INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 22, 2000

• 1517

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order, pursuant to the committee's mandate under Standing Order 108(2), a study concerning productivity, innovation, and competitiveness.

We're very pleased to welcome here this afternoon the Canadian Radio-television and Telecommunications Commission. We're very pleased to have with us Mr. David Colville, the vice-chair of telecommunications; Ms. Shirley Soehn, executive director, telecommunications; and Mr. Paul Godin, director, independent carrier relations.

I would propose that you proceed with your opening statement, Mr. Colville, and after that we'll go to questions.

Mr. David Colville (Vice-Chair, Telecommunications, Canadian Radio-television and Telecommunications Commission): Thank you, Madam Chair.

You mentioned Shirley Soehn's name, but I want to introduce Shirley in particular as our new executive director of the telecom branch. Shirley has a rather extensive background that lends itself to our group, having worked for SaskTel for some time, then with the independent telephone industry through the Ontario Telephone Association, subsequently with MetroNet, one of the new start-ups, and for a short time with AT&T, before we managed to entice her to come to the commission for a few years to help us out. So we're hopeful that Shirley will be able to do big things for us in the telecom branch.

I'd also like to take the opportunity to introduce Ursula Menke, who's sitting behind me, the new secretary general at the CRTC.

I'd like to thank the committee for the opportunity to appear today to discuss productivity and competitiveness.

Madam Bertrand has asked me to convey her apologies for not being able to join us today, as she's chairing a public hearing in Vancouver. You may be aware that a number of applicants are vying for a new television licence for the city of Vancouver and the city of Victoria.

As I've said, accompanying me are Shirley Soehn and Paul Godin. Paul's particular responsibility is dealing with the independent telephone companies. In anticipation that we might get a few questions in that area, I asked Paul to join us today.

• 1520

In the 1997 Speech from the Throne the Government of Canada announced the “connecting Canadians” agenda for the goal of making Canada the most connected country in the world by the year 2000 to ensure that we can compete in the global marketplace.

In today's environment, customer demand for new services, better service, lower prices, and more choice in vendors is driving technology and competition. The commission believes that competition is the best way to stimulate innovation in new products, new services, and new price offerings. It is the best way to encourage the creation of new, competitive communications businesses and jobs.

Our role differs from that of other agencies. We have the mandate to place greater reliance on market forces, while at the same time ensuring that consumers have access to affordable services as well as Canadian content and products.

The primary emphasis of the commission over the past several years has been to actively support market-driven competition as the primary means to promote consumer choice and foster innovation and the development of new services and new pricing options.

In the interests of time, I'm going to skip over some of the text we've provided you with, in particular some of the broadcasting issues that appear later on in the text. I should note, however, that I'm happy to answer any questions you have on what I read out, or on the broadcasting issues that I didn't intend to read. I want to provide as much time for questions and answers as possible, so I thought I'd abbreviate the presentation somewhat.

Over the course of the past few years, consistent with the policy objectives of both acts, the commission has put into place the policies that will promote sustainable competition in the telecommunications and broadcasting sectors so that Canada can compete in the global market. These have been carefully tailored to foster a healthy transition from a monopoly market to a competition-driven market that will bring benefits to consumers for years to come.

Overall, these frameworks have resulted in opening up competition in the domestic long-distance and international telephone markets, the pay phone market, and the local telephone markets; licensing alternatives to cable, such as direct-to-home satellite services and multipoint distribution systems; not regulating the Internet—pursuant to the Broadcasting Act—but opening up the infrastructures to Internet service providers under the Telecommunications Act; reviewing the television and radio policies; establishing a basic service objective for all telephone customers; and more recently, a licensing policy for digital, pay, and specialty television services.

[Translation]

The first major market we opened up to competition was the long distance market in 1992. Today, we have some of the lowest long-distance rates in the world.

We subsequently opened the local market to competition. Competition is beginning to take hold in the business market and we are now seeing the start of residential local competition.

[English]

Of as much importance are the investments in the synergies that competition is producing, not to mention what it contributes to the economic growth of the country. Telecommunications today is, in and of itself, one of the most important growth industries in Canada. In addition, telecommunications is an important efficiency driver for virtually every business in Canada.

Of the overall telecommunications industry, the Canadian wireless telecommunications market is among the most competitive segments. The introduction of new competitors has fueled innovation and price competition in the marketplace. Who would have thought when cellular telephones were first introduced that you would one day be able to access the Internet, e-mail, online news, and business, weather, sports, and financial services from a cellular or PCS phone?

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Here in Canada we have much to be proud of. We have the highest penetration of telephone service at close to 99% with a population of approximately 30 million. That's one of the highest in the world. Contrast this with Mexico, our North American free trade partner, with a population of close to 100 million, but only 13% of the people have access to telephone service, or even the U.S., where their penetration rate is 92%, with a much denser population than Canada.

[Translation]

Canada is considered to have one of the best telecommunication systems in the world as well as being one of the best connected countries in the world. But we still aim to achieve more.

[English]

In October of last year, the commission established for the first time a basic service objective that required telephone companies to provide service where it did not exist, and to improve service where it did not meet the objective. Basic service includes, among others, access to signal line touch-tone service, with local access to the Internet.

This will ensure that all Canadians have access to the basic tools in a knowledge-based economy. Access to the Internet will also be an opportunity for businesses in rural areas to better promote and position themselves at the national and international levels.

It has to be remembered that we have to be competitive beyond the national front. This is the reason why, in 1998, the commission established a regulatory regime for a new competitive market in Canada for international telecommunication services.

[Translation]

The implementation of this regime allows Canada to meet many of its commitments under the GATT.

Now let us talk a bit about the Internet.

[English]

Our announcement last May, to exempt from regulating broadcasting on the Internet, made us one of the first regulators in the world to clarify its position on new media. It is our belief that Canada has, and will continue to have, a significant presence on the Internet without our intervention, meaning without regulation.

Although we did recognize that some of the content on the Internet is broadcasting, as defined in the Broadcasting Act, we have concluded that, for now at least, it is a complement to, rather than a substitute for, broadcasting.

The Canadian new media industry is vibrant, highly competitive and successful without regulation. We believe that Canada's open new media environment will attract investment to both the broadcasting and telecommunication industries and their new media partners.

I'll skip over the broadcasting references, but as I indicated, I'll be happy to answer any questions on those.

[Translation]

Nowadays, “convergence” is the new paradigm as it seems like everyone wants to be able to offer cable television, telephone services and the Internet.

We at the commission, have been talking about convergence since 1994. It was dealt with in our report on the Information Highway. Well, we can finally witness it happening in many parts of the country.

[English]

However, we are still in the transition mode, and we believe the commission's role is becoming more and more essential. In the evolving communications environment, the commission will need to evaluate the tools it has put in place to achieve the goals of the acts.

The commission will soon make public its three-year action plan, which will lead us into 2003. Some of the strategic issues the new action plan will address are: ensuring Canadians have access to the widest possible choice of distributors and the Internet; defending cultural sovereignty; encouraging sustainable competition; examining concentration of ownership issues; promoting a strong Canadian presence on the digital frontier; recognition of the importance of program rights, as the recent I-Crave situation has highlighted; and internally, how we can work in an effective, efficient and responsive manner.

The commission does not intend to push competition just for the sake of competition. We need to continue to manage a delicate balance between achieving various social and cultural objectives, and ensuring an economically strong and competitive communications industry.

I thank you for your attention, and I'll endeavour to answer any questions you may have.

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

I will see if Mr. Jones has any questions, to start. Mr. Jones.

• 1530

Mr. Jim Jones (Markham, PC): In your last paragraph you say “The Commission does not intend to push competition”. What do you mean by that?

Mr. David Colville: We don't intend to push it just for its own sake. We don't believe in competition just for the sake of competition; it's what competition will give us, the benefits that come from that.

Mr. Jim Jones: For example, I-Crave TV, isn't that competition?

Mr. David Colville: Yes, I presume it likely is.

Mr. Jim Jones: What's the issue there that they can't do it?

Mr. David Colville: In the case of I-Crave TV, to the extent I-Crave may be involved in broadcasting activity, as we indicated in our new media decision last year, we intended to exempt broadcasting activities, such as I-Crave, from requiring a broadcasting licence.

Mr. Jim Jones: When will the decision be made on that? They've been held up for 90 days.

Mr. David Colville: The issue that's related to I-Crave TV is a copyright one, which is not an issue in front of the commission. This issue is largely being dealt with in the courts right now, respecting issues of whether or not they have the program rights to deliver those programs from the owners of those rights. So that issue is not in front of the commission.

Mr. Jim Jones: Okay. I don't have anything right now.

The Chair: Thank you, Mr. Jones.

Mr. Murray.

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

Mr. Colville, I'd just like to go back to this question of deregulation and improving the telecommunications sector you spoke about.

What can the CRTC do to improve telecommunications in Canada? I'm not being facetious here; I'm just questioning what tools you have. You mentioned, for example, you had a new definition of basic telephone service, which would include touchtone service. I understand we still have people on party lines in Canada.

Mr. David Colville: Yes.

Mr. Ian Murray: It's a surprising number, apparently, so I'd like to know when you expect that to take place. Can you order the telephone companies to have that in place by a certain time? Is that in your mandate?

Mr. David Colville: It is in our mandate. We rendered our decision last year, regarding what we characterized as high-cost areas. It's generally referred to as our high-cost decision, and that's providing telephone service in many areas in the country where the cost to provide the service tends to be quite high. In that decision, we defined what the basic service objective was, and that was single-party service with local access to the Internet, and so on. We identified, in that process, that there were a number of areas, as you indicated, that were still on party-line service.

We mandated that the smaller independent companies file with us by March of this year—so in a week's time—applications to bring their level of service up to this standard over a reasonable period of time, which they would define in these applications. Then we would consider the applications.

I expect, depending on the company and the size of the problem, it could take between one and four years to completely solve the problem, if you will. In some instances, that may well involve rate increases to pay for the improvements in the service. So is our role to do that, and we've mandated that the independent companies apply this year.

The larger companies, what used to be referred to as the Stentor companies—Bell Canada, Telus in Alberta, and so on—are coming in next year for a review of the price-cap plan we have put in place for them. We decided we would review this service improvement issue with them at the same time we reviewed the price-cap plan. I should say that most of those companies are pretty well there, in terms of that service level. The problems tend to be with some of the smaller companies.

Mr. Ian Murray: Is there a danger that some of the smaller companies just won't be able to do this, and may have to be bought out by a larger company? Is there a suggestion of having some kind of subsidy, through subscribers to other larger telephone companies, to help defray that cost?

Mr. David Colville: I don't think it will require these companies being bought out. There is a subsidy scheme we put in place when we opened up the long distance market to competition. We call this subsidy “contribution”. It's the contribution or the payment that long distance providers pay to the local companies to subsidise the provision of service. That's so many cents on a per-minute basis of long distance traffic they carry. So that subsidy is designed to support the provision of local service.

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Between that subsidy and local rates, we think that all of these companies, with the one possible exception that we mention in this decision, and that was NorthwesTel in the north.... Simply because of the huge size of the territory they have to serve and the relative size of the population there, they may need an additional subsidy from the south, but we think that in the south this contribution payment—that's the subsidy—can pay for this.

Mr. Ian Murray: You list a number of items under the competitive frameworks. A number of these things have taken place already. I was wondering if you've had a chance to look back on those decisions and see.... We're talking about productivity here. I know that it may be a bit of a stretch to try to tie some of these things to increased productivity in Canada, but I think it's fair to say that where deregulation has taken place around the world over the last decade or more—15 years or so, I guess—it has brought real benefits to consumers in particular.

Now, is this something you look at or is it just a given that these are good things? I can't see you going back into re-regulating areas you've stepped away from. Have you seen anything in which you feel you shouldn't have gone as quickly as you did in deregulating? Or were you always essentially playing catch-up to the market and these were more or less a fait accompli by the time you got around to it?

Mr. David Colville: That's a good question. There's a lot in that question about whether, if I had it to do over again, I would have done some things perhaps a little differently.

Mr. Ian Murray: I guess I could have asked it much more simply just like you had it there.

Mr. David Colville: No, because all the nuances of the way you asked the question are important, I think, and to some extent it relates to the question that Mr. Jones asked about competition, when I said competition not just for its own sake. We believe that competition will benefit consumers and that, from a productivity point of view, it will benefit business in this country. Telecommunications and the whole information business today.... If you're trying to run a business today, information is probably one of the most valuable commodities—next to the human resources—that you have in any company.

So if having access to that information in a timely, cost-effective manner is going to help the efficiency of your business, then it's what we do to make sure that telecommunications is cheap and affordable that helps drive that, particularly with some of what's happening now with the Internet.

If anything, you might say, well, maybe pieces of it should have been pushed a little faster a little earlier. We were ten years behind the Americans, for example, in opening up the long-distance market to competition. Having said that, our prices dropped precipitously faster than they did in the U.S., to the point where, within four or five years of opening up the market to competition, our prices were in fact lower than the Americans'.

You could argue that maybe we should have thought about opening up the local market to competition perhaps a little sooner, but there were a lot of issues that had to be dealt with around that—technical and administrative issues—to open up that market to competition.

I gave a talk the other night and said that some of these issues come under the heading of “it seemed like a good idea at the time”. This notion that I just talked about, this subsidy, this contribution to pay for the cost of having affordable service, particularly in the more rural areas.... We opened up the long-distance market to competition and had this contribution on a per minute of long-distance traffic. If I had known then what the market was going to look like today, we might have taken a little different approach on how we would deal with that contribution question once the whole market is opened up to competition.

For example, is it fair when the entire market is competitive that only the long-distance provider should pay the subsidy? When you get into the Internet, when there's really no difference between a local and a long-distance call, how do you calculate traffic on long-distance to calculate this contribution?

There are things like that. In fact, we're reviewing that issue right now to see whether there's a better approach to dealing with that sort of thing. But overall, I think, we're on the right approach.

Mr. Ian Murray: Well, just as comment, maybe the technology will eliminate the need to do that eventually. If you look at wireless, etc., and at whatever is coming in the next few years.... We've seen how the costs of telecommunications have dropped precipitously. Perhaps you won't have to go through that exercise.

• 1540

Mr. David Colville: I think so, but I think it's going to be a while before the local market is competitive to the point where we could say yes, we're satisfied, and the regulator could step away.

There is another whole arena of issues that I didn't really speak directly to here, and those are issues that come under the heading of access: access by telecommunications providers to the streets and lanes. We have a huge issue going on in Vancouver about companies getting access at a reasonable rate to put their facilities under the streets or on the poles or whatever and we have issues of access by competitors to major multiple-unit dwellings, be they business offices or residential apartment buildings and so on. There is just a whole area of issues there that we have to come to grips with and find solutions for; it challenges a whole lot of legal and administrative issues.

The Chair: Thank you, Mr. Murray.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): On the last page of your action plan, you talk about the second objective, which is to defend our cultural sovereignty. Can you tell us what you are planning to do in addition to what you regularly do in that area?

[English]

Mr. David Colville: I didn't read it out in the interests of time, but we've just come to grips with a new policy for television regulation. Of course, you all would be aware of our recent CBC decision, which has sparked some controversy in the media. There are issues like that. We will be now renewing the licences of the major television broadcasters against those policies over the next few years. Maintaining our cultural sovereignty against the policy objectives would be continued there.

[Translation]

Mr. Antoine Dubé: On the following page, you present a table on the Broadcasting Act and the Telecommunications Act, and you indicate that there are 105 private television stations. Could you provide us with a similar table indicating the number of French, English and perhaps third-language stations? Do you know the approximate proportion of those?

[English]

Mr. David Colville: I don't have those numbers off the top of my head, but we can certainly provide those numbers for you.

Of course there are a number of French-language television and radio stations in Quebec and we have the CBC across the country, but we've also licensed quite a number of French specialty channels and just recently licensed four more, which are just getting on the air in Quebec. We can certainly provide you with a chart that would indicate that right now.

[Translation]

Mr. Antoine Dubé: In Quebec and Canada? Yes.

I am not an inspector, but I do like to listen, particularly when I am driving, to FM radio stations in Quebec. It seems to me that they are playing more and more American or English-language songs. Has the proportion changed recently without my noticing? There is one station in Quebec that seems to me to play one English song for every French one.

[English]

Mr. David Colville: In fact, the proportion has changed the other way, in that our Canadian content requirement on radio used to be 30%. Two years ago, we changed it to 35%. So in fact I would have hoped that you would hear more Canadian records rather than what sounds like more American ones; the rule has actually gone the other way.

[Translation]

Mr. Antoine Dubé: Have any requirements been set for the number of songs in French or even for the proportions of Canadian and foreign content?

[English]

Mr. David Colville: There is for French, but I don't have it off the top of my head right now. I apologize.

[Translation]

Mr. Antoine Dubé: Two important transactions have taken place recently in two different fields; Rogers has acquired Vidéotron, and in the telecommunications sector, Bell has acquired Téléglobe. Will you be looking at these deals and, if so, when will this happen?

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[English]

Mr. David Colville: Under the Telecommunications Act, mergers do not require our prior approval, so we wouldn't necessarily be looking at the Teleglobe-Bell merger. As for the Videotron-Rogers one, under the Broadcasting Act these sorts of mergers do require our approval. We expect that Rogers will be filing an application with us soon. We don't have the application as of yet. Like you, we just heard of the deal a week or so ago, so we haven't scheduled a proceeding yet to deal with it. We will be scheduling a public proceeding once we get the application.

[Translation]

Mr. Antoine Dubé: Thank you, Madam Chair.

[English]

The Chair: Thank you very much, Monsieur Dubé.

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you for your presentation, Mr. Colville. I have three questions.

First, on page 2 you talk about making the framework more competitive through more licensing and so forth. How many multipoint distribution systems do we have in Canada now?

Mr. David Colville: We have licensed one in Manitoba. That was the first one we licensed. Because of the technology, you can only license one of this type in each territory, so we have one in Manitoba, one in Saskatchewan, one in Ontario, and one in Quebec. I understand we may get an application for one in British Columbia.

Mr. Walt Lastewka: So it's done by region?

Mr. David Colville: They applied for them by region, yes.

Mr. Walt Lastewka: Do we have open regions at the present time?

Mr. David Colville: I don't know what you mean by “open regions”.

Mr. Walt Lastewka: Well, you said only one can have—

Mr. David Colville: We don't have a restriction on the region they could apply for. They've chosen to apply for these particular areas.

Mr. Walt Lastewka: Okay.

On page 4 you talked about how you've opened competition by allowing more multi-station ownership. I find that to be a little bit of a contradiction, maybe not in large communities but in smaller communities and regions. In my own area, the Niagara area, one radio station has bought up other radio stations. We get all we want to hear from Toronto on weekends, and I don't see.... I think that has gone on in reverse. I don't understand how allowing a monopoly to take over multiple stations is making it more competitive or is good for selections for the individuals. Could you explain that to me?

Mr. David Colville: I'll try.

We were very much concerned about monopoly when we changed the radio policy. One of the things that was driving us with the radio policy was the fact that the radio industry was not in very good financial health several years ago in Canada, right across the country. There were a few stations that were doing fairly well and a few groups that were doing well, but in general the radio industry was not doing very well. We thought it would be appropriate to help the industry to strengthen itself financially, and also by being able to provide more diversity of choice for consumers in a market.

What was happening in a number of markets was that one particular station had the lead format, and all the competitors just went after that. What you were getting in a lot of markets was everybody doing the same thing, whereas if one owner operated several stations, they could do a country format on one, for example, and a rock format on another, and they were not going to compete against themselves.

When we put in this new framework, we were conscious of and concerned about monopolies. We have therefore allowed operators to own two AMs and two FMs in a market, but only if the market is more than I think it's eight stations. Nobody can have more than that, unless it's a very small market. If you only have one station in a market, then of course you have a problem when you're only going to have that one station, and I guess that might get defined as a monopoly. But in the larger markets we're not allowing one owner to own more than half the stations in the market.

Mr. Walt Lastewka: I'll have to understand that one a lot better, because I think it has gone the other way.

In one area, you made remarks concerning the basic service of telephones, and I think Mr. Murray talked about some areas where we still have party lines. I think there are about 7,500 left in Canada. But you talked about having a basic service of access to single-line, touch-tone service, and so forth. Would you be applying the same kind of standard for cable?

• 1550

When I've travelled I've been running into a number of situations across the country in which we have cable companies that are responsible for certain areas, and then when it gets a little bit into the rural area there's no access to cable. Just as you said earlier, if you want to have an efficient running of businesses, you need access and you need to be able to have the fastest Internet and so forth. Once again, we penalize people who have businesses in rural areas because they don't have cable. Would you be applying the same principle to cable as you did to telephones?

Mr. David Colville: No, we take a bit of a different approach to cable, because cable is actually regulated as a broadcasting distribution undertaking under the Broadcasting Act. We don't have quite the same policy objectives or regulatory requirements under the Broadcasting Act for cable that we do for telephony under the Telecommunications Act. There is a bit of a different approach there.

We have licensed two direct-to-home satellite services in Canada to be able to deliver multi-channel, broadcast-type service to consumers in the rural areas. Cable has been reaching out more and more in the country. We have cable available to in excess of 80% of Canadian homes throughout the country, and about 80% of those who have it available to them subscribe. So many people have it, but everyone doesn't.

Our view lately on that competition question is that DTH will provide the service for those who are outside the reach. We also know both of the DTH companies are planning soon to offer an Internet access service as well. Also, you mentioned the MDS, and they are providing service in a number of rural areas.

There's one development happening in New Brunswick you may be interested in. NBTel has actually now developed a system through which they're able to deliver multi-channel television service over the telephone wire. It looks like cable TV, and they're actually now up to 120 channels. It's in the early stages yet, and they have a licence from us to be able to provide the service in New Brunswick. I expect that this will also provide an opportunity to compete with cable, and to subsequently extend that service into more rural parts of the country sometime down the road.

Mr. Walt Lastewka: My main point there was that too often in Canada we forget about our rural areas and the businesses and small businesses that are there. They're the heartbeat of creating new jobs, and if we don't find a way of getting service to them much faster, we're actually penalizing our economic and productivity growth.

Mr. David Colville: That's why we took the approach we did with this high-cost thing, and one of the reasons why we've taken the approach mandating the smaller independent companies that largely are serving the more rural areas. That's where much of the problem was in terms of party lines and in terms of not having access to the Internet, and that's why we wanted them to file earlier. As I said, they're filing their applications on March 1.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

Mr. Schmidt, please.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you, Madam Chair.

Thank you for being here. I'd actually like to ask you a number of questions, and they have to do with technology in the first instance. I want to take your basic statement here, the one that you make on page 3:

Basic service includes, among others, access to single line touch tone service with local access to the Internet.

I would like to ask you whether this means a land line.

Mr. David Colville: In the context of this decision, it does, yes.

Mr. Werner Schmidt: If that's the case, are you perhaps not standing in the way of technological advances? That's a highly expensive proposition, to think that this should be the case. We're moving very rapidly into the wireless communications arena, and I really doubt whether this is even a feasible proposition. The cable technology also depends upon land lines to a large degree, although there is some interface with the wireless there too. But why would you insist on this as a basic service, rather than providing access to teleservice, whether it's digital, whether it's wireless, or whether it's a land line? What's the point?

Mr. David Colville: Maybe I should just correct a bit what I said when I said “primarily, yes”.

• 1555

From our point of view, in terms of where this whole technology goes in the future, we're really technology neutral. If wireless can do it, that's fine. When we talked about access to the Internet and so on here, we were generally referring to the telephone companies, which for the most part are already providing toll-free access to the Internet throughout the country. If there's not an ISP in a given town, they will provide toll-free access to the town where there is an ISP, which is not to say that the telephone companies....

For example, we're running a proceeding now to look at this whole issue with respect to NorthwesTel, which has a huge problem getting service out, as I indicated earlier. It may well use radio technology to provide Internet service to some of the more remote areas of the north, so we certainly don't want to stand in the way of technology development.

Even in the case of local telephone competition, we've opened up that market to competition. We know there are cellular companies and these PCS digital wireless companies. A lot of people now are starting to use that phone as their alternative to or instead of the wired phone at home as a competitive alternative, and that's fine. We would encourage that sort of thing.

Mr. Werner Schmidt: But wouldn't you need to examine your policy? If your basic proposition is a line touch-tone.... I guess maybe I'm insisting that this is not the way in which you should write your policy. What you really want is basic telephone access. I think that's the key part here. If you want Internet service, I think it's important that we have this.

The other question that really comes to me is on the basis of the decision you made at the CRTC to not control the Internet, or not to regulate the Internet. I suspect a large part of that is because you can't do it. It's just technically impossible to do so. My question really is about the new technology that is out there. It's all very well if you say you're not going to regulate technology and that you're technology neutral. I really question whether you can be. Otherwise, what's the function of CRTC?

Mr. David Colville: Well, we hope one of the benefits of competition is that it's going to spawn and encourage new technologies to come along to deliver a variety of these services.

Mr. Werner Schmidt: I hope so too.

Mr. David Colville: I agree with you absolutely. I have no problem with that whatsoever.

When we rendered the local competition decision, for example, that was not a particular technology. Whether it's wired or wireless, some infrared light technology or whatever, if that can deliver the service, that's fine and we would encourage it.

On the Internet side, a lot of people have mentioned the point you did that we couldn't regulate it anyway. That may be so. I don't know where one would go with that. If you think about even radio technology, we have these radio waves going through the air that we're sitting in right now. One could have perhaps said in 1900 that you could never hope to regulate these waves just travelling through space, yet a way was found to deal with that sort of thing. So I don't know whether one could find a way to do it or not with the Internet. Our approach, though, didn't start from a point at which we said we're not going to do it because we don't think we can. We said we're not going to do it because we don't think we need to.

Mr. Werner Schmidt: But that doesn't answer my next question, and that is on the business of providing the Internet. You want that as a basic service to all Canadians, is that correct?

Mr. David Colville: Access to the Internet.

Mr. Werner Schmidt: All right, but that really means they need to have access to the technology in every place across Canada.

Mr. David Colville: We want every Canadian to have access to the Internet.

Mr. Werner Schmidt: Okay, and you say you want to control it as well, but you're not quite sure whether you do or whether you don't. Is that what I hear from you?

Mr. David Colville: We don't want to control and we don't want to regulate the Internet pursuant to the Broadcasting Act, with Canadian content regulations that are like the ones we have there and that are quite a different thing. That's why I was very careful to say in my presentation that when we say we're not regulating the Internet, we're not regulating it pursuant to the Broadcasting Act. That's a different thing from what we're saying under the Telecommunications Act. Under that, we're saying we want to make sure people in businesses right across this country have access to the Internet because it's going to be a valuable tool for our daily lives and for running businesses.

Mr. Werner Schmidt: Well, it's not a question of access. I quite agree with that. But if you don't control it according to the Broadcasting Act, do you control it according to the Telecommunications Act?

Mr. David Colville: We control access to it through the Telecommunications Act, that's right. For example, I want to draw on the issue that was mentioned a few minutes ago about cable. For the most part, cable is regulated under the Broadcasting Act as a broadcast distribution undertaking. But insofar as cable actually engages in telecommunications activity, we regulate it under the Telecommunications Act. We've mandated under the Telecommunications Act that the cable companies provide access to multiple Internet service providers through the high-speed cable modem service so you're not just a captive of the cable company's own Internet service.

• 1600

Mr. Werner Schmidt: So if an electronic medium is not land-lined or cable-oriented, is it then in competition with these cable companies?

Mr. David Colville: Cellular services, PCS, wireless satellite services, etc. would be competition for various services.

Mr. Werner Schmidt: So they are. Do you regulate them too?

Mr. David Colville: The cellular PCS companies come under the purview of the Telecommunications Act and we have chosen to forebear from regulating them. We have the power under the act to choose not to regulate them, and in the case of the PCS cellular companies we've chosen not to regulate because we believe there's enough competition that we don't need regulation.

Mr. Werner Schmidt: So that really means you regulate part, but not all, of the other competition. This really warps the whole competition area.

Mr. David Colville: We are regulating in the areas where we feel there's not enough competition.

Mr. Werner Schmidt: Thank you.

The Chair: Thank you, Mr. Schmidt.

Mr. Pickard, please.

Mr. Jerry Pickard (Chatham—Kent Essex, Lib.): Mr. Colville, my apologies for arriving late. I missed your presentation. I guess I could say thank you for getting your presentation done before I arrived. That way I did have a chance to just have a cursory read through what you had.

My major concern in my community is one of rural Canada and the problems, the rules and regulations, and all that rural Canada does face. Maybe I could just give you a brief picture of a radio station in Leamington, my area. That radio station totally devoided itself of media, news staff, reporters, and interviews in the local community. They renamed themselves a country and western station, took that role, and played music. That is different from most of the other radio stations, so they had a certain market.

They pick up the Windsor Star, a local newspaper maybe 30 miles away, and they read columns from the Windsor Star as their news highlights. Rather than using reporting staff and people commenting on what's happening, they have young people who have the ability to read those messages.

To me, we've lost big-time. Although we still follow your rules, follow the regulations, and follow what's going on, I think there's a void in rural Canada. This may not only be in my riding; I happen to think this is happening right across the country. It's happening there and competition is such that they can't keep up. They can't make profits.

I know the salaries that people are paid and different scenarios with regard to that rural medium. It may well be that it's happening in urban areas as well, but I'm not positive about that. What is the direction? What's the future? Where are we going and how are we going to correct some of this? The market doesn't seem to be able to do it and the costs certainly continue to escalate for those independents. They are bought in and bought out by myriads of different radio broadcasters from time to time. I think the ownership of the station I'm talking about has gone through several different hands in the last ten years.

Do you have any comment about that? Fundamentally you're there to make sure we have adequate, proper, cultural opportunity, and I think we've lost it.

Mr. David Colville: I can't speak for that particular station.

Mr. Jerry Pickard: No, no, I'm just getting a general picture through one source.

Mr. David Colville: I take your point and it's a good one. I hear what you're saying and we do have a concern about that very point. It's one thing to talk about going from 30% to 35% Canadian content. I forget what the level of French vocal music is, but we have concerns about that too. With the whole core issue you're talking about, we often are beating around the table. How do we deal with that whole question about local expression?

• 1605

Some of you know I come from Nova Scotia, which is a small-town area relative to the rest of the country, although I'm from Halifax, which is a moderate-sized city. I talk to a number of broadcasters throughout the province and the ones who are successful are the ones who provide good quality, local programming. They seem to remain a success in their own market. The ones that draw people who want to listen to those radio stations are the ones that provide them with the local service they can identify with and understand.

How we manage to deal with that in terms of each and every individual station across the country is difficult to say. We're always drawing a delicate balance between trying to let market forces prevail and stepping in as a regulator. Where do you have to step in to say where the “failure” is in the marketplace, if you will, and how much can you let the market forces prevail?

When I was responding to Mr. Lastewka's question, one of the concerns was allowing the greater concentration of ownership. We thought it would help strengthen some of the smaller stations if they could be owned by a larger station group, which isn't to say we want to see all the staff slashed and see it just become a rip-and-read radio station. Hopefully it allows it to have strength so that it then can respond by doing the local programming to respond to its community. We are concerned about that, both in radio and in television.

Mr. Jerry Pickard: I can see some of the clustering where two radio stations do the same news story. One is news media; they can actually do interviews and so on. One is an AM and one is an FM. They have different frequencies, different types of music, different markets. That works. I have no problem with what you're describing there, but I do have a problem with who's responsible for the maintenance of that culture.

I don't want to see Toronto stories on television in my region. We are inundated with Toronto stations down our way. Breakfast television, whatever. It's purely Toronto and it has nothing to do with our area. They do get play. They're licensed stations right across Ontario, I'm guessing, because it's here in Ottawa, it's in Windsor, and it's everywhere.

We're losing the local flavour to strong markets. There's no way; I just don't see how a small station in rural Canada can continue to compete under the circumstances we have. They have to abide by all the same regulations. If the government advertises something, most of that advertising goes to the big market stations. It doesn't go to the little guy.

Shouldn't you be more defensive of our culture in what you're doing? Isn't it your responsibility to deal with that?

Mr. David Colville: We think it is and we are trying to deal with those sorts of things. It's an interesting trade-off, the issue you just mentioned about the amount of regulation in and of itself being an expense for radio stations. We very much try to lighten up on the regulation we have, particularly in radio over the past number of years, where we've eliminated a lot of the rules we used to have.

The bottom-line rule right now is 35% Canadian content in radio. We don't regulate format. Stations can change from one format to another; if they find that rock-and-roll is not popular any more and they want to switch to a country format, they can do that. We've tried to give them the flexibility to be able to deal with that in the marketplace.

We struggle with this issue about the amount of local content and local news and so on, but it gets to a point where it gets difficult to say, from a regulatory point of view, this is local and you must do this.

Mr. Jerry Pickard: I'm not moving in that direction. What I'm trying to say is that I see a dot in the major map of Canada. I don't see what's happening across the country; I see what's happening in my surrounding atmosphere. Is what I'm describing problematic across this country? If it is, what can be done about it?

Mr. David Colville: I'm not sure it's problematic across the country. You can find small radio stations that are having difficulties. There's an operator, Elmer Hildebrand, who owns a number of small radio stations across the prairies. He's done an excellent job of taking small, failing stations that weren't doing very well and making them really local in their community and making them a tremendous success.

I suspect that if you're in southern Ontario it's difficult to avoid being overwhelmed by Toronto. I don't know whether that's a particular problem your area would suffer from. I know there's a lot of successful small stations in rural Canada that are doing quite well.

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

Mr. Jones.

• 1610

Mr. Jim Jones: Thank you, Madam Chair.

What Jerry was talking about was sustainable programming and culture. What I'd like to talk about again is convergent and sustainable competition.

I think today, if you look at the technology, cable has certain limitations to it and the telephone had certain limitations, cellular, radio frequency, and satellite had certain limitations, but a lot of those limitations are now starting to be eliminated. The technology has improved significantly. For example, I know Nortel has a fibre out that goes at 10 gigabit speeds and it can be multiplexed into 160 channels, so that's a lot of bandwidth to go over there. I guess that cable could be used by the cable companies and it can also be used by the telephone companies. I'm not totally up on my technology, but I would even assume that one day with satellite I'll be able to do my Internet connection, I'll be able to do my telephone, and I'll get all my programming.

Are you encouraging or regulating...? Today the telephone companies are going to want to get into the cable business. They're going to want to get into television. They're into Internet. They'll be into all types of business. On their infrastructure the cable companies are going to want to be in the same business. Is what you mean by sustainable competition, to have each one being a player in their traditional business now take all these businesses on and hopefully provide good competition for cable for telephone, and telephone for satellite companies?

Mr. David Colville: That's what we mean when we use two terms. The first one is convergence, which is generally from a technology convergence point of view when the cable company can get into telephony and the phone company into cable and satellites into both and all of that sort of thing. That's convergence. And we would hope that each of those gets into the business in a competitive way so that they can sustain that competition and we will all see the benefits of that. It is our view and our hope that when we get to that stage we will see sustainable competition, but we're not there yet. The technology's beginning to take shape to allow it.

We have to make sure from a regulatory point of view that each of those pieces gets properly interconnected with the other piece so that we end up with a seamless network of networks here, because if one party that controls an essential piece of this pipe says to somebody else who has that piece of fibre, “That's fine, you have that, but I'm not letting you plug it into my piece so you can get access to my subscribers”, then we're not getting the benefits of competition. And that's where we have to be in this piece to make sure that all those interconnections take place to allow this sustainable competition to happen.

Mr. Jim Jones: But isn't the technology getting to the point where almost everybody's physical plants are obsolete? For example, I see some day not too far out in the distant future that I just plop a bunch of satellites up in the sky and I can probably offer all the services of all this.

Mr. David Colville: It's an interesting observation. I read only a few years ago that fibre was going to put all the satellites out of business because there was going to be so much fibre in the ground at gigabit and terabit speeds that nobody would every want to send traffic via satellite. Yet the satellites are doing very well in the business.

A few years ago people were saying the phone companies should just dig a hole in the ground and throw all that copper into it, because nobody would ever use that copper. And now here's NBTel, and they're working with this company that I think Newbridge funded, iMagicTV, where they're now able to deliver 120 channels over that old copper wire. And here's the cable companies with their coaxial cable: you put a digital compression set top box on top of that, and bingo, we have 200 to 300 channels coming out of that old cable that we could only get 35 channels from a few years ago.

So while the new technology's coming along, we're finding better ways to use the old technology at the same time.

The Chair: Thank you, Mr. Jones.

Mr. Malhi, very briefly please.

Mr. Gurbax Singh Malhi (Bramalea—Gore—Malton—Springdale, Lib.): Thank you, Madam Chair.

Although we have the best communication in the world, still the quality and the standard is lowering day by day. I note this especially in the people who run the ethnic radio and television programs. They're putting in too many advertisements. And also the way they talk on the radio or the television when someone calls the radio station or the television station.... I think they don't need any licence. Even though on the other side the taxi driver needs a licence, the people who are hosting the radio or television program don't need the licence and they don't know how to deal with the people or to talk and they just put on more advertisements. Could you suggest anything about that?

• 1615

Mr. David Colville: We do have limits on the amount of advertising time that commercial stations or community stations or the ethnic stations can have, so the amount of advertising time is regulated for the various stations. The interesting thing on advertising over the years is that we've often speculated on whether one might do away with these advertising limits, but in fact for the most part the broadcasters themselves don't want to do away with that.

In terms of the overall quality, if the quality gets to the point of being abusive or whatever, certainly parties can launch a complaint to the commission or the station, or the Broadcast Standards Council, and we'll deal with it. But again we're careful about treading the line about stepping in and becoming a censor, which we don't necessarily want to do, and allowing for freedom of expression on the radio.

Mr. Gurbax Singh Malhi: But I heard a lot of complaints from my constituents. And when they send a letter to the owner of the radio station nobody bothers. And after that if they go for the legal fight it's too expensive. If they go against the host of the radio or television program that's too expensive.

Mr. David Colville: I don't know what the nature of the problem would be, but you'd certainly be welcome to file a complaint with us.

Mr. Gurbax Singh Malhi: More advertising. They will have maybe one song and fifteen times the advertisement after that—without having completed even one song.

Mr. David Colville: Sometimes the perception of the amount of advertising can be more than the reality, I think. But we certainly do regulate the amount of advertising on the radio station.

The Chair: Thank you, Mr. Malhi.

Mr. Colville, we're running out of time. I have a number of questions that I'm going to put to you and you can respond to us at a later date in writing.

I'm wondering if you have any statistics on telecommunication cost as a percentage of total business cost and whether or not it's significant in terms of competitiveness. And what's the impact on productivity of business, particularly on small and medium-size enterprises?

As well, if access to the Internet is important to the vitality of business, particularly in SMEs, for the future, could you tell us what impact your high-cost service areas decision may have?

And further, will rural business have access to the Internet on the same terms as business in metropolitan areas? And will rural areas become more or less competitive in metropolitan areas with the new array of telecommunication services, most importantly the Internet?

We'll leave you with those questions.

Mr. David Colville: Okay.

The Chair: We want to thank you. We apologize that we've run out of time and we have to move on to our next group of witnesses, but we do appreciate you coming here today.

Mr. David Colville: Thank you. They were good questions. I enjoyed the discussion.

The Chair: Thank you.

Mr. David Colville: Thanks a lot.

The Chair: We'll suspend for about sixty seconds while we change witnesses.

• 1618

• 1621

The Chair: I'm going to call the meeting back to order.

I'm very pleased to welcome our next group of witnesses. We're very pleased to have with us, from the Information Technology Association of Canada, Dr. Gaylen Duncan, the president and chief executive officer; and from Bell Canada we have Mr. Bill Garbarino, vice-president of electronic services.

What I would propose is that you both provide your opening statements, and then we'll move to questions together. If the question is directed to one or the other but you want to have some input, let us know. Some may be directed to both of you.

I'll propose we go in the order as listed, unless you have another agreement.

Dr. Gaylen Duncan (President and Chief Executive Officer, Information Technology Association of Canada): I don't know what the order is that's listed.

The Chair: Dr. Duncan, we have you first.

Dr. Gaylen Duncan: I'm going first. And, please, the “Dr.” is not generally used.

The Chair: Okay.

Dr. Gaylen Duncan: Good afternoon, ladies and gentlemen. It's a pleasure to join you here to contribute the views of ITAC, the Information Technology Association of Canada, to this important exploration of productivity and competitiveness in the Canadian business sector.

You asked us to frame our presentation around the key ingredients of business sector productivity. I'm going to limit my focus to one ingredient: information technology.

Now, it probably won't come as a surprise to you to have the CEO of ITAC claim to you that information technology is central to our quest for productivity and competitiveness. IT solutions are, after all, what the companies who pay my salary have to sell. But don't take my word for it. Listen to what the chairman of the board of the Federal Reserve System, Alan Greenspan, recently told the Economic Club of New York. I believe in the handout we've provided you with the entire speech. Greenspan these days is in the enviable position of having to account for the longest economic boom in American history. He said:

...it is information technology that defines this special period. The reason is that information innovation lies at the root of productivity and economic growth. Its major contribution is to reduce the number of worker hours required to produce the nation's output.

He then went on to provide clarity on how this reduction happens:

Before this revolution in information availability, most twentieth century business decision making had been hampered by wide uncertainty...the remarkable surge in the availability of more timely information has enabled business management to remove large swaths of inventory safety stocks and worker redundancies.

He provides a thoughtful examination of the various ways this has evolved. It's an important speech, and because it directly informs your explorations, we have included it in the materials we brought you.

Also in the material we have collected is a validation of the enabling impact of information technology from a Canadian source. In 1997 we worked with the Conference Board of Canada on a study called “Jobs in the Knowledge-based Economy”. The study gathered facts about the impact of IT investment on the economy over the period from 1986 to 1995.

“Jobs in the Knowledge-based Economy” demonstrated that companies that were more IT-intensive experienced strong business expansion and employment growth, while less IT-intensive companies saw employment fall.

• 1625

The study also contained two case studies, and since you've requested a case study approach, I thought it would be worth summarizing the impact of information technology on the CIBC.

CIBC, like all Canadian banks, can be described as IT-intensive. Its IT investment increased by 86% between 1988 and 1995, from $129 million a year to $239 million. One focus for this investment was automatic banking machines. The number of installations over the 10 years from 1987 to 1996 grew by 310%.

ABMs didn't have an impact on the number of branches operated by CIBC until about 1991. During the following five years, the number of bricks-and-mortar branches fell by 9%. While the bank experienced a decline in employment in the early 1990s, it enjoyed a turnaround in 1996. This was in large part attributable to the creation of nearly 1,000 jobs in two new telephone banking centres.

Information technology changed the dynamic of work in the bank branch. Instead of queuing up sometime between 8 a.m. and 5 p.m. to hand a bank teller the information necessary to complete a transaction, ABMs gave the customer the power to input that information directly at any time of day or night.

The banks did their own productivity analysis. They established that the cost of a mediated transaction over the counter was $3. They invested heavily in the technology to develop alternative channels of delivery. Telephone-based banking not only employed 1,000 new people; it also dropped the transaction cost to $1.50. Banking via personal computer brought the cost to 50¢, and Internet banking heralded an era where transactions could cost as little as 15¢ each. No wonder Canada's banking industry leads the world in IT investment.

Elsewhere in our banking community, IT has meant not only increased productivity but access to new markets and new possibilities. When the Citizens Bank of Canada was launched in 1997, it set out to be a bank with a difference. At a time when Canada's big banks were under fire for their merger plans and profits, Citizens Bank chose to offer customers a socially responsible alternative.

The bank was launched as a subsidiary of VanCity, a successful B.C.-based credit union with over 50 years of operation, primarily in the Vancouver market. VanCity saw Citizens Bank as the vehicle to take its corporate responsibility mandate and credit union philosophy across the country.

The cost of a physical expansion was out of the question. It costs, conservatively, about $1 million to open a new branch. But information technology gave Citizens Bank a whole new strategy for expansion and provided this local Vancouver company with ease of access into the national and international banking marketplace.

Citizens Bank began with PC banking and followed that offering with CitizenNet, an Internet-based service option. Through these channels, the bank offers a full range of personal financial services, from making deposits to paying bills. Citizens Bank was also the first company in Canada to offer online mortgage applications.

While no one is under any illusion that information technology has levelled the playing field for new arrivals of intranets in the financial markets, it is clear that it does get them in the game, and the whole industry benefits from new competitive positioning from new arrivals like Citizens Bank.

The idea of market access has broader-reaching implications for Canada's competitive positioning in general. If Citizens Bank can use IT as a platform for competing against Canada's big national banks, why can't a bookshop in Victoria go head to head with Barnes & Noble?

ABE Books is doing just that, providing an online distribution centre for rare, used, and out-of-print books. ABE has the distinction of not only competing effectively outside Canada; it is also the only online book retailer that is currently showing a profit.

If ABE can do it, why can't a bunch of women from north of Superior compete with CD-ROM manufacturers like Microsoft to distribute self-help CDs like NFL Football Made E-Z? Kim Sartor and her team from Angel Lake Multimedia are doing just that.

And if they can, why can't a trio of professionals from Toronto go up against the Arrow man, Brooks Brothers, and Hathaway by offering excellent quality, well-priced business wardrobe staples—white shirts and black socks? Check out their website, www.justwhiteshirts.com. They're doing it as we speak.

• 1630

After listening to the questioning of my old colleague David Colville, I've added two other examples.

Vesey Seeds, of Prince Edward Island, went online. The substantial portion of their business is now coming from people who never knew they existed, all across North America.

Manitoulin Transport, working off Manitoulin Island, brought the Internet to the island for their own business reasons and now provide Internet service to all residents. It is getting into the communities.

The U.S. economy has embraced information technology warmly and isn't letting go. While Canada can boast it is one of the most wired countries on earth, we aren't keeping pace with the U.S. in the adoption of IT tools in business. U.S. rates of adoption and the whole juggernaut of the “dot-com” economy could have a negative impact on our long-term productivity and competitiveness. Even today, we're seeing some of the best and brightest Canadian innovations and enterprises being swept south by the lure of ready financing, big markets, and potential allies with deep pockets. To maintain our advantages, Canada must not only do as well as the U.S.; we must do better.

The e-business roundtable co-chaired by David Pecaut of the Boston Consulting Group and John Roth of Nortel made six key recommendations to make that happen: one, establish Canada's brand in e-business domestically and globally; two, accelerate the transformation of existing business in Canada; three, foster e-business creation and growth; four, expand the e-business talent pool in Canada; five, make government online a major priority; and six, build Canada's leadership in international Internet policy development.

This committee can influence the adoption of any and all of those recommendations, but I believe your focus must be to accelerate the transformation of existing businesses in Canada. Whether you come from our industrial heartland or from those regions dominated by our resource sector, you can use your influence to encourage the adoption of IT tools as aids to productivity and competitiveness.

I am not claiming that IT is a silver bullet. It won't repair but will actually exacerbate the damage done by bad management. But I would venture to say there isn't a single sound business in Canada that couldn't improve productivity and competitiveness by asking itself a simple question: Am I doing anything in my business process that can be replaced or improved by the deployment of a sound IT strategy? If you can use your leadership to precipitate that probing, then you will measurably advance Canada's productivity and competitiveness.

Thank you.

The Chair: Thank you, Mr. Duncan.

We're now going to turn to Mr. Bill Garbarino from Bell Canada.

Mr. Bill Garbarino (Vice-President, Electronic Services, Bell Canada): Thanks very much.

Ladies and gentlemen, thanks for the opportunity to address the committee on the subject of e-commerce, a subject that's critical to Bell Canada's transformation from a telecom to an infocom.

We believe the cornerstone of our future business model is to leverage the Internet to provide emerging information, communication, and entertainment services to our customers across Canada, and to expand our footprint through partnerships into the U.S. and international markets.

We believe web-based e-commerce fundamentally changes the rules of business for service providers, suppliers, and customers. From a company standpoint, e-commerce provides Bell with an opportunity to revolutionize the way we interact with our existing customers. We can cost-effectively serve our customers around the clock in a very personalized way, providing real-time information access and transaction tools. This combination, enabled fundamentally by e-commerce, reduces our distribution costs by anywhere from 50% to 80% and will actually improve the level of personalized customer service at the same time. It's a pretty fundamental shift in the way we, a very traditional company, have done our business.

Bell will utilize e-commerce to bring products and services to market faster, while at the same time presenting these products and services in a more integrated fashion to our customers. The intuitiveness of the web in e-commerce gives any company that harnesses its ability the ability to actually differentiate its service offering, whether they be small start-ups or existing companies.

• 1635

For Bell, e-commerce also allows us to reach new markets without having to build traditional distribution capabilities. Customers will continue, in my opinion, to embrace e-commerce at a startling rate, because it makes them feel empowered and they can shop on their own terms and not ours. They can research products, explore various configuration and pricing scenarios, and complete an order transaction, all from the comfort of their home, their business, or even places in between. Customers can profile themselves, request target-based e-mail communications as well as create personal web spaces for their ongoing interactions with their service providers.

In 1999 Bell customers completed over 16 million self-serve transactions through our e-channels. These channels included our corporate website, our integrated voice response system, our wireless PCS handsets, as well as over 800,000 screen phone devices that we have within our particular footprint.

At the same time, we found that nearly 20% of our customers started to actively use our electronic channels, so there was a tremendous adoption curve. These customers were strongly stating their preference to actually interact with the company through the electronic self-serve means. The key to this preference is our ability to deliver great value through a multitude of e-doors.

Wireless and satellite access is spawning now a plethora of new IP access devices that can link customers to e-commerce and e-business applications from virtually anywhere. It enhances the portability of e-commerce.

Busy people demand flexibility in their lives, and I really believe the web delivers. When we think of the ubiquity and speed of communications, the ease of access to information, the richness of the new delivery medium, which is the web, e-commerce, it's no wonder that the opportunities seem almost limitless.

BCE and Bell have committed to e-commerce because we really believe that it leverages our new business model in many facets. In the last 24 months Bell Canada has established one of the top business-to-business e-commerce solution providers in North America, being BCE Emergis. We've rapidly built and expanded a national IP and broadband network through our Bell Nexxia unit. Our decision to purchase Teleglobe will expand that IP network link internationally.

Bell Sympatico is the largest ISP in Canada, and it will continue to remain the leader in the Canadian space through our new partnership with Lycos. Through our Sympatico and city portal sites such as Toronto.com and Montreal.plus.ca we will provide Canadians with a virtual marketplace to shop online.

To complement our virtual marketplace we've developed, through our Bell.ca, the Bell World virtual store, the only integrated communications online store that offers a complete range of capabilities from traditional telecommunications, wireless, Internet products, terminal devices and even entertainment services.

We're also partnering with government and other Canadian businesses to extend e-commerce into their domains through e-procurement, web posting and shared applications services.

As you can see, Bell Canada is extremely committed to e-commerce. We believe it's fundamental to our growth and success as a company in the future.

Our two-year investment to date in building our e-business and e-commerce distribution capability has already paid very significant dividends. We expect the future payback of these investments to be in the five- to ten-fold range over the next five years.

The win-win situation is that we also believe that e-commerce is fundamentally good for Canadians. It empowers them like nothing we've ever experienced before.

A lot of people say that e-commerce is a new medium and therefore there will be a natural reluctance to it. I'm sure that story applied to buying the first telephone many decades ago. Critical mass is required to create the explosion of new applications and services.

• 1640

In the small Canadian market, achieving critical mass requires an active involvement of government as a first mover and a model user of these new e-business and e-commerce technologies. It is essential, we believe, that government move forward with a government-wide information infrastructure. This Internet protocol network, similar to the one I have the responsibility to run in Bell, is a critical step to achieving the Speech from the Throne objectives of making Canada the nation most connected with its citizens by 2004. The underlying infrastructure, which is called the secure channel, is vitally important.

Bell Canada supports the efforts of the Canadian government to implement this new innovative, communications-based solutions framework. We look forward to a timely issuance of an open, competitive tender, inviting the private sector to help government start to build this capability.

We know we need to continue to partner with industry and government to ensure that the growth of e-commerce is guided by consistent business principles and by balanced government regulation to protect the privacy, security, and integrity of Canadians.

Bell Canada has taken very significant steps to provide our customers with the privacy and security they desire and deserve. Our Bell.ca web trust seal documents our commitment to all our customers. We will ensure that all of our e-commerce business practices will support Bill C-6.

Together with government and our partners, BCE and Bell will help forge an exciting e-commerce future in Canada. We believe we'll really make Canadians proud.

Thank you.

The Chair: Thank you, Mr. Garbarino.

Now we're going to turn to Mr. Schmidt, please.

Mr. Werner Schmidt: Thank you very much, gentlemen, for appearing. This is probably the most exciting thing we've heard in a long time. In fact I was looking forward to your appearance here very much.

You touched on the very issue I'd like to start with, and that has to do with the secure channel. I think that's a major issue. There are so many things surrounding this, but I'd like to start by asking you about the role of government and the role of crown corporations in the establishment of the secure channel.

You're probably aware that Canada Post has just recently established the e-post capability, which is an electronic post office. They are making overtures to be one of the suppliers or one of the bidders on this secure channel. I'm wondering what the relationship is between the ITAC industries or the BCEs and the Bell telephones and outfits like Canada Post.

Dr. Gaylen Duncan: I tread gently, since the partners in e-post are members and Bell is a member, but I have made a couple of relevant public statements. The first is we were very pleased with the process that industry strongly supported over the past year and a half leading up to the preparation of this RFP. The consultations were conducted broadly. It was open and transparent. There was to be no technology bias. We were happy.

The last step was to take the results of the consultation in-house and prepare and issue the actual RFP. That is now five months late. In Internet language, that's over one Internet year, one net-year. The entire program runs 16 net-years; that is to achieve the government objective of 2004. You are now over one and a half years late. We're not going to make the final deadline.

We're concerned that something has not gotten off the rails. We understand it is trying to find an appropriate role for Canada Post. Let the private sector do that. Issue the RFP, put a weighting on one of the clauses that says the appropriate role for Canada Post will get you five points—I don't know what the right number is—relative to all the other criteria that will be in the bid. Let the private sector find a solution.

Issuing it as a pre-selected prime contractor, I would suggest that you all go back and watch the TV show where the president and the vice-president call together industry and the vice-president says the government is going to build the Internet. And over the course of the TV show they end it by saying “We are not going to build the Internet. We now understand that this is not the appropriate role for government.”

• 1645

Mr. Bill Garbarino: I very much agree with Gaylen. I really felt that we were on the right track. I was consulting with government groups, as well as from a subject matter on a case study, because of Bell's scope in trying to transform the way we interact with over eight million Canadians, trying to move from a traditionally based business model to what we call a “bricks-and-clicks” business model to serve our customers more effectively. I was trying to help in establishing the right fundamental direction.

Obviously, from a BC perspective, we feel we have a lot of value to deliver based on our experience as an e-commerce provider, our experience in network technology, and our experience of actually running one of the largest e-distribution capabilities in the Canadian space. Everything was moving along extremely nicely, and then we seemed to have hit a snag.

I'm with Gaylen: I think we need to put it out to the private sector—with the proper provisions—and have the private sector embrace those provisions. If e-post is fundamental to what government wants to do to move forward in this space, then that's great. But I think taking any other direction here would damage the overall momentum that I know government wants to accomplish. Gaylen pointed out that time is just wasting, and getting the right trajectory is going to be key to fulfilling the vision government has established.

Mr. Werner Schmidt: The supplementary question to that has to do with a secure channel like this, probably the single largest installation that would exist in Canada. Is there a parallel type of installation in other countries?

Dr. Gaylen Duncan: Yes, in Singapore, but that's not an area of my general expertise. There isn't, outside of the military, in the United States. But there they are proceeding in smokestack style. Certain departments, certain governments, are proceeding to implement, and they are developing secure channels, but there is not a cross-government initiative at all. It's much more difficult to do that in the U.S.

The Chair: Mr. Garbarino.

Mr. Bill Garbarino: That is why I felt the approach that government looked to take with a secure channel was a real leadership approach, because you're trying to look at it fundamentally across the various elements of government, and looking at Canadians, from a constituency perspective, as whole. That's the approach we've tried to take as well at Bell. We're trying to use fundamentally the Internet, e-commerce, and e-business to start dealing with our customers in a much more integrated fashion, dealing with service activities end to end, based on the way our customers need to transact or interact.

That was the approach I really saw us looking to take with the secure channel. I don't think there is a model out there today that actually replicates that.

Dr. Gaylen Duncan: If we did do it first, we'd have an exportable product and expertise.

Mr. Werner Schmidt: Well, there's no doubt about that, and I think it's very noble that this idea is percolating out there. I have some difficulty. I realize that it has been delayed for whatever reasons. I'm suspicious about some of the reasons, but that aside, do you believe there is a conflict of interest between the kinds of private sector companies that are part of your organization and a crown corporation that has almost an inner track on this thing?

Dr. Gaylen Duncan: If the inner track is based on political connections, the answer is yes. If the inner track is based on a crown corporation not using its monopoly dollars, working with other private sector corporations, which I understand e-post is—there are a number of Canadian companies involved in the e-post solution—then it's just like the alliance that's going to have to be formed to respond to this bid. There is no one company in Canada that can win this bid single-handedly. It's going to be at least one, if not two, complete alliances.

Mr. Bill Garbarino: Even from our own perspective of trying to move up toward the RFP, we were in fact forming a consortium that would have brought together the various elements to provide the type of end-to-end service government was looking for.

Dr. Gaylen Duncan: And having Canada Post as a member of that consortium, if that's the private sector's will, is okay.

Mr. Werner Schmidt: Yes, well there are some very simple questions, and you gentlemen know.... Well, the questions being asked are not simple; they're anything but simple.

The Chair: Last question.

• 1650

Mr. Werner Schmidt: Thank you, Madam Chair. If they can answer this question, it will be really good.

The significance, it seems to me, is whether Canada Post acts here as an agent of the crown, or whether in fact it acts as a crown corporation at arm's length—not as an agent of the crown, but as an independent bidder.

You gentlemen have worked with Bell. You've had more than one experience of this type.

And I think, Dr. Duncan, you've had more than one experience in this area as well.

How do we get around this particular issue? Is there a prior requirement to be sure Canada Post acts not as an agent of the crown?

The Chair: Any ideas?

Mr. Bill Garbarino: I would think it would be wise for us to evaluate the capability Canada Post can provide, as a service provider, to the requirements for a secure channel, and move away from it simply being an agent of the government.

Mr. Werner Schmidt: Is that yes or no?

Dr. Gaylen Duncan: It means operating independently.

Mr. Bill Garbarino: Yes.

Dr. Gaylen Duncan: CMHC is a crown corporation and bids for properties and sells properties. It can act, but it has to act independently.

Mr. Werner Schmidt: Yes, but that's the whole point. There's a different relationship. We have enough research to discover that the relationship between Canada Post and the government is different from the relationship between CMHC and the government. They're both crown corporations, but there's a requirement in the relationship for CMHC that's different from the requirement for Canada Post. I'm sure you gentlemen know only too well what that difference is, because you wouldn't be where you are today if you didn't know that difference. That's a key point here.

So I'll simply ask you. Can you answer the question now?

Dr. Gaylen Duncan: I think we said it has to act independently.

Mr. Werner Schmidt: Okay.

The Chair: Thank you, Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

The Chair: Mr. Cannis, please.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair.

Let me also welcome the presenters.

Mr. Duncan, I go to the six points you mentioned. I think you remember quite well that in September, I think it was, we found ourselves at the GBDe conference on electronic commerce in Paris. In the last point you say “build Canada's leadership in international Internet policy development”. I sensed when I was at the conference—and maybe you did, and maybe we can elaborate on it—that Canada indeed was looked upon there as providing leadership.

But what I sense—and maybe you could help me on this—is when we come home, in speaking to the various professionals out there, such as you and so many others, something is missing. I don't know what that is. When I talk to people, they keep saying “Look, we have to get a hold of the opportunity. It's there. We're not addressing it.” I'm getting bits and pieces.

I sense we're providing that leadership. You talked about Bill C-6 and your support of it. That's one step. I can't put my finger on it, but in speaking to ten people, something or some things are missing from that puzzle. Maybe you can elaborate on your views on that.

Mr. Garbarino mentioned e-commerce is good for Canadians. I agree it's good for Canadians, but something is missing there too. Could you elaborate for me on why Canadians haven't picked that up as we believe they should, as we know they should, and as everything is telling us they should? Something is missing there. Is Bill C-6 going to partly help it in terms of privacy and security, which you touched upon, etc.? How do we create that comfort zone? Who can get out there and help get that message out?

I think, Madam Chair, I've taken enough time, so I'll end there.

The Chair: We have to go at 5:15, so....

Dr. Gaylen Duncan: Let's first talk about Canada's role internationally.

We are very quickly building a reputation of having well-reasoned policy positions that are neither the extremes of the European Commission nor the fear of government of the Americans. I believe we will see, for example in privacy, that the American government is now beginning to say Canada got it right and they got it wrong. So on a policy front, we're making huge progress, and it is recognized internationally. We're generally not that well received at home, but that's the typical Canadian rock music problem.

On the applications side, a number of things are not going right. We spend less per capita on information technology products and services—substantially less—than the U.S., just south of the border. If we're spending less, we're probably using it less. The reality is we have equal penetration into the home, we use it more hours per day, and a greater percentage of our people have access than in the U.S., yet overall we're spending less per capita. So there's an issue, and we're trying to tear that apart to figure out why.

• 1655

There are typical Canadian conservatives, although I think this Christmas we started to break through on that. I think the numbers are starting to show that we're on the curve of the hockey stick: we've been rising at a certain rate, and we're now going exponential.

Mr. Bill Garbarino: To build on that point or get more to your second question, we have not built Canadian content from an e-commerce standpoint up until the last 12 months. If you looked at the 1998 Christmas shopping season, Canadians purchased online, and they were rapidly moving up on par with their U.S. counterparts, but 63% of their purchases were from U.S. sites. In 1999, Canadians had 55% of their purchases from Canadian sites. We're finding that in communications, and obviously Bell is playing a role in that, as well as Chapters.ca, and so on. So we're finally starting to see some Canadian e-commerce content starting to pick up and challenge the U.S.

The difficulty obviously is when you're playing catch-up, when you look at what was done in 1997 and 1998 with groups like Amazon.com and the capability that AOL brings to the marketplace, as examples. It gives them a clear, measurable lead and share of mind from an online brand. We need to continue to move aggressively from a Canadian service provider to give that online capability.

I'm convinced Canadians are as eager to deal online as Americans or Europeans or Asians. I've seen that in the actual statistics. It's unfortunate that in the past they've spent most of their time shopping on sites other than within Canada. I think that will change.

One of the things that is certainly an impediment still is the amount of venture capital available in Canada for Canadian companies, whether they're established retailers like Bell, or whether they're small start-ups.

It's interesting that an announcement was made just last week by a company called Vengold Inc., which is actually now headed up by a former president of Bell, from our old Bell Emergis division, Jim Tobin. Jim's aim now is to stimulate venture capital within Canada for e-commerce, and also to stimulate or to reduce the exodus of highly skilled IT and e-commerce professionals from Canada, mainly into the U.S. market. That is an opportunity for Jim, but it also shows one of the key issues we currently have within the Canadian space.

Mr. John Cannis: Madam Chair, I want to save time for the rest.

The Chair: Mr. Jones, please.

Mr. Jim Jones: Thank you.

Being the most connected is one thing, and speed definitely is not a problem any more; we have high bandwidth. What percentage of Bell's own personal business in relation to their customers is e-commerce now, done electronically versus traditionally?

Mr. Bill Garbarino: We now have about 25% of our sales and service interactions done through self-serve electronic access, which is—

Mr. Jim Jones: Is that 25% of your revenue, or 25% of your transactions?

Mr. Bill Garbarino: That's 25% of our transactions.

Realize that because we're a recurring revenue model, about 75% of our ongoing customer interactions are not sales-oriented. They're servicing customers once they hook up to our system.

From a purely e-commerce standpoint, right now only 6% of our sales transactions are done through e-commerce. Largely business-to-consumer and business-to-business is the area we're forging into in year 2000. We want to have a run rate at the end of this year where 12% to 15% of our sales transactions are actually completed through e-commerce.

Mr. Jim Jones: So when you move to e-commerce every percentage, what type of dollar savings is there if you can get your whole business? Or you'll probably never be able to get your whole business over there.

Mr. Bill Garbarino: We'll never get the whole business, but if you look at different chunks of it, we have about $1.5 billion per year that has stimulated a new revenue that's more inbound demand. We send something out, and it simulates an inbound response from our customers. We then are looking to garner at least $150 million to $200 million of that in year 2000 through e-commerce. Then if you look at the recurring revenue base we have, which is another $8 billion to $10 billion, we want to be able to secure about 50% of that through the ongoing servicing online, so that's significant. And we're on a trajectory right now where in December of 1999, 32% of our servicing transactions were actually done through our Internet and other e-channels.

• 1700

Mr. Jim Jones: Gaylen, how far is Canada behind the U.S. in the adoption of e-commerce?

Dr. Gaylen Duncan: The best numbers we can get are from IDC, International Data Corporation, and they estimate we're now running between 12 and 18 months behind the U.S.

Mr. Jim Jones: Last year it was 18 to 30.

Dr. Gaylen Duncan: Last year it was 18 to 24, so there's been some progress. I don't know if this is a systemic change or whether we just had a really good year. I hate to draw conclusions from one year's worth of data, but, yes, we've moved from 18 to 24 months behind to 12 to 18.

Mr. Bill Garbarino: In specifically the communications sector, we're actually now the model the U.S. are in fact patterning off. We're only one industry sector within Canada, but I think we clearly have an opportunity to continue to evaporate that lead.

Mr. Jim Jones: I don't understand that. Who's the model?

Mr. Bill Garbarino: Bell Canada. I will be going tomorrow down to Dallas to be part of the e-commerce officers summit, which has the six largest U.S. communication providers and Bell Canada. So we are considered to be at the same level of the very large providers and we have in fact moved the transactional model more in the communications sector than our U.S. counterparts. At the table will be SBC and Bell Atlantic, U.S. West, Bell South, GTE, so they're very large players that basically control—

Mr. Jim Jones: When you say that Bell is in the e-commerce, you're growing DASD farms for other people to do e-commerce or Internet? Is that what you mean?

Mr. Bill Garbarino: That and also providing directly the service to our customers. We do about 65 million transactions per year with our 8 million customers and we're moving a significant amount of that onto an e-commerce and e-business platform.

Mr. Jim Jones: So Chapters.ca is for all of North America, or is it just for Chapters Canada?

Mr. Bill Garbarino: It's focused primarily at the Canadian market, but the great thing about the Internet is anyone can get access to it. We're in fact finding through our own virtual store a growing amount of traffic from the U.S. and from Europe, mostly buying disposable goods that we can then ship across to these destinations.

Mr. Jim Jones: Is there any Canadian company like Dell computers? They have a high penetration of e-commerce in using the Internet, I think. Almost their whole business is based over the Internet. Are there any companies emerging like that in Canada?

Mr. Bill Garbarino: Dell Canada is obviously an extension of Dell, and they have about 55% of their business now being done online, so they're an excellent example of a leader in their industry segment. We're trying to forge this in communications. We're finding that groups like Chapters.ca and futureshop.ca are also very much pushing the retail online market.

Dr. Gaylen Duncan: If you want to go on the website at itac.ca, we're building a whole series of case studies. They're only a page or two long, and they're all Canadian companies that are building Internet businesses. That's where Vesey Seed, Manitoulin Transport, Angel Lake...they just come right off our database. So it's itac.ca and the subdirectory is e-commerce. But yes, there are a legion of Canadian companies, many small, but Canadian companies that are building their business and using the Internet to do it.

Mr. Jim Jones: When you said that we're 12 to 18 months behind, is that overall, and maybe in the small business arena we're a lot further behind than 12 to 18 months?

Dr. Gaylen Duncan: We're behind in all sectors of our economy. We just came from a briefing from heads of associations, about 120 different vertical industry associations, and the major message was there are only one or two vertical associations that are really moving in e-commerce. There's some fear, but tremendous interest and a voracious appetite for case studies or people they can talk to. For instance, in the trucking industry we just say call Manitoulin; bring them in and let them talk to your industry association. They'll talk about their industry, yours, and how it turned their way of running a trucking company.

The business-to-business is really what's killing us. Business-to-consumer I think is coming up fast and it's the sexy stuff. It's what everybody talks about. The thing that's going to improve productivity is business-to-business.

• 1705

The Chair: Mr. Murray, please.

Mr. Ian Murray: Thank you.

Mr. Duncan, on that point, business-to-business, you mention in your remarks that you're going to focus on using information technology to improve productivity in business. So I'd like to talk about that, because there appears to be a problem with the ability of management in a lot of companies to deal with this. Also, we've heard there's a slower uptake in the smaller and medium-sized businesses.

It's interesting, I was looking at the roundtable report here and their five objectives. One was “to inspire Canadian business to approach the opportunities presented by the Internet with a sense of urgency”; and the last one was “to persuade Canadian governments and regulators that facilitating the development of Canada's Internet economy should be a priority”. You may want to reverse that. You may want to try to persuade perhaps not just your members, because I think you'd find that your membership wouldn't be the companies that have a problem. I don't think it takes too much to persuade government, but it seems there's a problem in Canada with just business management.

I would like to know if you think there is something we can do—maybe we can inspire and persuade somehow ourselves. But this is a recurring theme, it seems, that the ability of managers in Canada doesn't stack up against say management in the U.S., a lot of companies in the U.S.

Dr. Gaylen Duncan: I take issue with that. We do have some bad management. We also have some stellar management, which is why we're losing a large number of our senior and middle managers to the U.S. If you can sell and be profitable in a country that's 4,000 or 5,000 miles wide and 100 miles deep, you can sell in the Chicago area, you can sell in California, and you can.... Don't get me going down that road.

We do have a problem. The language in there is in fact fairly precise. In terms of the “inspiring business” piece, I don't think there's a lot the government can do in terms of talking. The private sector...that particular theme is going to be under John Wetmore, the CEO of IBM Canada, and a very large team of people are being pulled together, all volunteers, to go out with the messages that say here are the basic facts, here's what you should be doing, and here are people you can contact who can come in and help you.

What the government can do—and that's why the word “persuade” is in there, and it leads back to some of the questions earlier—is you can get government online fast. That does a number of things. It shows leadership. It means that we have solutions that are unique in the world. If we do it first, we develop the solutions, we can take them around the world. If we do it last, we buy the solutions from somebody else. So you're going to stimulate the industry. You're going to show the leadership. Other companies are going to say if government can do that, why can't we do that? And the fact is that we have an objective in the Speech from the Throne. We have given as much credit to that quote and the Prime Minister's response as we possibly can. But you've missed your first deadline.

So we're pulling back a little bit, saying we're not walking the walk; we're still talking the talk. So that's why “persuade” is in there.

Mr. Ian Murray: Fair enough. I'll accept that.

We all know that it's business-to-business e-commerce that's going to be the really huge opportunity, perhaps more than the consumer side of it. I was wondering if it is too early yet to have a series of case studies perhaps to present to businesses in Canada to show them just what has happened or can happen. If they need to be inspired by this, it would seem self-evident, I would think, to many of us, but perhaps it's not to a lot of people. Is that something you say the IBM group is going to be trying to do?

Dr. Gaylen Duncan: ITAC is building the case studies as one way of getting the message out. I'm using them when I deliver speeches. My members will be using them when they deliver speeches. That is one way. You can help incentives. If the private sector understood that government wants them to go business-to-business online, what's the tax incentive you could provide? Y2K was a wonderful one. All you did was defer the tax payment and allowed for a faster write-off. Eventually we got the money, but they got the cash for the one transition year. I can tell you it had a huge impact on the market out there.

• 1710

Mr. Ian Murray: I think Mr. Garbarino wanted to make a comment.

Mr. Bill Garbarino: One of the things I hope we see happening between the government and the private sector is to get the government and the private sector connected from a new procurement perspective. If you get especially small and medium businesses to start dealing with the government in that fashion, then with other private sector businesses, both large and small, you start to drive the e-literacy, the electronic literacy, into small and medium businesses. And that's our biggest challenge with a large company like Bell: it's bringing a level of e-literacy within a company that's been very traditional—traditional product and service development, traditional distribution.

I think it's actually easier to take small and medium businesses and move them more quickly that way.

The other fundamental thing is that it's up to each of the leaders in various service sectors to provide starter kits to small and medium businesses. We're looking at doing that within Bell now. We're looking at bundling various e-commerce elements, right from basic web hosting to building a website, to doing some of the application and transactional capabilities and using that as a turnkey element back to small and medium businesses. Because there's this fear of entry.

Mr. Ian Murray: Yes. The thing that struck me is that it's like anybody who does e-mail or uses the Internet for the first time. When you see how easy it is, you think, why did I wait so long?

So perhaps by suggesting the government could have some very user-friendly approach, embrace these small businesses somehow so that once they get their feet in the water, they'll realize they should have done it much sooner....

Mr. Bill Garbarino: Exactly.

Mr. Ian Murray: Okay, thanks.

The Chair: We're going to be having the bells in a few seconds here. I just wanted to ask a quick question.

You mentioned earlier that Canada had the right model and that the United States doesn't, yet the United States is ahead of us. So I'm a bit confused. How can they get ahead of us if we have the right model?

Mr. Bill Garbarino: Canadians generally have the right model. What's happened in the U.S. is the U.S. private sector has seized the opportunity much earlier than the Canadian private sector and it has owned the ground in the first few years of this particular battle. The Canadian government has the ability, though, to provide a uniform capability from an e-business perspective, whereas the U.S. government certainly hasn't approached that to date.

Dr. Gaylen Duncan: It can't, really.

The Chair: The U.S. government can't?

Dr. Gaylen Duncan: They can't develop the single corporate system, because there are so many independent pieces of the U.S. government and in the states. In Canada we have an ability. It's through cooperation. We only have ten provinces, three territories, and one federal government. With fourteen people we can have the CIOs of all the governments in the country sitting around the table.

The specific model I was mentioning was on privacy. The European model is a really heavy-handed interventionist directive on privacy. The U.S. said “Government, go away. Industry will develop their own standards for privacy and they will self-regulate.” Canada said “How about light-handed legislation and self-regulation, not with an interventionist commissar, but with an overseer who can actually listen to a complaint and state his opinion?” You can't force the change.

Even with the Civil Liberties Union, the U.S. is coming around to say “We don't trust industry. We want a light federal framework type of legislation, and then we'll let the industries self-regulate with some form of FCC overseer.”

So it was the policy model I was particularly referring to. But equally so, it was the government online model, as it was when the consultations finished in late September. That was the right model on the table. And what it looks like today, I don't know.

The Chair: So what do you think is the biggest problem or challenge facing the government today to get it back on track?

Mr. Bill Garbarino: It's the dilemma that was raised earlier around what the role of e-post is. You have to fundamentally address that. You have to decide whether e-post is going to be an extension of the crown corporation or whether it is going to be a private sector element to drive the secure channel.

The Chair: And that's holding us up?

Mr. Bill Garbarino: I believe so. You're probably in a better position to answer that question, but that's what we see from the outside.

Mr. Werner Schmidt: May I ask a question?

The Chair: Mr. Schmidt, you may ask a brief question. The bells haven't started yet.

Mr. Werner Schmidt: The question I have is on the speed of acceptance of this new idea. A suggestion was made that the traditional S-curve would apply here in terms of acceptance. I don't think that's right.

• 1715

Dr. Gaylen Duncan: I despised it.

Mr. Werner Schmidt: In fact, there's almost an impatience among consumers to get with it. If there is resistance, it is in the confidence that the system will do what we want it to do and that it will be secure. I think those are the two primary resisters. They're not the traditional resisters at all. This is a whole new world out there.

Mr. Bill Garbarino: I agree completely. The only reluctance of the customers we deal with every day online is whether or not we can provide a consistent, repeatable experience for them. It certainly isn't that they don't want to do this, or this is not an important transformation of the interactions they do with us.

The Chair: Mr. Jones wants to comment on that.

Mr. Jim Jones: I would conjecture that the reason there isn't really a wide-scale implementation is that you don't have the simplistic device for the home market to get onto the Internet. Right?

Mr. Werner Schmidt: Take the mystery out.

Mr. Jim Jones: You have to have a simple device, almost as simple and inexpensive as the telephone, to get on there. It's not there right now. As soon as that is there, then you guys should know, you're Bell....

Mr. Bill Garbarino: I do agree that there are a few barriers today. The biggest barrier is actually what we call “customer usability design”. It is building the intuitiveness into a self-serve channel or a self-serve application so it becomes very easy for customers to use the same process they used to do through a live intervention. We all are learning that in the industry, and that's a journey that's going to take some years before we move close to perfection.

As far as access to the right terminal devices to get—

Mr. Jim Jones: I said it has to be cheap.

Dr. Gaylen Duncan: That's a cop-out, Jim.

Mr. Jim Jones: No, it's not a cop-out. You have to go—

Dr. Gaylen Duncan: The U.S. market has the same priced product that we have.

Mr. Jim Jones: I said universal.

Dr. Gaylen Duncan: It has more expensive networking prices than we have, it has more difficulty getting to the sites that we get to, and yet they're ahead of us. What's the difference?

Mr. Jim Jones: You have to look at their tax policy.

Dr. Gaylen Duncan: I don't disagree with the part that says if we could—

Mr. Jim Jones: You have to look at how they look at it from a business case standpoint—how they can justify that if they do this they have to make a lot more money...and they're going to rule the world.

Dr. Gaylen Duncan: As the prices come down.... And they have been coming down. Every time I go to replace a computer I'm astonished at how much more power I'm buying for how much less. And it's getting easier to use.

That's still coming. The reality is that we're in the North American market, and we're basically the same people, but they have a lead on us. And we have to take it back.

That's my position. We have to tilt the field in Canada's favour and be better than the U.S. Then we'll have a sustainable economy that can support the social programs. And that's not a bad line to end on.

Mr. Jim Jones: Face it, Gaylen. You have to give a device that I don't have to load four gigabytes of software on to interact with.

Dr. Gaylen Duncan: Can we build a computer that turns on when you turn it on?

Mr. Jim Jones: You should be able to.

Dr. Gaylen Duncan: It doesn't. We sit there and watch it for five minutes.

The Chair: Okay, Mr. Jones, thank you.

I want to thank Mr. Duncan and Mr. Garbarino for being here this afternoon. I also want to thank them for coming earlier to accommodate our vote. We do appreciate your comments and we appreciate the discussion.

We look forward to helping Canada meet that next challenge.

The meeting is now adjourned.