Proceedings of the Subcommittee on
Communications

Issue 2 - Evidence, May 15, 2000

The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 5:12 p.m. to examine the policy issues for the 21st century in communications technology, its consequence, competition and the outcome for consumers.

Senator Marie-P. Poulin (Chairman) in the Chair.

[English]

The Chairman: Senators, before welcoming our guests at a round table, the committee has two small administrative matters to deal with.

First, as you know, a first budget was submitted to Internal Economy by the Chair of the Standing Senate Committee on Transport and Communications. That budget was discussed with that committee, and we were allotted one third of that budget. Tomorrow morning, as your Chair of the special study, I am to appear before Internal Economy with a revised budget. I have taken the liberty of resizing our budget and lowering it.

I would need a motion that we approve this budget and that I appear, representing this committee, before Internal Economy tomorrow morning.

Senator Finestone: I remember that I moved the budget the last time. This one is significantly lower. Is it possible to accomplish the set goals?

The Chairman: Yes. As you know, since that budget, we have revised our framework. We have focused that framework and have shortened our critical time path. We have tightened it horizontally and vertically, to adjust to this much lower budget.

Senator Finestone: Very well. I will move it.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: Second, colleagues, I sit on the Banking Committee, which is chaired by Senator Kolber. I have been informed that that committee is undertaking a fact-finding mission. That mission will feature round-table discussions with various intervenors from the United States. That mission will focus mainly on e-commerce and trade. It will be very interesting. It will take place in Chicago at the end of May.

The committee will be meeting with various people from a range of companies. An example of that would be the directors of local high-tech associations and government leaders. There are also state officials and venture-capitalist companies being met. I thought that it would be appropriate that someone from our committee be there.

I am a member of the Banking Committee, but I am not going on the trip. I spoke to the Chair of the Banking Committee, and they have accepted that our senior researcher be part of the trip. He could go and collect evidence for us.

Senator Spivak: I so move, Madam Chair.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: That completes the housekeeping matters. If no one else wishes to bring forward anything on housekeeping matters, we shall we move to our witnesses.

I should like to welcome, in a very special way as our first round table, today's witnesses. They represent different government agencies and private agencies and know a lot about the subject that we are studying -- competition, convergence and consumers.

I should like to invite Industry Canada to lead off with a presentation.

Mr. Richard Simpson, Director General, Electronic Commerce Task Force, Industry Canada: Madam Chair, the Electronic Commerce Task Force a little more than two years ago was established to examine this subject of electronic commerce and to propose Canada's strategies for the development of electronic commerce. It is a great pressure to be here today to talk to you about that subject.

I would like to make some general remarks about how we view electronic commerce and the Canadian economy. I will then speak specifically about our initiatives in this area, and specifically one that deals with Canada's framework legislation addressing personal privacy.

I have provided a copy of some slides, to give you an outline of some of the information that I will be presenting.

First, just to establish the context for electronic commerce in our minds, this creature called electronic commerce is really just one part, a small product, of a much broader range of technological and market forces that are shaping the modern economy. Some of these are apparent to us every day from reading the newspaper. They are such things as globalization of markets and trade and a very rapid convergence of technologies, industries, and markets taking place literally across the globe. These factors are being driven by the growth of the Internet and are being fuelled by the deployment of information and communications technologies right across economies and societies.

In our view, electronic commerce embodies the forces of globalization and the shift to a knowledge-based economy. It is also the realization of something that we have talked about for a number of years, that is, the information highway revolution. It is really the economic manifestation of the information highway, in terms of the dollars and cents of the business world.

The diagram at page 2 is meant to show how this is producing a huge difference in the way in which business is conducted and the way in which industries develop. Business processes now take place hundreds of times faster and much more cheaply than ever before.

The graphic at the bottom of that page attempts to show how that which we have essentially relied upon in the past, which is a linear, spatial type of economy based on the physical distribution of tangible goods, is now changing into a much more dynamic, matrix-based economy, which is being driven by the deployment of electronic supply chains all the way through the modern economy.

The slides on page 3 summarize the role that we believe the federal government needs to play in electronic commerce. That role is to create the most favourable legal and policy environment for electronic commerce and to make Canada the preferred location to conduct electronic commerce, in order to promote the transformation of Canadian businesses as well as to attract investment from around the world.

We have created that policy and legal environment through a number of initiatives, and they have looked at a number of fundamental requirements for electronic commerce, which are outlined at the bottom of that page. First, and possibly foremost, is to build a high level of confidence in digital markets. That is very much the principle behind a number of initiatives that we have taken, which I will mention in a moment, relating to consumer protection and the protection of personal information.

A number of steps have been taken, with others underway, with respect to clarifying marketplace rules for electronic marketplaces in areas like taxation, intellectual property policies, and so on.

Since strengthening information infrastructure is the platform on which electronic commerce takes place, it is clearly a prerequisite for effective electronic commerce to take place in Canada. I am sure that you will hear more about that from Mr. Bjerring.

The final point is the need to ensure that the benefits of electronic commerce are deployed throughout Canadian society, within the economy but also for social, civic and cultural development purposes.

At the top of page 4 is, in very brief summary fashion, an outline of the initiatives that have been taken to create what we believe is a world-leading e-commerce policy environment in Canada. I would be prepared to address each of those areas in some detail with the committee if you wish, but I will just comment on two or three of those on the right side of the diagram.

The first is consumer protection, since that is a special interest of this committee. The Minister of Industry released a set of consumer protection guidelines for the electronic marketplace in November of last year. That set of guidelines was developed jointly by industry, consumer representatives, and governments. Those guidelines are meant to ensure a high level of confidence in business transactions taking place through electronic commerce.

In the area of privacy, perhaps the cornerstone of this policy environment that I mentioned was the passage a month ago of Bill C-6. Part 1 of that act provides framework legislation for the protection of personal information. Parts 2 to 5 provide a basis for the legal recognition and utilization of electronic signatures, electronic records, and electronic evidence within the federal jurisdiction.

As I said, Part 1 of the Personal Information Protection and Electronic Documents Act is designed to protect personal information that is collected, used, or disclosed by organizations in the course of commercial activities. It also contains a set of fair information practices, provides for oversight by the federal Privacy Commissioner, and provides individual Canadians with redress to the Federal Court of Canada in the case of complaints.

That act is a very important component of the electronic commerce strategy because of the unique challenges for individual privacy that is posed by the growth of the Internet and information networks generally. You can see on page 5 a number of the characteristics that are now prevalent because of the use of the Internet, characteristics that pose new challenges for the protection of personal information, and where the new act has been able to address those.

Another key characteristic of the environment for personal information with the growth of the Internet is that, essentially, the issue is borderless in nature because of the way in which the Internet operates across national and provincial boundaries. We have here a slide that shows an outline of some of the initiatives that have been taken in other jurisdictions, specifically the European Union directive, which has been in force since October 1998 and which contains a number of provisions with respect to third-party protection of personal information. This has been a subject of negotiations between the European Union and the United States for a number of months.

The final slide outlines the priorities for implementation of that act. We will be taking a number of steps with regard to developing regulations to ensure effective implementation of the provisions of Part 1 of the act. Exceptions will be developed in the regulations dealing with publicly available information and certain other technical matters that will be dealt with in the regulations.

A second important follow-up activity will be harmonization internationally with the European Union and other states that have privacy legislation in place and, secondly, with provincial jurisdictions.

Finally, there will be a campaign of public education and information that will be conducted by both Industry Canada and the Office of the Privacy Commissioner. Industry Canada will concentrate on providing education and advice to the business community with respect to their compliance with the new act. The Office of the Privacy Commissioner will be very much involved in public information with respect to the rights of citizens under the new legislation.

That is very quick overview of electronic commerce and also some information on the act. I will be pleased to participate in the discussion to come.

Mr. Doug Hull, Director General, Information Highway Applications Branch, Industry Canada: I will be referring to the presentation entitled "Building a Global, Knowledge-Based Economy/Society for the 21st Century."

This deck provides a framework in terms of the information highway policies and programs of the federal government. Canada has a very different strategy from other countries with regard to the information highway. It is moving toward digital inclusion, or Internet inclusion, whereas some other countries are suffering from digital divide.

We have had a program in place based on the Information Highway Advisory Committee report of some years ago that has taken Canada down this course.

The first page of the deck reiterates the Speech from the Throne commitment that a knowledge-based economy is one where the advantage goes to countries that adopt innovation, promote global opportunities, develop high skills in the workforce, and orient themselves towards productivity. These are the key factors determining the standards of living in a global, knowledge-based society. The Internet, because of its power, is a very important part of achieving those aims.

Canada faces a number of important trends. On page 2, you can see a number of these. You are probably aware of them. Globalization, with the dropping of trade barriers, means that Canada is competing day to day in the world in terms of its overall competitiveness based on innovation. The shift is going to the knowledge workers. As we look at employment patterns over the last 10 years, fully all two million jobs, more or less, net created in the Canadian economy have gone towards the knowledge-worker portion, those with high levels of education in Canadian society. In fact, we suffered a net loss of employment in the areas where only high school graduation or less than high school graduation was required.

Information technology is shaping markets and businesses. Basically, the cost of transmission of information is dropping through the floor, and as it does so it is opening new markets. Firms are now able to compete in the global marketplace, but at the same time, global firms are able to compete in every marketplace in Canada. Therefore, day to day you are in competition.

Standards of living are driven by productivity. We do not have the numbers here, but it is very dramatic to see the direct correlation between productivity of labour, particularly, and standards of living in Canada.

Finally, with regard to innovation, if we are not an innovative economy, if we are not moving forward with new products and services on the global marketplace, our ability to stay at the top of the competitiveness curve is dramatically reduced.

The government's overall innovation model and framework is depicted in the next slide, which shows the different quadrants in which work is being done. The information highway piece is connected on the Connectedness agenda, which is in the top left-hand corner.

There are six main pillars to this Connectedness strategy. I will not go through them all. In part, my colleagues have done so and will do so. I will just briefly touch on what they are.

Moving Canada on-line involves the question of how we get Canadian institutions -- colleges, universities, schools, hospitals, and other major elements of Canadian society and communities -- on-line as quickly as possible. Government is a major key component of that issue, but there are other chunks as well that need to be brought on-line. We have programs like SchoolNet and LibraryNet, as well as other programs. CANARIE itself brings universities and colleges on-line quickly.

Another key element is Smart Communities. How do we lead with our communities on the international scene? Many countries are competing with their large, multinational corporations. Canada does not have very many large national corporations, but we have a large number of communities that know how to adopt information technology quickly and know how to adapt that technology to their social needs. Combining our communities and our large firms, we can actually differentiate ourselves in the local market, in the global marketplace, to attract more attention to what Canada is doing and what it has to offer.

With regard to Canadian content on-line, the Internet is a vast sea of information. If we are not present with things uniquely Canadian, we will be lost, in the final analysis, in a sea of largely American content. It is very important that we bring on cultural institutions and other community groups, et cetera, to make sure that their information is electronically available.

I will not talk about electronic commerce. Mr. Simpson talked about the government's policy in that area.

We are moving to bring all federal government departments on-line with their program information by the year 2004. We are also working with provincial governments and municipal governments to so the same thing. This is a very important area of Canadian activity. Canadians are heavily engaged with their governments. If they can use that powerful information, such as from Statistics Canada, to further their business and individual interests, their ability to compete internationally will dramatically improve.

Finally, Canada connected to the world really tries to convey that Canada is seen as a different form of use of the information highway. We are not trying to be the biggest investors in the technology but, rather, the smartest users of the technology. Other countries that, similarly, do not have large amounts of money to throw at anything these days are looking for that kind of technology of use. That is what we have to share with the world.

The next slide shows how connectedness feeds into life-long learning, which then contributes to a stronger economy, a healthier society, and a more dynamic culture. It provides a fundamental foundation upon which to build out into the country those things we are very good at. We are very good at high-powered information products and services. Connectedness and the Internet really play to our strengths in many areas.

Some of the government programs in the on-line area are worth noting. I want to put some of those in perspective for you. CA*net 3 is the high-speed backbone network. Andy Bjerring is the president of CANARIE and the champion of that endeavour across the country. That is providing the fundamental high-speed information highway that everyone is trying to link to. As we build this out, we are not only empowering all those different parts of the pillar but also supporting Canadian industry and its development of new products and reaching the world with those new products.

Last week, the government announced 12 new Smart Communities across the country, out of a field, I believe, of 129. These are the communities that will lead the country in the use of information technology. It did not talk about selecting communities based on the infrastructure that they had but, more important, selected them on the basis of their ability to use information technology to change their social, economic, and even cultural prospects. We did not look at their wealth. We looked at their ingenuity, which is the key to that whole exercise.

The Community Access Program is very important. In fact, it is one of the cornerstones of the government's Connectedness agenda. We know that many Canadians will not be connected to the information highway for some time to come if they are left to their own ability to have a computer and an Internet account.

We have established public access points all across the country. We started in rural Canada, where the need was greatest. We have 4,500 of these sites now established. Many of them are in schools and libraries. They are in a lot of other places as well. People can drop in, use the Internet, and find support. It may be a student working in the site or a neighbour who can bring them on-line and show them how to connect with government, educational information or community information of all sorts across the country.

They are very successful. Large numbers of people use them. We are in the process now of driving these public access points into the urban parts of the country, in the 85 communities of over 50,000 people.

With regard to SchoolNet and LibraryNet, we are amongst the first countries in the world -- in fact, we probably were the first country in the world -- to connect our schools and libraries to the information highway. This was done by March, 1998. It was a very significant national endeavour with communities, ministries of education across the country and school boards, et cetera, lending a common cause and making that achievement possible.

We are now in the process of moving multimedia access into every classroom of the country, which will be a very important infrastructure for Canadian schools. We are recycling computers through the Computers for Schools Program. Fully 200,000 computers have already been recycled in partnership with Canadian industry, the telephone pioneers and other partners, toward the goal of 250,000 by the end of this coming fiscal year. We are ahead of schedule there.

We are linking volunteer organizations. There are 200,000 volunteer organizations across Canada. They have enormous holdings of valuable information on just about anything that you care to name, from environmental information to health care to sports and recreation. Many of these organizations are not at present on the Internet. If we can put them onto the Internet quickly, they can share that information with Canadians more readily. They can use the Internet for fundraising and volunteer purposes. We are moving 10,000 of these organizations on-line by the end of this next fiscal year. We have about 4,000 on-line now.

At this time, I will not go into any details on "access.ca." It is too complicated for today.

Senator Finestone: You said it is too complicated for today. I would be careful when you say that.

Mr. Hull: I will go back then.

Senator Finestone: You do not have to. It was just an aside remark.

Mr. Hull: Canadians are looking for a simple interface to the information highway. As the Internet gets bigger and bigger, and as new users come on-line, they cannot really find their way to community-based information. We are in the process of putting together very simple software that all Canadians can use to find information in their local community. That is "access.ca."

We are moving digital collections on-line. In many cases, we are using young Canadians who are unemployed. They go into cultural institutions in all parts of the country and they digitize, use their creative energies to move Canada on-line through important cultural collections. This is a very important program. We have posted about 380 collections to date on-line.

NGR/Campus Worklink is a powerful software to link young graduates from universities in Canada to the information highway and the on-line labour market.

In summary, Canada is one of the most connected nations in the world. We measure ourselves day to day but we are among the top three or four in the world.

We do not spend the most money on getting connected, but we are using the right combination of money and ingenuity to do so. By all accounts from other countries, we are one of, if not the, leading example of a very positive, well-thought-out public/private partnership to get Canada on-line and to get any country in the world.

The United States uses mainly a private-sector-driven model. Canada's strength is in its public/private-sector partnership approach.

These numbers show the trends. Canadians are moving on-line quickly. It is becoming a powerful tool to find information from government, community and the e-commerce areas. The rest of the deck repeats the details from the first three or four pages.

[Translation]

Mr. Gault, Director, Science, Innovation and Information technology: I would like to take this opportunity to share with you the results of our surveys and other activities at Statistics Canada.

You have a copy of my presentation, "Connecting Canadians: Surveys and Findings," as well as the yellow pamphlet. The pamphlet outlines my division's program and is pertinent to the committee's own work.

[English]

Given the objectives of the committee, I will speak to you about the use of Internet by households and by businesses, about electronic commerce and about the concern with security and privacy.

Some key points are access to the Internet by Canadians, the convergence of technologies, and the means of access to the Internet. At the end, I will offer a tentative definition of Internet commerce, which is a work in progress at the OECD.

Internet use by households or by business is an important statistic. It tells us how many households are using the Internet as part of their day-to-day activities and who are ready, therefore, to participate in the benefits of the electronic age -- to buy, to sell, to learn, to teach, to be entertained, and to participate in the process of government, given that we will be the most connected government in the world by the year 2004.

In 1998, more than one third of households in Canada were regular users of the Internet from a variety of access points -- place of work, home or schools. This information is brought to you from our Household Internet Use Survey. We have many household surveys at Statistics Canada. Another one will tell you that about one quarter of households use the Internet from home. That result appears on page 9 of the blue pamphlet, "Canada at a Glance," which provides some additional and interesting information.

The Household Internet Use Survey also tells us that the users of the Internet are young, well educated, affluent and in an urban environment. If we look at geography, these users are more likely to be in Alberta, British Columbia or Ontario than in other provinces. There is quite a geographical distribution.

There are more details on the results from the household Internet survey from 1998 in the two papers that have been provided to you. The "Canadian social trends" article is the most accessible paper and the best place to start. The more detailed paper is called, "Getting connected or staying unplugged: the growing use of computer communication services."

Within a week, we are planning to release the data for the 1999 Household Internet Use Survey. The committee will be provided with the most up-to-date information the moment we have it.

One of the uses of the Internet is the purchase of goods and services. This activity we term "electronic commerce." In 1998, we asked about purchasing on the Internet and we found that 3 per cent of households were making purchases. That figure will grow.

Because of the interest in electronic commerce, especially in the policy department, we added to our 1999 survey a module on electronic commerce. This will collect more data on the value of orders and the types of products purchased. That information on electronic commerce I would hope to release in July. Again, it will be provided to the committee the moment it appears.

To respond to interest in issues of privacy and security, we posed questions to households about their willingness to use a credit card to make purchases on the Net. If you are willing to give up your credit card number to someone over the Internet, it indicates a level of comfort with the process.

We also asked people about their concerns in respect of privacy and security. In July, we would hope to provide the committee with data on these concerns, coming from the Household Internet Use Survey.

The questionnaire is in fact on our Web site, should the committee or its support staff wish to review it in the interim. The Web site address is in the yellow pamphlet.

We see the Internet then as a social enabler. The significant economic activity, in respect of the Internet, however, is electronic commerce and electronic commerce between businesses, what is termed "B to B" as opposed to business to consumer, or "B to C."

In addition to the Household Internet Use Survey, there is our 1999 survey of information/communication technologies and electronic commerce. This is out of the field and is being analyzed now. The planned release date is June. It identifies the use of information/communication technologies by businesses and by public institutions. The use of ICTs is an indicator of Internet readiness, and the use of the Internet for electronic business activities like marketing, inventory control or product information are also important indicators of business activity in addition to electronic commerce. We also identify in that survey the existence of a Web presence of the firm, so we can see the firms that are moving onto the Web for whatever purpose.

When it comes to electronic commerce, this survey measures the selling and the buying on the Internet, and also takes volume measures, the dollars flowing. It is a new survey on a new subject, and we are learning as we go. However, we hope, as I said, to release good information on electronic commerce next month for the use of this committee and for all Canadians.

As with the household survey, we collect data on the concerns of businesses that do not use the Internet for electronic commerce. Some of these concerns are listed in slide 8. I would highlight the concern with the potential for fraud, security concerns, a customer base that is not ready to use the Internet and uncertainty in the business about domestic or foreign laws. We should be able to provide you with information on that.

To this point, we have spoken about the use of the Internet. I would like to spend a moment on how one gets onto the Internet. There are three surveys listed in slide 9, and all of them deal with industries that make access to the Internet possible, starting with the Internet service providers, or the ISPs.

The second survey, the annual return for broadcasting distribution licensees, you may interpret as a survey of cable providers -- which is a simpler way of describing the activity.

Finally, there are the telecommunications companies, the telephone companies, if you wish, which sell broadband capacity to retail service providers. They provide a wholesaling activity.

We are watching all of these industries very carefully, as we are at a point, as honourable senators are well aware, where cable firms can provide telephony as well as Internet access, where telephone companies can provide cable services as well as Internet access. There are then the Internet service providers themselves. Information on all of these activities is coming, and particularly we should be able to tell you about the Internet activities of cable companies by the end of next month.

With all this material, there is concern about how we in Canada compare with other countries. There is a major effort at the OECD to bring clarity to these issues, led by my colleague Mr. Richard Simpson, with some involvement from Statistics Canada. The OECD has a key role to play in providing definitions and guidelines for the collection of data and their comparison internationally.

On slide 10, I provide you with a definition of Internet transactions that we hope will survive until the end of this month and then be released by the OECD. This came out of a recent day session of the OECD. That is an overview of our statistical activities.

Thank you for the opportunity to address honourable senators and to assure members here that we will support the work of the committee as its deliberations proceed.

Dr. Andrew Bjerring, President and Chief Executive Officer, CANARIE Inc.: Honourable senators, I am pleased to have this opportunity to address some of the issues that are in your terms of reference that are of great concern to CANARIE.

In order to focus my comments, I have chosen one issue in particular to address, although many of the issues already raised by my colleagues are of great interest to CANARIE, as well.

Perhaps the best way to introduce the single issue that I should like to speak to, which is a question of infrastructure for broadband Internet access, is to address the context that is in my first slide; that is, we do see high-bandwidth or broadband networks as being a fundamental economic and social enabler for the 21st century, not just in this country, but in countries around the world. We see these information highways as being the 21st century equivalent of the canals, roads and railway that were built in the 19th and 20th centuries. It is for that reason that I would like to speak directly to issues of broadband network infrastructure. Before doing so, however, I should like to go through quickly some background on CANARIE so that you see some context for my remarks.

CANARIE was created in 1993. It is a not-for-profit organization. It is an initiative that had its origins in collaboration involving industry, academia and government, led by Industry Canada.

We currently have a 26-member board, half from the private sector and half from universities and other public-sector organizations. Over the last seven years, and extending into the next three or four years, we will have received a total of $250 million in contributions from Industry Canada toward a wide range of activities.

The key program areas, as indicated on the next slide, include the creation of CA*net 3, Canada's research and learning network. It is the most advanced research and learning network in the world. It is the fastest and it is using the most recent, up-to-date technology available.

We are also focussing on e-learning, or life-long learning using networks, and e-commerce. Since 1993, we have supported approximately 200 technology development projects that have involved many private-sector organizations as well. Virtually all of our activities have been undertaken in collaboration with private-sector and public-sector institutions. In fact, we have worked in our various projects with over 500 organizations of one sort or another.

Other activities that CANARIE has been involved in are listed on the next slide. Among all of those, the one that I would draw to your attention is under Internet governance. You may have been reading in the paper occasionally reference to the ".ca" domain. This is the top-level domain for companies, individuals and organizations that choose to have in their Web site address an indication that they are Canadian and from Canada. The Industry Canada Web site is "ic.gc.ca;" that is, "ic", for Industry Canada ".gc", for Government of Canada, ".ca." The organization that is responsible for the allocation of those domain names is the Canadian Internet Registration Authority, and CANARIE is working as the manager for CIRA in setting up that process.

I shall now turn to the applications that we think are driving the need for the development of the broadband network infrastructure. We have mentioned telelearning as one. Telehelp is certainly one of the applications. Whether it has shown up on Statistics Canada surveys or not, it is certainly the dominant application that many Canadians are interested in. Government services, as Mr. Hull indicated, has been a great concern to this government and to the provincial governments across the country, as well as e-business or e-commerce, as indicated by Mr. Simpson, and entertainment. These are the driving applications for high-bandwidth broadband networks of the future.

The question, then, is: What is the benefit from accelerating the development of networks to provide services of this sort? We think there are several, and we have listed them on this slide. Early adoption of these applications by the customers is of value, when those customers find that there is value to them in having these applications.

Certainly, early development of the services on the part of schools, universities, colleges, libraries and the businesses that provide them is an important development for the country. In this regard, Mr. Hull used the term "digital inclusion" or "Internet inclusion." It is important that we address some of the challenges in this country as quickly as possible to prevent the development of digital divides and so that they do not get out of hand.

Early development of innovative services, businesses, early migration of traditional businesses to e-commerce, enhancing Canada's reputation as an innovator and leader and showcasing Canadian technology are all very important benefits that we see being derived from the early development of broadband networks and their adoption by Canadian citizens and businesses.

All of this was by way of background to introducing a set of terms that will take a little bit of explaining. Fibre optics is the best starting point. We see fibre optics as being the ideal transmission medium- for high-bandwidth networks. Few homes today have fibre optic cabling running into the home. Many businesses, especially in large urban centres, do; and they take advantage of this. Within many organizations, however, it is increasingly the dominant networking infrastructure of choice for very high-bandwidth networks within the organization. Carriers are using fibre optics for the very high-capacity components of their network but so far have not been able to present a business case for installing fibre optics all the way to the home. It is that issue that I will be addressing here.

Fibre optic networks are the option of choice partly because the capacity of these networks is virtually unlimited. In a single ribbon of fibre optics, which is not much bigger than the size of your thumb, you could have almost 1,000 individual fibres. Each individual fibre can be driven with up to 1,000 separate wavelengths of laser light. Each of those wavelengths of laser light has the capacity to handle billions of bits per second in transmission capacity. Thus, in a cable not bigger than your thumb, you have virtually unlimited transmission capacity.

As well, it is independent of the technology, the electronics, that you attach to the various ends. Therefore, in that sense, it is technology-neutral. Lest we forget, satellite and wireless will play a very important role as well, but they will not be doing so alone. They will be doing so alongside fibre optics in areas where that matters.

What is a dark fibre network or a dark fibre project? On the next slide, I have given two definitions that I think are relevant. The first is that dark fibre is fibre that has not yet been attached to the electronics that in fact lighted up with laser light. It is simply the base fibre cabling. It has no electronics or lasers. The second is that the services offered by traditional carriers have tended to be bundled services, where access to the infrastructure and the use of the service that the carriers are providing are bundled into a single product. They are very reluctant to provide access to their fibre infrastructure separately from the services that are offered. That is a very important point to bear in mind.

What has been happening recently -- meaning in the last year or so -- and is accelerating across the world is the installation of fibre optic cabling exclusively for the use of organizations, such as school boards, municipalities, power utilities, and so forth. There are also innovative condominium arrangements where fibre optic cabling is being installed by combinations of those organizations; and they are sharing access to that in innovative ways.

Municipalities and senior governments in other countries are investing, and considering investing very heavily, in projects to provide a single public infrastructure to be used by businesses and by individual consumers to provide services. This is a new form of public infrastructure. It is a breakthrough for many of the countries, municipalities and other governments that are looking at projects of this sort. It is for that reason I thought it important to raise this issue with the committee.

I should now like to refer to projects of this sort that have been undertaken recently. One half of the school boards in Quebec are creating their own networks. Spokane is undertaking a major project with their school boards. Sudbury is doing the same thing. Universities in Quebec, Alberta and British Columbia are developing their own fibre networks to connect them. In Ottawa, there is an initiative that involves the research labs CRC and NRC, but also CANARIE, schools, hospitals, and some private-sector participants in a condominium fibre project.

In terms of municipalities, Stockholm has a city-wide dark fibre project underway, as do Palo Alto, California and Canberra, Australia. Washington State has recently passed a set of regulations concerning the development of networks of this sort by municipalities within the state. Sweden is considering a bill that will allocate approximately $10 billion U.S. to a country-wide initiative linking every home and business in the country to a public fibre optic infrastructure countrywide. Norway is considering a similar initiative.

The basic drivers lying behind these various projects are, first, the declining cost of optical fibre and the associated electronics that light it; second, the growing demand for high-bandwidth network services; and, third, the desire for increasing customer control over network technology as opposed to carrier control.

In sum, in terms of dark fibre networks, the development of new networking technologies and the increasing primacy of the Internet are undermining the traditional carriers' approach of bundling infrastructure and services and are leading to a new era of customer-controlled communications infrastructure. To a certain extent, we have to acknowledge that what we have seen in countries and cities around the world could be a flash in the pan. However, it could be the beginning of a major trend that fundamentally alters both the industry as well as the use of broadband networks.

In terms of government actions, a possible scenario is outlined on the slide at which you are now looking. We have seen many municipalities take step one. They start to look at their own internal needs, linking their offices and facilities across the city. They then begin to realize that there are other institutions within the city boundary that are doing exactly the same thing for their own purposes and that it only makes sense to collaborate with them. We have recently made presentations to a committee of the City of Toronto and, subsequently, to the Chief Administrative Officer. We are going back in June to make a presentation to city council as a whole. They are seriously examining an initiative of this sort. Clearly, it needs more study for a city the size of Toronto, but they are well down the road to taking this possibility very seriously.

Step two under this scenario would see the federal and provincial governments addressing the issue of the need for a framework and possibly to provide some incentives to such local projects, while addressing the needs of more remote regions to ensure digital inclusion, to ensure that what is possible in the larger cities is not done to the detriment of our smaller communities across the country.

Step three has already taken place at the discussion stage. Municipalities that are undertaking projects of this sort recognize that the framework they are putting in place could well be the launching point for a service that eventually serves all homes and businesses. It would be necessary to involve the private sector, of course. The municipalities that are taking this step are looking seriously at how to do that.

Step four is that standards and common approaches are encouraged nationally to ensure complementarity and consistency in approaches across the country.

In terms of possible federal actions, there are incentives for schools, universities and libraries that might be considered. The projects that are being undertaken in Sweden, Washington State, Canberra and so forth need to be monitored closely. It may not be possible for Canada to take exactly the same approach as any of these jurisdictions, but they are certainly setting a high watermark. If we just let them set that high watermark and do not do anything comparable, we could lose our standing in terms of being an advanced implementer of projects of this sort.

The possibility of a collaborative infrastructure-development program focussing on opportunities of this sort should not be lost. There is another infrastructure project currently underway that should not be confused with this one, but there are possible overlaps between the two.

As I said before, the need for common open standards and new network architecture should be examined very thoroughly. A ground-up, patch-work approach may not get us where we want to be. Obviously, we must ensure that we continue to address the challenges of digital inclusion as we go along.

Thank you very much for the opportunity to speak here this evening.

The Chairman: As senators ask questions, if one of the panellists wishes to add a comment, please very free to do so. This is a panel approach.

Senator Spivak: There are so many questions, but I will only ask a few.

First, on the statistical side, I looked at your page that talks about the contributions to GDP and exports of various sectors of the economy. It talks about agriculture but it does not mention forestry, et cetera. I would like to know what percentage of GDP, exports and labour population, is the sector that one would broadly call telecommunications and communications? Many people in Canada still believe that agriculture and forestry are the biggest part. I know these figures show a vastly different picture, but you would be surprised who still thinks that agriculture and forestry are the major engines driving our economy. That might be true of exports, but I do not think it is true in terms of GDP. Can you enlighten me at all?

Mr. Gault: Your question is an interesting one. I would be quite happy to provide the committee with a statement of GDP exports and labour for the information, communication technology sector and components of that sector. You raise a very pertinent question. Before I guess at the numbers and get them wrong, I will see that the committee gets the right numbers.

Seven out of ten jobs in this country are in the service sector, for example, and almost 70 per cent of our gross domestic product is in the service sector and not in primary industries -- a point you clearly wish to make.

Senator Spivak: I asked that because, if one were truly to contemplate this, it has major implications for the future of Canadian competitiveness, standard of living, and everything else.

I have many questions for Mr. Bjerring, but I will only ask a few.

You talk about the last mile as the most important thing. You are referring to it as dark fibre. Am I correct?

Mr. Bjerring: Yes.

Senator Spivak: How will money be made by all the companies that are involved in fibre optics, or the telephone companies with their twisted wires, et cetera, if every element that you are talking about here builds their own fibre optic line out to the Internet highway? I do not understand that. Perhaps it is an elite question, but I do not get it. The fierce competition is for those who will have that advantage to place that technology into homes, is it not?

Mr. Bjerring: Most of the money that will be made in the services side of the new economy, if you will, will be made by those organizations that provide services on the infrastructure. At the moment, for most of the companies, the Internet service providers, those who have content to provide, those who have programs to provide, that is where most of the activity will be located. The carrier community is very interested in becoming competitive in that area, so that they will be offering services to businesses and to homeowners. That is where their future business lies.

At the moment, they also have some infrastructure in which they have invested in the past. Clearly, their challenge is not to turn their back on that infrastructure while they are focusing so much attention on becoming competitive at the service level. They have a transition to make and there is a great challenge for the carriers.

Senator Spivak: Let us take, for example, Nortel, which is busy trying to stay ahead in the fibre optic field and ensuring that they are the fastest, buying $1 million companies.

Is there not money to be made in building the most sophisticated, fastest and advanced infrastructure project? Will they then turn around, when every community has their own little pipeline, and become a services provider? I do not understand it.

Mr. Bjerring: Nortel, as an equipment manufacturer, will continue to manufacture the equipment that is needed to make networks like this work. This will tremendously accelerate and expand the potential market for the Nortels of this world. This will allow those who want to provide the content and services to quickly have the infrastructure on which they can develop those services. Nortel loves this kind of notion; the service providers love this kind of notion. The ones challenged by it are the pure carriers, like the telephone companies and the cable companies, which must make that transition from being dependent upon the infrastructure to being competitive at the services offering level with all the other competitors.

Senator Spivak: Let me ask you one more question. This concerns getting my head around what CARNIE really is. It is a research facility. It is also investing money in certain projects. For example, was it through your agency that the recent government investment in 724 Solutions, for examples, was made? Is that something different?

Mr. Bjerring: That is a different program.

Senator Spivak: You make some investments, but give me more clarity as to how you operate in terms of projects and investment in projects. I understand the research part.

Mr. Bjerring: These projects have not been announced, so I will not be able to give you the specific details, but we have recently gone through a competitive process selecting 10 projects in the e-learning area, in life-long learning. We issued a call for proposals and we received about 100 proposals from consortia across the country. Most of them involved universities, colleges, and private-sector participants working as groups. From those 100 projects, a national selection committee selected 20 that would be shortlisted and given the opportunity to develop full business plans. The committee then reviewed all those and reduced it to 10 projects that will coalesce around a central theme. They would each stand alone but the central theme is the development of repositories of what are called "learning objects" -- that is, small pieces of multi-media material with a set of tools that a teacher could use to compile lesson plans out of that multi-media material. These 10 projects will be working on various pieces of that project, and there are a couple of implementation projects that will actually develop course material for selected curricula using material of that sort.

Senator Spivak: Your kind of development projects are in the non-profit sector, more or less. In other words, the end product will be used by non-profit sectors. You are not involved in looking at development projects that will eventually be used by business. Am I correct?

Mr. Bjerring: The e-commerce projects might very well ultimately be used by business, but the e-learning projects are very clearly focused on the public sector -- universities, colleges and schools.

Senator Spivak: You do both kinds?

Mr. Bjerring: Yes.

Senator Spivak: You invest in the development of technology that can be used by the non-profit sector as well as the business sector, and of course that explains your stakeholders.

Mr. Bjerring: That is correct.

Senator Spivak: Everyone has to benefit. Would it be analogous to the research institute at Harvard University, which does not charge anything and is used by businesses, by universities, by academics and so on?

Mr. Bjerring: In some respects it is similar, because it is a consortium that involved both the private sector and the public sector.

Senator Spivak: That is funded by all the huge technology companies, even though they are not the only ones that benefit from it. Anyone can benefit from it.

Senator Finestone: Thank you very much for the interesting presentation. There are have two areas that I would like to discuss with you, and I will start with you, Mr. Bjerring, because you have already been on the hot seat.

You attended a seminar that was co-sponsored by the Simon Wiesenthal Center, at which one of the issues that was discussed was domain names, which has tremendous impact internationally as well as within the Canadian environment. From your examination, can you tell us if there is really a Canadian border, per se, when we talk about the ".ca"? How much impact does that ".ca" have in terms of Canadians being able to control their own environment, being able to have something to say about content? It is not just the carrier.

[Translation]

As we say in French, it is not so much the bottle that counts, but what is inside.

[English]

In this instance, it is the content. That is really the exciting part of the technology. You are dealing with the technological aspect, but are you dealing with the content aspect.

Mr. Bjerring: Perhaps I could give one example, because that was for me a very stimulating and interesting seminar. I learned quite a bit from the discussion at the Simon Wiesenthal Center.

One of the issues that they brought to my attention, which I had not realized was such a potentially damaging issue, was the registering of domain names in the United States using a person's name yet not by that individual. This is not an instance where there are two people with the same name. This is a very deliberate act to register the domain name under that individual, or as if you were that individual, and then use it for some very damaging activity. The instance was essentially hate propaganda activity directed against that individual but using a domain name registered under that individual's name.

In the United States, there is a procedure for registering complaints about the use of domain names. The process is called an alternative dispute resolution process, or ADR. That ADR process in use in the United States for .com domain names was developed primarily with a focus on the use of trademarks as domain names and therefore resolving complaints by trademark holders against people who have usurped the trademark in registering a domain name.

The question raised was: Can we in Canada not have a policy that goes beyond what they have had in the United States and that perhaps will allow the hearing of complaints about domain names that use individual, personal names? We have included that in our definition of an alternative dispute resolution process, which at this point is out for consultation. To my knowledge, we have not to this point received any complaints about that extension of the process to cover personal names as well as trademark complaints. If we do proceed with that ADR process, it will open the door to the hearing of complaints of exactly the sort that was of concern to the Simon Wiesenthal Center in a way in Canada that is not heard in the United States, so the ".ca" domain will be governed, in that sense, by different rules than are followed elsewhere. That is just one example, I think, of responding to your implied question.

Senator Finestone: Yes, it does, in some sense. However, I have just come back from a conference where we looked at the impact of globalization and technology on the world in which we live and the role of governance in such an environment. There is no question that, while there are the upsides and the good sides and the business side and the interconnect side, there is also a downside. There is the side of tyranny. The questions that really bothered me were in the area of xenophobia and anti-Semitism and Islamophobia, Negrophobia and homophobia. I cannot begin to tell you the number of areas where it has a negative, dark side. That brings up the question of what rights we have in terms of privacy, and the question of laws against hate, laws against racism, laws against sexism. Canada has some of the finest laws in the world, but what good is a law on paper if you are not able to use it?

I have a question for any one of you other than Statistics Canada. Statistics Canada gathers information. Sometimes that information is accurate, sometimes it is available, and sometimes you can not even get it because it is all caught up in privacy rights. However, I will not discuss Statistics Canada today.

I am interested in a response from Industry Canada, which is gung-ho: "Let us make business. Let us do data-collecting and data-dispatching and data-matching." There is also the question of how we control what is on there. What is the access route? What are we looking at? What kind of control do we have on what we are looking at?

Mr. Simpson: I will try to answer that, although it will not be the gung-ho message. I will try to address some of the points you raised, because I think they are central to understanding the role of electronic commerce, the way in which this new global economy is developing.

The whole area of content, whether you are talking about illegal activities, offensive content that may or may not break the law, depending on jurisdictions, is now being discussed internationally because the network transcends borders, as I mentioned earlier. National jurisdictions previously dealt with a number of these issues and established a legal framework for the transfer of information for the conduct of business. These national frameworks now have to be complemented by much more international cooperation than ever before because so much of the activity is taking place on a borderless platform called the Internet.

It would not be possible to cover all of these activities, but I should like to give you two or three examples of the initiatives that are underway.

We have talked about privacy. Canada has adopted its framework legislation protecting personal information. At the same time, however, we are working within the OECD, and working bilaterally with the European Community, to ensure that privacy protections that exist for Canadians are respected in an international market, in an international context, as well as within Canada.

Senator Finestone: I do not know if we will ever meet the OECD and the European standards, never mind that they should meet ours. We have a long way to go to get there.

Mr. Simpson: We are there, actually.

Senator Finestone: I do not think so.

Mr. Simpson: We will probably have something arranged with the European Community, now that the act is in place, within a short period of time.

The Chairman: On that point, I would like to ask a supplementary. What other countries have legislation similar to our legislation, which will come into effect in January regarding exactly that matter, privacy?

Mr. Simpson: There is, of course, a European community directive that will eventually result in all of the member states of the European community adopting legislation that complies with that directive. For example, Ireland and the U.K., among others, have legislation; others are in the process of adopting it. Some non-member states in Europe, such as Switzerland and Hungary, have legislation in place that also complies with the European directive.

The United States has a patchwork of legislation. They have legislation with respect to children's information. In the last State of the Union Address, President Clinton announced that they would proceed with legislation related to medical and financial information. What Canada has is a comprehensive framework legislation based on a standard that was developed within the private sector by industry and consumer representatives and embodied in the Canadian Standards Association guidelines -- the CSA standard.

That is a unique attribute of Canada's approach to privacy legislation. It is midway, in our view, between the European approach, which has been very much based on detailed legislative coverage, and the United States approach, which has been much more laisser-faire, but with patchwork pieces here and there to deal with specific privacy challenges.

Australia, to give you a further example, has recently announced that they will proceed with a legislative framework to protect personal information, a framework that is, interestingly, much like Canada's. They are developing it from a private-sector standard and applying it in legislation, to create a level playing field across Australia.

Senator Finestone: I think that Bill C-6, which received Royal Assent on April 13, 2000, is a good piece of legislation . It covers personal information from a data processing and business perspective. However, there are many issues that relate to privacy as a human right, and I do not feel that this is the place to address those issues. Certainly, in the European Convention on Human Rights, in respect of Article 8 -- informed consent and, certainly, secondary informed consent -- it means specifically that consent should be free, expressed, informed, and mostly in writing. That is not what we have done in Canada. I believe that this should be looked at. However, at this moment, I should like to return to the area of my present concern.

I am concerned about some of this aspect because if you are holding information about someone, it is the same thing, in a sense, as holding money in bonds for that person. You are holding "in trust." If there is intention to transfer them in any way, to change the direction of those funds, you need their informed consent -- in fact, you need their signature. Why would not the same thing hold true with respect to your signature? For example, in using a credit card on the Internet, how can you be sure that your signature will be safe, that it will not be misused? How do you handle fraud and misuse? Where do you see that protection coming from? I am not saying that we cannot find it, but I wonder if are you are satisfied with the present state of affairs, to say that there is no potential for fraud or misuse?

Mr. Simpson: To return to the general point, because I probably took us off track with the comments about privacy first. Fraud is a good example, because it has much to do with protecting the consumers -- in this case, from outright illegal and criminal behaviour. Are we satisfied with the situation? There are many challenges for the international community, challenges in areas of enforcement as well as in the legal recognition of various rules governing content on the Internet. By "content," I am talking about services and transactions as well as strictly information.

In the area of the consumer guidelines that have been adopted in Canada, there is an equivalent set of guidelines that have been adopted by the OECD and that are standard for OECD member countries to use to protect consumer rights in the electronic marketplace. These are being endorsed and used by the private sector, industry, and governments. They are voluntary and are not mandated legally for member states, but they do provide an example of the way in which interjurisdictional issues are being addressed. The Council of Europe has tackled issues with respect to criminal activities on the Internet and how these can be controlled in a way that provides for protection of the public -- public safety, generally.

New international organizations that are not primarily governmental in nature are springing up -- for example, the Internet Corporation for Assigned Names and Numbers, ICANN, which is involved in looking at the main name issues internationally. Their activity involves the issue of trademarks, internationally, and how they could be misused in a way that not only has economic repercussions but also has consequences for the public interest as well.

Senator Finestone: I will give you an example that came to our attention at a hearing that we had. I will use the name "Bob." Bob applied for a mortgage for a property that he wished to purchase. The application was refused. It was discovered that he owed $350,000 to a bank. There were also allegations of monies owed elsewhere. In reality, he was clean. Someone had misused his name. Bob was still responsible for those debts. As a result, he had difficulty re-establishing any kind of credibility for any kind of transaction. Now, what do we have in place that will enable that man to recover his own personal credibility? How do you include that type of protection under your bill -- that you have the right to your personal information and the right to correct that information?

The story about Bob actually is a real case. The situation for him is still not fixed, and he still has not got his loan. It has affected his whole life.

Mr. Simpson: Under the new act, that sort of situation would be addressed. If the matter had not been addressed by the corporation and the individual who had the complaint, then it can be taken, as a right of redress in the legislation, both by appeal to the privacy commissioner and also to the Federal Court. I am not sure if the example you are mentioning is one that is confined to the jurisdiction and scope of the act and, therefore, would now be captured by it or whether it is a situation where there are interjurisdictional issues that we have been talking about.

Senator Finestone: It was a real situation. I have one other question. A matter was brought to my attention two weeks ago, Tuesday, May 2. The matter concerned a "cyber-liable" ruling that was issued in the United States with respect to the ISPs. There were two offsetting situations. The first deals with prodigy.com. Are you familiar with the case of Prodigy.com in New York? The second situation involved a contrary decision that was taken in England? This has to do with the Internet liable.

Mr. Simpson: No, I am not.

Mr. Bjerring: No.

Senator Finestone: Rather than taking up the time of the committee, Madam Chair, both cases in a law suit. One was a settlement. The other prevailed by stating that the United States starts from the point of freedom of speech and that Britain starts with the point that there is a degree of privacy and sacredness to the qualities and values in a society.

I will send the question to you for a response, because it goes much beyond that. When I placed my question before you at the very beginning, I asked you what we are looking at, what is the context.

A May 13 article in the Ottawa Citizen informed us that 37 per cent of Canadians five years of age and older use the Internet. To me, that is a stunning piece of information. I can tell you that that is true, because my grandchildren use the Internet effectively. They have their own e-mail -- which I think is disgusting. Forty-eight per cent of the time, this technology is used daily.

I had asked you, Mr. Bjerring, what are these children looking at? Mr. Simpson and Mr. Hull, you are on the governance side: What can we do in this borderless world, in terms of legislation, et cetera, with respect to what these five-year-olds and up, 14- to 18-year-olds, are watching? They are spending a lot of time at it. What are they learning about Canadian values of respect for difference? What are they learning about hate, and anti-Semitism and Negrophiles and hate against lesbians and gays.

By the way, my view is that this new technology is great but that there is a downside. However, I wonder if anyone at Industry Canada or at CANARIE has looked at this. When I mention things like this to the people who sit on your board, they say that I am always looking at the negative stuff. Well, it is the negative stuff that affects the value system in this country.

Mr. Hull: There is no doubt that many inappropriate things are happening in the Internet. Governments, as strong as they are, are sometimes a little bit powerless to control that kind of thing. The fundamental thing is that it does come back to individual values. If people are inclined through their family upbringing and through their education to watch inappropriate things, they will watch it, and there is nothing the government can do about it. If it does something about it, it is always racing to catch up and address the situation.

The important thing is whether families are aware of what is on the Internet and whether they are providing their children with guidance to properly use the Internet. What is also of importance is whether children are getting exposed in the school system to the kind of training that brings acceptable use standards to bear and the way they approach the Internet. The Canadian education system and Canadian families are doing a good job, but the technology is moving quickly. It is difficult for parents to know to what that technology is exposing to their children. A lot more needs to be done in terms of parental awareness and making sure that the kids have good cyber-smarts, in terms of what is appropriate.

The educational system is trying to work on that. Most schools inform children of their policies before they are allowed to use the Internet. The kids are policed in how they are handling the information. This information is more serious and more senior than they are probably otherwise exposed to in the classrooms, but students must be informed of those standards because they are going into a cyber world. They must be trained when they are young.

The fundamental point of your question is something that can be addressed through laws and regulation as much as it can be addressed through educational awareness. That is the key area where we can make progress.

Mr. Bjerring: Just a follow-up comment, as a parent. I agree with Mr. Hull's comments and observations. I do not think that there is any doubt that the technology will continue to develop in such a way that it makes more information available, both appropriate and inappropriate. As a parent, one must be concerned about the inappropriate information. I do not believe that there is any substitute for appropriate training and education about how to make those value judgments about the information that is there. I do not believe we can sensor the information. In extreme cases, parents can try to sensor it, or use the technology, but those will only be stop gaps, temporary measures; ultimately, more information will be available. Training and education are the only answer to that.

You asked about what CANARIE is doing. We do have a program called CA*net. CA*net Institute used to be a separate organization, but CANARIE now administers that program. I think we have almost made the decision that we will be supporting a Web-awareness education program through the CA*net Institute, to help a program get further established in this area. It is a very good Canadian initiative, and we will help to promote that as much as we can.

Mr. Simpson: Just one or two brief points, to add to what the other witnesses have said.

We should be clear, though, that the laws of Canada apply to the Internet.

Senator Finestone: Thank you, that is what I was waiting to hear.

Mr. Simpson: That is the starting point. However, given that the scope of the Internet is so great and that are enforcement questions because of the inter-jurisdictional aspects of the Internet and electronic commerce, public education is very important. Also, technology tools are important, to enable consumers to take more effective control over what they are subjected to on the Internet.

Senator Finestone: Like with the V-chip for parents?

Mr. Simpson: Not a V-chip, but a similar idea. Perhaps most important of all, between the public education and the consumer-enabling tools, industry itself is taking steps to address some of these questions on the content side. There are a number of techniques that are being used for screening, post-and-take-down procedures, often done in collaboration with law enforcement agencies. This, along with other factors, is contributing to mitigate what are clearly legitimate concerns about the material that is technically out there on the Internet.

Senator Finestone: Madam Chairman, I should like to leave this newspaper article for our guests, please. Perhaps the witnesses could give me some answers. Quite frankly, I do not understand much of this. Perhaps you could tell me what the U.K. and United States decisions, which are contradictory, would mean for Canada and the ISP system in this country.

The Chairman: Our committee clerk will take the question and make sure that we receive a tabled answer from you.

I have a supplementary to Senator Finestone's question. For the record, let's get back to Senator Finestone's grandchild, who is five years old and becoming more aware. If that child types the word "sex" into his computer, is there any technological equipment to which parents have access to prevent that child from accessing the interesting stuff that comes up when you type in a word like "sex"?

Mr. Simpson: There are some techniques that have been tried on both the consumer side and the network side, as part the screening technique I was talking about. The problem is that it is not foolproof, of course. However, yes, there are some technologies, although I am not familiar with all of them. I could undertake to get back to the committee with specific examples. There are some Canadians firms that are quite successful -- Net Shepherd Inc. being one who produces detective devices.

The Chairman: Would you bring forward an additional answer to the clerk?

Senator Banks: Gentlemen, you will be pleased to know that I am not a member of this committee. I am just a fly on the wall today. I am also very new here, so I apologize for the naivete of my question. It has to do with an area that I will be pursuing assiduously.

I come here from the entertainment industry, from show business. The implications to copyright holders and the whole concept of intellectual property as it applies to our industry is caught up in many of the things to which you have referred today and on which others senators have asked you questions.

It is a significantly large industry. Mr. Gault will no doubt be able to correct me, but, in 1997, at least 2.9 per cent of the GDP of Canada was contributed by the arts and culture industries, which is compared to 2.3 per cent from the agricultural industry, by way of example. A significant amount of money is involved, and much of it is being stolen these days. Entire generations of people are growing up, using music as an example, and have no concept of the idea that you buy music. They think you get music -- that it is in the air.

I am chagrined to hear, although it is the conventional wisdom these days, that there is nothing government can do about regulating the Internet. Governments all over the place have abdicated trying to regulate the Internet because of the cross-border implications. If we shut them down here, they will move somewhere else. However, governments said the same thing at the turn of the last century about the whole concept of copyright as it applies to intellectual property -- to narrow the question down, specifically songs, for example. Copyright protection for songs did not exist until into the 20th century. The problems of policing and collecting and dealing with the extraterritorial implications were all thought to be beyond the capabilities of government. That turned out not to be the case, because most civilized places are now signatories to various international copyright conventions. Each country acts as the collector for the proper royalties for the world and distributes them by means of various international agreements to the copyright holders in other countries. This trade amounts to hundreds of millions of dollars each year.

At the moment, we are faced with this widespread -- there is no other word for it -- theft against which no policing can be done because it is being done in people's homes, one at a time, with no malice and no intent of profit. The fact of the matter is that if I was the copyright holder and producer of a record album, which I happen to be, that cost $180,000, which it happened to cost, and if it gets put onto the Internet by someone in Andorra, it can be downloaded throughout the world without compensation to either the provider of that product on the Internet or, more important, if I can be rude, me.

The end, observed, overstated exaggerated result of that is that no one will be able to afford to make a record, a movie, a television program or a radio program if there is unfettered access to it. I am hopeful that somewhere down the line someone will be able to say, "We must regulate the Internet in some way." You are no doubt aware that a few weeks ago some owners of copyrights began to act on their own by launching personal private lawsuits against MP3 and Napster, and those kinds of places.

I am asking any or all of you whether you see, down the line, any hope that that kind of non-malicious, not-for-profit but extremely widespread theft will be able somehow to be controlled, stopped, or measured. Mr. Gault referred to the measurement of sales and the measurement of buying. Is there a measurement of theft that goes on on the Internet? It is, as Senator Finestone said, a double-edged sword. The technology is wonderful, but there are unforeseen implications that are terribly costly to my industry.

Mr. Simpson: On the comment that the situation with respect to illegal copying requires regulation of the Internet, I am not sure that it means regulation of the Internet so much as it means establishing clear ground rules. As I mentioned at the outset, one of the fundamental features of clear ground rules for electronic commerce for the Internet economy is to ensure that intellectual property has the same level of protection in cyberspace as it does in traditional marketplaces.

A number of elements to this issue should be distinguished. One is enforcement, because I think enforcement of intellectual property rules has all of the complications surrounding it as some of those other areas we mentioned -- consumer protection, offensive content, illegal activities. It is a function of the fact that now national jurisdictions for intellectual property protection must be complemented by a strong international framework or they simply will not work with respect to the Internet. That is being worked on. You will be familiar with the fact that WIPO has passed changes to treaties, which Canada is in the process of reviewing in terms of formal ratification, which will ensure that the international environment has coverage of the Internet. Therefore, it is technology-neutral in the international realm.

Then there is a question, once the legal recognition is done, of ensuring that enforcement is done both within the public and the private domains. You mentioned that copyright is complicated because you have rights of private litigation as well. In fact, I think it is not assumed that it will be government that litigates but rather the private rights holder who litigates under the provisions of a copyright law.

Yes, that is clearly one of the fundamental ground rules for electronic commerce, and one that is not clear-cut in terms of how it will evolve globally, but neither is it in the traditional marketplace. The kind of theft of intellectual property that we are talking about on the Internet is certainly no greater than what we are finding in many economies now by simply taking CDs and selling them on the street when there is no right to use that music or intellectual property. Therefore, there are problems out there both in the electronic as well as the non-electronic marketplace.

Mr. Bjerring: Intellectual property rights violations with respect to the Internet are a serious matter, and most of the people associated with it take the problems seriously.

It may be that, although technology is currently presenting us with a problem through MP3 and Napster and all the others, technology may also be pointing us toward a solution, but not a solution of the way we are looking at it in terms of the old problem. It may be that it is pointing us the way to the different future where we have different problems.

An example here is in the software area, where there were similar problems. Pirated copies of software are comparable to pirated copies of everything else. Many software companies are now recognizing that while, yes, it costs money to develop the software they may not get their revenue from selling the software but from somewhere else. They give the software away, and then they have a connection to the customer, who they can then exploit for other reasons, to get the money they need to develop the next generation of software.

In the music and entertainment businesses, it may mean that those artists currently using this technology to distribute their intellectual property are starting the process of exploring other business models. There is no question that money must be generated and that there must be an ongoing cycle of generating the product for the future; however, it may be that the artists will be generating that revenue in different ways because of the technology and that that in fact will be the way the industry will move forward in the future.

The Chairman: Senators, as it is already 7:00 p.m., I suggest that we put our remaining questions on the record and that the witnesses respond to them in writing through the clerk.

Senator Spivak: My question is supplementary to that of Senator Banks; it deals with the structure of the industry. There is division among artists as to whether this new way of selling music on-line could not be more beneficial to the artists. There are those who say that some companies have made exorbitant profits at the expense of the artists. It reminds me of the farm industry where the producer earns the least amount.

It would be interesting to hear your view of the technology developed by MP3 and Napster, which I understand is very highly developed. I read an article on how this could be utilized to compensate the artist while not swimming against the tide. Apparently, this is very friendly technology for selling music. It cuts down on transportation, shipping costs, et cetera.

It would be interesting to hear your view of how the technology can be utilized to rationalize the structure of the industry. This applies not only to music but to literature and other software, as you mentioned. That would be very interesting for us to know.

Senator Banks: I wish to make a clear distinction between access to the beginning of the pipeline by artists, which is wonderful and entirely desirable, and what Senator Spivak is talking about, the artist or his or her representative controlling where the music, book, or movie is fed into the pipeline. I am more concerned about someone buying a record that a musician has made and putting it on the Internet. I do not care if I ever earn a nickel from it, but I know that now the artist will not. My concern is not the artists themselves having proprietary control of the head of the pipeline but how we can control unfettered access of other people to the entry to the pipeline.

Mr. Simpson: The key is that they do not own the property.

Senator Banks: It does not make any difference.

Mr. Simpson: Artists that own the property and are using the Internet and electronic commerce as a new means of distribution with a fundamentally different industry structure is a different issue than illegal use of content, because you do not hold the rights.

The Chairman: Absolutely. Thank you, Mr. Simpson.

Mr. Gault, in your analysis of statistical data on the increased connectivity of Canadians last year and this year, there seems to be a gap being created, which, in a few years, will definitely disadvantage Canadians who are not included in the description you gave of those who are connected.

I address this question to all the panellists. What key policy recommendations would need to be put into effect in order to decrease this gap rather than increasing it as we continue growing in this knowledge-based era?

Second, how does Canadian business compare with U.S. business in terms of use of e-commerce? We all had access to the Boston group record and I would like your analysis of that.

Mr. Simpson, could you also give examples of e-commerce investments in Canada today?

My next question is directed mainly to Mr. Bjerring. It has been said that, as part of its commitment to connecting Canadians, the federal government should play a greater role in coordinating the work of the provinces and municipalities to create the Smart Community through fibre optic infrastructure, including financial support. Do you agree with this? Do you think it is necessary?

Also, Mr. Bjerring, as part of this coordinating role, the government has been urged to examine relevant issues for a policy framework that would see fibre optic infrastructure develop uniformly across the country. We have heard, even from colleagues, that certain areas do not have access to this equipment. There is a danger, therefore, of creating pockets of Smart Communities only in high population centres, once again creating a gap between areas of less population and areas of and greater population, which seems to be the nature of our country. Have you any public policy recommendations on that?

Senator Finestone: What are we doing with regard to the gap in service to Quebec and francophones? I believe that Statistics Canada data for the Canadian population is distorted when you factor in the French fact in Quebec as compared to an analysis of the United States, Sweden, or other countries, where the two-language difference may have an impact on the statistical findings.

The Chairman: I wish to thank our witnesses. We appreciate your input into the study.

Honourable senators, we will now proceed with our remaining witnesses.

Ms Lynda Leonard, Vice-President of Communications, Information Technology Association of Canada: My colleague and I must begin by confessing that neither of us is Gaylen Duncan. Mr. Duncan, the CEO of ITAC, is in Paris this week rattling cages at the G-8 conference on cyber-technology. He is advancing the agenda on several of the items you are studying. We hope you will forgive his absence.

ITAC is the voice of Canada's technology industry. We represent directly and through our affiliates over 1,300 companies that are engaged in the manufacture of computer hardware and software, in the delivery of telecommunications service and consulting services, and in the development of digital content.

The IT industry is at the cutting edge of the new economy. Many of the issues that you are exploring are the direct result of innovations from our sector. We understand these tools, both their tremendous potential benefits and their hazards. We understand, perhaps better than any other sector, how profoundly these tools change the way we live, work and think.

Your study is timely. Canada stands poised to enter the information age, to exit the industrial economy and come to grips with an economy whose basic unit of exchange is knowledge. We need a much broader understanding of the nature of this transition than currently exists in Canada. ITAC, for one, salutes your initiative.

Canada is well positioned to take a leadership role in the new economy. It has one of the finest communications infrastructures in the world. We have been the beneficiary of a generally enlightened policy regime relative to the tools and processes of the wired world. We were the first nation to declare that we would not regulate the Internet. We were a leader in the introduction of competition to formerly closed communications markets. We have been collaborative and innovative in the development of a policy to protect the privacy of individuals in cyberspace. We have done many things right.

There is a huge task still ahead of us. We must ensure that we have enough skilled women and men to fulfil our capacity to innovate, now and in the future. We must reverse the magnetic draw of the larger, more boisterous economy on our border. Above all, we must communicate effectively with all Canadians that the world has changed. We need to encourage them to prepare themselves and their children for a very dynamic and challenging future.

Ms Linda Oliver, Executive Director, Government Relations, Information Technology Association of Canada: Perhaps I can fill in here. In the interests of time, I will highlight some of the points that we made in our paper. I will do that by saying that over 60 of our CEOs met recently and told us what the hot issues concerning them are.

What they would like to have, they said, is an outstanding business environment in Canada for IT. That is what they told us was needed. They talk about fairer tax treatment that enables business. That means lower corporate taxes, the encouragement of foreign investment, the reducing of high personal taxes.

One of the other correlated issues is the skills shortage. Canada needs to attract and retain the best. We are losing some of the best and brightest in Canada to other countries, mostly the U.S. The reasons include better jobs, more opportunities, a stronger-growing economy. The U.S. is where it -- IT -- is at.

Canadian companies are losing out. There could be 30,000 to 50,000 knowledge workers working today if they were available. Canadian businesses in Canada are disadvantaged when these workers are not available. Companies delay their work, they contract it out, or they move to other jurisdictions.

One of the issues I know you heard about earlier is research that is being done. There is research being done on this issue; but we must have more. We must take that research and translate it very quickly into action to make good public policy that will address the issue. We should even be looking for ways in which we can encourage these knowledge workers back to Canada.

The government on-line is a very important issue for our members. To be the most connected country in the world and to have government on-line by the year 2000, which was stated in the Speech from the Throne, a great deal of work must be done. A push by government in this area would signal a commitment to commerce. It would serve as well to encourage businesses and consumers in this area. That is one of the areas about which we indicated more work has to be done.

Finally, in terms of cyber-crime, there is a need for industry to get involved in the solution. It is a technology issue that needs a technology solution. We need to raise awareness about security with users, business and government. We need to teach cyber-ethics. We need to increase efforts to fight crime by increasing the number of university courses and research budgets to make the Internet a safe and open environment for business.

In the document that we filed with you last week, I mentioned the first telegraph system. I owe it to my colleagues at AT&T to mention that the company that set up the first telegraph system was the precursor to AT&T Canada.

With that, Madam Chairman, I will stop. That highlights what we wanted to say. It does not go into specific issues, but if you wish to ask questions about that we will be happy to do that later.

Mr. Peter Barnes, President and CEO, Canadian Wireless Telecommunications Association: Honourable senators, I wish to begin by thanking you for this opportunity to discuss the state of the wireless telecom industry in Canada and its growing importance for Canadian society and the economy. We think your review of the policy issues facing the communications industry in the 21st century is both important and timely.

There has been much discussion about the importance of making Canada the most wired nation in the world. At the CWTA, we would rather see Canada become the most "wireless" nation in the world. We will not ask you to change the title of your previous report, Madam Chair, but you know from where we are coming.

Globally and domestically, wireless is emerging as the communications tool that will be used for generations to come. Before we explore the wireless future, let me provide a little background on our association and the industry. In our view, the CWTA is the authority on wireless issues, developments and trends in Canada. It represents cellular, PCS, paging, fixed broadband wireless, mobile radio, mobile satellite carriers, as well as companies that develop and provide products and services for the industry. We have over 350 members.

Our industry has already contributed significantly to Canada's economic and social fibre by enhancing the productivity of both businesses and individuals. Not only are mobile communications equipment and services an important enabler of productivity, they have become an essential element of Canada's communications infrastructure. One in five Canadians owns a mobile phone. More and more Canadians are turning to wireless phones as their only telecommunications service. Most of you are familiar with mobile devices, cellular and PCS phones and pagers that we normally think of when we think about wireless communications. Today, I wish to take a moment to highlight some exciting developments with fixed wireless technologies.

[Translation]

Last year, and again this year, Industry Canada gave out operating licences for fixed, wireless broadband networks. These networks will gave Canadians another high-speed access option in addition to what is already available to them through cable communications and fiber optics, and those new networks are already being installed.

[English]

The recent licensing of multi-point communications systems, or MCS providers, Inukshuk and SaskTel, promises to facilitate the development of a high-quality, low-cost information structure to provide a convergence of services, including basic telecommunications, data transfer and high-speed Internet access that can serve a number of communications needs of Canadians regardless of where they choose to live. This means that remote communities will get the same high-speed Internet access that Canadians can get in urban communities.

Similarly, licences awarded for spectrum in the 24 and 38 gigahertz bands to several operators, including Stream Intelligent Networks, Norigen Communications, Wispra and AT&T Canada will result in the deployment of fixed broadband wireless networks that will be extremely important in many areas of the country, including rural communities.

[Translation]

Whether through fixed or mobile networks, Canadians will be able to connect without wires. This is why we support the connectedness strategy put forward by the government in order to promote the economic and social development of Canada. We are also pleased to note that the Prime minister has set for all sectors of the economy the challenge of working together to secure for Canada, by the year 2003, 5 per cent of the world E-commerce market.

We ourselves have already begun to supply the tools needed to reach this goal. Canadian wireless operators have designed services to satisfy our wish to be able to access the Internet anywhere and at any time. The large mobile telephone manufacturers are already supplying Internet-ready equipment that allows Canadians to explore cyberspace, buy airline tickets, do their banking and other commercial transactions electronically as they go about their daily activities.

This brings us to another major development in electronic commerce, what we call mobile commerce. According to several studies, by the year 2009, 45 per cent of the population will be able to access the Internet with mobile equipment.

[English]

Yet, there are challenges for our industry in continuing to meet the government's goal of connecting Canadians. These challenges include access to spectrum, fiscal issues, and recognition by policy-makers of the importance of wireless as an essential tool in connecting Canadians to the Internet.

The radio spectrum is the lifeblood of our industry. It is the method by which our carriers can service our customers. As the wireless and Internet convergence proceeds, more and more applications will be developed that will allow for faster access, leading to more mobile e-commerce or, in our parlance, m-commerce. To achieve faster speeds, more bandwidth is required, which necessitates the release of more spectrum by Industry Canada.

Our industry has been growing rapidly over the last few years. In the 1980s, we offered mobile phones, using analogue technologies, providing adequate to good voice communication services. The next evolution was the introduction of PCS, or personal communications technology. This second generation of technology allowed our industry to introduce digital networks, allowing more secure communications, smaller and more portable units, along with the capability to transmit and receive data and access the Internet.

The next generation of wireless, 3G, or third generation, promises to be even more exciting, with wireless Internet capabilities that will eliminate location as a factor in the way Canadians will work and communicate with each other.

Not surprisingly, building these networks requires large amounts of investment. In 1998, during a period of dynamic growth and innovation, the mobile carriers lost over $1 billion. Many of the costs contributing to these losses, such as taxes, fees and the cost of regulation, are beyond the industry's control.

[Translation]

Under current policies and regulations, the wireless telecommunications industry is made to bear costs that impair our capacity to increase the number of services aimed at connecting Canadians. Furthermore, all levels of government -- federal, provincial and municipal -- seem to see our industry more as a source of additional revenue.

Wireless communications are under the jurisdiction of the CRTC and Industry Canada. If, most of the time, the CRTC does not attempt to regulate wireless services, as the law allows it to, it does nevertheless exert a considerable influence over the day-to-day activity of operators. Since wireless telecommunications operators need access to the spectrum of radioelectric frequencies in order to be able to supply their services, Industry Canada does exert a great influence over their activities.

Under the Radiocommunication Act, the Department regulates and determines the granting of spectrum frequencies, in particular by granting licences that gave the licensee the right to use certain frequencies.

In this regard, wireless operators are different from the other operators who are wholly under the jurisdiction of the CRTC and are only marginally affected by the policies of Industry Canada.

[English]

These regulatory agencies administer programs that have a real impact on the bottom lines of wireless carriers. The licensing regime of Industry Canada determines the fees paid by wireless carriers for the use of the radio spectrum. The CRTC contribution regime is another example. Let me say a few words about this regime.

"Contribution" is the name of the levy or tax imposed by the CRTC on long-distance traffic to subsidize local telephone service. The CRTC already allows mobile phone operators to pay contribution and it is examining whether more operators should be required to pay and how much contribution wireless carriers should be required to pay on a going-forward basis. We view contribution as a tax on our ability to extend the delivery of new and innovative services to Canadians across the nation. Subsidies like contribution should, in our view, be derived from the government's Consolidated Revenue Fund, a fund to which this industry contributed last year approximately $150 million in the form of licence fees alone.

Along with the spectrum and fiscal issues, the CWTA and the wireless industry would encourage the government to think about wireless in the context of their connecting Canadian strategy. Wireless is increasingly becoming the next big phase in Internet access. For instance, a number of wireless carriers have developed alliances with the banking community to provide consumers with wireless access to their banking information. We would encourage the government to introduce, for example, wireless portals as a means to provide information and support the government on-line agenda. This would introduce another rich and convenient dimension to connecting Canadians.

In closing, I believe wireless communications can give Canada a competitive edge as we strive to excel in the world of m-commerce. However, the wireless industry and government must continue to work together in connecting Canadians to the Internet. More spectrum, reduced fiscal pressures on our industry, and a greater awareness of wireless as an option to connecting Canadians will go a long way in achieving our common goals and in building a dynamic Canadian economy for the 21st century.

Ms Jane Yale, President, Canadian Cable Television Association: Thank you, Madam Chair and honourable senators, for the privilege of participating this evening in the first phase of your inquiry into the impact of new technology and its implications for connecting Canadians in the new economy.

I have held my current position at the CCTA since August 1999, a little less than a year. You have beside you two ex-AT&T Canada employees. Mr. Peter Barnes joined the wireless association not long after I joined the cable industry. I would like to point out some of my colleagues who are here this evening: Mr. Michael Hennessy, our Senior Vice President of Policy and Planning, who is the author of our E-TV discussion paper, to which I will refer; Ms Elizabeth Roscoe, our Senior Vice-President of External Affairs; and Nick Masciantonio, our Director of Government Relations.

[Translation]

Your study is timely because it focuses on the key issues facing Canada's communications sector, public policy makers and Canadian consumers.

Indeed, this process builds on the earlier work of this subcommittee which issued its final report entitled "Wired to Win" in May 1999. In that document, there were a number of profound observations on how to secure Canadian leadership in the new economy. In particular, you identified the link between communications technology and culture, as well as the emergence of powerful technologies that present new opportunities and require new public approaches.

[English]

These are also the major conclusions of a report we have just released on communications and new economy, entitled "E-TV: The Integration of Culture and Commerce," a report that we think address the very questions that you have raised and the issues that you have identified. That document has been circulated to the members of the subcommittee. Before I touch on the key findings of our report, I should take a moment to tell you a little bit about who we are.

CCTA is the national industry organization of the cable television industry, representing 846 federally licensed cable systems that collectively provide communication services to more than 7.3 million Canadian households coast to coast. That number of 846 is misleading, since four of our members who you would be familiar with by name, namely, Rogers, Shaw, Vidéotron and Cogeco, collectively serve something over 80 per cent of the cable households in Canada.

The rapid changes taking place in the global communications marketplace are having no less effect on our members than on any other sector. While traditional cable televisions service is still a core part of our business, cable companies are much more today. Cable companies are leading the market in high-speed Internet services, which we see as key to connecting Canadians to a more vibrant on-line world. Across the country in large and in small communities, cable companies have upgraded their networks to bring high-speed Internet access to the home, with more than 6 million homes passed to date. Today, more than 600,000 Canadians subscribe to cable high-speed Internet. This is forecast to grow to 30 per cent by 2003. Digital cable services are available in a growing number of communities, and not only in major urban centres. Cable companies have been investing more than $700 million annually and, as a result, more than two thirds of cable households are digital-ready. Digital services provide higher quality pictures and sound, as well as the promise of more programming and increased customers choice. Our members are partnering with technology leaders in set-top boxes and interactive applications to bring e-commerce and Web TV to the home.

Cable companies are also providing voice and data telecommunication services, with extensive cable and fibre optic networks that can serve large business customers as well as deliver telephony services to consumers in the home. State-of-the-art technologies -- such as IP telephony -- will increase our opportunities even more in the local telecommunications market.

We believe the cable industry is well positioned for the challenges of the new economy. These are the challenges that you have articulated in the terms of reference for the study by your subcommittee, including the rapidly evolving communications environment, access issues, privacy and the security of personal information, consumer confidence in e-commerce, and the public policy implications of the new economy. We believe that these issues are fundamentally interrelated and that there is an urgent need to address them in an integrated fashion if Canada is to secure a prominent place in the new economy.

[Translation]

This is why we have prepared our report on E-TV. This report is not just about or for our industry. In essence, this is a proposal for public policy change across all communications and IT sectors.

In it, we explore the new economy and its implications for economic growth, consumer choice, competition and Canadian content and then set the stage for a dialogue with broadcasters, carriers, technology companies, government and our customers on how to carve out a chunk, a big chunk of the new economy for Canada. The report paints a picture of a future communications environment that drives the new economy and articulates the public policy implications of these developments.

[English]

Let me describe for you some of the key findings of our report. In our report, we describe the key elements of the new economy in the following terms. First, interactive digital communications, the Internet and global trade are creating a new economic order that is very much consumer focused.

Second, the formation of new enterprises arising out of the convergence of communications, culture and information technology is fundamental for economic growth.

Third, enterprises in the communications, media, information technology, production and retail sectors are consolidating and integrating to compete.

Fourth, these new enterprises will provide e-commerce, entertainment and information to the home over interactive broadband pipes using a television or a computer monitor in combination with a variety of digital set-top devices, and that is what we call E-TV.

Fifth, technology is empowering consumers and eroding the ability of national licensing authorities to restrict access to content.

In essence, we believe that integration, or the formation of new enterprises, arising out the convergence of communications, culture and information technology is a prerequisite for economic growth, but there are as many challenges as opportunities. For policy-makers, the challenges include: moving from managing markets to creating incentives to innovate and invest; realizing that consumers are being empowered in a way that undermines the ability of national licensing authorities to restrict choice or protect markets; and realizing that content, including music, movies, radio and television programming, will be accessible and is already accessible to Canadians from servers located anywhere in the world.

[Translation]

In terms of business opportunities, we should recognize that with the new technology, Canadians content in all forms will be accessible to people all over the world from servers located in Canada. We should stimulate the use of and production of new media because the future has never look brighter for the production and dissemination of Canadian content.

Entry costs are falling and the opportunities for displaying content are growing, but the time to move is now. So we are going to have to be creative as enterprises to compete for customer loyalty. Policy makers have to focus on incentives to make E-TV a Canadian reality. Regulators will have to demonstrate greater flexibility, so that consumers drive demand.

[English]

What are the key elements of our proposals? To begin with, we believe it is essential for public policy to provide the right incentives -- incentives to innovate, to deploy advanced infrastructure, to invest in new media, or to create totally new information and entertainment opportunities for consumers.

To get there, we have proposed a number of things, including: improved access to investment capital; increased flexibility and competition in programming services to respond to consumer demand; reductions in direct and indirect taxation; a change in focus of the CRTC from traditional regulation to the resolution of competitive disputes; reduced regulation of smaller systems; liberalized cross-ownership rules; and more flexibility for new media to access production funds.

Those are some of the highlights of our proposals. The details are in our report, and for your benefit we have provided you with a copy of the report itself along with a summary in presentation-style format.

Thank you for the opportunity to appear, and I look forward to discussing these issues in answering your questions.

Senator Finestone: I think I will start my questions with Peter Barnes, if I may. I am fascinated with the whole concept of wireless communication, so that you can find me anywhere in the world. Why am I not able to use my wireless device to telephone my house in Montreal when I am sitting in Jordan or Cuba or some other place?

Mr. Barnes: Much of the answer has to do with the manufacturing and transmission standards that each company will use in a different country. For example, in North America, there is one type of standard used, much like electricity plugs are different here from the ones used in Europe. In Europe, in some cases, there are different standards. Some companies in North America have the same standards as in Europe, but it varies from place to place.

What is happening now is that all of the countries are getting together on this. Actually, later this month and in June, in Istanbul, there is a conference of the International Telecommunications Union, where they will be talking about the spectrum that will be allocated for this third generation that I talked about. One of the other things that they will be talking about will be a universal mobile telecommunications standard so that you would get over this issue. What happened initially is that one country developed one standard, another developed another standard, and there were different manufacturing pressures in each country. Now we are moving towards a global standard. There are more and more phones that have dual-mode or tri-mode capability, so that you can go from country to country and continue to use the phone. However, the real solution will be not to have phones with five or six different standards working with them but one common standard, and that probably will come with the next generation of phones, in 2001, 2002 or 2003.

Senator Finestone: I have been hearing about establishing standards since televisions were first put on the market. Countries seem to have ways of blocking, or standards that are somewhat different. Today, the footprint of satellites is very broad, much broader than it was before. I wonder what the problem is with this extensive access to the wireless world. You say that one in five people own wireless, and yet you also said, I believe, that you need more access to the frequencies, to the spectrum. The spectrum has had absolutely the most incredible explosion, with fibre optics, and you are still short on spectrum space?

Mr. Barnes: The spectrum we are using is the wireless radio spectrum, not fibre optics.Again, what is important here is transmission speed, and fibre optics do not help us out with that because we are talking about transmission through the air. There have been gains in the speed and the capacity of using the radio spectrum, but let me give you a couple of relevant statistics.

It took seven years in Canada to get the first million wireless phone subscribers. Earlier this year, we reached the 7 million mark, and the most recent million took seven months. You can appreciate the kind of exponential growth that is going on. There have been allocations of spectrum by Industry Canada, and it was recently announced that there will be an auction this fall for supplementary spectrum.

Our message on this is that we must keep up the good work. There will be an auction this fall, which will help things out, but the work going on through the Canadian government's efforts at conferences such as the one in Istanbul must continue, and the efforts must be to ensure that that spectrum is available on time so that we do not run into shortages.

A personage no less illustrious than the Secretary-General of the International Telecommunications Union pointed out in February the problems that would arise if this particular conference were not a success. I do not remember his specific words, but his predictions were quite dramatic. Effectively, there is a highway of finite capacity, and more and more people wish to take it, and if we do not want to run into a huge traffic jam, we must build more highways. Luckily, it is a question of turning on the switch for more spectrum, but that work must continue. It is more of an encouragement than an alarm cry.

Senator Finestone: What is the role of the CRTC? I can recall when we were moving toward wireless or portable telephones that a lot of companies that wanted to get in. A lot of companies certainly did get in, and a significant number of them are bankrupt today. What is your message, in terms of the role of the CRTC and the financial implications of moving into this field to develop a competitive environment? In the end, are we going to end up with more a monopolistic look than before?

Mr. Barnes: We have an extremely competitive industry in Canada. In most major cities, you have the choice of four or, in certain cases, five service providers that can provide you with mobile phone services. As a result, Canadian prices are among the lowest in the world. Just to give you an example, the average price per minute on average price packages in Toronto is about 17 cents a minute.

Senator Finestone: Is that wireless or telephone?

Mr. Barnes: That is wireless telephone per minute. If you go to the U.S, the prices are 25, 30, or 40 cents per minute. The same is true in European cities.

Senator Finestone: Is that good or bad for the people who own the asset?

Mr. Barnes: It is good for the customer but not for the companies, because most of them are losing money, which is normal in the start-up. However, at least those companies begin with the intention of being successful; they know what the market is like and they make their own decisions. I referenced the CRTC because their potential decision to impose yet more taxes on the industry is a concern. When I use the word "tax," I use it liberally.

Senator Finestone: I thought only government could impose a tax.

Mr. Barnes: When you are at the end of paying and it is an agency of government that says you shall pay more, it all sounds the same.

Senator Finestone: Do we need to move from managing markets? I believe it was you, Ms Yale, when you talked about managing markets, who said that there should be the creation of incentives to innovate and invest. The CCTA seems to be of the view that the CRTC could take a walk, essentially. I believe Mr. Barnes recognizes that they cannot take a walk, that there needs to be someone to police the bands, the spectrum, et cetera.

Ms Yale: I would not say that the CRTC should take a walk; rather, we are saying that the market is changing fundamentally and that regulation must change with it. For example, we used to think that competition in telecommunications meant that someone would come in and compete against Bell Canada. Competition in cable meant that someone would come in and provide cable television service, that they would look like the people who are already there but would compete with them.

Well, competition is looking very different. There are cable companies that are not just about cable any more; they are about Internet digital service and telecommunications. They are becoming full service providers who compete against Bell Canada. Interestingly, Bell is proposing to buy CTV and now has a satellite service called ExpressVu that offers cable television service in a wireless form and has a major Internet service offering.

For every individual customer, there will be multiple providers offering a package of services. There is competition among those larger integrated entities that leverage their core base -- whether it is telecommunications, cable, or wireless -- to expand and become full service providers. This is a new model of competition, yet regulation is still focused on the silos of cable and telecommunications and has not adapted to that new environment.

There is vigorous competition in the Internet market, especially wireless telecommunications. Many of the issues that were traditional focuses of regulation are not big issues now. Every single cable customer or household has multiple providers of television services. There are two satellite providers, a cable company, and there is often another form of wireless such as local communications. Many individual customers have many choices of providers. The idea that cable companies or telephone companies can arbitrarily increase rates and the traditional concerns about rate regulation are becoming a thing of the past.

The Chairman: Mr. Barnes, would you like to add to that?

Mr. Barnes: I only wish to make the distinction between the spectrum, which is licensed by Industry Canada, and the CRTC's role, which is more of a post facto regulation, to the extent that they decide to regulate. I think Ms Yale and I are agreeing on the need for the CRTC, because, in the case of the wireless industry, the CRTC has decided, as the law allows, to forebear from regulation, recognizing the competitive nature of that market.

Senator Finestone: I had forgotten that there were two separate roles. I would like to know if you can picture a home today where there is only one wire to carry all of these facilities, where there are not separate cable and telephone wires and where there is no need to worry about satellite dishes? Do you know how many wires are coming into a house?

The Chairman: Let us not ask the wireless man.

Ms Yale: I do not believe in the one-wire solution.

Senator Finestone: Why not?

Ms Yale: There are already two wires coming into the house. There are many different ways of accessing services. There is traditional cable technology, there is the broadband infrastructure of cable, there is the telecommunications infrastructure and wireless infrastructure. Customers also have the luxury of all of those choices about the way in which they choose to obtain services.

Senator Finestone: I have a question for either of the witnesses from ITAC. I believe that Ms Leonard said, in response to the question relating to protecting the individual in cyberspace, "we will not regulate the Internet." Can you tell me how you see the potential for protecting the privacy of the individual from being affronted and abused and their right to freedom of human rights and decency to be contained and controlled in the Internet without some kind of rules? Were you pleased when the government said that they would not regulate the Internet?

Ms Leonard: That is right.

Senator Finestone: You went on to say, "we can protect the privacy of individuals in cyberspace." How will you protect the privacy of individuals in cyberspace if there is not going to be any kind of way to regulate?

Ms Leonard: You have instruments available to you such as Bill C-6.

Senator Finestone: To my knowledge, Bill C-6 does not exactly control homophobia, anti-Semitism, racism, Negrophobia, or any of the negatives that are out there. Thus, I want to know what you meant when you made that statement.

Ms Leonard: I think that I understand your question better. Are you speaking specifically about the prevalence of hate material?

Senator Finestone: There is all kinds of hate out there.

Ms Leonard: I see that as a different issue from privacy.

Senator Finestone: If you are invading my right to be perceived with full human rights and respect in our society, as a fundamental Canadian value, as a human rights value, and yet there is nothing to regulate it or control it and there are no rules, how do you see it working?

Ms Leonard: I can tell you that when the CRTC handed down its decision last year not to regulate the Internet, we welcomed it with great relief. Fundamentally, if I can cut to the chase, one of the reasons that they determined that is that it is virtually impossible to regulate. They confronted a reality of the wired, borderless world that our conventional standards -- our conventional process of regulation -- do not apply. That said, they also recognize that there are laws in place in Canada to protect Canadians against hate crimes, the invasion of privacy, and some of the other concerns that we have.

Senator Finestone: From your experience, do you believe that we are, in this borderless world, able to control or to have much say on what will come in via cyberspace or on our Internet?

Ms Leonard: I do, indeed, especially if you go back to how the Internet was originally created and how it has been deployed in its first and second generations. It was originally created as a tool for the exchange of information in a research community. Second-generation adoption of the Internet has been very much to use this as a democratizing tool, to exchange information and to empower individuals. I think that is a very positive aspect, a democratic part of the Internet.

There is no question that there is material on the Internet that is offensive to some. In its inception, though, the Internet was very much a self-regulating and a self-healing kind of environment. As we have grown to 275 million users worldwide on the Internet, those values tend to be difficult to enforce. However, they form this powerful tool that we have created. Much of the work that is going on in terms of developing technological solutions to guard privacy, to encrypt information, comes from that sense that we have created this powerful tool.

We have created it. It is open, free, and unprecedented in human history. What do we do to ensure that that some of the negative forces that are encroaching on it do not steal it away from us?

Senator Finestone: Do you have confidence that we will be able to have a type of cryptography or fire walls, or whatever new terminology is the flavour of the week, to protect my banking card and my banking number when I want to do my banking on the Internet?

Ms Leonard: Yes, is my short answer. One solution will not solve the problem in perpetuity. The environment is very dynamic. There are smart people at work on the Internet on both the sides of good and evil. That is the good news. There are technological solutions being developed in Ottawa, in Montreal, that will do a great deal to help.

Senator Finestone: Do you believe that banking services, safety and security, can be assured and that I do not have to worry? Can I tell my constituents to go ahead and do their banking and not to worry?

Ms Leonard: Vigilance is required. Intelligent use of these tools is required; education is required. Our paper mentioned a code of fibre ethics, a code of behaviour that we believe needs to be formed and promulgated, which would teach not only how to behave ethically in the Internet but also the kind of standard of behaviour that you can expect.

I do believe that, without attempts to control something that is fundamentally at its heart uncontrollable, we can arrive at an environment that will be free, open and very powerful and productive.

Ms Yale: I would add that, on the issue of security of personal information, at the end of the day if people do not feel confident using their credit cards to do e-commerce they will not do it. Thus, I think that businesses will see there is a competitive advantage in providing customers the kind of security that they will require to feel confident in doing transactions on-line. Those businesses that find ways to offer that kind of security will be successful in an on-line environment.

Businesses will start to compete for customer confidence, and to find ways to offer technology that promotes confidence and encourages customers to come to them for their on-line transactions. The marketplace will provide those solutions, so that Canadians will have confidence to go on-line in a way that they have not yet.

Senator Finestone: Madam Chair, I believe what I have heard, and I am hopeful that all this will happen. However, that does not change the fact that I sat with my grandchildren and watched what they could do. They can learn how to make a bomb; they can learn how to be destructive. They can also learn how to hate. They can also learn how to do their banking. They can teach me how to speak to the White House -- which I thought was quite impressive.

I am glad to hear you all sounding so positive and forward-looking, which is the way I would like to see this all work out.

Senator Banks: I do not hold out a whole lot of hope for education and self-regulation, I am afraid. I do hope that that happens. I have questions for the two representatives of Information Technology Association of Canada.

I hope that someone, maybe it will be you, will say that the fact that the conventional means of regulation and policing of various public highways to date will not work and have no application as regard to cyberspace does not mean that we say that we cannot do that. I am hopeful that someone will find a way to do it for reasons of crass commerce, as well as for reasons of making sure that a 12-year-old kid cannot make a bomb.

I mentioned to the previous witnesses that, at the turn of the 20th century, the conventional wisdom was that the means did not exist of regulating and making sure that matters that were subject to copyright, which was then a completely new concept, could be dealt with across borders. Means were found to do that, which circumscribed the conventional wisdom. I have great Pollyanna hopes that technology can solve anything.

I should like to ask two questions of Mr. Barnes. I have a great concern that I know you probably share. It is a technological question, which has to do with transport. The fact is that the proliferation of wireless technology and the necessity of this sort of mattress of transponders, but more important, simple low power relay transmitters and the like all over the place are seriously beginning to interfere with commercial radio signals and public radio signals. They are making less effective what used to be effective footprints of broadcast patterns from traditional stacks. They are no longer as effective. They are being severely interfered with by the desirable proliferation of wireless access.

The second part of that problem is that you mentioned that you would be able to elimination location problems across Canada. I am curious to know how that would be, since the last guys that tried that went broke three weeks ago. Sixty satellites will crash into the earth because of it. They could not make the means of having wireless access through transponders up through satellites work. There simply were not enough people who were prepared to spend $2,500 for phones.

Incidentally, I am among one of your first customers. I spent $3,500 on my first cell phone.

I also have a question for Ms Yale. I come from the entertainment industry and, until recently, I do not think it would be fair to characterize the attitude of the entertainment industry and television producers, for example, to the cable industry as disdain.

In our general view, it was a few years ago, before the regulations came into place, that it was easy to make money when you stole your product and sold it for a significant amount of money. I know that is no longer the case. I am just informing you of where I am coming from here.

I should like you to talk about the philosophy. I know that we all have to do things differently now. Getting back to the old regime, the fact is that you are still sort of broadcasters, you are still putting forth entertainment as well as information programming into our homes.

Canada is wired more than any other nation, I think. Traditionally, a producer makes a television program, whether it is a talking head or a multi-million dollar spectacle. I assume you represent pay television and pay-per-view television as well as cable; is that correct?

Ms Yale: To the extent that my members might have those interests, but there is a separate association that represents the bulk of the broadcasters and specialty and paid providers.

Senator Banks: But it does come in through cable, and there is that vertical integration, so yes, you do represent those guys. Talk about the difference between how much money a broadcaster with a stick who also happens to be on cable, but he is a broadcaster in the old-fashioned sense of the word, pays for a television program, and the extent to which he is obliged in some cases to pay for certain kinds of television programs, on the one hand, and what your members would normally and traditionally pay for a television program -- I am scoffing a little bit here -- on the other hand. Since they now, for all intents and purposes, are getting to exactly the same customer base, within a couple of points or whatever, should that huge disparity continue to exist? Is it just that we are all in ruts? It is a philosophical question. Maybe there is no an answer to it.

Ms Yale: The essence of television broadcasting, the economic model of it, as you know, is to generate as many eyeballs as possible for advertisers. The program is just the vehicle by which advertising is delivered.

Senator Banks: That is also true of cable networks.

Ms Yale: You must distinguish between the services that are delivered, such as specialty services.

Senator Banks: I am talking about entertainment programming.

Ms Yale: There is the broadcasting model, which is the over-the-air networks who live by advertising revenues alone. They do not have cable subscriber revenues per se, but what they do get in addition to their over-the-air revenues is revenues associated with the extended reach provided by cable. Thus, there is the over-the-air reach and there is the payment by cable through the copyright tariffs for the retransmission of those signals in distant markets. Traditional broadcasters make their money from advertising.

The specialty services make their money in two ways: from advertising, which is a portion of their revenues, and from subscriber fees that are paid for by our customers. The theory there is that there is no business case for them to live on advertising revenues alone, because, by definition, at least initially, they were narrow cast; they were targeting a more narrow audience segment and could not generate the masses of audiences that the broadcasters could.

Senator Banks: But now?

Ms Yale: Now, still the lion's share of the advertising is on the broadcasting side of the house, and the specialities still live by the combination. The pay services, on the other hand, do not have advertising. They live exclusively on subscriptions, on the logic that they are even more focused on an audience that is willing to pay the entire cost, like pay-per-view. They are slightly different models.

What is interesting, and I think very interesting for consumers, is that with digital technology, for the first time ever, customers will be able to pick and choose services on an à la carte basis with those digital boxes. All of a sudden you can scramble and unscramble services individually instead of in packages. We will see through the next round of CRTC licences entirely new business models. Now, many of these packages of services are carried and available or subscribed to by the vast majority of homes. As you point out, what is the difference at the end of the day between a specialty service that is distributed to 85 per cent of homes and a broadcaster that is in 100 per cent of homes or whatever? It will be very interesting to see the new business models that will be associated with these new digital-only services.

Senator Banks: Are those 85 per cent of customers all individually addressable now?

Ms Yale: No. Right now, the services are only in circulation in about 300,000 digital boxes in cable homes. All satellite services, ExpressVu and Star Choice, all those customers, can only receive services digitally. All those customers have the ability to receive services on an à la carte basis. In the next round of licences that the CRTC will be issuing in the fall of this year, those services will be available only if you subscribe to a digital box. Thus, it will be interesting to see how those services are priced and packaged. They will be going to a much narrower segment of customers.

Senator Finestone: The CRTC and Canadian public policy direct a certain content that is Canadian. What is the implication for Canadian content in this new digitized wide-open circuit world?

Ms Yale: The CRTC has mandated the level of Canadian content that must be offered by all of the new applicants. Thus, there is a prescribed level of Canadian content for these service providers if they wish to get a licence. It is 50 per cent. It ramps up from the initial grant of a licence over the seven years of a licence term. They are given an opportunity to ramp up as they get more revenues. There are fairly hefty Canadian content requirements even on these services.

Senator Finestone: Radio and television.

Ms Yale: These are just television services.

Senator Finestone: What about radio?

Ms Yale: Radio has the traditional requirements. There are no new licences being considered at this time.

Senator Finestone: I do not think you heard my question properly. In this new open world on the Internet, what is the implication for Canadian content?

Ms Yale: That is a question to which nobody has figured out the answer. With services being available over the Internet on-line, over time, what will make Canadian services succeed is that people find them attractive and want to watch them.

Ms Oliver: I agree with what Ms Yale said. The market will determine the Canadian content in a sense on the Internet. If the content is good and people are enjoying it, that is what will determine it.

Ms Leonard: Especially in the on-line world, we have tremendous potential. There is great Canadian ingenuity and a capacity to create Web-based content that is innovative, that is sticky and that attracts a global audience. We have been very precocious in our adoption of these tools, so we have some advantages. There are structural processes, I suppose, put in place, like the multimedia activity going on in Montreal, to sort of concentrate and focus on creating centres of excellence so that Canadian content is so superb that the world will basically beat a path to our door.

The Chairman: Mr. Barnes, one of the key issues that we are looking at, as you know from reading the framework, is the issue of privacy. Even today, I have problems with certain discussions with my cellular. What is the wireless world looking at to ensure privacy as we move on?

Mr. Barnes: There are basically two areas that we look at from a privacy perspective. One is the privacy of your communications. The first generation of phones, what are called analogue phones, were basically public airwaves. If you tuned into the right channel, you could hear the conversation. The second generation are digital. They use a technology that, if you went into the channel, you would hear zeros and ones, or a series of beeps. They use codes. They are quite secure. The third generation will be even more secure.

The Chairman: Is second generation generally implemented as we speak?

Mr. Barnes: It is implemented as we speak, but it is a function of the phone that you have.

Senator Banks: My phone does not have it.

The Chairman: So don't call me; I will call you.

Mr. Barnes: What happens is that the coverage areas vary, depending on where you are, whether it is analogue or digital. Digital is much more secure than analogue, and more and more there are digital conversions going on.

The other part of the privacy conundrum for the wireless industry is work to ensure that customer records, transactions, billing and the like are also dealt with appropriately. In that regard, we are now beginning to work with our members to attempt to pull together an industry-wide code of privacy modelled on the Canadian Standards Association code, and in keeping with the tenets of Bill C-6. We are working on both sides. As the technology improves, the transmissions will be more private, and our transactions with our customers will be more private as well.

The Chairman: Ms Yale, do you have any suggestions on how the government can improve access to investment capital?

Ms Yale: There are a variety of options that we talk about in our report. An obvious option is foreign ownership issues and restrictions.

The Chairman: What would you recommend?

Ms Yale: Our position is that there is no longer any need for foreign ownership restrictions in the case of telecommunications or cable companies in their capacity as distribution undertakings. We have recommended the elimination of foreign ownership restrictions. That is not for content undertakings but for carriage undertakings.

There is also, in the context of new media, a huge issue in terms of them having access to venture capital, which is quite different from the issue that is faced by the traditional carriers, in the sense of whether it is cable companies, wireless carriers or telecommunications companies that have huge infrastructure investments to do but may find a limited capital pool in Canada. The new media players, on the other hand, find that even though they are small and have small capital requirements Canadian financial institutions tend to be very conservative. Thus, for these players there may be a need for more positive financial incentives, even from the government, to help fund new media.

The Chairman: Could you provide us with a few examples that you feel would work?

Ms Yale: One of the things that is coming up for renewal is the issue of the Canadian Television Fund and the funding of traditional television and feature films. There is a small amount of money that is devoted to new media production. However, recently it was announced that the Canadian Television Fund will be richer this year, to the tune of $18 million over and above what was originally anticipated, because of the growth in cable revenues and satellite revenues, and so on. It seems to me that, as these funds keep growing, maybe we should not automatically assume that all the money should go to the traditional media. Perhaps we should try to ensure that some of that money is targeted at new media, so that we will have more Canadian content on-line, in English and French, so that we may be successful in this new economy.

The Chairman: Ms Leonard and Ms Oliver, you spoke about the need for Canada to have an outstanding business environment. If my memory serves me correctly, your president or vice-president appeared before the Standing Senate Committee on Banking, Trade and Commerce at one point and made some suggestions. Could you describe that outstanding business of environment?

Ms Leonard: I can certainly pick up on what Ms Yale was saying about the venture capital climate in Canada. This is not just restricted to the multimedia community; it is a serious problem for all IT start-ups and emerging companies.

Madam Chair, you made reference, in the earlier round of presentations, to the Boston consulting group. If you look in there, you will find a reference to the comparison between initial public offerings launched by NASDAQ, and by the TSE, for Internet-based companies within the same timeframes. They had something like 155 to 4 in Canada.

This process of getting on the bandwagon and launching new economy companies is very much hindered by the forces of conservatism and the lack of information. Rather than look at structural innovations that we might put in place, communication and education can do a great deal to better educate our investment community and understand that this is very much about the future, and to try to break down some of the entrenched conservatism.

For example, there was a series of articles that ran in the Globe and Mail last week that dealt with some of the marginal practices of investment firms and securities firms in bringing ".com" companies to the marketplace. The inference of that series was that this is shady business. The reality is that in a new economy, in a fast economy, in a super-heated economy where you are competing with venture capital in the United States, we need to rethink the rules that govern us. We need to assess whether some of these people who are skirting the margins of accepted practice are not actually assisting us, are not actually helping to propel more and more of the .com companies that we need to respond to the opportunities in the new economy, where they should be, and ensure that the innovation and the work that they do remains in Canada, as opposed to seek its capital and relocate to the United States.

We are facing a fairly serious problem in terms of competition for our knowledge workers, in terms of competition for our enterprising companies with the United States. That needs to be addressed in a serious manner.

The Chairman: What would be your key recommendation for addressing that situation?

Ms Leonard: There is no one recommendation. Certainly, a review of the personal and corporate tax regime, the impediments that we are putting in place that could be easily removed, need to be considered. The personal tax burden that an average worker -- not even a high-end IT worker -- bears in Canada makes already attractive offers of employment that consistently come up from the United States even more attractive. All of the things that we think we have put in place, that we have built in terms of this wonderful quality of life that we have in Canada, become nullified at that end of the employment spectrum. These are people working for employers who can afford to give them good health benefits, they are earning incomes that can ensure that they are going to communities that can offer a fairly good sense of personal security, and so on. If we want to keep the smart people here, we must take a look at disincentives that we have inherited in our tax system that might make them jump at those offers.

The same would apply in the venture capital community. The conservatism that Ms Yale referred to has precipitated any number of fast IT companies seeking their primary and secondary stage capital in the United States. Typically, once they get that capital, the investor wants to keep his investment pretty close to home. It is not long before they are opening offices close to where the money is and ultimately moving their whole enterprise. That means a migration of jobs, it means a migration of brain power, of knowledge, of a capacity to innovate that Canada sorely needs.

Senator Banks: Just to be argumentative, first I should like to say to Ms Yale that in respect of my comment earlier about content, which you took in very good humour, I want you to know that I am closely aware of many exceptions to that rule that applied even before the regulations changed.

However, to be argumentative about the thing that we have just been talking about, I think it is wrong to attribute the drain of creative people entirely to the government regime of taxes and the like, and to the absence of government funding for new media. There are many kinds of examples, such as Nelvana, which is a hugely successful business; its creative people do not keep running off to the United States. They are doing just fine. They are among the leaders in the world in what they do.

In my view, there is a fundamental difference the people who operate the pipelines in the United States on the one hand and in Canada on the other and their attitude as to who should be investing in the things that go into the pipelines.

As a general rule, Canadians want to be carriers. They might put it differently, but the fact is that they want traditional broadcast undertakings to be utilities, which happen to have to pay for making programs sometimes, but they put them in the same category in which they put rent. I am not speculating. I know that to be true. The same is true, in the most vague generalization, of cable operators.

What is wrong with the people who control the pipeline investing in the stuff that goes into the pipeline?

Speaking about removing ownership restrictions on cable systems, do we actually think that the United States will remove ownership restrictions on their cable systems? Would it not be reasonable and fair that, if we do, they do? Does anyone actually believe that they would?

Ms Yale: In terms of the foreign ownership rules, I would say that for the largest cable companies in Canada there is not a huge barrier to them finding the investment capital they need. They go to the United States regularly and raise money. I would say it is more in the category of an irritant than in the category of a need to have.

Having said that, the more fundamental philosophical question is to what extent they serve any purpose any more. To that question we say that all of the issues that may be of concern from a public policy perspective can be addressed through regulation. You do not need the additional layer of foreign ownership to ensure that Canadian cable licensees comply with whatever requirements you want to impose on them as a matter of public policy, be it what they have to carry, what fees they can charge, or ensuring that they spend money on Canadian television production. If there are rules and regulations in place that are imposed by the CRTC, anyone who has a licence to operate in Canada presumably will live by the letter of the law.

With regard to whether they are a Canadian-owned company, there are many examples of American-owned companies operating in Canada in other lines of business that live by the laws that apply to them.

Senator Banks: You could name four American companies which, given the opportunity, would certainly entertain the purchase of Canadian cable television systems. Is it okay if we have largely American-owned cable operators in Canada controlled simply by regulation? Is that of no consequence?

Ms Yale: It is of no consequence to my members. I do not see what would be at risk if we allowed that to happen. As I say, it is more of an irritant. A more fundamental question is the first one you addressed: that is, why is it that cable companies generally speaking today are not allowed to own content, programming undertakings? In the United States, it is a completely different regime. Most of the specialty services, be it music videos or whatever, are called cable channels because they are owned by cable companies. They have a huge incentive to invest in them and ensure that they are popular. People sign up for the services and it generates revenues for the system.

In Canada, we are in what I think is the anomalous situation that cable companies are limited, generally speaking, to being pipes when it comes to carrying entertainment services and are not generally allowed to own content. It seems to me that the concern that underlies that rule was that cable companies might give preferences to the services they own relative to the services they do not own.

It seems to me that that might be a concern in a world of limited channel capacity. However, now we are in a world of digital capacity with many, many more channels. It seems to me that the rationale for that rule has gone. In fact, one of the fundamental recommendations we call for in our report is that companies should be allowed to expand and integrate into related lines of business if they think that is a good thing to do. We see BCE, with its proposed acquisition of CTV, recognizing the value of being both a carrier and a content provider. Similarly, cable companies want that same kind of flexibility.

Senator Banks: When you say that cable companies should own content, you mean that they should own commercial television stations?

Ms Yale: Be it specialty services, television stations, radio stations, or whatever.

Senator Banks: There is nothing now to restrict a cable operator from investing in content, per se -- investing in a movie or a television program. They do it all the time.

Ms Yale: Yes, but today they are not allowed to own the undertakings. Our members have interest in some of these services, but not direct ownership.

Senator Banks: By "undertaking", you mean television stations?

Ms Yale: Or a specialty channel.

Senator Finestone: In order to get funding from the Canadian Television Fund, do you not need a signed window with a broadcaster?

Ms Yale: That is correct. However, the cable companies do not own broadcasters. Separation of carriage and content is the rule. The broadcasters are carried by cable, but cable companies do not own broadcasting undertakings. By regulation, they are not allowed to own them.

The Chairman: Foreign ownership is one of the aspects of our study that brings together different schools of thought. I attended an international conference a few months ago in Canada. One of the intervenors said that, if Canada opens its foreign ownership rules, it would simply be selling our country, because, with the value of our dollar currently, it would certainly be value for money for some people from other countries.

How would you balance the need for capital for Canadian companies with the importance of not selling out our country, even though we would just apply it to carriers, at a time when the Canadian dollar is low? What conditions could be imposed to balance the different needs?

Ms Yale: That is a very interesting question. One view is that, if we relax foreign ownership limits, somehow our domestic undertakings will be bought out and somehow leave the country. However, the fact is that these are infrastructure-intensive industries. They are not going anywhere. The infrastructure is here, and we are talking about creating an opportunity for money to come into the country to finance the expansion of that infrastructure. Therefore, if that infrastructure is state-of-the-art and is allowed to expand, and more investors are willing to come in and invest in that infrastructure, it counters the trend for that money and those business opportunities to go elsewhere.

I was recently on a panel at a U.S. cable show where the owner of a fairly extensive system of competitive cable undertakings internationally said that the climate in Canada, from his perspective, is so hostile that there is no point in investing. He said that there are too many rules, that he can only be a minority investor, et cetera.

What we are really trading off, and what we never take into account when we think of the benefits of the foreign ownership restrictions, are the missed opportunities and the missing investments that would be attracted to locating in Canada, making those infrastructure investments and then attracting the businesses that flow from having that infrastructure in place. At the end of the day, the communications infrastructure is really the heart of the new economy. One of our pleas is to ensure that that is a vibrant piece for Canada.

The Chairman: Thank you for your presentation. The quality of your written submissions and your verbal presentations and answers were truly extraordinary.

If we have additional questions, our clerk will communicate with you in order to obtain the answers in writing, so that they might form part of the record.

The committee adjourned.