Proceedings of the Subcommittee on
Communications
Issue 7 - Evidence
OTTAWA, Wednesday, June 17, 1998
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 4:30 p.m. to study Canada's international position in communications generally, including a review of the economic, social and cultural importance of communications for Canada.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: I would like to welcome Mr. Stein and Mrs. Roscoe. I would like to introduce my colleagues, who are with me today. Senators Lise Bacon, Janis Johnson, and Bill Rompkey will be joining us in a few minutes. We are really looking forward to hearing you. As you know, we continued the study on Canada's International Competitive Position in Communications specifically because we are now including the economic, social and cultural importance of communications in Canada in our review. We know that Shaw Communications has different recommendations on the issue, as well as a vast experience you can share with us. What you say will help our subcommittee make recommendations that are in the best interest of all Canadians.
Mr. Ken Stein, Senior Vice-President, Corporate and Regulatory Affairs, Shaw Communications Inc.: First of all, I would like to thank you, Madame Chairperson, and your colleagues for this opportunity. Although I am based in Toronto and Elizabeth is based in Ottawa, we are a Calgary-based company. We always like to make sure that everyone understands what we are trying to do.
Mike Ferris, who has just joined Shaw Communications, and who was previously with the CRTC, is also with us today. We have prepared a presentation and we will go quickly through that. The French-language version of this was not completely ready, but we will have it for you by early next week at the latest. We are sorry we were unable to have it here today.
We have a presentation outline, and I thought we could address issues based on the work you have done, which really makes a significant contribution to how we develop telecommunications, broadcasting, information or attain a policy in this country. I think Canada has generally had good broadcasting and telecommunication policies, which have helped us to be successful.
We would like to express our view of the changing regulatory environment. We will describe the competitive business strategy that Shaw has put in place to deal with the change in regulatory environment and the changing world environment, in terms of telecommunications and broadcasting. We will look at some of the trends, as we see them, in the communications industry overall, and the future challenges that we feel we will have to face.
In the first chart, we look at the regulated environment. This is the environment that we have grown up with in the broadcasting, cable and telecommunications business in Canada, and very much internationally. John Malone, chairman and head of TCI, said that the one common factor in telecommunications and broadcasting around the world is that it is regulated. It may be regulated in different ways, but it is all regulated.
Americans may feel that the Canadian approach to regulation is weird and silly and we may think the same of their approach, but we all have a process for regulating telecommunications. The reason for that is quite simple: it is an essential part of each nation, whether it is the BBC in Britain, the Deutsche Werke Telecommunications Systems in Germany, NHK in Japan or Canadian corporations like BCE or Shaw. We are an essential part of the communities we serve. I think that the public has a big interest in what we do, and we accept that.
Obviously, it is changing from this very much regulated environment, where everything was controlled. New entrants to the business were controlled; the suppliers' relationship was controlled; customers were essentially in a "this is what you get" kind of situation, and there were not many alternatives. But that environment was also successful for Canadians because we have built a successful Canadian broadcasting and production industry.
The success of firms like Atlantis and Alliance are very much being built on the ability to do that. It was interesting that, at the Banff Television Festival last week, an American was asked a question about children's programming, and said, "Actually, we look more to north of the border for that."
We are recognized internationally for our country's strength. At festivals like Banff, for example, it is evident when you see the number of people who come from around the world to find out what is going on and to talk about it in a Canadian situation.
In the next block diagram, we clearly see, as we move to a new competitive environment, that there are many new entrants that will come in an uncontrolled way. Many of us may remember the debate when CallNet first started offering wholesale services, and Bell Canada said that this was going to be the death of the telephone system in Canada. The CRTC was very concerned about its jurisdiction.
The Department of Communications wanted to see what they called an organized approach to competition, an orderly transition to competition. You never have an orderly transition to competition. Competition comes out of some small entrepreneur somewhere saying, "Get out of my way."
The new entrants, whether they are the Charles Sirois' or the Jim Shaws of the world, decided that we did not want to be constrained to the businesses we were in. We did not want to be known as paging or cable companies; we wanted to get into offering more choices.
The new entrants were very much entrepreneurs. Large corporations also became entrepreneurial; for just out of necessity to survive, they start to come out with new arrangements.
Financing is very important. We have spent the last year working very hard to line up more and better financing, and we have been successful at doing that. Financing and the ability to target, to pick an area of business that we really want to go at and excel at, is key to this.
People in telecommunications and broadcasting really do not expect less than the best service, especially Canadians. Wherever we may live, we feel that we are entitled to get the right choice and quality of services.
These new entrants come in with diverse suppliers: Internet suppliers, niche programmers, new audio services, like digital musical services, and new television services. Over the past four or five years, we have seen the creation of almost a whole new industry in Canada; a very Canadian and a very successful industry.
We have launched more television services in the past four years than we have launched in our entire history. We have a whole range of new entrants bringing in a whole range of new competition into the business.
Customers now have more choices with satellite dishes. We realize that is beginning. We feel that Canadian cable is hard to beat. Matthew and I used to have little debates about this. We feel that cable in Canada, because of the way it has developed and grown up, is able to offer the same level of services available to Americans at a much lower price. We are strong in that area. However, we recognize that competition is coming, particularly in the development of new services.
The key is, what our company calls, breaking out of the box. You cannot be known as a cable company, telephone company or broadcaster. The model we developed for ourselves is the next chart. Shaw Communications Inc. is a diversified entertainment, information and communications company. A key focus of our business is to "provide information and entertainment from people to people."
We have shown great success in Toronto and Calgary, including our small communities, in the markets that we serve. We have gone from being a cable company, to being a marketing company, to serving our customers, and we really get involved in the approach, in terms of programming, certain services and telecommunications.
We believe that one should not be limited or defined into one of those sectors, as there are significant changes in all areas. People will be looking for different licences. We just launched the Asian Television Network, ATN, and we have plans now to launch a service from Germany.
The capability to provide more choices to our customer is going to be more important to us. At this time, 70,000 digital boxes have been distributed throughout Canada. They have allowed us to deploy and facilitate new services, such as web television service -- the Worldgate trial.
In terms of the Internet service, Shaw Cable network is totally bi-directional and Shaw@Home offers a number of competitive features: superior speed through two-way, hybrid fibre coax; "Always-on" connection; and unlimited use and access. We are competitively priced.
We concluded that we needed to have a North American network and we had to add to that a Canadian component. People are going to be interested in high-speed training, so we try to help our Internet customers do this and also point them to Canadian sets. That is part of the content/direction service that we are trying to offer.
The final thing that I would like to talk about, before I hand this over to Elizabeth, is Star Choice. We have 54-per-cent ownership. Why is a cable company getting into a competitive business? For us, it was because we wanted to be leading experts in all technologies; we did not want to be just a cable company.
When we went to the commission the first time, they did not necessarily agree with that and they set out rigorous terms. Star Choice was to be a separate company and run totally separate.
In terms of DTH Satellite Service, as I mentioned earlier, there is a customer base of 70,000-plus across Canada in rural and urban areas. We distribute our package through 4,000 retail outlets, such as Sears and Canadian Tire, among others.
Star Choice Uplink Service provides satellite service to cable companies, because all the services we receive, whether in Ottawa or Calgary, are delivered by a satellite to cable head ends, which then redistribute those services.
Finally, we are also exploring business services, like video conferencing. Those kinds of services are quite important.
The next diagram shows that from one satellite, Anik E2, we are able to offer those services across Canada. At a certain point, we are going to have to look at international arrangements with respect to satellites. Our company thinks that we should look at using North American satellite capacity on a common basis between ourselves and the Americans, but only on the basis that our mutual laws apply.
In other words, a Canadian company offering services in Canada would be subject to the Broadcasting Act, so you could not have a U.S. company using a Canadian satellite to offer U.S. services under U.S. law into Canada. Unfortunately, the White House and the FCC did not agree with that point, so we still have not made a lot of progress. But I think we should be able to make yards with the Americans, if we take that kind of approach.
Finally, in terms of digital radio, we, as a company, even when radio was having its difficulties over the past few years, have always believed in radio. We have always felt that it was going through a transitory period. We love traffic jams, we love Toronto and we are making sure that they do not build any more freeways in Calgary in order to keep those people stuck in their cars listening to our radio stations.
We invested in digital music services in the United States and spent a lot of time getting licensed to do that in Canada and we finally succeeded. We think that there will be a lot of spin-offs. People love to listen while they do other things, and we think that radio can provide people with information, that this is a missed resource. People tend to think of radio as old technology. However, we tend to think that a lot more could be done, in terms of radio and the services that could be offered.
We would like to see someone in a car able to gain access to the Internet by audio. We see no reason why they should not be able to do that. That is one new area of opportunity where radio is important.
Finally, we have Shaw FiberLink, which is a competitive access provider. This is the business that Rogers has just merged with Metro-Net, which is based in Calgary. We are uncertain as to what exactly the implications of that are, but we are carrying on with business as usual.
We have advanced technologies. If you happen to be in Calgary, I think you would be impressed with the kind of facility we have built in the past year to provide advanced technologies and telecommunication services. We essentially provide those services to carriers, such as Microcell, Sprint and AT&T, to use our facilities in terms of the network and websites we have in our Calgary location. That business in Canada has become a phenomenally competitive business over the past number of years.
I have talked about a large portion of the distribution side; and Elizabeth will discuss the programming side for us.
Mrs. Elizabeth Roscoe, Vice-President, Government Relations, Shaw Communications Inc.: Many people describe this as the fun area. I know you are looking at this area in particular, and we will go fairly quickly because you will want to ask some questions, as well.
For your information, Shaw owns YTV and a newly launched service, TreeHouse, as well as Country Music Television. We have minority interests in the other services that are before you: Headline Sports, Telelatino and Comedy. We are waiting for CRTC approval on Headline Sports.
Those investments in programming are fairly recent; they only happened in the last number of years. We also, of course, do a lot of other things in terms of programming including priority carriage for conventional broadcasters. We carry all licensed Canadian, pay and specialist services. We undertake simultaneous substitution and also contribute significantly to the Canada Television Cable Production Fund, so our programming contribution is fairly well known.
In terms of the programming services environment, you would know that the commission has rules. I think that when the CRTC Chair appeared before you, she reviewed the access rules and undue preference rules which are in place. We see those as the cornerstone to then allowing cable investors to clear the way for investment. Their policies were very much set from the convergence policy.
We also see that the commission is looking for more Canadian content. We think that one of the areas we are focusing on, the children's gendre, gives us an opportunity domestically, as well as internationally, to introduce new production and programming services to viewers. We see this as the beginning of programming investment.
YTV, in our view, is one of the great Canadian success stories in the specialty world. We are not only seeing viewers who have grown up with YTV, but a whole new generation of viewers have come to TreeHouse, which is a pre-school channel totally dedicated to ages two to six. We see this whole genre as much more competitive, not only internationally with Disney and their entertainment products, but also domestically, with the launch of other new programming services, such as the Comedy Network and TeleToon, and you may be aware that the family channel has also increased its penetration significantly.
Besides programming, Shaw is actively involved in educational services. We are very much involved in "connectivity" and building learning communities. A number of our projects allow us to hook up schools and provide Internet access at the elementary and secondary levels, as well as help teachers to learn about the Internet as a teaching tool and really bring it into the classroom in a much more active way.
We actually provide some labs to teachers, and the high-speed network connection is in a number of secondary schools in the areas that we serve.
We are also providing a pilot project in Alberta, called "TV and Me," in partnership with Concerned Children's Advertisers. It is dedicated to media literacy. As well, we provide cable in the classroom, which allows us to download Canadian programming content and allows teachers to use cable as a teaching tool. We are a sponsor of the media awareness network, which I think the chair of the CRTC mentioned to you in her presentation.
Ken will now summarize.
Mr. Stein: In terms of industry developments, we are now getting to the points that are of major interest to you. Essentially, we think that all of the technologies we see developing are going to open up the market. In other words, the developing technologies will not re-entrench monopolies, they will do the opposite. People are using the current technologies, like copper wire.
The telephone companies are developing ADSL approaches and finding new techniques to offer higher-speed services in copper. We also have MMDS and LMCS, which are being developed and are now being licensed in Canada. They will provide other means for people to get video, audio and other ways of getting information.
Satellite services, of course, really raise issues with respect to open skies and their management. Finally, there is a range of services that people are looking at in terms of the PC, Internet and web television.
The Internet example is particularly dramatic. In our sales days, we found a very unique way of marketing the Internet services. We now find people from the U.S. coming up to Calgary to find out how we sell stuff like this. We have examples where our subscription rates are more than 100 per cent. There will be 100 people at a demonstration and we will get 120 orders for the service. The biggest obstacle that we generally encounter is people who do not have home computers signing up for services. They will say, "I do not have this" or "I have an old 286" or "I do not have this type of capability."
We feel that a lot of initiative now is directed at looking at a different way of providing the Internet service with a television provider. We feel that if we are able to break that hurdle, subscription rates will really take off. The technologies will open up markets and access to new services, we believe.
It is our opinion that communication companies are just bursting out of the box: Global with Fireworks; the BCE with Bay Networks investment; all of BCE with ExpressVu and Telesat; Shaw with the range of things we are going at. Everyone feels that they cannot just be in one line of the business anymore. You really have to focus on your customer and how you provide that product to them.
That then means that the old alliances will be overtaken by new approaches. Telus fired a shot at Stentor. They always get mad at me for calling it a cartel, but the old telephone cartel in this country took a shock when Telus said that it was in discussion with AT&T.
The alliances are going to change. Matthew and I were talking earlier about certain differences that we have in the cable industry, which are not always publicly apparent. We all have our differences within our industries and we are all looking for new kinds of partnerships.
Finally, we, as a company, believe that integration is the key to growth and to international competitiveness. You cannot just be a distributor. Combining content and distribution will be the key to the future.
We do not like to pretend that we are up against Disney, but we are in a sense. We are producing children's products and that is also very much their focus, so we are competing against them.
The kind of integration that Disney or TCI has between media and cable is the kind of integration that BCE is looking for. As Jean Montey said, they each have a very clear focus on what they are trying to do, but are using different ways to go about it.
The spin-offs from being integrated, in terms of being able to offer new digital services, we think will be even more powerful over the next number of years. We do not know what the next years are going to bring in terms of new products or new services, we just have to be prepared when someone comes up with an idea to launch that idea.
Three years ago, when we sat down and started talking about the Internet, we were talking about a customer base of commercial clients. Today, we are selling 300 a day, which for our company is just a phenomenal number. In terms of the competitive challenge, we see a number of things. First of all, how we manage the system, how we manage the content integration question, will be key to the future. It is a key regulatory issue, but that issue has to be managed and dealt with to everyone's benefit.
The home connection will be key; what people have in their home, how they connect to the system, and the kind of products that are developed for that. Maybe people will not need a full-blown computer in order to get Internet access. It will be increasingly important to enable people to get to the websites where they want to go.
The rapid pace of change is another feature of this industry. If you read something from a year ago, it has changed already. The pace of change is quite dramatic, and I have been directly in this business, or around the edges of it, for the last 30 years. The pace never slows down; it always keeps moving and changing, which makes it exciting and challenging.
Policy stability is important because if you are playing in a high paced game, you do not want the rules changed after the first period. There is a tendency to change things. The Americans did this in the mid-1990s when they changed all the telecommunications rules. A year later, they realized that the rules did not work, and so they changed them again.
As a result, I think that Canada has done a better job. The commission, the Minister of Industry and the Minister of Heritage have done a better job in terms of trying to create a more stable policy environment. The American one has become a bit unstable. That policy stability is really quite crucial.
In terms of the future issues, from a business point of view, the first and most important is the whole issue of financing. We have to invest $1,000 per customer up front, whether it is for a satellite or for a cable customer. This is a huge investment for us, and it can be difficult to raise capital, for there are few incentives to invest in digital in this country. Mr. Manley says that we do not spend enough money on research and development. We respond that 5 per cent of our money goes toward programming contributions. If we were able to take that 5 per cent and spend a portion of it on multimedia development, for example, that could make a significant contribution to this country.
The need for regulatory flexibility is really important. Regulation is important. We do not see it going away because we have Canadian-content objectives. But leaving us to do it a certain way for a few years and seeing what happens is a better technique than always being at our sides.
On the subject of the culture-technology balance, I know that the Fowler commission a long time ago said that, "Content is everything and everything else is housekeeping." The film industry in this country is the best example of how wrong that statement is. We do not control the distribution system, and I think that has a lot to do with the fact that our film industry is not as successful as our television production industry.
In television, we control the distribution system. We have invested in it; we have the best distribution system in the world, and it shows in terms of the fact that we are able to launch new Canadian services all the time. I think we always have to make sure that we get that balance correct in terms of culture and technology.
Finally on DBS/DTH, it is really going to be essential to look at new arrangements, because there is going to be competition. At a certain point, you see one entity competing with another, like we see Star Choice competing with Cancom. Now, Star Choice and Cancom are probably going to try to get together to compete against Bell. These things change around quite a bit.
In our view, this government, I think supported by all parties, have seen a lot of support for a radically different approach. My final conclusion is that the consumers are pushing for change and that they do not want to wait for two years or whatever. They want to see the new services today. That concludes our presentation. I hope it was complete.
The Chairman: Mr. Stein, Mrs. Roscoe, it was a very interesting presentation.
Senator Rompkey: It seems to me that this committee will be in business for a long time. We just might keep sitting here. Maybe we should sit in Calgary, where we are going to be sitting somewhere or other. It is hard enough to keep legislation up with technology anyway, but if the change is going to be even more rapid, it will be very difficult. You might want to make some comments on what you would like to see, in terms of policy.
I suppose that that is a pretty broad statement, in view of the fact that change in technology will be so rapid and that it is so difficult for the legislative process to move.
You say that the rules should not be changed between periods. We are not rule makers, of course. We are more like Don Cherry, but that is our role.
I wanted to ask you about the education services in particular, and I want you to tell me a bit more about how that works. Is it just cherry picking by the educators? Do you simply put stuff on line and they say that they would like to use that for a certain reason? Or is there any interactivity in it? If so, are there curriculum considerations?
This is a provincial responsibility; is there any interaction with the province in that regard? I think that it is underutilized in many parts of the country, and I am interested to know how it works in your area.
Ms Roscoe: We are working on a very interesting project in Calgary called the University of Calgary Collaborative Project. We have been able to hook up, through the University of Calgary, Internet sites. Teachers come in and are able to work with a computer. The Internet connection is done through a high-speed fibre network. We have worked with the university to make the connection.
The university brought in trainers to work on the multimedia content. It can then go into a curriculum, perhaps a kindergarten topic or project or an Internet site for children.
As you know, young children adapt to computers and use a whole series of curriculums from K through to 12.
The idea behind that whole project is that it can to be launched on a website so that teachers across Canada can use it whenever they want. The funds of Shaw, the university and some other partners actually put that project together. We are involved in about three or four other projects right now.
The fellow who works out of our Calgary office is in meetings with educators and municipalities and the Ministry of Education almost on a daily basis to move these educational projects ahead.
We have found that the teachers themselves are learning more about the technology and what they can do to bring the curriculum into an easy format that children would be interested in and can learn from, that is not static and that is interactive. We are learning along with the teachers.
Senator Rompkey: This is still experimental, is it?
Ms Roscoe: I would say that it is developmental. Experimental means that you are not sure about the technology.
Senator Rompkey: No finished product has actually been in the schools.
Ms Roscoe: Not yet. The one that I am speaking of has been in the development stages for two years. We are in the second year of that project.
Senator Rompkey: What technology would a school need in order to make use of the development?
Ms Roscoe: From Shaw's perspective, we are providing the high-speed FiberLink Network connection that allows them to gain access to the Internet at a very quick speed. They do not have to wait for any downloading of information. I am not sure what level of computers they would be using, but I would imagine that it would be at least a 486.
Senator Rompkey: Is this project confined to Alberta?
Ms Roscoe: The project I am speaking about now is. We are about to launch a project in the York region, just outside of Richmond Hill, hopefully in the fall. The completion of that network is scheduled for the beginning of the school year in September, and is connecting 70 elementary and secondary schools, in which they would be able to have a dedicated network for that whole district. They would be able to share on-line teaching curricula and administrative costs, videoconferences, all sorts of things in that one region. Actually, I think it is a groundbreaking Internet connection in Ontario.
Mr. Stein: In terms of the technologies that are there, as Elizabeth indicated, they are very developmental. A range of different people work together. You also have to be conscious that children have different capabilities in the home as well, in terms of their ability to gain access, so to cater to the 20 per cent or 25 per cent of the population that have computers at home, which is where our focus is, is not exactly where their focus is.
We have adjusted now to focusing on the schools, on developing aids to help teachers in the classroom. It is a matter of time and resources. The technologies are there, but an investment may be required to train teachers about how best to do this.
You get a different range with children who are very keen. There is quite a range in children's capabilities, depending on their exposure to computers in the home environment.
Senator Rompkey: Do you feel, as a corporation, that you have some responsibility to education, and if so, how do you exercise that responsibility?
Mr. Stein: Our commitment is to provide that service to every school in the regions that we serve.
Senator Rompkey: Suppose that people cannot access it because they do not have the technology, for one reason or another, or the computer. In this country, schools are publicly funded. Education funding is shrinking, yet we have this explosion. How does the average parent, the average student in the average school, take advantage of new developments if the schools are constrained by diminishing funds? If government is cutting back, are you motivated? It seems to me that it is in your long-term interest. You are creating a clientele.
Mr. Stein: As Elizabeth indicated, this is a new beginning. First of all, we take this responsibility very seriously because we have invested in children. We have a program called "The Shaw Children's Program Initiative," or "Skippy," which we have invested in for the past five or six years. This is focused on developing children's programming, which has made a significant difference. Education was a natural evolution from that.
Our first forays into it were not really right because the education environment is a complicated one. It is equally complicated on the technology side. You have a whole range of different players and ways to go at it. We have picked particular projects and, at this point, the people who are involved make the difference. We have not seen barriers in terms of government funding.
We have worked very closely with Premier Klein because he has taken a particular interest in this and because we are based in Calgary. However, as Elizabeth indicated, we are now looking at Ontario and next at British Columbia, in terms of doing other things in that area.
We are trying to build a foundation, and as we build that foundation, it will become an explosion. That is why we are big supporters of cable in the classroom. We are freeing up copyright on video, finding relevant television and video information for people, and then showing them how to use the Internet. We are emphasizing computer use in the school, to even out the abilities of children. They may not all be able to afford a computer in the home, so at least we can provide it in a public school system. That is now where we are focusing our efforts. To answer your question, as a company, we feel responsible about this matter.
Senator Bacon: Canadians are being offered more and more telecommunication services, local multipoint communication systems, Internet, digital satellite TV and digital video compression. Your company offers some of those services. Is the Canadian market important enough that all these services can prosper? Do we know approximately how much the Canadian consumer is ready to spend on telecommunication services? Is it enough to sustain a large number of players in the telecommunications business?
Mr. Stein: People's demands in this area seem to be quite significant. People spend money on this type of product.
I noticed that, a few weeks ago, a study showed that Canadian kids are becoming less physically fit because they are spending too much time inside, playing video games and surfing the Internet. I have two little kids, aged three and one-and-a-half years old, and the youngest is already proficient with the mouse. It is kind of astounding.
We have not done a top-end estimate on this, but we found great price sensitivity. I will give you an example. We launched our Internet service at $55 a month. We had a huge problem marketing it, so we did a market survey that indicated that most people were paying around $30 or in that range. Even though our system was 10 to 100 times faster, they did not see it as being worth twice the value. We reduced it to $39 and now we cannot meet the demand.
In terms of your other question about the number of companies, we have concluded that we are dealing with a world-based phenomenon, whether it is Seagram's buying PolyGram or the Time-Warner integration. Americans have done a very good job of taking their services around the world as well, whether it is Rupert Murdoch or Time-Warner. They are very much focusing on the world. How do you, as a Canadian player, participate in that? I think alliances are going to be important. We will have Canadian companies, but they will have to follow international strategies and develop particular niches or techniques. I do not think that the Canadian market itself is going to be sufficient for them.
I think Canadians have a real capability in this area. They will be able to play a role, but it will also be to their advantage to form alliances with other organizations.
Senator Bacon: I think that Canada's big-city mayors are thinking of charging the cable and telephone companies rent for the use of public roads and rights of way to string their cables. This is done in the United States. What could be the impact of such a policy on the industry?
Mr. Stein: It would be horrible. First, we do not have a problem paying costs. We do not believe that there should be a rent associated with it and we do not think that, constitutionally, they have a right to demand a rent for access to rights of way. We fully recognize that we should cover the municipality's costs in terms of tearing up the roads or using municipal facilities.
When you go beyond the cost, you are really talking about a tax, which we do not like. We recognize the fiscal pressures that are on municipalities, but we do not think that subscribers would be interested in paying more money that just goes to the benefit of the municipality, not to their own benefit.
Second, the U.S. pole rates, for example, are significantly less than they are in Canada. U.S. cable companies come under FCC jurisdiction, which sets the rate a lot lower than in Canada. When you compare Canada and the U.S., studies show that we pay a lot more.
Third, telecommunications and cable companies suffer from a degree of over-regulation that really precludes them from developing new services. In the U.S., for example, cable companies are municipally regulated, so they have to cater to municipal governments. We would never have developed the strong Canadian cable industry that we have if we had been subject to municipal regulations. We recognize a good thing when we see it, and federal regulation is a good thing. It benefits our consumers.
Canadian cable customers pay a lot less than U.S. cable subscribers because we have one federal regulatory approach, whereas they have a hodgepodge of regulation in the United States. They always have to make deals with the local municipal government and they have to make payments and all kinds of arrangements. We do not have to do that and I think it has been to the benefit of the Canadian broadcasting system. So, we are not very enamoured of what the federation is trying to propose.
Senator Bacon: We are investing much money, maybe too much money, on new technologies.
Mr. Stein: We can never invest too much.
Senator Bacon: Are we already at the point where the vast majority of the population is happy with the number of channels that it has, and does not see the point of paying extra money for new specialized channels?
Mr. Stein: Well, to quote Ted Turner, "I am never content with my content." Shaw has just been extremely successful with the launch of the new tier. We launched a tier of 12 services, eight of which are Canadian.
Senator Bacon: I was told that the response was not overwhelming.
Mr. Stein: For us, it has been overwhelming. We have had tremendous success. One of the reasons for it is that we, over the past two years, changed our cable company from a management-operations company to a marketing company. Our general managers are now driven by market incentives, not by operational incentives. That has been a significant shift in our company and we have been successful at selling the new tier.
We would like to see more digital services. More specialized services available on a customer select basis would be appropriate. With most of the services that get launched today, the companies feel that they need at least 3 million subscribers right off the top. But people launch all types of products with a few thousand subscribers. Why can you not launch something with a few tens-of-thousand subscribers, whether it be a chess channel or something else? We would see that happening on a digital basis. If it does not happen on the television side, it is already happening on the Internet side.
The American Health Network just sponsored a live birth the other day. They got 10-million subscribers to watch a birth. It is not something that I would actually totally support.
Senator Bacon:It is supposed to be private.
Mr. Stein: That is my view, exactly. People just seem to want more and more opportunities for new information all the time.
Ms Roscoe: The Asian Television Network, ATN, is an example. We have just launched it digitally in Calgary. They were not going to have a channel placement on an analog basis, but they do on our digital package. They are very happy that they are launched and have close to 1,000 subscribers in Calgary today.
Senator Johnson: I found your presentation to be excellent. When you were talking about how to manage the system, you made several key comments. One was that we have done a better job in Canada than in the U.S. in trying to create a stable policy environment. What can we continue to do to maintain this in the future?
Mr. Stein: From the government and the CRTC point of view, I think we have to be clear and open about what we are trying to achieve. For example, if the government wanted to do more to support Canadian content, it would be useful to have a full discussion with the industry. They should present their proposals and then ask the industry to comment on them, so that they do not just come out of the blue at us.
Senator Rompkey asked this question, as well. The most important thing is that we are asked what we would recommend in terms of policy changes. I think that the key recommendation would be to remove the regulatory hurdles for crossing the line. We found a huge resistance in moving out the cable business into the satellite business. To the same extent that the cable business has been successful in Canada, the satellite business has been a dismal failure. The cable business and television industries are probably examples of good policy making. The satellite business is probably an example of bad policy making because there were so many restrictions and restraints. When we said, for example, that we thought that this was an important business, that we want to get into it, everyone said that we could not get into it, that we should be precluded because we were too strong in other areas.
The fact that we were the only ones that knew how to run the satellite business, that we had been doing things related to it for years, was irrelevant. It is almost like the only people who are able to get licences are people who have no experience. I think we have seen the impact of that. When we wanted to get into programming, we were asked why a cable company wants to get into programming. There are all sorts of conflicts.
You do not go to your banker to get a loan without recognizing that he has all the money. That is why you go there in the first place. It seems to me that going to a cable company to find out about programming or to encourage new program investment or satellite services would be a logical thing.
Senator Johnson: Speaking of satellite services, the majority of Canadians, or course, are in the grey market, subscribing to services in the United States. Do you think that we will be able to reclaim these subscribers? What lessons can we draw from the development of the grey market in Canada? Should changes be made to the regulations governing Canadian providers in satellite service? We went through the whole satellite issue here in our committee, as well.
Mr. Stein: Yes, we have an expert.
Senator Johnson: We have an expert here. What do you think?
Mr. Stein:I think it will be hard to get them back. We find a tremendous resistance, even with our incentive programs. We now have two good players in the market, Star Choice and ExpressVu, both of whom have their own kinds of strengths and capabilities. Over the next year, we will be in a better position to see how successful they are at this. We find that the problem for both of those companies is all the regulatory obligations, in terms of the simultaneous substitution and deletion of programs, et cetera, which are there to protect broadcasters. But at the same time, we then lose out to the grey-market people, who do not have those obligations.
We have not figured out how to solve that problem because most satellite customers would prefer to have the grey-market dish, with all the U.S. and Canadian services. They would like to have the combo; that has always been the Canadian way.
The Canadian magic was that we were always able to offer Canadians a range of television services from the U.S., even microwaving them into Edmonton. We were able to solve the issues. In Winnipeg, we solved the KCND problem by turning it into CKND. That is the kind of approach that we have to be able to take. In the satellite business, we still have our heads in the sand a bit on that.
Senator Johnson: I am curious to know what your plans are in terms of digital. You said that there are few incentives to invest digitally. Rogers has announced that it will not be going digital in the foreseeable future. What are your plans, and will it make a difference to you that Rogers is not going digital? You will be filling this void.
Mr. Stein: We are totally committed to digital. There used to be a program where we could add our investments and capital expenditures into our basic rate for all subscribers. That incentive was removed. It remains to be seen what other means we have to convince people that we need some support for that investment. Our U.S. colleagues have incentives to roll out digital, which is part of their regulatory structure.
Senator Johnson: So we need that then.
Mr. Stein: Yes. I do not think that Canada would want to find out in three years that the U.S. has a digital television, that they are going to launch digital broadcasting services.
Senator Johnson: Digital is the way we are all going. It is inevitable. So why is Rogers not doing it, for example? What is the attitude there that I do not understand?
Mr. Stein: I cannot answer for Rogers.
Senator Johnson: Surely, in this whole industry, everyone knows that this is what is going to happen, that we will be going this way, right?
Mr. Stein: I think that is clear. I think Rogers believes that it is going to happen.
Senator Johnson: It is just a matter of cost, is it?
Mr. Stein: Different companies have different strategies for how we are going to get there.
Senator Johnson: I was in Florida, at my brother's, at Christmas. I couldn't get over what a little box they had, and the screen. The whole world is there in front of you. It is kind of scary.
Mr. Stein: Now, at Shaw, we are ahead of Florida, but in two years' time, Canada will be behind Florida. That will be the first time ever. Canada has generally been the leader in broadband distribution capability, and I fear that, at the moment, we are going to lose that. Mr. Rogers made a very good point. He said that there was no business incentive for him to do this. He said that it was fine with him if a subscriber wanted to buy a digital box, but that he was not going to provide it.
The Chairman: Thank you, colleagues and thank you to the Shaw team. We appreciate it. If our researchers have additional questions, we will not hesitate to communicate with you. I am told that you have the annual report.
Ms Roscoe: We do.
The committee adjourned.