to my first question when Mr. Ianno was questioning. You said your technical people are saying it will be about nine months before you're up and running. So could I conclude that the only reason you would need a licence by September 1 would actually be to get into the marketing? You're saying ``Wait for us. We're going to be up and running. We're going to present these kinds of options.'' You want to get into the advertising at the same time as your competition.

Mr. Bell: There are two considerations. One is that in the report on the structural hearings, the CRTC made it clear that if you undertake in Canada the marketing or promotion of a broadcasting service, you're carrying on a part of a broadcasting service that is licensable and you're breaking the law. So we could not be out marketing -

Ms Brown (Oakville - Milton): Without the licence.

Mr. Bell: Unless and until we have the authorization.

Ms Brown (Oakville - Milton): What about from a business perspective?

Mr. Bell: There is a second consideration from a business perspective. If we're not sure we're going to be given a level playing field and a reasonable set of criteria to satisfy on content, control, and contributions, and if we may not be authorized, we can't justify spending the millions of dollars we have to start spending at the beginning of that nine-month period and through that nine-month period to be able to build the uplink and production centres we need and to design and build the equipment that's going to be required.

A significant investment has to be made. If you're not given any comfort that the rules are going to be such that you are willing to take the risk that you'll be able to satisfy them, because you don't know what the rules are going to be or you know the rules are not very encouraging, you can't justify making those expenditures.

So there is both the marketing equal footing and the need to have an environment that is reasonable and timely in its policy and permits us to make the front-end investments needed.

Ms Brown (Oakville - Milton): Thank you.

Is your company public or private, and as such, has it issued shares? If it's issued shares, what percentage of those shares are owned by either your American partners or American individuals, however you've done it?

Mr. Bell: Power DirecTv is a company that is controlled by Power Broadcasting with participation from DirecTv, and it meets all of the Canadian ownership rules set out by the CRTC. It must.

Ms Brown (Oakville - Milton): I don't know exactly what stage you're at. You're saying to me you don't want to put money in until you're sure of the rules and you have a licence in your hand, so I don't know whether this thing is really happening.

Or is it just that you have an agreement that if a certain set of things happen, you will move forward? Is it something in your mind and a few pieces of paper that Hughes has signed?

Mr. Bell: Our entitlements under our contract don't crystallize unless and until we have the legal entitlement to carry on business in Canada.

Ms Brown (Oakville - Milton): So do you have a business plan?

Mr. Bell: Oh, we have a business plan, and we keep pushing it on and off -

Ms Brown (Oakville - Milton): In your business plan, what percentage of your annual budget would you be dedicating to advertising?

Mr. Bell: I don't know that we want to get into the details of our marketing plans. Those, I think, are competitively confidential types of information.

Ms Brown (Oakville - Milton): Well, it would depend on the size of your budget.

Mr. Bell: Obviously, as a new arrival in the market, we will have to make a significant effort to make ourselves visible and market ourselves. The degree of publicity that has been given to direct-to-home by the debate that has taken place has probably helped us considerably, but I think it's also fanned the grey market, which is cutting against us.

Ms Brown (Oakville - Milton): The thing that puzzles me about this is I can see everything you're saying except this business about unrestricted entry. On the other side of the advertising equation, from our study of CBC and advertising revenues, we know it's shrinking for everybody because it's so fragmented. But that wouldn't be the main source of your money. The main source would be the subscribers, would it not?

.1820

Mr. Bell: We wouldn't receive any advertising revenue.

Ms Brown (Oakville - Milton): I understand that.

Mr. Bell: We are a distribution system, like a cable company.

Ms Brown (Oakville - Milton): I just want you to say yes or no. It's the subscriber base that actually pulls in the money for you.

Mr. Bell: Correct.

Ms Brown (Oakville - Milton): Okay.

In the same way that radio is finding the advertising dollars scarce, which at one time were their main source of revenue, are you not afraid that unrestricted entry, whether it's of new Canadian players or big, powerful American players, could bring in so many companies that the subscriber market will become so fragmented that you'll end up in the same spot as radio is now, with their main source of funding too fragmented?

Mr. Bell: First, from the point of view of the broadcasting program services, we will give them wider distribution, so their revenue base - their exposure to more consumers throughout Canada - will be improved. They will have a broader viewership, a broader distribution, and a better revenue base.

It is true that the consuming market is a certain size, so the question is posed as to whether, if a dozen people came into the market, there would be room for all of them, but remember we're sourcing revenues in competition with cable. We're sourcing revenues in competition with video stores, which is close to a $2 billion-business in this country. There are varieties of new services that we're all going to be offering on the modern information highway that will draw additional revenues.

If you look back over the last 15 years, you will see more than a 500% increase in consumer spending on video product. The viewing hours haven't moved at all for decades.

Ms Brown (Oakville - Milton): People are willing to spend that much more money. I understand that.

Mr. Bell: People will spend much more money if you offer them choice, variety, better value, and convenience. There's no reason for us to expect that wouldn't continue.

At the same time, we think this market's going to grow. By adding services to what that information highway carries, we think we will be taking additional revenue. By providing a convenient alternative to things like the video store, we think we'll also be tapping into that market. So the market will be growing.

Ms Brown (Oakville - Milton): One other thing you said fascinated me, and that was ``We have the right to fail.''

Suppose we license these two Canadian DTH distributors and we have unrestricted entry, and some big American players come in and decide they will fulfil the Canadian requirements. What if all of a sudden we have, say, six, four of which are American, two of which are Canadian, and the two Canadian fail?

I know they'd have to operate under our CRTC rules -

The Chair: But they'd also have to operate under the Canadian ownership rules.

Mr. Bell: They'd have to be Canadian-owned and controlled, meeting Canadian content rules, meeting Canadian contributions, and meeting Canadian infrastructure. If someone can come in and be better than us, I don't think we should be protected. The consumer should choose between us. If someone does a better job and has a better service, a better product and a lower price, he's going to beat us.

When I say we have a right to fail, it's not because I like the idea. I hope not to exercise it. But my conviction is if you say the people who are here now must not fail, then you don't allow others in and you don't give the consumer the choice.

Even in a market in which a limited number of outlets can survive, we don't have pharmacies on four corners of a street and we no longer have gas stations on four corners of a street, but we let the market decide how many it can support. We let the consumers decide where they want to find it. What they end up with is better value, better products, better price, and better services.

This is not a market in which you can have, to use the technical economic term, ``contestability''. In other words, even if there's room for only two or three, the fact that those two or three are not protected, but a better player can come in and beat them, ensures consumer control and better results in sorting out the number there and who is there.

Mr. Kruyt: Mr. Chairman, may I be rude for one second and just give a very short addition to what he said? An important point is missing on this issue of unrestricted competition.

.1825

If there were other American DTH suppliers and we decided for one reason or another that there was only enough room in Canada for two players, and we happened to be lucky enough to be one of the two, what would the other American DTH competitors do? They would be forced into the grey market, and we would again be faced with a similar problem.

So our view is it's better to capture the next player, if there is one, have him brought in, and find another Canadian partner - obviously it can't be us; we can't do everything - and have them make an association, qualify on ownership, contribution and content levels, and compete. If you put an artificial restriction on it, then you're going to force the additional entry into the grey market, and we think that's inappropriate.

Mr. Bell: To go back to the question Madame Tremblay raised, U.S. satellites threaten Canadian culture if they're not controlled and harnessed under Canadian policy. If they are, they will not. DirecTv will not, but the next guy, if he can't get in, will, because you'll be inundated by U.S. programming. We will turn off anything that is not authorized by the CRTC in this country.

Mrs. Brown (Calgary Southeast): Mr. Bell, one of the aspects of the work of this committee that has been just so frustrating is that Canada does not have a clearly defined cultural policy. It's really unfortunate that the work of the ministry over the past almost two years has not provided us with clear direction on so many of these issues that affect us.

I want to come back again to the initial question I asked you. I sense your frustration. I understand fully this desire of yours to compete in the marketplace and to make decisions on the basis of who is going to win out there competitively and who is not. But I need to ask this again, because you were rather unclear in the first set of questions I asked you about who you met with and who you didn't meet with in government.

I'd like to take you back to May or June of 1994, and I want to ask again if you met with either Mr. Dupuy or Mr. Manley and if indeed you submitted a document to them at that time.

Mr. Bell: Happily. I wasn't trying to be evasive.

I met with both ministers, and I'm sure all the other parties of interest did as well. I met with officials in both of their departments. I did leave paper behind describing what we were proposing and how it fitted within Canadian policy on the cultural front, on the broadcasting front, and on the infrastructure front as well.

Mrs. Brown (Calgary Southeast): Is it possible for us to see that?

Mr. Bell: You have it all in the submissions we made to the government in January and February and again in June. There is nothing -

Mrs. Brown (Calgary Southeast): I would like to see the documents that were submitted at that time.

Mr. Bell: I'd have to take under advisement whether I should be doing that, but I can assure you there is nothing there that isn't fully disclosed in the paper we have put out. We have made very fulsome disclosure. If there is something in any of those documents....

We're not the only ones who write to the minister. Other parties have written to the minister and the officials. But it seems the documents we write get to everyone and others don't. I don't know how that happens.

I can tell you if you have questions about any of those or if you want me to identify a particular one, I'm happy to do it. If you want me to answer questions about the policies or issues raised in any of them, I'm happy to do it.

If there's some innuendo or suggestion you're trying to draw from that, I'm not trying to be evasive; ask me the question directly and I'll be happy to answer it directly.

Mrs. Brown (Calgary Southeast): I asked you if you met with either of those ministers -

Mr. Bell: And my answer is yes.

Mrs. Brown (Calgary Southeast): - in May or June.

Mr. Bell: Well, I'd have to check my calendar as to when, but yes, I did meet with both ministers and with officials in both of those departments, and I left paper behind with them.

Mrs. Brown (Calgary Southeast): All right.

The Chair: Is that pretty much it?

Mrs. Brown (Calgary Southeast): Yes, it is, Mr. Chairman. Thank you.

The Chair: I'd like to announce, by the way, how delighted we are on the government side to hear that most unlikely of things: a call by the Reform Party for a comprehensive cultural policy for this country. We applaud that. We think that's wonderful.

Some hon. members: Oh, oh.

The Chair: We never thought we would have heard it from such a free-marketer, but we are with you on that.

I have a couple of questions of my own, if I may.

Mr. Ianno: Are you the last speaker?

The Chair: There was a pop-up question from Madame Tremblay, a quick snapper, but I think I'm pretty much the last one. I won't go on, I promise you. I have only three questions.

.1830

The first is really a technical question. The Canadian Association of Broadcasters requested that, in order to protect the interests of their membership, there be some arrangement so that in various local markets the competing signal into that marketplace effectively be blacked out. I guess it would be like simulcasting. It seemed like a very complicated proposition, because your satellite operates in one time zone and the things that would be blacked out would depend on whether they were in the same time zone at the same time. I couldn't figure out whether they would be blacked out even if they were in another time zone.

First of all, is it technically possible? Second, are you planning to do it? If not, why? I've probably put the question badly.

Mr. Kruyt: I think I understand what the issue is, because I sit with another hat at that table with the broadcasters.

I would preface my response by saying that this is not a problem particular to our venture. It's a problem that is faced by all direct-to-home deliverers and it's also a problem that's faced by the current Cancom service that's supplying Canadians.

The Chair: I gather the A/B switch is part of the answer.

Mr. Kruyt: Well, that's one concern, but the concern you're raising now is really a rights issue.

I'm not sure that the current policy or the current regime under which Cancom is working responds to that. It's a problem that probably exists in the marketplace today to which the broadcasters haven't devised a solution. It is really the protection of the local broadcaster against the arrival of extraterritorial signals, if you would.

I would say that the problem already exists in the delivery of those signals by cable into markets outside the immediate area of coverage of broadcasters into adjacent areas. I would give the example of our station in Peterborough, which has every Toronto station available to it via the cable system, and thereby we have rules in terms of simultaneous substitution.

It's more difficult in the satellite area. I don't think we have developed a technical response to that at this time. We recognize that it's an issue, and it's an issue that has to be really thought about to a large extent among the broadcasters in such a way that they can figure out what the relationship should be between themselves as affiliates having similar programming.

I think the ball is somewhat in their court. I would say that if the rights are respected, then probably the system will work itself out.

The Chair: Thank you very much.

My second question returns to the grey market issue, the sub-market. A suggestion has been made that there are some 30,000 DirecTv services in this country and you said that for technical reasons it was difficult to identify. Mr. de Savoye had a view of it.

I guess the issue is this. Supposing there are such people, one or two, if somebody has bought one of those dishes, the reason they wouldn't have a telephone line in is that then they would not be eligible to get pay-per-view because that would be an identifier.

The second question is that if they have bought that, what will your policy be if you get your licence? Will you then try to figure out who those folks are, approach them, offer to update their technology, put a two-horned thing in or put a new card in the box? How much will it cost?

Mr. Bell: First we'll have to find them, and as Telesat indicated, there is certainly no assurance that we're going to be able to recapture the people who are in the grey market.

The Chair: Even those of your own partner?

Mr. Bell: Even those of our own partner.

As to how we will do it, it would have to be through a combination of trying to find them through security-type measures, which cost money and on which we have the opportunity under our agreement to work our way through the data base to see if we can follow up on opportunities to identify who these people are. They are not readily apparent, and without some time and money we're not going to find them.

.1835

Second, we have to induce them by some form of offer that they find more attractive to come over, or we're not going to even be able to find them.

What has to be made very clear is that DirecTv does not know who these people are, and for all the world their data base shows all their subscribers as being in the United States. They have no information on subscribers being located in Canada. When they have, they get turned off.

I have an engineering unit that has been directly authorized so I can do demonstrations. I keep receiving letters saying they're cutting me off. I have to call back and tell them they forgot to notice that I have an engineering unit and I'm authorized because mine is plugged into the phone lines. I know therefore that the system is being policed and enforced.

We don't have and cannot get a list of names, numbers, and addresses of those people. They're invisible, in a sense, or camouflaged in terms of whether they are in Canada. We don't have any assurance of being able to find them. We'll spend some time and money in trying to do it and in trying to attract them to our system. As to whether we will be able to get them to then dump their equipment or have to buy their equipment, and what the costs and arrangements will be, is something we haven't yet really developed.

Mr. Kruyt: Can I just backtrack a little bit. It's a little bit more complicated than speaking as a consumer would, and how a new company called DirecTv was starting up. If someone called up from Canada and asked to sign onto the service and identified themselves as coming from Canada, they didn't get the service. No one then would say that they had a Canadian address, as they figured they had to have an American address.

At the outset, they were leaving Canadian phone numbers. Because the people at the other end of the phone were taking these orders, they could not distinguish between a Canadian area code and an American area code. At that time, DirecTv was not bent on finding ways to eliminate its customer base. They were trying to make sure that they had a product that was out there. They were worrying about a whole bunch of things, and they were running scattered, as any start-up business does.

I understand that subsequently they have gone through and culled that. They never had addresses, I don't believe. They don't have any Canadian addresses on the data base, and I don't believe that they have any subscribers who have an area code that is indicated as Canadian. What they are left with is American information or no telephone number at all.

It's out of this that we have to find relationships and try to design programs that might be able to identify some sort of a trend. That software has to be written. There's no guarantee, and there's no easy information in there for us to pick out.

The Chair: We've been in this hearing so long this afternoon that I think the West Block may have burned down and there's rioting in the corridors.

My last question is simply this. I'm interested in what the cable companies are going to do to respond. There's a story going around that one response seems to be in the United States to create something called PRIMESTAR, which I understand is a pay-for-view service controlled by the cable industry, so that they offer both a cable industry and a satellite pay-for-view.

Where is this leading, simply to put it forward? I understand that there is some talk that Rogers has now purchased a service that would operate in Canada. Have you heard anything about this?

Mr. Bell: PRIMESTAR is a direct-to-home system in the United States on mid-powered satellites that is owned by a group of cable companies. I believe they have a pay-for-view service on it. I think it's something like 60 channels of total capacity today, so I'm not sure how large a pay-for-view service they have.

.1840

One of the participants and shareholders in PRIMESTAR is TCI, the largest of the cable companies. It also owns Liberty and Request TV, and Request TV has a pay-for-view service.

I can't tell you much more than that, except there was at one point an announcement made at a conference in Toronto that was later withdrawn, indicating that a transaction had in fact occurred to receive service from a U.S. system from PRIMESTAR.

The Chair: Who was the Canadian contractee?

Mr. Bell: The party that made the announcement was Shaw Cable, in fact, and they later indicated it was not so. This is at a time when I believe DTH Canada Inc. either had just come together or was just about to come together.

You'll recall that 50% of the shareholdings of DTH Canada Inc. were held by Rogers, Shaw, and CF Cable. At that time, I think there was a blended satellite-use plan that was announced at this conference in Toronto, but later it was indicated that was not the plan, and that they'd make exclusive use of Canadian satellites.

I can tell you that there are other people out there who have pay-for-view services available. As Mr. Kruyt indicated, if they are allowed to be out there in the grey market, that's not in the interests of anyone in the Canadian broadcasting system.

We exist because of the rules of the Canadian broadcasting system. We are supporters of it because without those rules, DirecTv wouldn't need us, and we'd have no reason for existence. We'd have no raison d'être at all. We have every reason to be attached to and supporters of that system.

That there are others out there with whom discussions may be taking place is not unreasonable. If they are going to be up there in the grey market, it may be in their interest to have them harnessed in Canada.

The Chair: Now, I advise you to take cover. Here comes Madam Tremblay's quick pop-up question.

[Translation]

Mrs. Tremblay: You know that the Americans have never forgotten the fact that they lost the cultural exemption fight during negotiation of the FTA, of the NAFTA, of what is now known as the ex-GATT. But the Americans have found a way around that. It would seem that they have tabled with Congress a bill whereby wholly-owned Canadian telecommunication companies could do business in the States as long as Canada does the same and allows wholly-owned American companies to do business in Canada.

In this case, if this bill were adopted, if Canada were to go ahead with such an agreement, the Americans would make this available to every country in the world. In this context, we can see the importance of the question asked by Mrs. Brown.

Regarding the francophone element, if you do launch your company, are American movies going to be translated so that you can make a francophone service available? In that case, is a translation going to be undertaken by the movie companies themselves or by a firm which is already in existence in Quebec, for instance?

Mr. Kruyt: I don't think it's a very attractive proposition to offer English movies with a French translation. It would be better to try and find movies in French...

Mrs. Tremblay: I'm talking about movies which are dubbed, such as we usually have.

Mr. Kruyt: I'm not sure where Hollywood movies are being dubbed, but I imagine that...

Mrs. Tremblay: It's done either in Quebec or in France, for French movies.

Mr. Kruyt: I don't know where it's done but I imagine that, if we had a choice, we would prefer to take something which has been translated here. I would think that the audience would appreciate more hearing people who speak the way they do than translation made in France.

.1845

Mr. Bell: I can also assure you that if the Americans' idea is to have an American company whose rights would be wholly controlled by the Americans, it would not be in our interest. However, if an American company such as DirecTv is ready to live with Canadian control and Canadian content, to make a contribution in Canada and to have an infrastructure providing jobs to Canadians, it's very important to follow-up on that. If we don't, we run the risk of the Americans reacting and it will be very difficult for us to react. They might very well insist, in that case, that American companies be allowed to operate in Canada in exactly the same way Canadian companies operate in the States.

[English]

Mr. Chairman, I want to just take two moments to comment on a rights question that didn't come up. I want very briefly to say that while those questions were not posed in our documentation, I suspect that if the experience of both the panel and the proceedings in front of the Senate are repeated here, as I expect they will be, you will be hearing some suggestions made that the way we will operate will have very detrimental effects on Canadian rights and Canadian broadcasting systems.

I want to assure you that we will be acting in the buying of programming rights in exactly the way current licensees do. We will not, by virtue of that, affect in one iota the distinct market for Canadian rights that we will have as conditions of our licence, the obligations of tracking those kinds of policies and practice. We will not, in any way, be undermining the distinct market for Canadian rights.

If those questions are troubling to you, I would hope that you would take the opportunity to either review this documentation or to ask us in one form or another to reply. We are quite satisfied, as the panel also became satisfied, that we will be supportive and not undermining of those rights. I would like to make sure we have a chance to reply to anything that troubles you in that domain.

The Chair: Thank you very much.

[Translation]

Mrs. Tremblay: Mr. Chairman, is the next meeting on Monday?

The Chair: Yes, Astral and Allarcom are confirmed, but not the others.

The meeting is adjourned.