HERI Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on Canadian Heritage

COMMITTEE EVIDENCE

CONTENTS

Tuesday, February 19, 2002

¿

0910

The Chair (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.))

Ms. Janet Yale (President and Chief Executive Officer, Canadian Cable Television Association)

¿

0915

¿

0920

Mr. Ken Stein (Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.)

¿

0925

Ms. Janet Yale

Mr. Dean MacDonald (Senior Vice President, Rogers Communications Inc.)

Ms. Janet Yale

Mr. Yves Mayrand (Vice-President, Legal Affairs and Secretariat, COGECO Inc.)

¿

0930

Ms. Janet Yale

Mr. Dave Baxter (President, WestMan Communications Group)

¿

0935

Ms. Janet Yale

The Chair

Mr. Jim Abbott (Kootenay--Columbia, Canadian Alliance)

¿

0940

Mr. Ken Stein

Mr. Jim Abbott

Mr. Dean MacDonald

Mr. Jim Abbott

Mr. Dean MacDonald

Mr. Jim Abbott

Ms. Janet Yale

Mr. Jim Abbott

¿

0945

Ms. Janet Yale

Mr. Jim Abbott

Mr. Ken Stein

The Chair

Ms. Christiane Gagnon (Québec, BQ)

Mr. Yves Mayrand

¿

0950

Ms. Christiane Gagnon

Mr. Yves Mayrand

¿

0955

The Chair

Mr. John Harvard (Charleswood St. James--Assiniboia, Lib.)

Mr. Dave Baxter

Mr. John Harvard

Mr. Dave Baxter

Mr. John Harvard

Mr. Dave Baxter

Mr. John Harvard

Mr. Dave Baxter

Mr. John Harvard

Mr. Dave Baxter

Mr. John Harvard

À

1000

Mr. Dave Baxter

Mr. John Harvard

Mr. Dave Baxter

Mr. John Harvard

The Chair

Mr. John Harvard

Mr. Ken Stein

Mr. John Harvard

Mr. Ken Stein

Ms. Janet Yale

The Chair

Mr. Roger Gallaway (Sarnia--Lambton, Lib.)

Ms. Janet Yale

Mr. Roger Gallaway

Ms. Janet Yale

À

1005

Mr. Roger Gallaway

Ms. Janet Yale

Mr. Roger Gallaway

Mr. Ken Stein

Mr. Roger Gallaway

Ms. Janet Yale

Mr. Roger Gallaway

Mr. Ken Stein

Mr. Roger Gallaway

Mr. Ken Stein

Mr. Roger Gallaway

Ms. Janet Yale

Mr. Roger Gallaway

Ms. Janet Yale

Mr. Roger Gallaway

Ms. Janet Yale

Mr. Roger Gallaway

Mr. Dean MacDonald

Mr. Roger Gallaway

Mr. Dean MacDonald

Mr. Roger Gallaway

Mr. Dean MacDonald

À

1010

Mr. Roger Gallaway

Ms. Janet Yale

The Chair

Ms. Wendy Lill (Dartmouth, NDP)

Mr. Ken Stein

À

1015

Ms. Wendy Lill

Ms. Janet Yale

Ms. Wendy Lill

Mr. Dean MacDonald

À

1020

The Chair

Mr. Grant McNally (Dewdney--Alouette, PC/DR)

Ms. Janet Yale

À

1025

Mr. Grant McNally

Ms. Janet Yale

Mr. Grant McNally

Ms. Janet Yale

Mr. Grant McNally

Ms. Janet Yale

Mr. Grant McNally

The Chair

Ms. Sarmite Bulte (Parkdale--High Park, Lib.)

Ms. Janet Yale

À

1030

Mr. Yves Mayrand

The Chair

Ms. Sarmite Bulte

À

1035

Mr. Ken Stein

Ms. Sarmite Bulte

Mr. Ken Stein

Ms. Bulte

The Chair

Mr. Dennis Mills (Toronto--Danforth, Lib.)

À

1040

Ms. Janet Yale

Mr. Dennis Mills

Ms. Janet Yale

Mr. Dennis Mills

Ms. Janet Yale

Mr. Dennis Mills

Ms. Janet Yale

Mr. Dennis Mills

The Chair

Ms. Betty Hinton (Kamloops, Thompson and Highland Valleys, Canadian Alliance)

À

1045

Mr. Dave Baxter

Ms. Betty Hinton

Ms. Janet Yale

À

1050

Ms. Betty Hinton

Mr. Ken Stein

Ms. Betty Hinton

Mr. Ken Stein

Mrs. Hinton

The Chair

Ms. Christiane Gagnon

Mr. Yves Mayrand

À

1055

Ms. Christiane Gagnon

Mr. Yves Mayrand

Ms. Christiane Gagnon

Mr. Yves Mayrand

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Á

1100

Mr. Yves Mayrand

Mr. Claude Duplain

Mr. Yves Mayrand

Mr. Claude Duplain

Mr. Yves Mayrand

The Chair

Ms. Wendy Lill

Á

1105

Ms. Janet Yale

Ms. Wendy Lill

Mr. Dave Baxter

Á

1110

Mr. Dean MacDonald

The Chair

Mr. Grant McNally

Mr. Ken Stein

Mr. Grant McNally

Mr. Ken Stein

Ms. Janet Yale

Mr. Ken Stein

Mr. Grant McNally

Mr. Ken Stein

Mr. McNally

The Chair

Mr. Jim Abbott

Ms. Janet Yale

Mr. Jim Abbott

Ms. Janet Yale

Mr. Jim Abbott

Ms. Janet Yale

Á

1115

Mr. Jim Abbott

Ms. Janet Yale

Mr. Jim Abbott

Mr. Ken Stein

Ms. Janet Yale

Mr. Jim Abbott

The Chair

Mr. Roger Gallaway

Mr. Dean MacDonald

Ms. Janet Yale

Mr. Roger Gallaway

Mr. Dean MacDonald

Mr. Roger Gallaway

The Chair

Ms. Christiane Gagnon

Á

1120

Mr. Dave Baxter

The Chair

Ms. Janet Yale

The Chair

Á

1125

Mr. Ken Stein

The Chair

Ms. Janet Yale

Á

1130

Mr. Ken Stein

The Chair

---

CANADA

Standing Committee on Canadian Heritage

---

NUMBER 036

l

1st SESSION

l

37th PARLIAMENT

---

COMMITTEE EVIDENCE

Tuesday, February 19, 2002

[Recorded by Electronic Apparatus]

¿  (0910)  

[English]

    The Chair (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.)): I call the meeting to order and declare open the meeting of the Standing Committee on Canadian Heritage, which is meeting to continue study of the state of the Canadian broadcasting system.

    Today we are very pleased to greet members of the cable industry, and we have several key witnesses: from the Canadian Cable Television Association, the CCTA, Mrs. Janet Yale, president and chief executive officer, who is well known to many of us; from Rogers Communications Inc., Dean MacDonald, senior vice-president; from Shaw Communications Inc., Ken Stein, senior vice-president, corporate and regulatory affairs; from COGECO Inc., Monsieur Yves Mayrand, vice-président, affaires juridiques et secrétariat; and from WestMan Communications Group, Mr. Dave Baxter, its president.

    How we'll proceed is to hear from each one of you and to give time for members to ask questions. Perhaps you could confine your remarks to ten minutes or so if it's possible, or at least be as concise as possible, because the idea of these meetings is to have a chance for members--as you can see, there are lots of members--to ask questions.

    We'll proceed with you, Mrs. Yale.

    Ms. Janet Yale (President and Chief Executive Officer, Canadian Cable Television Association): Thank you very much for inviting us to appear before you today. We do have a short presentation, and then hopefully there'll be lots of time for questions.

[Translation]

     Today our members want to discuss the state of the Canadian broadcasting system from the cable industry's perspective. Our company representatives will outline key issues they are dealing with in their operations and finally, we will review our recommendations for the broadcasting system before we take your questions.

[English]

    As you can see from the chart in your kit, the cable industry has played an important part in the success of the Canadian broadcasting system. The 800 large and small licensed cable systems active in cities and towns in every part of this country now serve approximately 7.6 million households. Cable television is received in more than 70% of homes passed by cable throughout Canada.

    On our systems we distribute conventional, specialty, and pay television programming services from Canadian and international sources to viewers from coast to coast. The cable industry is a world leader in offering high-speed, broadband Internet service to over 1.5 million Canadians.

    Over the past decade we've changed a great deal. We've made the transition from analog to digital technology and are now on the cutting edge of technological innovation, something that benefits all Canadians. Two-way interactive broadband networks that our companies are building are the engine that will drive the government's innovation agenda. We've built one of the most extensive and advanced cable distribution infrastructures in the world and over the past five years our companies have invested more than $5 billion in network upgrades, technology, and infrastructure.

    To give you a perspective on the cable industry, there are six companies that serve almost 90% of the Canadian cable television customer base and over 100 companies that serve the rest of the market. These larger companies have already expanded their offering, adding digital cable and high-speed Internet service for our customers. Some of the smaller cable companies have also started to introduce advanced services, but many of them offer a more limited service due to the significant investments required to bring these advanced technologies to their remote and geographically dispersed customer base.

    Another important trend over the last decade has been the significant consolidation in the cable industry. This consolidation has brought many benefits to our customers, such as efficiencies in signal distribution and in customer service delivery. These economies have also put the cable industry in a better position to compete with other distributors, including the telephone companies.

[Translation]

    The industry investment in digital cable and high speed broadband services is significant. As an industry we spend an average of one billion dollars annually on capital expenditures.

    In 2000, the average investment in cable services per subscriber was $184. This represents a total of $400 over the course of the last 3 years, a significant investment and one that demonstrates the capital intensive nature of this business. These expenditures cover fiber optic cable, coaxial cable, set top receivers, and computer hardware and software that enable the customer to receive a wide selection of services.

[English]

    The result of these investments is that our advanced infrastructure now reaches more than 75% of Canadian homes passed by cable, including urban and rural areas, and giving Canada the enviable position of being one of the most connected nations in the world. Through our investments, we built a broadband network that can provide 7.9 million households with access to digital cable and to cable high-speed Internet service. We serve today approximately a million digital customers and 1.5 million Internet customers. Looking to the future, we're already building the digital platforms for the next generation of services.

    The impact of our investment has also meant more capacity to carry and distribute Canadian programming services. That means more selection and more diversity for Canadian viewers. Throughout the last decade, the number of services offered to our customers has tripled. In 2001 alone, the industry introduced 40 to 60 digital channels. The CRTC, in fact, has licensed over 300 digital services, and more are being authorized almost monthly.

    The CRTC digital framework is, in our view, the right approach to licensing as we move forward and respond to customer demands for choice. That's because with new digital technology we can carry 10 to 12 new services for every old analog channel that we convert. Most recently, I would like to mention that WTM, a multicultural service, received a digital licence, and we support that approach by the CRTC because digital means more services and more services mean more diversity.

    Today with digital technology we offer a wide range of choice, and that really means a diverse range of services for consumers. It also means that $731 million in 2000 alone flowed into the Canadian pay and specialty service industry from fees collected from our customers, representing almost 60% of their revenues.

    As you can imagine, we are very proud as an industry of the role we play in communications, giving tens of millions of Canadians access to information, entertainment, and e-commerce, but we are also proud of our role as a pivotal player in the cultural field. We are actively engaged in funding and producing Canadian content at both the local and national levels. Working in partnership with the federal government, the cable industry provided $80 million to the Canadian Television Fund in 2001. Since 1995, Canada's cable companies have contributed some $308 million to the fund, and the result, of course, is more Canadian television content for our customers. The combined annual contribution of the CTF of over $200 million generates $600 million in production activity in this country on an annual basis. Individual cable companies also contribute another $8.5 million to specialized production funds that are used by independent producers.

    I would also note that the cable industry invests more than $800 million each year to provide local community programing, which in many communities is their only source for local news and information.

¿  (0915)  

[Translation]

    All of the achievements I have just listed are certainly impressive, and Canadians can be proud of what we have built together. But Mr. Chairman, if there's one thing I've learned over the years it is that the world of communications does not allow a lot of time for self-congratulation. And as we survey the landscape, there are certainly some foreboding storm clouds on the horizon.

    Looking ahead, we in the cable industry believe that there are several challenges that stand out and must be addressed if we are to continue to help meet the country's cultural objectives, and provide Canadians with the quality and choice they expect and deserve.

    My colleagues and I will detail five areas the industry sees as crucial. The areas cover: competition, regulatory reform, access to capital, the growing black market and the challenges facing small systems.

[English]

    Turning to the first challenge, it's the question of competition and consumer choice. There is no better way to illustrate the dramatic transformation in the broadcasting industry than to look back at where we were in 1991 when the Broadcasting Act came into force. Then there were only 14 Canadian specialty services and four pay services, all on analog. There were no licensed competitors to cable, digital set-top boxes were years away, and no one had heard of the Internet.

    A decade later competition is flourishing in broadcast distribution and among programming services. As you can see from the chart, satellite distributors in Canada now account for 1.7 million of the total 2.8 million, or over 60%, of all digital television customers.

    In addition, hundreds of digital services have been licensed and interactive television is becoming a reality. The Internet is a powerful presence in our lives and the average Canadian spends 12 hours a week online.

[Translation]

    In this environment, the policy objectives of Canadian content and programming diversity don't lose their importance. But the tools used by the government and the regulator to achieve those objectives must account for the dynamics of the market. Few would dispute the benefits that competition has brought to the broadcasting system and to Canadian consumers. These benefits include greater choice, diversity and funding for Canadian programs. And yet the concepts of competition and consumer choice are nowhere to be found in the Broadcasting Act.

    The ultimate success of the Canadian broadcasting system and the satisfaction of consumer demand are intrinsically linked. Canadians have access to technology that allows greater choice and they know it. They are increasingly demanding the ability to choose what they want, when they want, and where they want. The Broadcasting Act must be updated to reflect this new reality.

    Therefore, CCTA recommends that competition and consumer choice be incorporated expressly into the policy objectives of the Broadcasting Act.

¿  (0920)  

[English]

    I'd now like to turn the microphone over to Ken Stein of Shaw Communications Inc. for his comments.

    Mr. Ken Stein (Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.): Mr. Chair, I understand that the presentation is in front of you, so I'll summarize the points we want to make in terms of regulatory reform.

    First, in terms of Shaw Communications, Shaw is a national company. It offers broadband, cable, Internet, digital, and satellite services to about 2.8 million customers. So one out of every four households in Canada is a Shaw customer.

    We have a total revenue of about $1.6 billion. We've grown significantly over the past six years to reach that level. I think what's really significant in terms of offering the services we do is that in the last year, for example, we invested $848 million, so that half the revenue of the company was actually allocated to capital expenditures in key high technology areas.

    In terms of highlights, for cable distribution we have 2.2 million customers; for high-speed Internet we have over 700,000, which is the highest penetration for high-speed anywhere in the world; and we also have built a satellite company to over 700,000. We're still second to Bell ExpressVu, but we're trying to run harder. I think significantly, we have over one million digital terminals, both satellite and cable, in Canada. We also have operations in cable, in satellite, and in telecommunications in the United States.

    On the next slide, we've developed a sense of how we see the future very much as a step-by-step approach. Essentially, we are a broadband distribution company. Broadband services have evolved into a very highly competitive environment. As Janet has said, the world has changed and we are now in a fiercely competitive market. With that change, customers have also altered their media consumption habits. They have more choices and they know they have those choices. In this kind of environment, customer satisfaction is tightly linked to the success of the broadcast policy objectives. The broadcast policy objectives have served us well, but it also means that we can't just be obligatory about them. People do have a choice, and you can't ensure success merely by mandating a carriage of a particular service.

    We believe that in order to achieve the Broadcasting Act policy objectives, a much lighter hand is essential in a competitive world. We believe that the only packaging rule, just to take one example, in a competitive environment is the obligation to ensure that the majority of services received by subscribers are Canadian. It works on the satellite side, it works on the Internet side, and we think it certainly could work extremely well on the cable side.

    I think as well we have to look at the regulatory tax, as we call it, on the industry. We currently pay about $47 million in part II licence fees. We think that's excessive. There's no accountability for those fees, and we see it primarily as just an extra tax and a contribution to the Consolidated Revenue Fund. And it has to be looked at.

    In terms of recommendations on regulatory reform, we believe that much of this falls to the commission. We believe that it must review and prioritize its activities for more effective regulation. For example, we believe that in areas where market forces are sufficient to achieve the Broadcasting Act policy objectives, the commission should simply refrain from regulating.

    A perfect example is what the commission has done with the Internet and the development of new media. It has been a world leader in terms of its approach. It's interesting to note that the FCC, just in the last few days, has announced a process that is very similar and very much copies what was done in Canada two years ago.

    Another point is the consistency in regulation. Being cable companies, as do all companies but particularly companies that have to look to huge investments, we need to be certain of the regulatory framework. We note that the new chairman of the commission, Charles Dalfen, has strongly signalled his intention to focus the resources of the commission on the issues of greatest priority. We are confident that with his leadership he'll bring about positive changes in the commission's processes. We look forward to working with him to ensure that we can meet the Broadcasting Act policy objectives.

    As well, we would recommend that the regulatory process be made more open, accountable, and transparent. It is extremely ironic to us that our applications are public, our interventions are public, our rebuttals are public, the public hearings are public, and yet the staff advice and the commission deliberations are held in secret. We don't think that's appropriate. We know how the Supreme Court votes, but we don't know how the CRTC votes.

¿  (0925)  

    Finally, we recommend that in the interest of greater efficiency and effectiveness, the size of the commission be scaled back. In our view, a smaller commission would be more efficient and more consistent, and we think a five- to seven-member commission would be ideal and would serve all of our interests.

    Thank you.

    Ms. Janet Yale: I'd now like to turn the microphone over to Dean MacDonald of Rogers Communications.

    Mr. Dean MacDonald (Senior Vice President, Rogers Communications Inc.): Thank you, Janet.

    Mr. Chair, ladies and gentlemen, good morning.

    For those of you who didn't make the visit two weeks ago, let me tell you a little bit about Rogers. We're Canada's largest cable operation, with 2.3 million customers. Rogers Cable is a wholly owned subsidiary of Rogers Communications Inc. Rogers Communications has interests in cable--obviously--television, radio, print, and telecom, to name a few.

    Our hybrid fibre coaxial network is actually one of the most advanced in North America. We deliver high-quality entertainment services and information to customers in Ontario, New Brunswick, and Newfoundland. Rogers' network is actually approximately 90% two-way ready, and it's ideally suited for delivering interactive two-way services such as high-speed Internet access.

    The topic I'd really like to talk to you about today is our access to capital. The intense infrastructure expenditures required to maintain our competitive edge are the biggest challenge our industry now faces. It is imperative that avenues be open to gaining access to the capital needed to continually invest in the latest technology and maintain our position as a world leader in communications, and not just our industry's, but also our country's leadership role.

    As this chart demonstrates, cable companies' customers in the U.S., on average, are valued at approximately $2,000 more than the Canadian companies'. With higher valuations comes a greater ability to leverage capital investments, obviously. Canadian cable companies are at a severe disadvantage relative to those in the U.S. So in order to keep making infrastructure investments, we need access to capital on more favourable terms.

    That is why cable companies in Canada believe that a review of foreign ownership restrictions is actually in the national interest. Relaxing these restrictions will enable Canada to attract the capital it needs to continue the task of building a country that is in the fore ranks of the new economy. At the same time, we should follow the example of other countries and maintain investment restrictions in culturally sensitive industries, such as production and broadcasting.

    Therefore, we recommend that the government review the foreign ownership policy and amend the necessary legislation regarding foreign investment in the telecommunications and broadcasting distribution sector, and make the changes necessary to allow increased foreign investment.

    But let me be very clear. While the cable industry supports removing restrictions for distribution entities, it is in favour of retaining the current foreign investment ownership rules for the content side of the sector. In other words, we support greater access to foreign investment for Canadian distribution companies, yet we believe this is consistent with the government's objective of building a more innovative economy.

    Thank you.

[Translation]

    Ms. Janet Yale: I will now give the floor to Mr. Yves Mayrand.

    Mr. Yves Mayrand (Vice-President, Legal Affairs and Secretariat, COGECO Inc.): Thank you, Madam Chair.

    Distinguished members of the committee, COGECO is a diversified company. It includes a cable group, which is called COGECO Cable, and we are here, along with our colleagues, to speak to the cable industry. The umbrella organization of COGECO Cable is called COGECO Inc., which is also listed on the Toronto Stock Exchange.

    But let's talk about the cable industry today. COGECO Câble is the fourth biggest distributor of cable services in Canada with approximately 870,000 basic subscribers. We do about 440 million dollars in business and, as with our colleagues in this business, we invest a huge amount of capital each year. For instance, in the last fiscal year, we invested around 167 million dollars in capital assets. From 1998 to 2001, our investment in capital assets was almost 560 million dollars.

    We are in the cable distribution business. We provide digital services, high speed Internet services and, as you no doubt read in the papers, our holding company, COGECO Inc., has just bought the TQS network through a radio and television subsidiary.

    The third issue we would like to address today as an industry is the proliferation of satellite dishes, the black market and the impact of this phenomenon on the Canadian broadcasting system. ExpressVu recently quoted statistics which reveal that there are at least between 500,000 and 600,000 American satellite dishes in Canada, and many other people believe that this figure has probably already hit 1 million. It was widely quoted in the media last year, and what is worrying is that increasing numbers of people are using satellite dishes to receive American signals, particularly, and this affects our markets in southern Ontario.

¿  (0930)  

[English]

    Mr. Chairman, the entire Canadian broadcasting system is feeling the impact of the black market as satellite dealers are enticing customers with technology that allows them to beat the system. This means, in the end, more and more revenues are being siphoned away from Canadian artists, technicians, producers, broadcasters, and distributors.

    Industry research has demonstrated that black market satellite services could cost the Canadian broadcasting system as much as $400 million or more each year. Those are dollars that could be going into strong programming, creating jobs for Canadian men and women in every part of this country.

    This is not a small or insignificant problem. Our research shows the black market is comparable in size to Canada's second legitimate satellite company. To put it another way, it is equivalent to the Atlantic provinces simply dropping out of the Canadian broadcasting system altogether.

    In response to this crucial issue, we recommend the Radio Communication Act be amended to clarify the intent of the government's policy on the unauthorized decoding of U.S. satellite signals. The government has suggested the intent of its policy is an absolute prohibition of this kind of pirating. We therefore encourage the government to pass more effective legislation to that effect. This is necessary if we are to curtail illegal signal theft. It is also necessary if we are going to give our law enforcement officers and revenue and customs officers the tools they need to stem this criminal activity. It is absolutely necessary for the entire Canadian broadcasting system.

    Ms. Janet Yale: Now I'd like to turn the microphone over to Dave Baxter, who will address some of the unique challenges of our small cable systems.

    Mr. Dave Baxter (President, WestMan Communications Group): Thank you, Janet. Good morning.

    Small system operators in Canada operate under very different conditions. By way of illustration, the map shown on the slide indicates five service areas of WestMan. We're a cooperative providing cable, digital cable, and high-speed Internet service to over 28,000 customers.

    WestMan provides services in 35 communities over a wide geographic area, with some areas serving fewer than 100 customers. Each location requires a substantial investment in electronic equipment in order to offer the high level of services and choice that customers expect in a competitive marketplace. The investment required is roughly the same whether a cable company serves a city the size of Toronto or a small western Manitoba community such as Dauphin. However, the economies of scale are dramatically less in such a small community.

    Challenges for small systems include geographic remoteness, small customer base, smaller cable network capacity, capital and financing requirements, government regulation, and competition with legal and illegal satellite services. WestMan takes particular pride in the high level of community-based programming it provides through a substantial funding commitment and the commitment of volunteers. We have extended community programming to 19 communities, even though we're only required to provide community programming to our two largest communities.

    If television broadcasters continue to abandon rural areas or increasingly deliver urban-based programming to these areas, the importance of local community programming will increase to fill this void. Being able to sell advertising on the community channel as well as on “ad avails” would help small cable operators to maintain their financial ability to continue, and perhaps strengthen, their community programming focus.

    WestMan is also striving to extend high-speed Internet services to more rural communities in western Manitoba. This service is currently available to 56% of our cable customers. More significantly, however, it is not available in 31 of our 35 communities. A challenge for WestMan and, more importantly, for Canada as a whole is to ensure that these communities achieve high-speed connectivity and have competitive alternatives.

    The Internet is increasingly becoming a critical gateway for information and entertainment, which inevitably interfaces with Canadian cultural objectives. Satellite technology is not in a position to cost-effectively provide bidirectional high-speed Internet access the way cable technology can.

    The situation for small cable operators is very tough, and some operators are even curtailing or shutting down their operations, leaving satellite as the only distribution choice for these customers. In order for small cable systems to remain viable, they need to be competitive and to diversify. For this to happen, a regulatory framework that facilitates sustainable competition in rural areas is needed for both broadcast distribution and telecommunications.

    As was noted in the last year, black market satellite services have grown to estimates of between 500,000 and 600,000 customers. Let's be clear; these black market operations are stealing Canadian customers with something very compelling--free service. This affects creators, broadcasters, rights holders, and distributors, as we lose those customers to a competitor that we can't see or compete with. We need government and industry action now to fix this situation.

    Another key issue for small systems is the need for more signal packaging and pricing flexibility in order to be able to compete. For example, the requirement for smaller cable systems to carry signals on a mandatory basis hampers their financial ability to remain competitive so we can continue to expand our services, including community programming and high-speed Internet.

    In the area of telecom regulation, the CRTC has stated in recent decisions that there is sustainable competition and on this basis it is eliminating regulatory safeguards. With faltering new competitors and larger centres, this assumption is questionable. It is simply wrong in rural settings. In these areas, there is virtually no competition for telecom services, in large part because there is little or no effective regulatory framework to encourage competition.

    Small cable systems in Canada provide service to less than 10% of Canadian homes, but provide tremendous leverage for achieving Canadian cultural objectives. Viable small cable systems that can compete and diversify will be in a position to continue serving rural areas with community programming, high-speed Internet access, and other future interactive services.

¿  (0935)  

    Ms. Janet Yale: Thank you for your patience, Mr. Chairman and committee members. We now look forward to answering your questions.

    The Chair: Ms. Yale, I would like to commend you for the presentation by yourself and your members. I think it was concise and well structured, and it gave us information as well as your key priorities for suggestions for change, which we really appreciate. You put forward a picture that is extremely helpful to all of us here.

    We would also like to thank... We had the occasion, last week or the week before, of visiting Rogers, and it was extremely informative. Being on site added to our knowledge of the industry. We appreciate the welcome.

    We'll now turn it over to questioning. We'll start with Mr. Abbott.

    Mr. Jim Abbott (Kootenay--Columbia, Canadian Alliance): Thank you. I too would like to commend you for the excellent presentation.

    With the exception of Shaw, who have interests in satellite, if we can set that particular issue aside, I would like to understand the relationship between satellite and cable. I see the advantage of cable as twofold, perhaps more. The obvious one is access to Internet. The other is access to being able to do community programming that I think is so absolutely vital to small communities.

    Could you help me, and perhaps the committee, understand how much of a competitive edge satellite has by being able to do time shifting that will access programming ahead of what can normally be accessed on cable? Is it a competitive edge that is working significantly against cable?

¿  (0940)  

    Mr. Ken Stein: I think the time-shifting issue is a convenience to satellite customers. In our view, it's one that has to be balanced against the demand people have for a range of services, including U.S. services. We think there are measures that can be put in place to deal with the issues.

    The main issue is that I think the commission has launched a good process that is looking at the impact of this kind of activity on small markets and small broadcasters. I think measures can be taken.

    I understand the direct-to-home industry is going to appear before the committee later on in the session. I think, wearing my satellite hat with Bell ExpressVu, we'd be willing to discuss the issue in more detail. Essentially in terms of a small-market issue, we're sensitive to the concerns and are prepared to deal with them.

    Mr. Jim Abbott: I'm sorry, could I get a little more of a perspective from cable? When a potential subscriber is making a determination, in the opinion of the cable industry, how much of a factor is time shifting when they're making the determination to go with satellite over cable?

    Mr. Dean MacDonald: Time shifting is part of the milieu of product offering right now. The biggest difference between cable and satellite is really more in regulatory packaging and linkage rules. The satellite people have more flexibility in terms of how they can package the product to customers versus how cable can. It's certainly something we'd like to see levelled.

    For instance, to put it in magazine jargon, a satellite customer can go in, pick a magazine, and leave the store, whereas in some instances when the cable guy goes in to buy a magazine, he can't leave the store without buying another magazine. It's an imbalance we would like to see changed, obviously.

    From a consumer perspective, they don't understand why the differences exist. There's no obvious rationale as to why they're forced to deal with certain packaging and restrictions with the cable guys when the satellite guys are more open.

    Mr. Jim Abbott: Help me with my lack of knowledge in the area of packaging. Is packaging, with respect to cable, a technical problem that will be overcome with more investment on the part of cable perhaps in the lines or in the actual broadcast technology?

    Mr. Dean MacDonald: It's not anymore. The cable industry has made massive capital investments over the last three or four years. Most systems are now in a position to offer a comparable product. It's really comparing apples to apples. From a technology point of view, I'd actually say cable has some advantages. There's really more of a regulatory point of view in terms of how the packaging works.

    Mr. Jim Abbott: Again, I'm trying to gain some information here. Are you saying cable is constrained by virtue of regulation as to how many packages it will offer?

    Ms. Janet Yale: Yes. I think initially when the CRTC put in place the more advantageous rules for satellite, it was because they were being licensed as a new entrant. There was a concern that if they didn't have some advantages, nobody would sign up.

    The point we're making here today is they're no longer the small, new entrant they were when the rules were put in place. As you can see from the data we've shown, ExpressVu alone has over one million customers and Star Choice has 700,000 customers. These are not small players anymore. The original rationale for the differences has disappeared.

    Mr. Jim Abbott: Help us to be able to communicate to Canadians that we are not in some kind of gulag or in some kind of thought-control situation when you talk about controlling the black market. I think most of us in this room understand the issue of theft and all the other issues you've explained. To the average Canadian, though, when it comes to free service and being able to take something off the satellite, the potential restriction of that sounds an awful lot like a jamming of signals going into North Korea.

¿  (0945)  

    Ms. Janet Yale: You're absolutely right; this is a very difficult public relations battle to win, and one of the reasons why we don't say that the solution is to charge individuals who have bought the dishes. If there is advertising in the newspaper that says to come and buy this dish, and buy these cards, people naturally assume that if it weren't appropriate to buy them, they wouldn't be available for sale. So our answer is not to punish the consumers who are buying these cards but to go after the dealers who are selling them.

    Second, we try to educate the public on the fact that this is theft, pure and simple--theft. It's no different from stealing something out of a store, because the people who have created this product are not being compensated. So we almost have to create victims of this crime and point out to people that there are real victims, Canadian artists and creators, which means jobs in Canada, if not yesterday then certainly tomorrow.

    Mr. Jim Abbott: Thank you.

    Mr. Ken Stein: Perhaps I can add to that, Mr. Chairman.

    First of all, in terms of dealers, the major dealers, such as Radio Shack and Sears, do not engage in this practice. They have made it very clear, as we have made it clear to our dealers, that the selling of that product is illegal, in our view, and certainly a violation of any commercial contract. We have tried to make it clear to dealers that they are on very thin ground in continuing to do this, and the major dealers do not engage in it.

    Second, the websites that people are using to authorize the cards make it very clear that the path this person is going down is a questionable path. They make it very clear that you take full responsibility for any liabilities incurred in following this routine.

    The third thing is that the manufacturer of this used to be in the United States, but the equipment has been moved into Canada, as we understand it, and the source for most of the product that's required to undertake this illegal activity is in Canada. So this is really very much a concern.

    A further point I would make is that we just don't feel the federal government has been aggressive enough in dealing with this issue. If anybody was trying to buy... I mean, we're talking about a $400 million loss to our economy. This is stealing jobs from our kids, and at least stealing taxes from our system. If any other business was engaging in this activity and paying no tax, I'm sure the “revenuers”, as they call them in the States, would be there taking action.

    We have not seen that action. We have seen the government hoping that the licensing of Bell and Star Choice would take away the problem, but as Janet has said, how do you compete with free? You just can't do it.

    Mr. Jim Abbott: Thank you.

[Translation]

    The Chair: Ms. Gagnon.

    Ms. Christiane Gagnon (Québec, BQ): You said there may be two sides to the issue. Perhaps the regulations should reflect programming blocks, but, at the same time, if you amend some of the CRTC'S recommendations to increase market access, how much would we need to invest to make up for the black market and the financial shortfall? Would you, the members of the cable distribution industry, be willing to invest? Or is it only up to the government to do so? Do you have any idea how much it would cost and do you think there are any positive measures we could take, rather than providing you with more market access and deregulating the irritants out of existence?

    Mr. Yves Mayrand: I will try to respond to that question. Our industry is part of a group which includes various stakeholders affected by this problem, various industrial groups affected by the black market, be they producers, program distributors or cable or satellite broadcasting distributors. This group was created on the initiative of the private sector; we pay for it and it is up and running.

    I think it's fair to say that many of the cases taken to court were initiated by the members of various Canadian sectors affected by this problem. So, our industry is taking matters into its own hands.

    You asked how much it would cost to solve the problem in part or in full, or at least to contain it, but it is very difficult to give you a specific figure. Our business expects the following from government, and this is what we are trying to tell you today: the government should clearly spell out to Canadians what the rules of the game are, what the playing field is, what to expect and why the playing field has been laid out the way it is. Is it right that some people, in engaging in illegal business, should just ignore the rules? I think that's the main message we are trying to put out today.

    There is a second part to this message; we are asking you to be proactive. I think there are doubts in the minds of most people. They feel justified to a degree in stealing signals. Why? Because the law is fuzzy. We have yet to see what the outcome of this debate will be, but in the meantime, we have to clarify the situation.

    What we have to say collectively—and this includes industry, our elected representatives and all Canadians— is that piracy is theft. People involved in this parallel business have publicly recognized that they are taking advantage of paid services they have no right to. I think this has to be stated clearly.

¿  (0950)  

    Ms. Christiane Gagnon: I think we also need an awareness campaign, because I don't feel the consumer is aware of the impact this parallel activity has on the broadcasting system as a whole. People want cable distribution companies to be more generous towards community media organizations, and want the community networks to become more active and dynamic. If you receive that support, would you be willing to be more generous towards community networks?

    And while we're on the subject, do you believe community networks should be funded independently and that it should not be up to you alone to decide which cable stations to support?

    Mr. Yves Mayrand: I can certainly provide the example of the COGECO group. With regard to community networks, I believe we have done everything we can to make available as many resources as possible to support community stations within our networks. As you know, we can decide how much money we want to spend on our networks. We have contributed the maximum allowable under the regulations.

    Can we establish a clear link between educating the public about the problem of piracy, which is tantamount to theft, dishonesty, a parallel black market, and which involves all kinds of negative repercussions for all Canadians, not only for us, but also on our tax system? We have discovered that many of these activities give rise—I kid you not—to sales tax and income tax rebates, for instance. In fact, this is a separate issue which also must be addressed.

    Further, with respect to community networks, our industry supports them and intends to continue to do so with vigour.

¿  (0955)  

[English]

    The Chair: Mr. Harvard.

    Mr. John Harvard (Charleswood St. James--Assiniboia, Lib.): Thank you very much.

    I'll start out my questioning for Mr. Baxter. It might as well be a homer, since you're from Manitoba, as I am. I want to pursue the issues around the small cable operators, like you yourself, whom you represent. You mentioned in your brief, Mr. Baxter, some operators either curtailing their operations or shutting them down. Can you spell that out a little further and give us some more information?

    Mr. Dave Baxter: As I outlined, the economies of scale for smaller operators are significantly less. In the very smallest communities, those with 100 customers--and this number is actually increasing to even larger numbers of customers--we're finding with satellite competition that increasingly we've been losing customers, particularly with some of the imbalance in regulatory treatment we discussed, where we have less flexibility in packaging and pricing. As a result, when you are already suffering from poor economies of scale, it makes it virtually impossible to operate in this sort of environment.

    Mr. John Harvard: Can you give me some specifics? Curtailing or shutting down--give me an example of this.

    Mr. Dave Baxter: None of our particular systems have shut down. Perhaps someone else could refer to specific situations. We have not shut any of our 35 communities down yet and we don't have any intentions to. Our intention is to ensure that our competitive position improves by influencing the regulatory treatment we receive.

    Mr. John Harvard: So WestMan is not in the severe situation that perhaps some other small cable operators are. Is that it?

    Mr. Dave Baxter: We're perhaps more fortunate than some others in that we have a relatively larger system--granted, still not particularly large in the scheme of things, compared to our direct-to-home satellite competitors. But those operating in smaller environments than us with fewer systems to operate, that's where we're starting to see the systems shut down. If this continues, if the regulatory imbalances aren't addressed, our concern is that it will gravitate towards systems such as ours.

    Mr. John Harvard: Are you actually forecasting that the worst could happen, that we could see cable systems--if not in WestMan, some place in Canada--actually closing down and leaving customers either with nothing, or just satellite or over-the-air broadcast service, telecast service?

    Mr. Dave Baxter: It's quite possible that we could see a continuation and an expansion of the shutting down of cable operations. This would result in only one provider, direct-to-home satellite, whether black market or legal satellite services. The implications of this are in areas like community programming. We're in a very unique position to provide this service. As I mentioned in my comments, the local expression rural cable companies can provide would be missed if they disappeared. As well, we have high-speed Internet capabilities that would be lost if those had to be shut down.

    Mr. John Harvard: You mentioned in your brief the possibility of 500,000 to 600,000 customers being taken away by the black market, right? How would this impact on your area in western Manitoba? If there was no black market whatsoever, would it mean an increase in your customer base of 1%, 2%, 3%, or whatever? I want to get a handle on what we're talking about here.

    Mr. Dave Baxter: We estimate that in excess of $100,000 a year in revenue is lost to this point.

    Mr. John Harvard: Did you say one hundred thousand?

À  (1000)  

    Mr. Dave Baxter: Yes, $100,000 a year, and for a system or operation of our size, that's dramatic. It goes directly to the bottom line and impacts our ability to reinvest in upgrading our systems, introducing new technology, investing in things like community programming, rolling out high-speed Internet. All those things are affected when this money is taken out of the system.

    Mr. John Harvard: You're a co-op. Is this unusual for the Canadian system, or is it quite common in other provinces as well?

    Mr. Dave Baxter: There are other cooperatives throughout Canada. The industry is by no means dominated by cooperatives, but some do exist.

    Mr. John Harvard: How much more time do I have, Mr. Chairman?

    The Chair: Not much.

    Mr. John Harvard: You're always the bearer of bad news.

    May I ask one question of Mr. Stein?

    You were mentioning the way the CRTC votes, and you indicated that your industry would prefer that the individuals sitting on panels announce or disclose how they vote. Can you tell me how the system works right now, and how you'd like to see that change?

    Mr. Ken Stein: Well, how it works now, of course, is that the commission panel--and that's the panel that's selected of the 13 commissioners, with perhaps as few as three, but usually five to seven commissioners--sits and hears the applications and deals with the interventions. They have a responsibility to consult with the full commission if there are any major issues of policy. We don't know what that discussion is; we aren't party to that discussion.

    The way the process would work.... I shouldn't use a specific example, but if we file an application and we are at a hearing, our application is totally public. What we say at the hearing is public. All the interventions are public, the questions, our rebuttal. All of that is on the public record. It's quite an extraordinary and very positive process.

    But at the end of that process, we don't know what the staff advice is to the commission. It's not an open process as it is in almost any other kind of regulatory proceeding. We don't know what that advice is, and we don't know what the commission's questions are, what their views might be. We don't know whether there are any errors, misunderstandings, or things we could clarify. We have no opportunity to do any of that within that process once it goes behind closed doors.

    At the end of that process, there's no requirement for the commissioners to say “This is why I voted this way. This is my rationale for this“, which would give a clear accountability that we feel is due in the system.

    Mr. John Harvard: But in the final analysis or the final decisions, there can be minority reports, and commissioners are accountable, not staff. I'm sure you have your advisers who provide you with solid information. We don't know, I'm sure, how you were being advised, and how exactly you arrived at your decision. Why should the commission be any different?

    Mr. Ken Stein: I would think there's an issue here, which is that in most cases the commission is allocating a public good. I would think that's important, not just for the industry but in terms of helping the public understand why those decisions were taken. I think that would be helpful.

    I'm not trying to say it's a requirement. I'm not trying to get to a point where there's full divulgence. We're just trying to get to a more open process in terms of understanding why certain decisions are taken.

    Ms. Janet Yale: Let me also clarify that if a commissioner wanted it public that they disagreed with a commission decision, you are correct that they can write a formal dissent. If they didn't do that, but still disagreed, nobody would know.

    So unlike a court decision, where every judge has to either agree in writing with the majority or formally disagree in writing, and you'd know exactly where every judge stood on the question, at the end of the commission process you have no idea, unless someone writes a dissent, what the votes of individual commissioners are.

    The Chair: Mr. Gallaway.

    Mr. Roger Gallaway (Sarnia--Lambton, Lib.): Yes, Mr. Chair.

    I have a few quick questions.

    You referred to the 500,000 to 600,000 black-marketing customers who are out there. You don't talk about grey marketing. Are you including the grey marketing within the black marketing?

    Ms. Janet Yale: Yes.

    Mr. Roger Gallaway: So those people are actually paying; the grey marketers are paying, as I understand it? They're paying to an American provider?

    Ms. Janet Yale: They are also paying using a false U.S. address to disguise the fact that they are actually Canadian residents, because the service provider... There are two things. The service provider is not a licensed Canadian undertaking and so has no authority to operate in Canada. Number two, the service provider has not purchased and paid for the Canadian rights to that programming.

    Most of the programming is already purchased by Canadian broadcasters, so the rights holders are not being appropriately compensated for the programming. People may think they're paying, but it's still illegal activity, because the fact is that service is not authorized for Canadian distribution.

À  (1005)  

    Mr. Roger Gallaway: But they're not stealing in the sense of the black market to which you refer.

    Ms. Janet Yale: It's a different kind of theft.

    Mr. Roger Gallaway: How many of these people in the grey market, then, are buying these American signals? I would disagree with you on the ones I've seen. They're not false American addresses, they just go and get a post office box. There's nothing fraudulent about that.

    Mr. Ken Stein: Well, DIRECTV has said it's fraudulent.

    Mr. Roger Gallaway: DIRECTV has said it's fraudulent, but is it?

    Ms. Janet Yale: It is. The fact of the matter is they're pretending they're U.S. residents, because they know that if they give a Canadian address they will not be able to purchase the service.

    Mr. Roger Gallaway: How many of these 500,000 to 600,000 are in fact grey marketing?

    Mr. Ken Stein: Can I just interject here?

    Part of the problem is that people may start off in the grey market and then go into the black market, or vice versa. It's not always easy to distinguish where people are in a situation.

    Mr. Roger Gallaway: But you've established parameters of 500,000 to 600,000, so you should be able to establish parameters of how many of them are paying for the American signal.

    Mr. Ken Stein: We don't make that distinction. Our distinction is that receiving unauthorized signals in Canada is an illegal activity. We did not make the distinction in factoring--

    Mr. Roger Gallaway: Then how did you establish this number of 500,000 to 600,000?

    Ms. Janet Yale: The estimate comes from ExpressVu, which is a member of the coalition we've been talking about that's trying to address this issue. It is based on their discussions with dealers to try to get a sense of how many other dishes are being sold for every legal dish they sell.

    It's very hard to quantify it with any precision, because people tend to not self-report that they're breaking the law. Having said that, we are in the process of doing a very detailed study in southwestern Ontario that has two parts to it. One is an actual telephone survey, notwithstanding the difficulties of getting people to admit what they're doing, to try to get a sense of whether or not they are receiving unauthorized signals. In addition to that, all the cable companies in southwestern Ontario are doing manual walkabouts to try to count unauthorized dishes in their communities. So we can try to marry the two to see exactly what the magnitude of the situation is in a community where we know the problem is the worst.

    Mr. Roger Gallaway: What kind of variance would you put on this number you're providing us?

    Ms. Janet Yale: We believe it's a conservative estimate.

    Mr. Roger Gallaway: Would you undertake to provide the committee with a copy of your study?

    Ms. Janet Yale: Absolutely.

    Mr. Roger Gallaway: All right.

    Secondly, Mr. MacDonald, your group here this morning talked about openness and transparency, particularly at the level of the CRTC, yet your company in Toronto has recently filed for some sort of change at the CRTC. I think it's called the regulation of rates. Customers in your market area in Toronto, which is considerable, can find out what the application says by either going to your office in Scarborough or the CRTC office in Hull, but you don't have it on your website.

    Mr. Dean MacDonald: I'm sure it will be there, if it's not.

    Mr. Roger Gallaway: Well, it's not there. So when you talk about openness and transparency, let's talk about the consumer now. How does the consumer know what the application's all about when you and the CRTC--it's not a one-way street, it's two--make it impossible for them to see what the application is? You don't even put it on your website.

    Mr. Dean MacDonald: We sent out notifications to all of our customers that we've made this application.

    Mr. Roger Gallaway: I understand that, but people are responding to that and trying to get information, but you don't list it on your website.

    Mr. Dean MacDonald: They call us and we send them copies of the application and tell them what we're applying to do. Since we've applied in Toronto, less than 1% of all the telephone calls we have received have been inquiries about that application. So people do have the means to get hold of us.

    Your point is well taken. If it's not on the website, it should be. But we're very open about that application in terms of what we're trying to accomplish there. There's no hidden agenda whatsoever.

À  (1010)  

    Mr. Roger Gallaway: Okay. My final question is about the marketing of digital channels. What are your plans, as an industry, to market them? Are you going to let them stand alone, or are you going to try to bundle them? I'm talking about the specialty channels.

    Ms. Janet Yale: Well, it's a case of trying to promote digital and the advantages of digital, and we are doing that, along with the satellite operators as well.

    As you know, there was quite an extensive free preview period, which I think was made a bit longer than it otherwise would have been by the events of September 11, where people were a little bit distracted in terms of their viewing preferences right when these services were launched. So we extended the preview period for the digital services to try to really build knowledge among those who have digital boxes about what the services were like and to do a little bit of “Try it, you'll like it”. Now that the free preview period is over, I think you're starting to see more marketing of the specific packages.

    But one of the things that's very interesting is that with digital technology people really want to be able to customize their packages. Digital technology allows people, for the first time, to be able to pick and choose the services they want and only pay for those services. Therefore, one of the things that people are encouraged to do is to visit the websites of the various operators to look at the various services that are there, and then to customize and pick their own package. In fact, large percentages of customers are doing that.

    The Chair: Thank you.

    Ms. Lill.

    Ms. Wendy Lill (Dartmouth, NDP): Thank you very much.

    I've been very interested in reading your presentation, and I notice that in your conclusions you're very complimentary to the Canadian broadcasting system and the fact that we have a world-class system. I'm assuming you believe part of that has to do with the Broadcasting Act as it stands today, and I would say that cable companies have done very well throughout the period of the Broadcasting Act.

    But at this point in time, you'd like to see a loosening of regulations. You want to be free of them. I guess I'm trying to get a handle on the costs that are being borne by cable providers to comply with regulations. We just hear all the time about the onerousness of regulatory requirements, and I'd like to know what those costs are. So I wonder if you could give us a rough idea of those costs, and if you could think about a way that we could reduce that regulatory burden while maintaining the public policy goal of promoting Canadian access to Canadian content.

    Mr. Ken Stein: The first comment I'd like to make is that we very much support the Canadian regulatory framework. Having experience on both sides of the border, I would think we'd find that there are some very significant differences, but for the most part, the Canadian environment is a very positive one. It's a very national environment, and the Broadcasting Act has served us well, and when it's applied, it's very clear in terms of the objectives it sets out.

    Regarding the costs, part of the problem here is that no one is really totally sure how this market is going to unfold in terms of the development of the Internet, in terms of satellite services. Most of the time, we decide to hold our breath and go for the gold, just charge and go for it.

    In many cases, the costs of that are, first, that the cost of financing increases with regulatory uncertainty. The first question you get when you sit down with the bond raters or the financial analysts is, okay, you're looking at a five-year projection here; how certain are you of the regulatory situation in terms of making that investment, because the payoff...?

    We had to raise close to $1 billion last year. You have to be pretty certain to those investors that you're going to do that. If you are uncertain, a premium is added, and Canadian companies pay that premium for regulatory uncertainty.

    The second cost is time. If we're going to do anything within the system, small or large, in my job I generally say to our board, a year. So if my board has an idea in November that they want to move forward on an initiative that requires regulatory approval, I think we would probably be looking at a minimum of a year from that board decision to when we would have an opportunity to make sure we had commission approval to proceed. In a world that's moving as fast as our world is moving, the cost of that is not making the investment, or being killed for not moving forward. So there's a real cost to that.

    The third cost is just customers, in terms of being able to respond to them and provide them with services that are appropriate and the best package range of services for them. There's a cost to them in terms of sometimes our not being as quick off the mark in responding to what they want.

À  (1015)  

    Ms. Wendy Lill: I'd like to ask you a question about your packages. One thing that has come forward to us as an idea is the creation of a green space, a public service platform, to include such things as the Aboriginal channel, VisionTV, the Knowledge Network. I'm sure you've heard this idea. I'd like to know what you think of it.

    First of all, what do you think the advantages of this are? We know we have to protect the public broadcasters and the public service broadcasters somehow. I'd like to know what you think the downside and the upside of this would be for you, if there would be any upside. Fire away.

    Ms. Janet Yale: Let me kick it off. I have a hard time understanding the advantages of this so-called green space concept. At the end of the day, the services on this list are all carried and offered by cable companies already. It's not a question of services that aren't available today that someone thinks would be a good idea to add. All the services are there.

    One of the things we've learned is that you can't change things for customers. If you move a service from one place on the dial to another, if you move things from one package to another, the first reaction you get is “Why are you doing this to me?” If the services are already there and offered, why would you move them around to put them together? I don't see this as an advantage.

    Secondly, and most fundamentally from a customer perspective, I would say that the most you can do is make sure services are available. Cable companies are subject to a number of carriage requirements. But just because something must be carried, that doesn't make it must watch or must take. In the digital environment, this is more and more true. You can make something available to customers; you can't make them watch it and you can't make them pay for it if they don't like it any more. Those days are gone.

    Frankly, I think what we really have to do is promote--promote services and the value of those services, promote the Canadian services aggressively and continue to make sure the costs of funding productions of our Canadian stories in this country are covered. We do this. We make this contribution through the 5% of our gross revenues that goes to the Canadian Television Fund. It's about promotion, not about restriction.

    Ms. Wendy Lill: I would like to ask you one more question about community. I was looking forward to talking to the representative from Eastlink about the idea of community, because he is my own local provider. I'll have to grab hold of him at home.

    I worry about consumers and audiences who are at the mercy of changing owners in the cable environment. One day you have Shaw, and the next day you wake up and you have Eastlink. I've spoken with some people who have told me that they run a program called “Spotlight on Seniors”, which they've been doing for 15 years. Under the new owners, Eastlink, they have been told it wasn't a format effective to them. These words, “format effective to them”, are really not community words. They don't have anything to do with trying to promote people talking to one another in the community.

    Is there some way of strengthening the accountability mechanisms so that cable companies respond to their actual constituencies, and how does this constituency now look as these cable companies broaden and get larger all the time?

    Mr. Dean MacDonald: Allow me to jump into that one to start. There are two ways to approach this question, first from the point of view that a community channel can be a great advantage for your company. If you're not programming to your local audience, it's at your own peril. That's just the plain truth of it.

    Second, one thing that's so hard to avoid and that cable companies run into a lot with community channels is the show that's been on for a period of time; because the nature of the channel is community access, after so many years you'd like to give someone else an opportunity. Your resources are finite, and you can't allow one program to go on indefinitely. I can tell you, it's never easy to tell the people who have been doing a show for five years that you're now going to give someone else an opportunity to do a show. It's very difficult. I know at Rogers we have policies on this, to ensure that we give ample opportunity to various interests.

    In the situation you mentioned, that channel may in fact be going through a reformation that will actually work to the benefit of the community over time. Right now there's some loss of current programming, so people feel hard done by. It's almost unavoidable, but it's a necessary evil if we are to allow lots of voices to have access to the channel.

À  (1020)  

    The Chair: I'll come back to you, Wendy.

    Mr. McNally.

    Mr. Grant McNally (Dewdney--Alouette, PC/DR): Thank you, Mr. Chair. I have two comments and then two questions. The first one is I agree with your statement about the CRTC and their need for openness and accountability. I think Mr. Mills was saying something under his breath; perhaps he'll have a chance to say it into the microphone a little later.

    Second, in terms of the black market/grey market, which has had quite a bit of discussion here today, it seems to me the Minister of Heritage has acted in other areas where loopholes have developed. Bill C-48 is the current example, with copyright and re-broadcasting over the Internet. This seems to be a very similar kind of issue that's been going on for quite a long time--much longer than this Internet loophole.

    I think you're being a little too nice, since this needs to be fixed. There's no reason why it can't be fixed when we're fixing other loopholes. Why can't we get on to this? Why do we just keep talking about it rather than fixing it? We have the ability to do it as a committee, and the minister and the government have the ability to initiate this right away. I think there'd be broad agreement on it. Let's do it.

    Of my two questions, one is a bigger-picture question about foreign ownership and access to capital. The first is that we hear the argument that if you increase the ability for more foreign ownership, you're going to lose Canadian content, possibly. There seems to be a fear factor here, that the two are linked together. Can you give us your perspective on that, whether you believe it to be true? If it's not true, please tell us your perspective on it.

    My other question, after you answer that one, would be related in that it would be a question about access to capital.

    Ms. Janet Yale: Let me kick off that foreign ownership question, because you're right, there is a lot of fear around that issue. The analogy I like to draw is to all kinds of other multinational organizations that choose to operate in Canada or other jurisdictions around the world. No one suggests that when General Motors sets up a car plant in Canada they're going to be less likely to comply with the laws of the land, whether it's taxation or employment issues or environmental issues, or whatever. The fact of the matter is that the price of entry is compliance with the laws of the land.

    I think the same is true for cable as a distribution undertaking. We are companies that carry programming, and those carriage requirements are established by the CRTC. Why would anyone think a company that happens to be owned by someone other than a Canadian would not comply with the laws of the land with respect to carriage rules any more or less than they would comply with other laws of the land? I think when we talk about Canadian content we really have to think about it as a case where in the cable industry we are distributors of programming, and whoever owns those undertakings will comply with the laws of the land in terms of the carriage requirements.

    Having said that, we draw a very clear distinction between carriage businesses and content businesses. On the content side of the line, we support the idea that those content undertakings should be Canadian-owned and controlled.

À  (1025)  

    Mr. Grant McNally: Then how would you say Canadian consumers would be aided by your ability to access more capital, perhaps through foreign ownership or other means? How would you put that--

    Ms. Janet Yale: What are the benefits to Canadian consumers?

    Mr. Grant McNally: What are the benefits to Canadians? Not only that, but what's the downside if the rules aren't changed?

    Ms. Janet Yale: Well, I think the advantages have to do with access to pools of investment and the price at which you have access to that capital. With the limited capital pools in Canada, the price is higher. It's like any supply and demand: the smaller the pool, the higher the price. The fact of the matter is, that affects the cost-benefit calculus of making different kinds of investments. It's a simple economic equation that if the opportunity to attract investments into this country is greater and the price of capital is cheaper, there will be more investment made, which means we'll be able to make a larger contribution in terms of digital investment, digital infrastructure, high-speed Internet service, and roll it out to all regions of this country, which is really a cornerstone of the government's innovation and connectedness agenda.

    Mr. Grant McNally: Would you say that in the end Canadians would have more access to Canadian content through these kinds of changes?

    Ms. Janet Yale: Absolutely. It allows the benefits of the technology to roll out to more Canadians, which means more services, more content, and cheaper prices.

    Mr. Grant McNally: Thanks.

    The Chair: Next is Ms. Bulte, followed by Mr. Mills.

    Ms. Sarmite Bulte (Parkdale--High Park, Lib.): Thank you very much, Mr. Chairman.

    I want to continue the discussion on foreign ownership. Unfortunately, I'm not convinced, and you're going to have to convince me.

    I wasn't surprised that Mr. MacDonald actually addressed that issue, because I know that Mr. Tory has publicly called for more foreign investment.

    Correct me if I'm wrong, but my understanding is that this all started with the telecommunications companies wanting their foreign ownership restrictions relaxed, which then moves it into cable. How does it stop it from moving into broadcasting and, ultimately, how do we stop it from increasing foreign ownership in the CBC? Just tell me how that works. What prevents the private broadcasters from coming to us and saying we need foreign investment? Then what prevents us from saying, if the broadcasters have it, then the CBC should also have foreign investment? Help me with that.

    The second thing I'm concerned about is how do you say it's okay to have the culturally sensitive and the production side separate and apart? I don't see how that's possible.

    Mr. Stein, you said that we cannot have obligatory things. That's great, because if you get rid of the obligatory things, they'll get foreign investment and they won't have to put in any Canadian content. We may have the world's best producers producing Canadian content, but nobody's putting it on. So how do we ensure that Canadian content continues to get on within the regime you're proposing, which should not be obligatory? It was mentioned that we should recognize competition and the consumer as a principal in the Broadcasting Act. What happens to Canadian content in all of this? Why shouldn't we then allow the broadcasters to have foreign investment and ultimately the CBC?

    Ms. Janet Yale: I'll start, and then my colleagues will jump in and add to it.

    We believe that for capital-intensive businesses there is a barrier associated with the limited capital market in Canada. At the end of the day, if we want Canada to play a leading role in the new economy and in the innovation agenda in terms of broadband connectedness and being one of the most connected nations in the world.... The fact of the matter is that we have limited pools of capital to draw on in this country.

    Whether it's the telecommunications or the broadcasting distribution, which are the infrastructure-intensive businesses of the new economy, our strong belief is that creating greater opportunities in terms of access to capital is very important, and I've mentioned the benefits that I believe come with that.

    But as I said, those are carriage businesses, and the price of entry, if you will, of those new sources of investment into this country is a willingness to comply with the rules and regulations established by the CRTC with regard to carriage. Those rules are clear, and anybody coming into this market would know and understand their obligations to respect the rules and regulations around the carriage of Canadian services.

    There are integrated undertakings that have both carriage and content businesses, but for those companies it's a business decision, not a public policy decision, about whether or not to take advantage of any change in the rules. In other words, if there is an integrated undertaking that sees benefits in having a combined carriage and content business, in order to stay integrated they cannot take advantage of a change in foreign ownership rules because the content business by law will still be required to be Canadian owned and controlled.

    If, on the other hand, someone believes there is more value in separating the two businesses and selling off the carriage side of the business to a foreign interest, then the content business will stay Canadian owned and controlled and the carriage business can be sold off. Then they are completely separate and distinct entities, with separate management and boards of directors, and with no link between the two.

    That is a business decision that will have to be made by those integrated undertakings, but it doesn't undermine the need for the policy change to allow those businesses that see advantages to be able to take advantage of greater access to capital.

À  (1030)  

    Mr. Yves Mayrand: Maybe I can cite a case in point. In looking at our group last fall, we completed a very major financing. It was the equivalent of over $410 million Canadian. That financing was essentially required to support our capital investment programs in building the infrastructure. This is expensive hardware we are talking about here. It is wiring direct to the home, pushing down fibre, putting in two-way, adding complex electronics, and interconnecting all these systems. We're trying to push the limit as far out as we can to the smallest possible cable system to avoid the kind of problem we were possibly looking at down the line with loss of customers, no interconnection, no two-way capability, and these systems eventually shutting down.

    That is very expensive. It requires investment. Our industry is capital hungry. If we look at what is available in terms of pools of capital in this country, I can tell you, just by way of example in our case, that we just could not have arranged that financing in the Canadian market last fall. Not possible. We explored that possibility, but it was just not there. Here we have a huge pool of capital we have been successful in attracting from U.S. investors, with, believe it or not, a good part of that denominated in Canadian dollars, but that is debt. At some point we have to maintain an equilibrium of debt to equity, and we will have to go to the equity markets.

    What is going to be the answer of the Canadian capital markets, then? Is that equity market going to be around the bend to support us and correct our ratios? I ask you the question, are they going to be very willing to invest in our infrastructure, given the problem we have--which are growing--of illegal reception of U.S. satellite signals? We are concerned. We know what the basic trends are, we need this capital, and we need to plow money back in every year.

    That is the fundamental dynamic of our business, because we are a carriage business. If you have a look at the regulatory makeup, we are increasingly subject to rules that treat us as carriers.

    The Chair: Ms. Bulte.

    Ms. Sarmite Bulte: I can't help repeating that one problem--just what Mr. Stein said as well--is the need for regulatory reform, because there are so many uncertainties. Can we not fix that so as to attract investment from the equity markets? Are there not solutions other than simply saying "foreign ownership"?

    What percentage are we talking about going up to with foreign ownership? None of your documents address that. I would be interested in knowing how much we are talking about. And still help me: if we allow you to have foreign ownership restrictions lifted, why not the broadcasters?

À  (1035)  

    Mr. Ken Stein: First of all, as an industry we've advocated a review of the foreign ownership rules. One of the things we're concerned about, quite frankly, is that as discussions go on, particularly trade discussions, things will happen without a review. That means that we may have a knee-jerk reaction. In WTO discussions, as you know, the foreign ownership rule was on the table, and it was only Canada's objection at the end that led to it not proceeding. It came very close to the rule being changed right then and there, just for telecommunications. If that had happened and the change had been made for telecommunications, where would Canada's cable companies be, companies now leading in the role coming out of high-speed Internet services and other new technologies? Where would that have left us? Not in a very good position.

    We see issues like the runaway production issue in the United States and countervail measures that are being brought forward.

    Ms. Sarmite Bulte: We dropped that petition, though.

    Mr. Ken Stein: That particular petition was dropped, but as you know, there is still an issue with respect to that. It is an issue, and the concern we have is that when those issues come on the table, we want to make sure Canada is in a position to deal with it.

    The other point I'd like to make about it--you make the point about obligations--is that we totally support the Broadcasting Act. What we do want to see, though, is a more positive environment for investment in terms of what we do in Canada, the recognition that the environment is competitive and that we are dealing in a competitive marketplace.

    My response to you is very much like the response Mr. Manley gave to us. I remember sitting there with him, and we said, “You're moving away from cable being a preferred distributor. We're worried about that. We don't think you should let the telephone companies into the business.” Mr. Manley stood toe to toe with Mr. Shaw and said, “I have a lot of confidence in your ability to be competitive”, and we've met that test. We think Canada, very much as our kids and young adults have done in Salt Lake City, can make the test. We know we're good. We think we should stand up to the plate. I would like to have Canadian broadcasters and content providers as well known in Houston as Shaw is as a cable company. I think we can do that. I think we can meet those tests.

    Having proper foreign ownership rules... I'm not advocating giving them up, but making sure that we are able to bring in foreign investment in a way that's beneficial to Canadians is a very positive thing.

    Ms. Sarmite Bulte: Thank you.

    The Chair: Mr. Mills.

    Mr. Dennis Mills (Toronto--Danforth, Lib.): Thank you, Mr. Chairman.

    Mr. Chairman and colleagues, this specific issue is so complex, and it's a multi-billion dollar issue. I could never understand, with my limited financial knowledge, how the balance sheets of these cable companies, especially in my own community, Rogers... They have billions of dollars of debt. I never could understand how they could get that money when they had such a small payback.

    I think it would be very important for us to get some expert advice as a committee to just see whether or not we're missing something in this position they put forward here today. I can't get my head around the issue today, so we'll come back to it.

    The second issue is the unelected, unaccountable bureaucrats in the CRTC. I totally support the point that their views and their votes should be public. We are here to make sure our public policy objectives are being executed. It's no secret to anyone in this room that I have a view that day in, day out, our public policy positions are not being executed. There is a bureaucratic agenda and we have to constantly be on our guard to make sure the things we vote to be executed in the House are in fact executed. So it's a good recommendation.

    I need to go to this black market issue. I've listened today and I've heard the losers in this $400 million. I'd like to know who the winners are. Who's getting this $400 million? Who are the winners? These small communities and areas where the cable companies can't seem to deliver their service.... How are people rationalizing in their minds that going and getting this grey market or black market service is quite all right?

À  (1040)  

    Ms. Janet Yale: I'm not sure how people rationalize it. In some cases people are paying for the satellite dish and the box and they're buying a card. They're paying $100 for this card.

    Mr. Dennis Mills: Who's getting the money? Who are the winners?

    Ms. Janet Yale: It's these dealers that they're buying the equipment from. Then, as Ken Stein mentioned, they have to put these cards into their computers to download the codes that allow them unauthorized access to the signals that are available on these systems. So the dealers are profiting.

    Mr. Dennis Mills: So it's the small businesses. Where are they mostly located?

    Ms. Janet Yale: All over. If you check your local community paper, you'll see ads for free satellites. Every community newspaper in this country now has these ads. It's absolutely astounding.

    Mr. Dennis Mills: Have you done an analysis to see whether there's a greater proportion of these services in remote regions of our country, where they can't get local cable? I ask that question because I know in my own case, when I go to my summer place up north, I see these places, and I tend to think it's because there's no Rogers or no Shaw available, so people go and buy them because that's it.

    Ms. Janet Yale: Well, it's not it, because of course ExpressVu and Star Choice are available in those communities, so there are legal options available. This is a loss to all of the legal players in the market, whether they're satellite or cable. Your 're right. In certain more rural and remote communities, there may not be a cable alternative. But it doesn't mean there isn't a legal alternative.

    Our sense of where the problem is, in some sense, most acute is in southwestern Ontario. That is not a remote region of the country. These are very populated areas, but they're close to the border. The dealers are able to bring that stuff across the border with impunity. There are no limits in bringing these dishes in. They're sold at the store, and people then can go to a local convenience store to buy the cards. We've done that just to see how easy it is to do. It's not illegal to sell the cards. It's not illegal to buy the dishes.

    Mr. Dennis Mills: Thank you very much.

    The Chair: Thank you.

    Mrs. Hinton.

    Ms. Betty Hinton (Kamloops, Thompson and Highland Valleys, Canadian Alliance): Thank you.

    This has been very interesting. I haven't yet been to a heritage meeting that hasn't been interesting, though.

    You do have my sympathy, all of you out there, because you fall into that category of people the public loves to hate. All utilities have that hanging over them. You don't get a lot of sympathy when you're trying to bring forward your issues.

    But I think one of the important things we would have to bring forward with regard to the black market--and I know you lumped both black and grey together--is that it has to be viewed as a business point instead of leaving the impression that anyone is trying to tell Canadian people what they can and cannot watch. There are a lot of people who get hurt along the line. It's no different from if you were in the furniture business, for example, and you were selling furniture out of the store, while somebody was running around selling it out of the back of a van, not paying the licensing or the distribution. So I think if you explain it that way as an industry, you would get the sympathy you deserve, because it is a very serious problem here.

    There were a couple of specific questions I wanted to ask.

    Oh, the other thing I wanted to mention when we were talking about cable today is that the obvious advantage to cable is if I want to watch a tear-jerker movie and my husband doesn't want to see it, he wants to watch TSN, and my son wants to watch some music videos, we can do that on cable. If we have three televisions, we can all watch something different. On satellite, that's not possible unless you have a receiver for each television set. So there's an obvious advantage.

    But one of the things I wanted to ask Mr. Baxter in particular--and it's been a while since I've been involved in this industry--is are you still required to buy bundled channels?

    Second, I'd like you to explain what you meant by regulatory flexibility. Are you referring to bundled channels? I know in the past, small operators as well as large had to buy channels they really didn't want, that they knew they weren't going to be able to sell to their consumers. In order to get what they did wanted, they had to buy something they didn't. Is that still happening?

À  (1045)  

    Mr. Dave Baxter: The way in which the services initially were packaged was a reflection of CRTC licensing, and in analog to some degree it was also a reflection of the technology in use, in that it was far more difficult to provide the level of choice we would have liked to provide to consumers. With digital technology we now have far more ability to provide choice. In fact, even in our smaller systems we can give our customers the choice of picking out of the digital services any one they want, or a bundled package with all the permutations and combinations they want.

    As well, I think CRTC policy has been more conducive to doing that. There have been certain mandatory provisions as far as the category 1 signals that were approved, but by and large there is more flexibility now in terms of how we can price and package.

    With regard to the regulatory imbalance I referred to, and the need for regulatory reform, the key issue there in relation to packaging is that for satellite providers--and I'm talking about legal in this case, because the illegal don't seem to have any restrictions--they have only to provide, on an overall basis, a preponderance of Canadian signals. For cable operators, however, there's a requirement within each package, and also within analog and within digital, to have a 1:1 ratio of Canadian to U.S. And that is not a level playing field relative to our much larger competitors in our case.

    In addition, when it comes to pricing, in Brandon we are regulated on our basic service as far as pricing is concerned, and satellite providers are not regulated in terms of what they charge for any of their services.

    Ms. Betty Hinton: Okay. Very interesting.

    I'd like to go back to the original piece you sent in, to items 17 and 18 on page 6. It says in here:

Industry consolidation and integration have resulted in the creation of strong broadcast and media enterprises that can spread risk and obligations across a stable of products and services. In our view, this trend towards greater consolidation provides Canadian companies with the scale and financial resources to be viable competitors in a global market.

    As well, in item 18 you talk about trade in information, content creation, and delivery systems.

    I would like to hear this panel's perspective on whether or not you see any danger in companies that are being allowed to have control...not control, but they have an interest in the Internet, they have an interest in a newspaper, and they have an interest in a television station. These are all things that control the flow of information that goes forward, and when you control the information flow you control a lot of things. Do you see a danger in that?

    Ms. Janet Yale: Perhaps I can start that discussion.

    I think there have been some newspaper reports that talk about the concern in terms of cross-media ownership, if you will, and what that means for diversity of voices and public expression. My personal view is that with the Internet, we're in a completely different environment. There's just an explosion of sources of information for people today. If you look at young people in particular, they don't rely on the daily newspaper as a source of information. They think of the Internet certainly as one of their primary sources of information, and there are more sources of information on the Internet than you can count.

    Now, some of the quality of that information may be something that people have to worry about, but the fact of the matter is, various businesses are making bets on what is the strategy for success on a going-forward basis. If you look even at the mix of businesses our companies operate, they've made slightly different bets on the future.

    Again, the example you pose is another bet. At this point it's hard to say which one is going to prove most successful, but the fact of the matter is, it's the pressure to not be in a single line of business that's causing those business agendas to lead to consolidation.

    My personal view is that at the end of the day, we in Canada have the financial resources for only a fairly small number of large integrated players, and yet there are still some small independents that are out there, whether in production or in broadcasting, and certainly there is a proliferation of voices on the Internet.

À  (1050)  

    Ms. Betty Hinton: There may very well be a proliferation of them, but there are only going to be a few main players. It will be exactly what happened in the cable industry: some will be able to grow and get larger; others will fall by the wayside. You are going to have providers on the Internet that are key providers. You have providers on television today that are key providers, and you have newspapers that are key providers.

    When you take into consideration the fact that all of the cable industries we're talking about, and television in general, receive tax dollars in grants--a billion dollars a year, as a matter of fact--do you not see that there could be danger there in terms of not wanting to bite the hand that feeds the industry? You're obviously not going to be saying negative things about a government if it is controlling your funding.

    Mr. Ken Stein: I haven't noticed that it has held us back.

    Ms. Betty Hinton: It has held you back?

    Mr. Ken Stein: No, I haven't noticed that it has held us back. We pretend to be pretty direct about what we think the government's doing. Maybe we're a little Canadian and just a bit civil about it.

    As a good western boy, I tend to agree with Mr. Asper on this. As Janet very clearly indicated, we don't really know where the world is going, and we've all chosen very different strategies for how to get there. We have some common elements.

    Bell has a strategy; some telephone companies may not have a strategy. Rogers... We all have different strategies about how to go there. I think the interesting thing about Canada is that we don't have the... If you look at the size of the integrated structures that exist in the United States--if you look at AOL-Time Warner--you couldn't turn around without seeing Harry Potter either on their television services, in their movie theatres, on the media, or whatever. It was a huge integrated cell, and it is huge. But that's the nature of people trying to survive in that business and trying to figure out where it's going.

    I think a better route in this is to maintain some oversight. I guess my concern is when the regulator comes in and says, “Well, we're not sure this should happen; we're not sure that should happen; and maybe we should control this and create these kinds of walls between things”. I think it's always better to see where the market goes and encourage it, because the outcome is going to be very uncertain.

    Ms. Betty Hinton: One last question.

    The Chair: No, I'm sorry. We'll just come back to you; otherwise we won't have time.

    Madame Gagnon.

[Translation]

    Ms. Christiane Gagnon: Some consumers have said that television programming has become increasingly national, given a production system which focuses more on national content. A common complaint made to cable companies is that, in certain regions, cable subscribers don't have access to regional programming.

    How do cable companies deal with programs produced by regional networks, rather than regional or local programming? Under the Broadcasting Act, programming must reflect regional content. In some areas, radio does that better, whereas television does not show any regional programming.

    Mr. Yves Mayrand: I would like to respond to that.

    As distributors, we provide a community service which, for many years, was basically defined as an advertising-free service. The regulations provide for some exceptions, but they are only exceptions. Traditional local advertising is not allowed. I think, generally speaking, that this reflects our group's experience.

    COGECO Cable is not a commercial business. In our capacity as a cable company, we try to add to the content of community services wherever possible, particularly in terms of local information, when there is no local television programming in any of our markets. We are doing this in several of our market areas, not only in Quebec, but also in Ontario.

    To what extent should there be a transition and should more be invested? The issue is wide open as it relates to community programming. I don't think we are at that stage yet. I think that within the resource envelope authorized by the regulations, we can probably do better and remain tuned to local community needs. That's certainly the way we see it.

À  (1055)  

    Ms. Christiane Gagnon: Community networks are presently appearing before the CRTC. There is much talk about the survival of community television. Many regional stations have had to shut down. The groups appearing before the CRTC say that they would like to be funded from other sources than cable companies, because, after all, they depend on your good will. The funding is done at your discretion. Since the CRTC decided on this system, community stations ceased their local production.

    In Quebec City, which presents another aspect of remote regions, there is Canal Vox, a television station which is less focused on local news. When Telecom 9 was broadcast in Quebec City, it had a very dynamic production studio. In fact, it was a school. Don't you feel that this aspect of school community television has been abandoned by the industry? Fewer young people are entering the business, fewer technicians are trained in smaller centres and, ultimately, the productions and hosts come from Montreal.

    Mr. Yves Mayrand: The best answer I can give you is to say that, in our case, all of our Quebec networks are located within large urban centres. But, to date, experience has shown that our community stations are breeding grounds for young talent. We still like this approach and we think it still works.

    Ms. Christiane Gagnon: What is your local programming target? It represents 10% of all local programming, doesn't it?

    Mr. Yves Mayrand: There is a 50% threshold. I can tell you that in our case, it is much higher.

[English]

    The Chair: Excuse me. Monsieur Duplain.

[Translation]

    Mr. Claude Duplain (Portneuf, Lib.): I would like to revisit the issue of community programming because it affects us particularly in Quebec. For instance, in my region, local television programming is very important. It has high ratings and is extremely focused on local issues. I'm surprised to hear that so many people complain about local television programming when $80 million is invested in that area. Instead of describing what is wrong with community television, I would like to know if you understand it. I'm a little surprised to hear you say that it is too early to study the issue of community program funding and to see whether it could not be financed through advertising or by any other means.

    In my town, for example, local television programming is very dynamic. The region provides significant funding to community programming because it wants to keep it and there is no easy way to find money elsewhere.

    Couldn't future regulations address this matter? Why is it so hard for them to be heard?

Á  (1100)  

    Mr. Yves Mayrand: As we said earlier, the CRTC is currently holding hearings on this very matter. What we are saying today is that cable companies provide significant support to local stations. We are allowed to contribute funding, up to a certain threshold, to Canadian programming on local channels. This is a choice given to cable companies. COGECO has taken full advantage of this choice.

    The CRTC has heard of other ways to fund community networks. Other groups have other ideas about the subject. But we are not talking about cable companies here, but rather of broadcasters, amongst others. I imagine that the CRTC will end its hearings at some point and decide whether the issue of funding community network should be revisited.

    As for me, I've been in the business for about 25 years and I recall clearly that these are issues we debated 25 or 26 years ago, in 1975. People have always been concerned with how to provide adequate, predictable and long-term funding for community networks. I don't think the issue will ever go away. There will always be different kinds of solutions. Many years ago, the cable industry proposed a solution. And as for us, we are doing as much as we are allowed to do.

    Mr. Claude Duplain: What I have a hard time understanding is the impression of a lack of awareness between the cable companies and community stations, which tell us that there sometimes seems to be... On the other hand, local stations are extremely important for you. Local programming is important at the community level. People need cable to get this kind of programming and I don't understand why the requests of local stations are not fully supported.

    Mr. Yves Mayrand: I agree with you that local television is important. That's generally how our industry feels and that's certainly how COGECO Cable feels.

    Now, as I said, we are doing as much as we can under the current regulations to support community talent in our various networks. We have discussed this issue many times, that is, whether the current thresholds are adequate or not. I think the CRTC periodically reviews the situation.

    For now, there are different opinions on how community programming should be funded.

    Mr. Claude Duplain: You mean differing opinions between cable companies and local stations, or between--?

    Mr. Yves Mayrand: Between the various sectors and stakeholders. This includes groups like local broadcasters, who must reserve time for local advertising in support of their local services, be they on the radio or on television.

[English]

    The Chair: Ms. Lill, Mr. McNally, Mr. Abbott, and Mr. Gallaway, and then I'll ask a brief question and we'll close.

    Ms. Wendy Lill: I want to follow up on Monsieur Duplain's questions about community programming, because I think the Broadcasting Act talks about public, private, and community programming, and if we've seen any gaps, one of the main ones in our study has been, what is this thing called “community programming”?

    You always hear that community channels are starved for money, that they don't have the equipment and don't have the money to pay people decent wages. So what you end up with is sort of sad little operations that are cobbled together and doing the best they can. But how is that in fact creating real, exciting, cutting-edge community programming? I guess we'd like to dream a bit about what is possible at the community level, which is obviously not happening now, because it's not even on the radar screen in people's consciousness.

    So you've touched on the issue of whether or not there is sufficient funding right now to have an exciting, really booming community channel system. Where should that come from, if it's money that we need? Are you paying enough? Is that 5% enough? Should there be more? Are there other places that should be putting into this? How do we really make community programming exciting?

Á  (1105)  

    Ms. Janet Yale: Let me kick it off, in the sense that 5% of our revenues go to fund Canadian production, and of that, a certain percentage can be devoted to the community channels. So there's a bit of a trade-off between money that gets devoted to the Canadian Television Fund, which helps to fund programming in under-represented categories. You've already had a presentation by the CTF about the genres of programming that are supported through the public-private sector partnership in the Canadian Television Fund. So on the one hand, we want to make sure there's an opportunity to fund those Canadian productions, and on the other hand, we want to make sure there's access at a community level for groups to speak to each other and to have good community expression. So there's that tension between the two, and the money has to get divided along some balance.

    In fact, the commission has recently tried to help out small systems. In their proposal for the community channel policy, they're proposing to allow small systems that want to increase the resources available to their communities to devote all of their 5% to the community channel, recognizing that this will mean some small reduction in the amount that goes to the fund, but recognizing that, in those communities, they're really cash-starved in the community channels, and given the small size of revenues in the communities, at least if all of that 5% can stay in the local community, that will make the local community channel stronger.

    Ms. Wendy Lill: Just to localize this, I know of a little community-TV cable station that doesn't have enough money, pure and simple. What do they do? Do they go to their owner, which is now Eastlink, and say, “We need better cameras; we need better wages to get people working here who care about broadcasting and who really want to develop a strong community station”? How do we see this happen and see a real move toward good community programming? What are the steps you would recommend?

    Mr. Dave Baxter: I can speak on behalf of WestMan. We have been able to spend the entire 5% of our gross revenue from distribution services on local community programming over the last two years. I think we're one of two or three companies that have that exemption.

    As Janet Yale just mentioned, there's a new CRTC proposal where more companies like ours--small systems--will be able to retain that entire 5% to invest in their local community channels. I think that's a step in a positive direction. I think what we've done with being able to retain it in our local communities and provide that programming has been very positive.

    As I mentioned in my comments, it's available in 19 of our 35 communities, and those communities are as small as 300 customers. In fact, we make a channel available to even smaller communities--and they get very, very small--and the difficulty in that case is more in attracting volunteers to produce the programming. We have a community channel very wide open to individual producers. We produce our own programming as well, such as local sporting events, where we work with the local community college so the students also get training in media broadcasting.

    I can say that in those communities in the WestMan area we have more original programming than do all the broadcasters in Manitoba put together. I think that's very positive. It's not always of the highest quality; it's by no means cutting edge, all of it, but it's a very important window for those communities to see themselves. Having that additional funding available, as well as having more ability to attract advertising dollars to fund future expansion of local community programming I think would be a very positive step.

Á  (1110)  

    Mr. Dean MacDonald: To put it in the right math for you, if you take a community like Grand Falls, Newfoundland, having a studio and one person hired there, with the various operating expenses, cuts into about 10% of the overall revenues of the cable company from that community. The 5% is only doing half, and we're not even talking about capital at this point--cameras and ENG units, etc. So the challenge in a smaller community is huge, just to provide the basic one-person studio and normal operating expenses.

    The Chair: Mr. McNally.

    Mr. Grant McNally: Thank you, Mr. Chair.

    I'd like to go back to this issue of regulatory reform that you mentioned as part of your presentation. I think the comment was that “a lighter hand is essential“. We've touched a bit on that already. I think it was Mr. Stein who mentioned the regulatory tax, that you pay $47 million in part II licensing fees and there's no accountability for those funds.

    Can you give us your opinion or perspective on what you think should be done differently in that regard: where those moneys should go and maybe some specifics in terms of regulations you'd like to see changed? You've outlined a bit of it, but give us, if you could, some more detail as help with that.

    Mr. Ken Stein: I think, first of all, in terms of what we contribute, the licence fees are applied in order to meet the regulatory costs. We would want to say, this is what it costs to regulate this area of activity--we'd probably like that cost to come down--and therefore that's what the contribution rate should be. There would be a reduction in the rate, and people would know exactly for what those funds were being used, rather than their just going into the CRF and being used for general revenues. That's the basic improvement we would like to see.

    Mr. Grant McNally: So on the accountability side of it, you'd like to see those dollars being allocated specifically and the accounting of it being related back to how it relates to the costs.

    Mr. Ken Stein: For example, going back to the point about the black market, if there were initiatives being taken to deal with those, they were costed out, and they weren't government initiatives or overall cooperative initiatives, yes, that's where we would like to see those funds being allocated so you would have a very clear idea of what the funds were being applied to do.

    Ms. Janet Yale: I just wanted to add that there are part I fees and part II fees. Without our getting to the details, part I fees cover the costs of the CRTC and they're divided among the industry players. The part II fees are over and above the costs of regulation the industry imposes on the government. Those part II fees, generally speaking, are just a tax that go into the Consolidated Revenue Fund. Obviously this is money we could otherwise spend on the various issues we've talked about: infrastructure investment, community channels, and so on. If that tax, those part II fees, just disappeared, that means more money that's available for all our systems, money to put into the very issues we've been talking about for the last couple of hours.

    Mr. Ken Stein: It is described, though, as a cost recovery for broadcast policy, so it's a kind of interesting definition. As Janet said, if you ask what it's for, you don't get an answer.

    Mr. Grant McNally: Nobody knows. The government can't give you a straight answer on that.

    Mr. Ken Stein: It's certainly not being used for enforcement.

    Mr. Grant McNally: Thank you.

    The Chair: Mr. Abbott.

    Mr. Jim Abbott: Do the DTH companies pay these fees?

    Ms. Janet Yale: Yes. All licensed undertakings, including broadcasters and programmers--everybody in the system--pay the fees.

    Mr. Jim Abbott: I just want to underscore what Mr. McNally has been saying and what the private broadcasters and now you are saying. This is in fact a tax, period, plain and simple.

    Ms. Janet Yale: Correct.

    Mr. Jim Abbott: I suppose the question that has to be posed for some people would be, shouldn't you be taxed for the privilege of being able to be in the cable business in Canada?

    Ms. Janet Yale: Well, we already pay the taxes. I'm not sure what taxes you think we don't pay. There are municipal taxes and income tax...it's not as if the industry is subject to any lesser a degree of taxation than any other industry in this country.

    What we're saying is, over and above that, we pay the costs of regulation. The entire costs of operating the CRTC, both in telecommunications and in broadcasting, are recovered from the parties that appear. All the licensed undertakings pay in the part I fees the direct costs of regulation.

    Over and above that, there's this historical element called the part II fees, which generate a great amount of money, which are not directly related to the costs of regulation. In our view the money could be better spent by the companies on issues such as fighting the black market, infrastructure investments, community programming, and so on rather than being a general contribution to the Consolidated Revenue Fund over and above whatever other taxes we pay. That money should no longer be collected in the part II fees.

Á  (1115)  

    Mr. Jim Abbott: Could you quantify the amount of money collected that in your judgment does not have to be collected and that actually constitutes a tax?

    Ms. Janet Yale: Forty-seven million dollars represents the cable industries' share of the total part II fees.

    Mr. Jim Abbott: If that $47 million were redirected back into Canadian programming instead of going into Consolidated Revenue, would you find that a desirable solution?

    Mr. Ken Stein: We would prefer that it go into enforcement.

    Ms. Janet Yale: We already put 5% of our gross revenues into programming over and above what the industry pays to support the CPAC service and so on. From our perspective, there are questions we would like to address as a carriage industry, including this issue of infrastructure investment as well as what we see as a real gap right now in terms of enforcement and the black market.

    Mr. Jim Abbott: Thank you.

    The Chair: Mr. Gallaway.

    Mr. Roger Gallaway: Thanks.

    I just have a brief question. I don't know who the carrier is in St. Thomas and Woodstock in southwestern Ontario--I think it's Rogers--but they have applied for deregulation because of competition. Given that a consumer study last year said the average cable bill over a period of 10 years had risen about 78%, what effect is that going to have on customers of Rogers in those communities in terms of pressure on the debt? Is it going up? Is that the objective?

    Mr. Dean MacDonald: It's twofold. We've actually received confirmation that we are deregulated in those systems now, and have been for quite some period of time. In that time period, we haven't raised the rates.

    Regarding your comments about how rates of cable companies have increased over the past decade, if you factor in the additional number of services that actually went in there--which has been, as we've presented this morning, absolutely huge in terms of the product offering--the basic cable rates over the past decade have increased marginally and kept pace with the CPI. Really, it's an issue of paying for more services, so you have to do an apples-to-apples on that.

    Ms. Janet Yale: Let me clarify. We pay for the services we carry. The cable industry collects the fees, and they get distributed back to the programming of services. As we pointed out in our presentation, the vast majority of the revenues that those programming services receive is from cable subscription fees, not from advertising revenues.

    So you have to think of cable rates as really a collection of payments to a series of programmers who we carry, and if you factor in that all the new services are services for which we have to pay the fees for carriage, and if you look at the authorized rates for those services, that accounts for the increase. It's a value-for-money equation. What you pay for is certainly not what you got 10 years ago.

    Mr. Roger Gallaway: No, but having said that, certainly I think everybody here would hear from people who say, I wanted channel X, but I had to pay for A, B, C, and D to get it. It's not an apples-to-apples....

    Mr. Dean MacDonald: It does come back to our original issue, flexibility from a regulatory point of view in terms of how we package the services.

    Mr. Roger Gallaway: Okay, thanks.

[Translation]

    The Chair Ms. Gagnon.

    Ms. Christiane Gagnon: I don't know if this is a smart question, but I would like to understand the situation of non-profit cable companies as opposed to for-profit ones. Why would a particular region receive this type of service? Do non-profit broadcasters do more to help community stations survive? Are there enough non-profit services around? I did not even realize that they existed. I found out about them through reading and meeting with people from the community networks.

    If there were more such non-profit cable companies, do you think this would help local stations or help to better reflect local issues?

Á  (1120)  

[English]

    Mr. Dave Baxter: As far as operating as a cooperative is concerned, we are a not-for-profit organization, but we have the same realities in how we operate in the cable industry as Shaw, Rogers, or any other cable systems, whether large or small. We have the same challenges of grading our infrastructure so that we can offer high-speed Internet, digital cable, and future interactive services. So we still need to generate a high level of revenues in order to ensure that we can continue to reinvest in our system so that we can offer the services that our customers expect in smaller systems.

    So whether you're a not-for-profit or for-profit enterprise, I don't think it changes a great deal. We haven't paid out any dividends to our shareholders in the cooperative for at least the last six or seven years. It's a very capital-intensive industry, and we continually have to reinvest to ensure that we can offer the services that our customers expect.

    The Chair: Can I ask you a couple of questions?

    I noticed that you mentioned, Ms. Yale, that in the case of integrated services, businesses that are in the integrated service would have to consider splitting the content from the infrastructure to allow for foreign ownership. I was interested to see that Shaw is splitting its infrastructure from the content through Corus. Is that part of the vision of the future that you see, in your case?

    Ms. Janet Yale: There may be reasons other than foreign investment for splitting the business from a shareholder value perspective, but there's no question that when the companies are structured that way, then in terms of liberalized foreign ownership rules, it makes it relatively straightforward to sell off one undertaking without it all impacting the other.

    Rogers has also made a commitment that if the foreign ownership rules were changed, they would structure themselves accordingly so that they would be able to separate their carriage and content businesses.

    The Chair: Do you agree that there's a sort of thin line between the infrastructure side and the content side?

    Let's take an example. We visited Corus in Toronto two weeks ago, and we looked at Nelvana. We're so amazed by what is done there in the way of animation and research on animation. It was really startling for us, quite a discovery, to see how much skill and how much of an achievement there has been over a few years, starting from nothing.

    Say you had a purchase by one of the big ones, like Disney purchasing Shaw, and Shaw spinning off Corus in some way. If AOL or Disney had control of a large company in Canada, which in their terms would be peanuts, would they exercise the type of attraction and influence that has happened in other industries?

    I was talking to the research head of one of our big industries, and for this purpose I'll leave it nameless, but he was explaining that the more the component parts of his industry are being taken over by foreign ownership in Canada, the research arm is moving away, because there's no need for research in Canada--they already do it in the United States, on perhaps a bigger scale. There's also a brain drain in the sense that your top people tend to go where there's more opportunity for advancement, in the bigger sector.

    Do you see that possibility of the slippery slope through foreign investment if our key cultural sector--even when you separate infrastructure from content--can be taken over?

Á  (1125)  

    Mr. Ken Stein: Well, it's an ironic situation, and you're right on, in terms of Nelvana and the Corus situation. And it came clear in the AOL-Time Warner benefits and the press release the government put out in terms of that acquisition and merger.

    Let's be clear, the only part of the content that's protected is actually the broadcasting licence portion of it. The rest is open to a whole range of other agreements, arrangements, and rules, but the program production industry is not subject to those kinds of restrictions.

    On the other hand, from our point of view, it has been a tremendous advantage to proceed the way we did with Corus, for exactly what you said--it allowed the people at Corus to focus on what they could do best. So rather than being concerned about what we call management diffusion--who's doing the satellite thing, who's doing the programming thing, who's doing this--it was very much a focus on bringing together the best people we could to run this company and work in this company, in Canada, and to create partnerships with the Americans to do it. We think it's been a great success story.

    And the thing is, we think that can continue, but we're not advocating a change in the foreign ownership rules with respect to that. We feel if we do change the rules on the other side, you can create an environment whereby the kind of situation we have with respect to Corus and Nelvana can continue in the future and prosper. The challenge for Corus and Nelvana is how they are going to continue to grow and expand in this environment. If there's any area where we need more regulatory freedom, it's the area of content.

    Just to give an example, the whole way in which the commission dealt with new media in the Internet has been a tremendous boon to what we've been able to do in this country and the kind of innovation we've seen, both in terms of software development, Internet access, building... In Calgary--we hope you get a chance to come and see--we have, I think, the world's largest digital data centre. It's a distribution activity, but it's very much focused on being Canadian and being able to do the task.

    So we think you can separate these things out, and we think you can put in place the things to make sure Canadians do run and operate the business, and respond to our communities and what they require.

    The Chair: Where you lose me a bit, Mr. Stein, is in the connection between Shaw as a Canadian company, an infrastructure company, and Corus. Obviously you have a sense of belonging to the same place. There's a connection there that is very real. What if tomorrow you become an arm of AOL or Disney? Doesn't that leave Corus as an orphan, sitting there facing a big American giant, which doesn't have the same interest in keeping it going?

    Ms. Janet Yale: I guess what you have to do is consider the alternative. At the end of the day, I don't think the idea that we can close our borders and still deal with the limited financial pools in this country and stay strong and have the resources we need all by ourselves to be leaders in the new economy on the innovation agenda is a realistic alternative. If you ask yourself whether there is a realistic alternative, over time the answer is no.

    My view is that if you delay for fear of the alternative, then the industries won't be as well positioned as if we turn it into an opportunity today and deal with the legitimate issues that people are raising, through appropriate safeguards. Through a review process, we can table those issues and concerns and make sure it works for Canada, rather than hoping that by shutting the doors, over time somehow we'll still be well resourced, well financed, and state of the art from an infrastructure perspective. You can't have it all that way. We're just too small a country.

Á  (1130)  

    Mr. Ken Stein: Mr. Chair, I don't want to leave Corus out there as an orphan. I wouldn't be forgiven.

    Some hon. members: Oh, oh!

    Mr. Ken Stein: I think the important thing here is partnerships. In terms of what you saw there, a lot of that has been generated on the basis of their having partnerships and looking at what can be done not just with Shaw, but with a whole range of other companies. Even if ownership situations or partnerships change, the key thing is to have a Canadian strength, because that's what people require. There's no magic to that. That in itself will make us strong, and that in itself will ensure that we'll have a good future.

    The Chair: Thank you very much. I think you've challenged us today. It's been a really excellent session for us, and we really appreciate your presence here and your forthrightness. We are extremely grateful to you for coming today. Thank you very much.

    We will suspend the meeting for just a few minutes and resume afterwards in camera. We have an important business agenda to complete. It's not going to take long. We'll suspend right now and resume in about five minutes. Please don't leave; we need a quorum.

    [Editor's Note: Proceedings continue in camera]