Proceedings of the Subcommittee on
Communications
Issue 8 - Evidence - October 21, 1998
OTTAWA, Wednesday, October 21, 1998
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:35 p.m. to study Canada's international competitive 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 welcome our witnesses from the Canadian Association of Internet Providers. Please proceed.
Ms Margo Langford, Internet Policy, IBM Canada, and Chair, CAIP: Honourable senators, I am pleased to introduce my team here today. They are some of my most favourite and esteemed colleagues.
Mr. John Nemanic is one of the industry's most successful entrepreneurs, having harnessed his MBA training to create a unique service that you will hear about today. He has both a new media software enterprise and a fast-growing Internet access service, Internet Direct. Mr. Tim Denton, his consultant and lawyer, will be speaking on his behalf. Mr. Denton's experience is in the CRTC and telecommunications.
Mr. Wayne MacLaurin used his engineering degree and experience at Nortel to launch an Ottawa-based Internet services company that is now the largest independent ISP in the National Capital Region.
My background is more eclectic, ranging from broadcasting to politics, trade law to an entertainment practice, which led me into the Internet as counsel to iSTAR. I joined IBM this year when iSTAR was sold. I have been chair of CAIP for about 18 months. It has been a very challenging period.
I am pleased to present some material with my introductory remarks. A colleague of mine from IBM appeared before you some months ago, and today we want to stress new changes and new information. The Internet, and the world in which we work, is evolving very quickly.
We are here today to talk about networks and the Internet. This is a 24-hour-a-day, seven-day-a-week, every-day-of-the-year service. This is about being competitive and levelling the playing field.
Our message is that we are connecting millions of people in every corner of the universe. Today we all face dynamic changes -- shorter cycle times, increased competition for skills, lots of new players, mergers, acquisitions and rapid advances in technology. The explosive growth in the use of networks to conduct business is blowing open global markets, tearing down barriers to trade, transcending time, and fundamentally raising the bar on the meaning of customer service.
Today I will try to put what is happening in context and specifically cover three areas -- what is happening in technology, business and the net, and the opportunity available to Canadians.
Let us start with information technology, as it is clearly the defining force today. It fuels economic growth. It is changing the way we create wealth and sustain social development. It has the power to sweep away traditional market-places and geographic boundaries. It impacts the way we work, the decisions we make about the way our businesses are structured, and the way we approach the market.
With the raw technology that we have in our research labs today, accelerated technological advances can be predicted well into the next century. We will see greatly increased growth across the board, from hardware to software to telecommunications. For example, the advances in microprocessor performance and decreases in price will continue, with power doubling every 18 months and price dropping by 50 per cent every two years.
To put this in perspective, consider that in the mid-1970s the first supercomputers were capable of 100 million calculations per second and they cost about $1 million. Today, the laptop computers students carry in their backpacks are twice as fast as those supercomputers and cost less than a few thousand dollars.
The trend in data storage is just as impressive. Today we have the ability to store a bit of information in an individual atom. This technology will allow us to store the entire contents of the Library of Parliament on a disk the size of a dime.
Even more impressive is the powerful explosion that we will see in band-width capacity. In fact, it will increase orders of magnitude faster than the rise we have seen in microprocessor speeds due to the adoption of fibre optics. In 1988 a single fibreoptic cable could transmit 45 million bits per second. According to AT&T, by the year 2000 we can expect that number to reach 1 trillion bits per second; in other words, the simultaneous transmission of 200 million faxes or 660,000 video conferences per second. It is this advancement in bandwidth that will dramatically change the way in which we communicate and share information, and there is no end in sight. Microprocessors, storage communications, memory and other engines propelling our industry will continue to get faster, smaller, and less expensive as they have for the last 30 years.
We are actually entering into a world where this technology is becoming ubiquitous. The printing press did not mean much when it was primarily used by a small group of nuns. Electricity did not have massive appeal when you needed your own generating plant. None of the great technologies changed the world until they became widespread. The real impact for all of us is that we will now have access to the information we want, in the form we want it, through the device we want to use, whenever and wherever we need it.
That brings me to my second point: business and the net. One thing is clear, the convergence of telecommunication and computing technology is changing the way we work, receive government services, educate our children, and entertain ourselves. Twelve months ago, in the speeches I gave, I talked about 50 million people connected to the Internet. Today that number is somewhere in the range of 100 million. By the early part of the 21st century, estimates put that number close to 1 billion. As this new connected world becomes a reality, it is opening the door to an endless spectrum of exciting new possibilities. Today's connected millions are looking to the Web to organize what they do today more efficiently, more conveniently, more cost effectively, whether it is banking, purchasing airline tickets or gaining access to information. The next video puts into perspective the impact the Internet is having on our everyday lives.
(Video played)
Ms Langford: I am from a generation that would have called the 1-800 number and would have been desperate enough to wait while being put on hold, no matter how long it took. Today's generation is not that patient. For them, technology is a natural, and their first choice is to go where they will get the quickest response, and in this case it is the Internet. For adults, the transition has not been quite as smooth. Either way, we cannot ignore the fact that the Internet has come to play an important role in all aspects of our lives.
Many of our job applicants have their own Web sites. In fact, at IBM, we receive more than 60 per cent of all job applications on line. Our children use the Internet to connect to libraries and museums around the globe and to communicate with their friends. The elderly are discovering the Internet as a way to connect to the world, to track their investments on line, book vacations and e-mail their great-grandchildren. Medical doctors in large centres can consult in real time with their colleagues in small towns hundreds of miles away, sharing ultrasound images, x-rays, and test results.
When the Explorer landed on Mars, the millions connected to the Internet were able to download real-time photos from Mars at the exact same time they were available at the Jet Propulsion Lab. For the citizens in northern communities, like Rankin Inlet, the Internet provides them with a link to the outside world in a way never before possible. I could go on. There are examples all around us.
Even in the last two years since we have been discussing this issue, the Internet has changed dramatically. By far, business predominates on the net. What we want you to consider in the context of this presentation is that the cultural aspects and new media are one small part of how the net is used. For example, Canadian banks offer home banking via telephone, PC and the Internet. Canadian Tire is moving beyond its traditional link to large suppliers, creating an Internet-based supply chain to its nearly 2,000 suppliers of all sizes. Librairie Garneau, the largest francophone book chain from Quebec, is carving itself a place among virtual bookstores, making more than 250,000 books available to the world through a simple click. Athabasca University delivers 100 per cent of its courses by what is called "distance learning," capturing some 30 per cent of all executive MBA students in Canada.
Thousands of companies have already proven that using the Internet has helped them to grow revenue, reduce costs, improve quality, decrease time to market, manage the supply chain and enter new markets.
Let me share with you a few more examples.
General Electric bought $1 billion worth of supplies via the net last year. That saved the company 20 per cent on materials. British Petroleum uses a high-tech Internet to share the expertise of a small group of roustabouts skilled in repairing gas compressors. UPS estimates that by serving customers over the Internet, the company saves $200,000 a day.
The possibilities are endless. The technology to make this happen is here today, and it is happening.
That brings me to my third point: opportunities for Canadians. As Canadians, we are well-positioned to take on a new leadership role in the development and use of the Internet. The groundwork is in place. We are one of the most connected nations on earth, leading the G7 in penetration of various technologies. Access to consumers is inexpensive. We have a powerful economic base of entrepreneurs and so on.
However, the great potential and promise for all of us, both socially and economically, is not inevitable and very well may be at risk. It rides on a fundamental dependency which is not, as you might expect, on technology but on policy. The network world that is taking shape around us is a global phenomenon and by its very nature transcends national and international boundaries.
As you can imagine, it has governments around the world sitting up and taking notice, focusing on a wide range of public policy issues. However, if each national government acts independently, the result will be dozens or even hundreds of different inconsistent rules and regulations applied to a single Internet service or Web site. It could also result in confusion, uncertainty and slower growth of the digital economy.
The CRTC launched a public hearing to determine if it should regulate the net. As you can imagine, this is a very complex issue because it is hard to think about the Internet in the simplistic context of one single form of content. As I mentioned, it is about more than content, and we have to think about reducing the costs of company overhead, improving time to market, being able to work from home, increasing productivity, selling goods and services, promoting teamwork and all the other benefits of the net in context of the cultural argument. The risk of a successful attempt by the CRTC to regulate and tax content on the Internet is that businesses connected to the Internet could be hit by rising costs and burdensome rules that place Canadians at a competitive disadvantage.
We all know what these other issues are and we take them seriously in order to expand this medium. These are: security, privacy, trust, consumer protection, intellectual property protection, internet taxation, ubiquitous access, pornography, bandwidth, and so on. These are important issues and they are being actively dealt with now. I cannot speak about this at length today except to say that real action is being taken. These issues can be resolved; and they can be resolved without regulation. We cannot let these issues become barriers if the true potential of the network is to be realized.
The biggest mistake that governments can make is to react too quickly, and too independently, to regulate the net.
If the promises of the Internet and global e-commerce are to be fulfilled, policies and practices must be industry driven and market led. We cannot do it alone.
On that note, I will defer to my two esteemed colleagues who can give you more information on the subject of regulation.
Mr. Timothy Denton, Legal Counsel, Internet Direct: Honourable senators, I will be speaking on behalf of Mr. John Nemanic. I have a background in telecommunications regulation, Internet issues, the CRTC and government. I have studied these issues from many different perspectives.
I shall make three points today and I shall keep them simple: the Internet cannot be regulated technically; the Internet should not be regulated politically; and the Internet is already fully subject to the rule of law.
I shall address the third point first. This speech, your speech, when you pick up a telephone, when you write a letter, all these forms of communication are extensively subject to rules concerning libel, slander, some Criminal Code offences and many other kinds of rules. However, none of these rules amounts to a requirement for prior permission from the state to write, print, preach, pray or speak.
It is important to understand that when people communicate under the normal rules, whether by telephone, computer or newspapers, they are not subject to a general requirement that they obtain permission from the government first; that they communicate under licence from the state. Yet, all these transactions of speech and printing are governed by a rule of law. However, the rule of law is different from regulation.
The rule of law is that, as long as you obey that law, you need not seek the permission of anyone to do what you are going to do. If you stay within the speed limit, you are within the rule of law, and you never need the permission of anyone to continue at that speed.
Regulation in the form of the Broadcasting Act requires that you obtain a licence from government. If you do not hold such a licence, you are subject to penalties of up to $500,000 per day or something suitably astronomic. When we speak of regulation, let us be clear that we are talking about economic or cultural regulation, but just because something is not a regulated activity does not mean that it is not fully subject to the rule of law.
I will now turn to my first point. The Internet cannot be regulated technically. The Internet was designed as a fail-safe system to secure communications in case of a Soviet nuclear attack. It was designed to deal with the eventuality that there might not be cities in the middle of the transmission path. It was designed so that, unlike phone signals and broadcasting, a great deal of intelligence is embedded in the signal. Rather like a driver in a car, the signal points toward the target saying, "Where is this person?" The system answers, "That person is over here."
By embedding intelligence in the signal, the signal can reach its destination outside the control of phone companies or those who would control the switching.
The Internet was also designed so it had no internal control points. It is emphatically not like a telephone system where there is a maintenance of quality and assurance of reliability. The Internet works on a best-effort basis. If a signal is lost, then certain protocols take care of the fact that the signal will be re-sent.
There is no particular control point monitoring. The system does not know about traffic on the system. It is engineered in a fundamentally different way from the phone network.
Every Internet service provider, ISP, could be down tomorrow and Canadian access to the Internet would immediately be achieved by taking a long distance line and phoning a server in the United States. This could be achieved for the price of renting service space in the United States. With a 15-minute phone call, every Web site in Canada could be transferred to a foreign country. Of course, it would cause some inconvenience.
There is no control point inside the system and attempting to control the ISP is not a feasible prospect as long as you have a working telephone system.
With the Internet we are dealing with a group of software protocols which are, simply, rules for the exchange of information among and between machines. Once this grammar for machines was invented, there was no stopping it.
A second related reason why there is no particular technical reason you can control the Internet is that there is no scarcity that gives value to the licence.
In the case of broadcasting, a licence has an economic value because, if you occupy a frequency no one else can occupy it and have a usable frequency. However, every day they are pouring 100,000 kilometres of optical fibres on this planet and every one of those is capable of carrying signals. Therefore, my use of the system does not prevent anyone else from using the system. There is no point in licensing it, because the licence awards no economic value.
These aspects of the Internet have already been examined by United States Supreme Court in the case brought under the Communications Decency Act called the American Civil Liberties Union v. Reno. The United States Supreme Court specifically examined whether the Internet was broadcasting and they decided, since it was not scarce, that communication on it was cheap and for all the reasons that I have cited and a few more, that it was not broadcasting.
As to whether the Internet should be regulated politically, we come back the same point: that communication may be subject to the rule of law, but we do not seek prior permission to speak. The idea that it might be regulated in the Broadcasting Act would mean that every computer, every printer, every portion of the apparatus, would be subject to government licensing. Our current Broadcasting Act works in such a fashion that, if any portion is captured, then the whole system is captured.
It seems to me very unlikely that such a step would be held to be constitutional. However, apart from its constitutionality, one would want to think carefully about whether this is remotely politically desirable.
The Chairman: Thank you for a most interesting presentation. One of our challenges relates to the fact that our committee has heard conflicting testimony about regulation -- the appropriateness of it, the feasibility of it, and the technological possibility of it.
Witnesses from the Canadian Council of the Arts appeared before us and indicated that, in Canada, one normally has access to the Internet through telephone, cable and satellite, and, they asked: If all of those are regulated industries, what is the great mystery of extending a regulatory regime to deal with the treatment of intellectual property rights? The issue of property rights was their main concern.
They also told us that those who say that regulation is impossible have not been thinking hard enough about it, that this is not a complicated situation.
If the CRTC were to impose regulations on Internet service providers, such as your members, what kind of measures would be practicable and what measures would be difficult to enforce?
Ms Langford: I have been front and centre on a case before the copyright board on this very issue. It is not, perhaps, as black and white as either side may paint it.
If licences for intellectual property are to be granted, the question is more about where is the proper locus for that to happen. We suggest that the Web site and the content creator are the appropriate bodies to obtain those licences and, if they have not obtained it, they are the proper party or parties to be pursued in court or otherwise.
To in any way involve the ISP is to take a completely different model that is not the model that has been chosen around the world and would create inequity in terms of trying to conduct commerce in Canada versus elsewhere.
Web site licences would absolutely be required for intellectual property. It cannot be used without permission to do so. It becomes complex when you figure out how to do that on a global basis with global collectives, because access is available worldwide if you create a site in Canada. There are many issues to be worked out from the creator's side, but obviously intellectual property must be licensed. We would agree with the creators on that point.
Mr. Denton: Copyright licensing is a matter of contract in statute law, which is different from broadcasting regulation.
The Chairman: The members of the committee are aware that there are two different bodies.
Senator Spivak: We are constantly confronted with the dazzling changes concerning the Internet and the technology underlying it. I hope it makes us smarter and that the benefits are distributed equitably.
What is your view of Internet service providers paying a certain percentage of gross revenues to fund multimedia content? Cable companies and other distribution services currently contribute to funding.
Mr. Wayne MacLaurin, President, Cyberus Online (Ottawa), and Former Member of the CAIP Board: That is an interesting question. To be quite blunt, our viewpoint is that this is a global economy. If they cannot fend for themselves, I am not sure why I, as a businessman, should support them. My business is not subsidized by anyone. I am not sure why their business should be. Generally, these funds and monetary gains are used by what we consider to be large corporations such as the CBC, or by technology funds.
The Internet, for the first time, has allowed publication by individuals at a very low cost. I am not sure any 12-year-old at home has the wherewithal to file the paperwork, let alone afford the lawyers to apply for these grants. Until that infrastructure is in place, I would be opposed to putting more money into the big businesses I have to compete with on a daily basis.
Senator Spivak: Apart from the technical difficulties, you see no value in supporting a cultural context in Canada. Other countries do this. It is not necessarily a material benefit, but other benefits result from protecting a culture.
Mr. MacLaurin: Yes.
Senator Spivak: You are saying that is not important to you.
Mr. MacLaurin: That certainly is important. I am just not sure whether we, as Canadians, require yet another tax to fund this. Frankly, most of us already pay a great deal in taxes for various things at various levels of government. Picking a new industry or targeting an industry made up primarily of small businesses that may or may not be able to afford the wherewithal to avoid certain amounts of compensation to the government would result in a great inequity with respect to who is actually paying that money.
Mr. John Nemanic, President, Internet Direct, and Member of the CAIP Board: The key issue is that the barriers to entry are very low for creating content. If you have a $1,000 computer, you can get a shareware program to help you publish. You can purchase an Internet account for $9.90 per month. This gives you Web space, and you can then create your own content and become your own publisher. A lot of teenagers, artists and people involved in the so-called "new media" are doing this. In that sense, I do not think subsidies are required because the costs of promoting one's material and developing content are very low.
Ms Langford: Many members of our association do draw attention to the cultural sites as part of their job. They do promote Canadian culture. However, all content created by Canadians, regardless of whether it is multimedia or otherwise, is Canadian culture. All conversation by Canadians is a form of Canadian culture.
We have created a lot of culture. Why not put it up? Our position as an association, as ISPs, is that it is our job to make sure that access works in this country, that we give the access to as many regions as possible, and that we make it affordable to all Canadians. They should all have the opportunity to put their culture and content on the Internet.
Senator Bacon: I see that your industry is totally opposed to the idea of the federal government proposing legislation to regulate the Internet. Some argue that any form of regulation could be harmful to the development of the industry. Have you done any serious studies that confirm that allegation?
My home province of Quebec is the only province in Canada with privacy legislation that covers online information. Have you gathered information to convince us that your industry, because of this legislation, is worse off in Quebec than in the rest of Canada?
Ms Langford: It is interesting that you raise the privacy issue. As an association, we have arrived at our own view of privacy. We strongly believe that privacy is essential online to protect and attract consumers. You have raised an important issue because the federal government has now decided to regulate this area. We could probably live with their regulation because we matched our code to their law.
My understanding, however, is that there has been very little enforcement of the privacy legislation in Quebec. Some big companies have complied, but many smaller companies have ignored it. There has been no penalty imposed. There is no guarantee that any law that is passed will have a positive impact. The fact is that the law must be enforced. The question in both cases, federally and provincially, is: How will they enforce it? Will they create offices across Canada, or will people have to be hauled in front of the privacy commissioner in Ottawa and endure an expensive two-year legal process?
Senator Bacon: Is this the main problem for your industry?
Ms Langford: Many ISPs are four-man shops. How can a small four-man shop in B.C. respond to a complaint on privacy which might have come from a competitor? Again, human rights commissions and similar entities are set up with good intentions, but unfortunately their execution is miserable. The copyright board is supposed to have an expedited procedure, yet, we have been before it for two years at a cost of $500,000. It is not working. We think that creating our own and keeping vigilance from an industry perspective will be far more successful. It may not give you comfort, but it certainly gives us comfort.
The Chairman: I am sorry we do not have time for more questions and answers, but we have other witnesses to hear from and our members have other committee meetings to attend today. We do, however, have additional questions. I will read them for the record. The committee members would appreciate it if you could answer them through our clerk.
The cable industry is often described as the gatekeeper for the television industry. Do you think that ISPs are the new gatekeepers of the web?
We understand that your small companies have had difficult relations with the big telephone companies who provide them with telecom services so they can do business. Phone companies are now competing with smaller companies by getting into the business. Do you predict consolidation of the ISP business under the control of large phone companies or other big companies? Will this consolidation be North American in scope?
We know we may be asking you to look into a crystal ball, but we would like to have your perceptions of what the future holds in terms of industrial and business consolidations.
It appears our next witnesses have been delayed, colleagues. However, we have some business we deal with while we await their arrival.
Senator Spivak: I move that, notwithstanding the decision of the subcommittee not to hold a meeting without a representative of each party present, the evidence received on October 7, 1998 be printed, and that the meeting form part of the proceedings of the subcommittee.
The Chairman: Is it agreed?
Hon. Senators: Agreed.
Senator Bacon: As a point of information, does this pertain only to our own subcommittee rules?
Senator Maheu: On the Social Affairs Committee, one senator can hear a witness, as long as the evidence is recorded.
Senator Bacon: It would be unfair to the witness if we did not allow this.
The Chairman: What happened, as you probably know, was that it was impossible for Senator Spivak to be in two places at one time. The witnesses came forward and I was alone. We would like the testimony that was heard that day to form part of the official record and that was the reason for the motion.
Mr. Patrice, is this rule only applicable to this committee or does it apply to all committees?
Mr. Michel Patrice, Clerk of the Committee: It is applicable to this committee, without quorum.
The Chairman: Thank you. Senator Johnson wanted to raise a matter regarding the fact-finding mission.
Senator Johnson: When will we be receiving an itinerary?
Mr. Patrice: Presently it is being developed in discussion with the embassy. As soon as it is confirmed and more information is available, we will contact your office.
Senator Bacon: We should not cancel it again. That would do our reputation outside Canada no good whatsoever. Our embassy staff and the people we were to meet with were not very happy when we cancelled our trip.
The Chairman: When will the itinerary be sent to our colleagues?
Mr. Patrice: I could send a draft itinerary by the end of this week, but it would be incomplete. By the end of next week, we should have it.
Senator Johnson: Why does it take so long?
Mr. Patrice: Because we will be meeting with important people and we must address their commitments.
The Chairman: Colleagues, our next witnesses have been delayed. Perhaps we should reschedule their appearance.
The committee adjourned.