Proceedings of the Subcommittee on
Communications

Issue 2 - Evidence, May 17, 2000

The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 5:45 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: Honourable senators, today we have before us two renowned thinkers and doers in the field of communications who will speak to us about competition, convergence, consumers and the public policy issues of the 21st century. I should like to welcome Ian Angus and Ken Goldstein. I should also like to thank them for accepting our invitation to appear as a panel here today.

Mr. Kenneth J. Goldstein, President, Communications Management Inc.: Madam Chairman, thank you for inviting me here this evening. I should like to commend you on the work plan that you have set for yourself.

In 10 minutes, I will try to highlight some of the issues from the perspective of the media industry, which is where I come from. Mr. Angus comes from the telecommunications industry. You will find some interesting convergence.

The Chairman: We know there are certain business alliances bringing the two worlds together.

Mr. Goldstein: Yes.

I have made a few power point slides to help me focus my presentation. I begin with this question: Was the 20th century the century of mass media? It can be argued that over the 20th century, we had, first, newspapers and magazines and then television. You could call the 20th century the century of mass media; yet here we are at the turn of the new century and we are saying to ourselves, "Perhaps that was an anomaly. Maybe what we thought about the mass media was not the pattern for the future. Perhaps the whole notion of mass media is something to which we will have to wave good-bye." That is something we must think about.

Your committee wants to focus on convergence. Convergence is about the erasing of borders. It would be useful to focus on three kinds of borders that are being erased as we speak. The first is borders between countries. I can log on through the Internet to radio, television and print media from anywhere in the world right now, and so can anyone else in the world. The minister of communications for the Government of Australia recently gave a speech suggesting a complete revamping of the regulatory approach. I found it interesting that one of the reasons he gave was that the Internet completely breaches borders. He used as an example a newspaper that he reads regularly on the Internet -- The Globe and Mail. He reads in Australia a newspaper that is published in Toronto.

There are also borders between types of media. It is not just a question of media conglomerates buying different types of media; it is also the fact that, increasingly, they are taking on each other's characteristics. If a newspaper offers video clips, or if a radio station puts a rock concert and streaming video on its Web site, or the same radio station sells classified ads, what business are they in?

Finally, there are the borders between media and non-media. You have probably heard of beer.com, which was introduced a few months ago. That site was started by Interbrew, which is the owner of Labatt. It represents a non-media company beginning to take on media-like characteristics.

Is what is happening today different from the past? Let us take a look at the comparison between the introduction of colour TV and the Internet. With colour TV, you needed new equipment to produce, transmit and receive. With the Internet, you also need new equipment to produce, transmit and receive. Are they the same? The answer is "no," because the Internet also impacts on retailers' business models. They start to use it to sell and to provide information. Non-media can also become media because of the Internet.

We are now at the threshold of the introduction of at least a dozen new digital devices. I will run through them quickly, and we can come back to them if you want. They are the Internet, digital terrestrial radio, DVDs or digital video discs, digital cable, digital terrestrial television, DTH, MDS, MP3 music, personal digital music devices, personal video recorders, digital video games, satellite digital radio, and devices that link computers to televisions, radios and stereos.

Do not stop when you hear someone say, "People will not watch TV on their computer." It does not matter, because you can buy a device today for U.S. $88 that will link your computer to a television anywhere in the house. You can put a DVD in the computer and it will play on the TV in the family room. The point is that it will come into the house and you will be able to watch it, listen to it or play with it anywhere in the house.

What do we know about these new digital technologies? They can absorb each other's functions. They have the capacity to collect "digital data" about consumers, either information you offer when you sign up or information about your purchasing habits. That information is all stored digitally. It allows media to impinge on each other. Even absent interactivity, it makes possible the delivery of content in volumes that we have only begun to perceive. Forget the three channels we grew up with. Forget the 50 channels we have today. Forget the 500-channel universe. Basically, there is no number any longer. Because there is no number, there is actually only one number, your channel, because you will build it from all the choices for yourself.

Higher quality Internet audio and video are coming at us from three directions. Again, that is important. It is not just one thing happening at once. Three things are happening at the same time. Those lines will cross sooner, not later. The first is improved transmission speeds. You have heard of cable modems. You have heard of the telephone companies' ADSL offerings. Canada leads the world in the number of high-speed Internet connections as a percentage of Internet overall in this country.

You also have improved compression techniques. Most video on the Internet now is in what is called MPEG-2. MPEG stands for Motion Picture Experts Group. MP3 music is the same place. MPEG-4 is about to come on the scene, which will allow you to send more in less space.

Finally, you have improved storage devices -- personal video recorders. They let you record 30 hours digitally on a hard drive attached to your television set, but that does not mean you can record only television. You can attach it to the Internet. While you are asleep, you can order something and it is it there the next day on that storage device.

I have put together our own projections for the percentage of Canadian households with Internet access and with high-speed access. We tend to be on the conservative end of these projections, but even at the conservative end you can see that about 36 per cent of households today have Internet access, and one sixth of those, or about 6 per cent of households overall, have high-speed Internet access. We will be going to above 60 per cent within five years for Internet access overall, and probably at least one third of households overall will have high-speed access, which means being able to get television over the Internet -- not necessarily watching a movie or a sporting event, but certainly news is migrating to the Internet and will continue to do so quite rapidly.

I put together two interesting Canadian Internet benchmarks that will occur in the next 12 months. When the percentage of households with Internet access passes 40 per cent, more than half of the income in this country will be in Internet households. When the percentage of households with Internet access passes 44 per cent, that will exceed the combined circulation of all the daily newspapers in the country. That gives you a sense of how balances are beginning to shift.

As all this technology is happening, consumers are changing. The baby boomers were the TV generation. Their kids, Generation Y, are the Internet generation. They are a multimedia generation. If you have ever watched a teenager, as I do on a regular basis, surf the Internet, watch television, be in the chat room and say, "Yes, dad, I am doing my homework," you see a glimpse of that Internet multimedia consumer.

Within the media, advertisers are changing. They want greater targeting. They do not want to waste their advertising buys. They are beginning to test the multiplexing of commercials. What does that mean? It means that Kraft Foods, for example, will buy a commercial in a program, and, because of the digital data about the consumers receiving that program, in a house where there are two empty nesters the Kraft commercial will be for Miracle Whip and a recipe. In a house where there are young children, it will be for Kraft peanut butter or Kraft caramels. It is the same advertiser, the same program, the same commercial slot, but different commercials will be targeted to different households. That is being tested today.

We are moving away from demographic measurements. Of course, advertisers are looking for cross-platform strategies, which is an industry buzzword for, "Don't just sell me the newspaper or the television, I want a package across all the media." Of course, the advertisers themselves are taking on media-like characteristics.

The revenue sources are changing. The current principal revenue streams are advertising and subscriptions. You probably think of television as an advertising-supported business. The fact is that Canada was the first country in the world where subscriptions passed advertising as the largest source of revenue in the system, and that happened in 1991. The next growth area will be transactions. There is a direct connection between the media and electronic commerce.

All of this affects the television value chain. When you watch this value-chain diagram unfold, remember that every industry is going through the same kind of value-chain earthquakes at the moment. The present value chain is pretty straightforward. You have content producers, advertisers and broadcasters. The broadcasters pull together the information from the first two, pass it through the BDUs -- which are cable or satellite companies -- and out to the consumers.

What happens when a company like Labatt establishes beer.com? Now you see the advertisers going directly to the consumer. They will link with content producers to make that more complete. Labatt was advertising a few months ago for an entertainment lawyer to buy program rights.

I have drawn a link from advertisers to BDUs, which are the satellite or cable companies, because they will control the digital data about the consumer. They will want to cut themselves in for a piece of the advertising pie. Alanis Morisette and others have already released music on the Internet. The traditional intermediary is bypassed.

The consultants' word is "disintermediation." Where I grew up in north Winnipeg, we called it cutting out the middleman. The effect is the same. That is happening in every single industry. The media are a model for other industries. The major challenge for any business today is in deciding whether to stay with the same wholesaler or retailer or to go directly to the consumer. If it is the latter, how does one manage or finesse that change? That is one of the major challenges.

This raises some important issues for the media. You may want to focus on these areas. First is copyright, which is a huge challenge for the Internet. You have heard of icravetv.com. That was actually a silly venture. You can ask me more about that later if you want. It did, however, point out the vulnerability to everyone in the copyright world.

Competition is another area. How do you define the market? Is radio a market? Are newspapers a market? If the radio is selling classifieds and the newspapers are supplying audio feeds, are they now in the same market? We will need new regulatory models. There is no question about that.

Electronic program guides will become absolutely vital. If you do nothing else in your deliberations but come up with a policy for electronic program guides, you will have done us all a great service. We are way behind in this country. The Europeans and the British are way ahead. We are heading for a world in which it is possible that the electronic program guide will become the new channels. We all must think about the priority for Canadian content and Canadian services on those guides.

The final challenge is control of that digital data, that information about the consumer. Will the BDU, the cable or satellite company, be able to use that information to carve out a bigger piece of the business to the disadvantage of certain players that have certain public-interest obligations? Will there be clear rules? Of course, the whole issue of privacy is fundamental.

I could not resist adding three broader societal issues. First, what will we do about the information haves and have-nots?

Second, how will we maintain our shared experience? The Internet links us all, but, because it provides so much choice, it is a profoundly fragmenting media. How will we make a modern democracy function in a society in which we all have less in common? I know that is an easy question and you will answer it in the next 15 or 20 minutes.

The third issue is media literacy. We have come through a period of about 70 years when what we had going for us was not so much regulation but what I call the coincidence of oligopoly. There was a very small number of players. Because of that, no one had any incentive to stretch the boundaries of taste. Now there is a huge number of players and there is garbage on there along with the good stuff. We cannot depend on the regulator nor on the structure of the industry to protect our children. We must learn as parents and as teachers to do that. Thus, media literacy is an issue.

Mr. Ian Angus, President, Angus TeleManagement Group Inc.: Honourable senators, I come from the telecommunications side of the house. We are a consulting firm. I am hoping, perhaps later in the committee's deliberations, to contribute to some of the specific topics. For now I will discuss the trends that are driving change in the telecommunications industry and probably will for some time. These things are happening more behind the scenes than out front.

I have constantly found it ironic that, if you go back to 1991 and dig through the CRTC's documents, you will find some major submissions from Bell Canada and others. Major economists were arguing that the telecommunications industry had become a mature industry and would not be subject to much change in the future. We then went into a decade of probably the most profound change the industry has ever had and the most profound growth it has ever had. I will talk about some examples.

Far from looking like a mature industry, in 2000 telecommunications looks like an adolescent. It is going through intense growing pains and very rapid shifts. Five trends are affecting this industry and, thus, its customers, its regulators, its policy-makers and so on.

The first trend is the absolutely unprecedented growth of demand for telecommunications, which developed in the 1990s. You think about someone calling this a mature industry 10 years ago and then look at numbers like this. Long-distance traffic in Canada grew 12 per cent per year starting in 1995. Compounded, that is 80 per cent in the last five years. These statistics cover North America. In 1993, there were 3.5 million toll-free numbers in service. Today, there are over 21 million. It took 25 years to get to 3 million; it took only another seven years to get to 21 million. At any given time, 40 per cent of the traffic on the AT&T network is going to a 1-800 number. In 1990, there were about 1 million wireless phones in Canada. Today there are 7 million.

That kind of growth is spectacular and that is just in the voice area. The big growth area, the one that everyone can see and that is painfully obvious, is the Internet. In 1990 the Internet existed but it was a network for academic researchers. Almost no one knew about it. Today, more than 50 per cent of adults use the Internet at home or at work. It is hard to get good estimates, but it is generally believed that the amount of traffic on the Internet is doubling every 100 days.

That has had a profound effect on the structure of the telecommunications industry here and elsewhere, if only because of the heavy investment in infrastructure required to keep up that growth. In some areas of the country -- Newfoundland, quite recently -- phone call traffic had to be cut back because volume was blocking emergency or 911 calls.

Another impact is the attraction of new companies to the business. Any industry that grows like that will attract investors and new companies. We have a constant flood of new companies coming in.

This growth in traffic is not the old stuff getting bigger; it involves new areas. We constantly hear from the traditional carriers about how hard they are working, but the numbers usually show decline in one area and growth in another area. For example, in 1969, Bell Canada's revenues from long distance service fell by about $367 million. Prices were falling, but, at the same time, their revenues from other areas rose by over $400 million. That does not include cellular or Internet revenues. That kind of fluctuation happens constantly in the business. Much of the shuffling in the business reflects the new areas that are growing up and the old areas that are decaying. There is an unbelievable amount of demand. "We want bandwidth. We want dial tones." That is almost a slogan for North Americans and for people around the world.

Trend number two, perhaps harder to see, is the unprecedented decline in the cost of providing telecommunications services, which occurred in the 1990s. Long distance rates in Canada fell about 50 per cent between 1992 and the present. Part of that was a matter of new competition. Much more of it involved a revolution in fibre optic technology that began in about 1995, when the capacity of fibre, with the technologies available off the shelf, rose from very big to almost unlimited in a short period of time. In 1992, a phone company that wanted to build a fibre network could buy a system that transmits bits over fibre that would handle about 2.5 billion bits a second. For the same price today, they can buy one that will handle about 80 billion bits per second. Both Nortel and Lucent, the big names in this business, are talking about terabits, or trillions of bits per second, in the systems that will be commercial next year.

The point of this is that the expensive part of building a fibre network is putting the fibre in. These are things that are done by changing the electronics that connect. A few years ago, The Economist magazine referred to this as the death of distance. It was no more expensive to move a bit from here to Moscow than to move it across the street.

It is also being reflected in consumer and business services as the death of long distance. Over the past eight years, as a result of both competition and technology, long distance telephone service as a separate category has become a dead business; it will not exist long. In some places, it already does not. All four of the major carriers in Canada offer plans for cellular subscribers where you pay so much a minute whether you are calling across the street or to San Francisco. It is all the same. The $20-a-month long distance plans that a lot of the companies came out with a couple of years ago have created a situation where I can pay $20 a month for my phone line and $20 a month for my cell phone. For $40 a month, Canada is now my free calling area. Everywhere in Canada is a local call as long as I only call in the evenings and on weekends. Since I am not at home at any other time, that is fine. Believe me, my teenage daughter knows about that. A month ago, a Swedish company abolished long distance. It is the same rate for anywhere in the country.

There are still some barriers to long distance being free or essentially free. Primarily, they are regulatory and structural. For example, when phone calls cross borders, companies have to hand the calls off to each other and everyone wants to get paid, but the prices are falling. I can call England now from Toronto for less than it cost me five years ago to call Montreal from Toronto. Those rates will continue to fall.

This has a huge effect on the industry because for the first century of the telecom industry everything was financed by long distance. That is how we kept local rates low, how we paid to put phones into Nunavut, and how we paid for research and development. Everything was paid for by long distance. There are Third World countries whose entire telecom infrastructure is built by the incomes they get for handling long distance calls from Canada and the United States. Suddenly, that is disappearing, and it is disappearing very rapidly.

The third trend is an enormous amount of technological change and introduction of new services in the local and access area. There has been a tendency lately in the newspapers to say that local competition has been a flop in Canada: If you look around, they say, how many companies are trying to sell you local telephone service? That is true if what you mean by local competition is someone else doing everything Bell Canada does -- putting a wire into my house, putting in a phone, giving me dial tone, et cetera. There is not much of that and there probably will not be much of it. However, if what you mean is that there are more and more ways to get access to telecommunications networks from wherever I am, then we have an enormous amount of competition. Nearly one third -- 28 per cent in Toronto -- of all local telephone numbers are now on mobile phones, and almost all cellular calls are local. There are few long distance calls made by cell phones. In essence, four companies besides the phone company are trying to sell me a local phone. However, it does not look like my traditional phone, so I do not think of it as a competitor.

Over half a million Canadian homes have high-speed Internet service, which is a telecommunications service, but they get it from their cable company. There are some parts of the country now where cable companies are selling telephone service -- mainly in Halifax, where there is a major development of that -- and there are parts of the country where the telephone company is selling television. The point here is not to say that the local market is highly competitive and does not need to be regulated. Certainly, the incumbents have an enormous advantage if only because they were the incumbents for a century and they wire everyone. It means that local competition is developing and developing in completely unexpected ways. What we will probably not see is a proliferation of phone company clones. What we are seeing is new companies picking up pieces of the business as they see technological opportunities to do it. We will see a lot more of it, especially in the wireless area. A company called Look Communications, which is in the television business, has just started doing wireless business to anyone who wants it in Hamilton.

The fourth trend is acceleration and innovation. The telephone industry has a very impressive history of innovating. It has done wonderful things for a century and a half. However, because it had absolute control over its network, it was able to manage the innovation carefully. I worked at Bell Canada for a long time. If you wanted to introduce a new colour on a telephone, you could spend three or four years doing economic analysis before anyone would consider letting it out, because they wanted to be absolutely sure that it would not undermine any other product. You had to work out how it fit and you had to ensure that every "i" was dotted and every "t" was crossed.

Under competition, we have seen that kind of thing go away. There is a much faster introduction of traditional telecommunications products. We no longer see the kind of situation we saw in the 1980s, where the Canadian phone companies decided not to introduce services that businesses wanted because they did not have to and people found themselves competing with American companies that provided services they could not get here.

Then, however, the Internet happened. Now, instead of innovation being limited to Bell-Northern Research labs, hundreds of thousands of smart people are trying to figure out what they can do on networks. Some of them end up doing things like viruses, and we know what that can cause. Other people, however, invent things that others in the industry never thought of. Perhaps the biggest example of that is the ability to make phone calls over the Internet. That was developed by two hobbyists working in Israel. No one else in the industry was working on it because the whole industry knew it was impossible. Since it could not be done, no one was working on it. Yet there were two people who did not know that it could not be done. They looked at the latest developments in chip technology and felt that they could make it work. It was introduced at the beginning of 1995 and went global in a matter of months. Today there is no carrier in the world that is not doing immense research into how they can adapt it for their industry. People are doing it commercially today. When you have as many people working on innovation as we do, the "possible" becomes the "probable" very rapidly. The Internet does something else: it gives a whole method of distributing new products and services very quickly.

Mr. Goldstein talked about the fifth trend, the breakdown of barriers between the traditional modes of communication and the traditional categories. As regulators, policy-makers, suppliers and customers, we have historically dealt with this huge field by dividing it up into neat little packages. There is voice and data, local and long distance, domestic and international, telecommunications and broadcasting, and they are all different. We have different rules and prices for them. One could cross-subsidize the other because we knew which was which. In Canada, we have a separate Telecommunications Act and a Broadcasting Act, passed within two years of each other, because we knew that these were completely different areas and it was completely reasonable to have two different laws for them.

Routinely in my office in Toronto I sit in front of a computer that is connected by a modem to a telephone line to an Internet service provider and I listen to a blues radio station from New Orleans that I happen to like. When I hear the announcer from New Orleans talking, I ask myself every once in a while: Is that voice or data? Is that local or long distance? I did not make a long distance call. Is this telecommunications or broadcasting? Is it domestic or international? While it is possible to split hairs over this, the reality is that those questions just do not make sense anymore. The words sound as though they make sense, but when you get down to it, those categories do not work. Yet we still try to regulate and manage them, and companies are formed just to do one of them. The underlying technology is changing so fast that the barriers are gone and our ways of coping with them have not caught up.

In conclusion, I have four and a half quick predictions. First, demand will continue to grow but will be unpredictable. Any attempt to say, "It will be over there, so let's tell the industry to invest over there," will guarantee that it will happen somewhere else. The industry has been like for that for a while, and it will not change.

Second, the price of transmission will continue to fall. Any company that is mainly in the business of moving bits is in a pure commodity business and will be as economically viable as wheat farming in terms of big profits.

Third, local competition will develop, but it will be different from what any one thought. There will be many different access technologies and access services for different purposes.

Fourth, the basic structure of our industry will be changed repeatedly as these barriers continue to fall and whole new segments emerge. We will see many more cross-industry acquisitions -- phone companies buying television networks and so on -- not because any of these companies have brilliant strategies or thoughts about where it is going but because they are desperately trying to stay ahead of a flood of change.

Finally, in summary, there has been talk lately of a threat of remonopolization in our industry. In my opinion, that is not a factor. While it is certainly true that some companies will go out of business and some segments will have more companies in them than others, the amount of change that is occurring is so great that we will see a constant influx of new conditions. Our situation in telecommunications is like the computer industry in 1984, when IBM was the undisputed king and Wang, Digital, Data General and a few others were the unbeatable princes. Those three are gone and IBM is struggling. Who had ever heard of Microsoft in 1984? That is telecom in 2000.

Senator Finestone: I thoroughly enjoyed your presentations. They have been succinct and to the point. That does not mean that I know what you are talking about, but I am trying.

I am intrigued by the diagram on page 10 of Mr. Goldstein's presentation. You talked about high-speed access. You said that when Internet access is over 40 per cent, more than half of all household income in Canada will be in Internet households. When Internet access passes 44 per cent of households, it will pass the combined circulation of Canadian newspapers. You also talk about the fact that over 46 per cent of children aged five and up are computer literate and surf the net. They see the same stuff that you and I see. Perhaps they process it differently, but they still watch war and porno and all those horrible things.

How do you handle media literacy if the parents who have not grown up with the technology are not familiar with it? There are cookies. All kinds of educational material is beyond their grasp, although the visible impact can have a terrible effect. You are talking about 44 per cent. Children and young people are not exactly addicted to the major newspapers, but they are addicted to television. How will we be able to handle media smarts or media awareness so that you can have some control over your person or identity and maintain your Canadian-ness in this cyberspace world?

Mr. Goldstein: To add a statistic to punctuate your point, if you live in a household in Canada with children today and do not have an Internet connection, you are probably in the minority. I would say that over half the children, if they do not get it at home, are getting it at school.

We all grope about for analogies when something so dramatic happens. The best one I can think of is that we are all immigrants on this technological frontier. Just as occurred with my grandparents, the kids went to school and educated the parents. I think we have to view that phenomenon happening again. This time we are immigrants on the threshold not of territory but of technology.

I sit on the board of an organization called The Media Awareness Network. If you have not talked to them, you should. They are doing a wonderful job.

Senator Finestone: Will the clerk please make note of that?

Mr. Goldstein: They are setting up programs for educators to educate children. "Media literacy" means understanding that just because it is on a screen that is in the shape of a television set does not mean it is true. It means understanding the difference between the wheat and the chaff on the Internet. It is hard.

The problem is that if we think we can control this and we say, "Let's pass a law or a regulation," we will get a warm feeling for six months because we will think that we have solved the problem, but we will not have solved the problem. We need to plant these educational tools in the system.

Senator Finestone: I should like to know if Mr. Angus has anything to add. If we pass legislation, we will not solve the problem. Can we regulate anything in this borderless world, including Canadian content, Canadian products, return on investment in the cultural field? The CRTC regulating in the traditional way is almost passé. You talk about broadcast, telecom and copyright. Intellectual property also plays into this.

Mr. Goldstein: Yes.

Senator Finestone: Can we regulate in this borderless world?

Mr. Goldstein: No. You certainly cannot regulate the way we used to. We are in a period of transition where we can craft some regulations that will help Canadians get where we want to go perhaps a bit faster. However, broadly speaking, over the longer term we are moving away from the kind of regulation we have known. It just will not be practical.

Mr. Angus mentioned the two kids in Israel who did not know you could not get telephony on the Internet. I do not know what is happening in garages and rec rooms all over the world with 18-year-olds.

Senator Finestone: Do not open the love letter!

Mr. Goldstein: You may have heard of Napster. A kid decided he wanted to exchange music files with a friend. There are now 800,000 different selections of music on there for free, and they are being sued left and right by the recording industry.

That is why I started my presentation by saying that the mass media model that we all grew up with may turn out to be an anomaly. We need to put that behind us and talk about fragmentation. That is a loaded word. It implies that something was whole and now it is fragmented. I am saying that fragmentation is normal.

Mr. Angus: I am much less concerned. I have had two teenage daughters go through Internet addictions. One has finally finished university; the other is in high school running her own on-line magazine and has a boyfriend in New Jersey to whom she talks on the Internet because I got tired of the fact that it is not free to talk to the United States on the telephone. I am sure they have seen porn on the Internet and probably worse material than I saw when I was their age. I have tried to be the best father I can and help them understand what it is about.

They have developed friendships. My now-16 year old and I went to see a play in Toronto. I discovered the next morning that after she got back she discussed the play at great length late at night with a boy she knows in South Africa whom she has never met. That is chatting on the Internet.

Senator Finestone: How much does it cost to do that?

Mr. Angus: It was nothing. It was free. It was the cost of our Internet connection, which is $20 a month.

I am confident that we are going through a period like the 1980s. During the 1980s, every time I went to a computer or office systems conference there would be a session on the problem of getting managers to use computers. There would be somebody there talking about how you cannot get bosses to use computers; they will never use them; you have to trick them; you cannot call it typing, you call it keyboarding, and so on. Those sessions faded away, because as soon as computers starting doing things that bosses wanted to do, bosses started to use computers.

Similarly, Internet literacy tends to involve younger people. On the other hand, I also observe my wife's family. She was raised on a farm in Alberta. She can remember when electricity came and the first phone line. Her family used to ride horses through the woods to go to school. Yet my wife and all her siblings, who are scattered over North America now, communicate routinely on the Internet. That is how their family stays together.

I believe our generation will do it as well. I watch senior citizens' homes where people are absolutely ecstatic about the Internet once someone gives them a chance. I do not think there will be a long-term problem.

Senator Finestone: I should like to ask you about the financial implications of the challenges of all this innovation. Because he did not know it could not be done, he got it done and now he is a billionaire. I will ask you that later.

Senator Johnson: Thank you both for your excellent presentations. We will have to go through them again.

Mr. Angus, you commented that telecommunications now is as dynamic and chaotic an industry as you could ever get. Mr. Goldstein, you are giving us the same message in that respect. What can we look forward to? Personally, I keep in touch with all my siblings all over the world. I do not know of any other way to do it now. It is all done through e-mail and the Internet.

Where does the regulatory side come in now? Is it the EPG, the electronic program guide? Is that the only place? If you think about what we can do in terms of our work, and the CRTC or whatever, is that area really where we should be focusing, or is that even possible?

Mr. Angus: A paper out of the Federal Communications Commission a few years ago asked why it is that, when we get competition, there is more regulatory activity rather than less. When you get a lot of competitors and new entrants into the market, suddenly there are more interfaces, that is, more places where there are conflicts. It was suggested that one of the big roles for regulators during a transition to a competitive world is conflict resolution, and we are in a transition period.

I am struck by how well the CRTC in the telecommunications side -- I am not an expert on their broadcasting work -- has moved toward encouraging all the telecommunications firms to use mediation, to sit down in a room and sort out their problems before they start suing each other. There is a role for the regulator there.

Going back to Senator Finestone's question, one of the things you do to deal with the problem of garbage on the Internet -- and there is an enormous amount of it -- is encourage quality, better product and the production of good materials. Talking about some percentage rule for Canadian content on the Internet makes no sense. There is no way to do it. What would it be a percentage of? On the other hand, you can say that we will do our best to ensure that there is more Canadian product and to encourage Canadian firms to produce more and make it available.

Senator Finestone: How will they get a return on their money with all this?

Mr. Angus: That is a huge issue in the Internet world.

Senator Finestone: There are copyrights. If you can put your book or song or film on the Internet, as some are doing, who will pay?

Mr. Angus: There is work going on regarding various methods of micropayments, methods of taking very small payments for viewing things. The difficulty is that when you try to charge someone a penny for doing something, the billing cost is more than the penny you get. Until we can work out new methods of paying for transactions, there are huge issues there. I agree with you. The issue you of who will get paid and how they will get paid on the Internet remains a hot point.

Senator Johnson: Do you think television companies as we know them will disappear?

Mr. Goldstein: They are transforming themselves as we sit here. I was taken by what Mr. Angus said at the end of his presentation. He reminded me of a line that I used once. Ten years ago, long distance was expensive and directory assistance was free.

Senator Johnson: Now it is the other way around.

Mr. Goldstein: That is right. That is a good example of the oft-quoted paradigm shift.

This little laptop is not the most expensive laptop you can buy but it has more computing power than was on Apollo 13.

Senator Johnson: Is that a Toshiba?

Mr. Goldstein: Yes. Concerning the future of regulation, it is playing itself out on multiple tracks right now. Over time you will see the traditional licensing and licence conditions diminish as a factor. The CRTC has recognized that, as is shown in their digital framework for licensing specialty services. They will go through an exercise of licensing approximately 10 services the old way, for which they have about 90 applicants. They will then basically throw the door open, for which they have about 360 applicants.

We will move slowly. You cannot give up the old and switch to the new overnight. Very often that is frustrating, but, this being Canada, we will move slowly, step by step. You will see that what is done by the copyright board will increase in importance. You will see copyright legislation increase in importance. You will see those copyright activities tied to forms of encryption, tied to micropayments and those kinds of things. You will also see the activities of the Competition Bureau increasing.

New models are forming. I am not speaking of anything in particular in front of the Competition Bureau now. We are getting this blurring of borders, and I would not want to be the first company to come up with the new model, but to be the last company governed by the old competition rules, if you can see where I am heading with that. If I say I want to put this together and this together and this together, and that is the new model and it is good for Canada and the rules are in place, then, when they say two years later that the world has changed and it is time to evolve these rules, I have lost two years in terms of getting onto that curve.

I think we will gradually see licensing diminish, and competition and copyright will increasingly be where the action is. The whole question of electronic program guides and how to deal with this digital data will set the framework for what Canadians are able to do.

People talk about foreign ownership. They think foreign ownership is important. It probably will be an issue that people will want to discuss over time. Today Microsoft owns 9 per cent of Rogers communications.

I have not had this discussion with Bill Gates personally, but I do not think Bill Gates particularly cares if he owns 9 per cent or 13 per cent or 22 per cent of Rogers. He cares that his software is in the set-up box. What that software does and where that software sends you might be more important than who owns the company.

Senator Johnson: Can I refer back to page 15 of your brief, concerning the television value chain, the bypassing of broadcasters and the BDUs? How does the Web casting in that new genre fit on your chart? They are not traditional broadcasters.

Mr. Goldstein: No. That can be broadcasters using Web casting, but it can also be content producers. Concerning content producers, I used the example of Alanis Morisette, who used this technique to release some of her music. It can be also be done by Paramount or by Warner Brothers sending movies directly from Hollywood.

Senator Johnson: Through a company?

Mr. Goldstein: Though the Internet.

Senator Finestone: How will they recover their investment?

Mr. Goldstein: They will have encrypted the movie so that you will get it only if you pay for it. It will go first to that 30 hours of storage that is attached to your TV and then it will go in real time to your TV. That is possible.

At the same time, you see the advertisers taking on media-like characteristics. Let me give you a couple of rounded-off numbers. Any time one of us walks into a branch of our bank and does a transaction -- that is, makes a deposit or cashes something -- it costs the bank $1. Every time we do that on the Internet, it costs the bank one cent. Between $1 and one cent is what is called incentive. What is to stop any of our banks, five years from now, from saying, "It is in our interest to have you bank with us on the Internet. We save a lot of money on the administrative side. We will take some of what we save and you can have the reruns of Seinfeld on the Royal Bank Web site." You have now introduced a completely different way of buying programming. Instead of a broadcaster saying, "This is how much it costs me for the reruns of Seinfeld; I think I can get this much advertising; I hope I have some left over when I am finished," you have a completely different equation. The train of thought is now, "If I can get 100,000 people to switch from walking into the branch to dealing with me on the Internet, this is how much I can save on transaction costs competing for the same program."

Senator Perrault: I have a very serious question. Do you foresee a time when either senators or members of the House of Commons will be replaced by artificial intelligence? This presentation is so mind boggling that it is almost too much for the mind to grasp. I got into computers in 1988 and fumbled around with the keyboard for a long time. I still have not mastered it. You sometimes get the idea that, because of the number of subscribers every day and the number of companies involved, it will all disappear in a black hole in space.

What is the ultimate capacity for the system to absorb this massive amount of material? You say that people use the Internet for different things. A friend said to me, "It is terrific. I can get Tolstoy's War and Peace on the Internet." Can you imagine sitting in front of a screen for that length of time?

The progress has been extremely rapid. You have both been eloquent in your presentations here tonight. There may be some value in giving instruction here on Parliament Hill for those senators and others who wish to access the Internet and the technology and learn more about the system and how to get maximum production for their requirements. I think that would be useful.

Mr. Goldstein: You should get some 18 years olds in here to show you how to use it.

Senator Perrault: You could probably suggest some to us.

Mr. Goldstein: You need teenagers.

Senator Perrault: Marshall McLuhan talked in terms of a global village a few years ago. It is here now, is it not?

Mr. Angus: Mr. Goldstein talked about the problem of fragmentation, but there is another side to that story. I work at the University of Toronto community radio station as a volunteer. Someone was talking to me the other day about belonging to a goth discussion group on the Web. Goths are kids who dress all in black and wear black makeup. They seem like nice kids but they dress funny. I thought it was kind of strange that these people who try to pretend to be vampires have a discussion group on the Web. I was then told, "Imagine if you were the only goth living in rural Ontario, the only goth for several hundred miles around? Suddenly, the Internet gives you other people to talk to about your interest." That is what we are seeing. The other side of fragmentation is the community building that the Internet does. I see it especially for people in high schools. The kids who previously would have been loners because they are the only ones in their high school interested in any given subject can now find the other 300 people somewhere in Canada who are interested in that and talk to them. That is a positive side to the Net.

Senator Perrault: There are also a number of colleges on line, are there not?

Mr. Angus: Yes.

Mr. Goldstein: I agree with Mr. Angus that we must find that balance with the community of interest, which is the narrow community in which we each have our own interest, whether it is model trains or telecommunications policy. You can find people all over the world who have those interests. How we balance that with some sense of sharing and some sense of the whole is the real challenge -- namely, the shared experience as a nation.

I can go on the Internet or use television today with the news channels and watch either the sports or business, but I am missing what the local school trustee did. You started off with a question about artificial intelligence. This is a serious question, not in terms of replacing either the senators or the members in the House, but the Government of Canada, over the next five years, could become the biggest dot com in Canada. The Government of Canada will have to understand that it will take on media-like characteristics in order to accomplish that. How it does that will be an enormous challenge. You can put the forms for filling out your taxes on the Internet and they will sit there unless the material that accompanies them engages people to actually use that. Just throwing paper at the Internet and turning it from paper to electronic forms involves only the first 10 per cent. The other 90 per cent involves figuring out that this is a communications medium, not just a transactional medium, and balancing those.

Senator Johnson: How will it become the biggest dot com? Is that by virtue of its size?

Mr. Goldstein: By virtue of the size of the government. When you start putting the tax returns and all the things that we now do in government on the Internet, you will find that relationship growing.

Senator Finestone: How will you protect that information from fraud?

The Chairman: We will come back to you later, Senator Finestone. Could we let Senator Perrault continue?

Senator Perrault: Concerning high speed access, I still have an old system and it takes a while for the Internet to come up. Is the telephone better than cable, or vice versa?

Mr. Angus: That is one of those things where you can argue the case forever. They are different and they do it differently. I have used both. I would say that in well-designed systems, they are about equivalent. In badly designed systems, either one of them can be badly done. I have seen them both badly done. You can argue endlessly, because one does this better but the other does that better. It is six of one and half a dozen of the other.

Senator Perrault: I received an e-mail message in the past year from a young man in Kiev. I never met him and I do not know the first thing about him, but he said that he was fed up with the political system there and wanted to found a new political party. He wanted me to send him some organizational manuals. I sent him the manuals and he is now an elected member in Kiev and has founded a political party. The possibilities are incredible.

Senator Oliver: I am not a member of the committee but I have an interest in your topic. I had a series of questions but they all relate to the same thing, public policy.

When I came in, Mr. Goldstein was talking about the information haves versus the information have-nots. I did not know whether he was talking about that in an international or a national context, but in a national context it is an area that needs good Canadian public policy because it deals with the deployment of bandwidth for people in rural and remote areas of Canada. Neither of the witnesses addressed that. As public policy-makers, it is something that I should like to have your input on.

It seems to me that public policy does not mean regulations and controls, like the CRTC, the Competition Bureau or the Copyright Board. Instead, it deals with what types of things Parliament should be doing to ensure that Canadians can participate fully in these developments and trends that you have talked about. That has not been addressed and I hope that you will help us with that area.

Mr. Angus: There is a huge issue here. I have always been appalled that in Canada we talk about the fact that 99 per cent of households have telephones, but those statistics do not include the First Nations because we do not include them. If we did, the numbers would drop, but not much because there are not that many people. Particularly in a country the size of Canada, with our geography, there are areas where it is exceptionally difficult to deliver high-speed communication.

Senator Oliver: With telephone it used to be universal access. Those are the kinds of issues I hope you will address.

Mr. Angus: I was encouraged when the CRTC, in its decision on universal access, expanded that definition to include the ability to reach the Internet by a local phone call so that you would not need to make long distance connections and pay to reach the Internet. I am encouraged by the fact that the largest experiment in more significant high-speed Internet use for multiple carriers is currently going on in Sturgeon Falls, Ontario, and not in Toronto. That is a positive development.

There is a need in the 21st century, especially in small towns and rural areas, to do what was done at the end of the 19th century and at the beginning of the 20th century when communities and community cooperatives did most of the building of the telephone network outside the major cities in this country. I think we will see more of that. If the federal government is to do something, there is a whole area of encouraging and making available to small towns and rural areas the resources and the technologies for fibre or high-speed wireless, both of which are highly suited to those environments. They will probably be expensive for someone who expects to make Toronto-level profits, but they are not prohibitively expensive from the cost of a municipal tax base.

Senator Finestone: I am not sure whether that is a hypothesis or a real fact when you talk about the aboriginal communities. I spent the last three summers in the North, Nunavut, the Northwest Territories and the Yukon. Every classroom is connected with a computer. All the health service centres have proper computers. They could use upgrades, there is no question, but there is no doubt that they have computerization. All those communities are wired. You see kids on their bikes with cellular phones. I do not know about any research that would have pinpointed that.

I do believe that entertainment is an important aspect of small-town life. If you look at the number of cable companies that we have on our list, you will find an enormous number of cable companies that pick off satellites and deliver. There was a system many years ago called Cancom. Did it disappear?

Mr. Angus: No, it is still there. I was talking about the fact that we have a statistic that we always quote proudly but it does not count part of our population and that bothers me. It is also true that we have seen a large number of activities in remote areas.

You read much in the newspapers about the creativity of Rogers, Shaw, and Videotron. It is striking that in the Sturgeon Falls experiment there is a company called Regional Cable Services, which is a small cable company like others across the country. Many of the small cable companies are doing impressive things.

Mr. Goldstein: The issue of the information haves and have-nots is a real issue, and I meant it in that way. I think it is a worldwide issue, although I was speaking in the Canadian context. There is good news and bad news. The bad news is that, as we have discussed, we are no longer living in a cross-subsidized industry. The reason we got telephony extended was in part because we have lived in a cross-subsidized industry and there were profits that could be used for good works.

As you compress all of that and make it more competitive, you cannot regulate those profits to be used because they are not there. That is the difficulty. That is why we cannot replicate exactly what we did. There are some technological solutions. Mr. Angus mentioned one of them. Satellite could emerge, and wireless could emerge as another solution. The government will probably need to think about putting some money into this and say that there is a priority. When all is said and done, the spending power is still the spending power. However, I would encourage you to do that in conjunction with looking at all of these value chains. Some of the decisions of this committee, and parliamentarians collectively, will determine the incentive that is in the system for certain companies to want to reach people. I will give you an example.

We are talking about switching the air broadcasting to digital. The Americans have begun with a couple of halting steps, but there is an unresolved issue. Will those new digital signals be passed through on cable? In the United States the issue is called "must carry" and here it is called "priority carriage." Unless you have a policy on must carry or on priority carriage, you leave a broadcaster with the prospect of having to invest in order to upgrade the whole transmission system to reach only 25 per cent of its audience. If, for example, you were to make a rule dealing with that so that the broadcaster has an incentive to make that investment, the Internet could be carried on that same digital broadcast stream at least one way. You can use the phone for the back link. The choices you make about how the business will grow will, in part, influence whether people have incentives to extend beyond the obvious profitable areas.

Senator Oliver: That is a good answer.

Senator Finestone: I am concerned about privacy rights and e-commerce. You alluded to the fact that the access through e-commerce is through different mediums at this point. How will we apply the e-commerce?

We just passed Bill C-6, which is a privacy bill that also contains the Canadian Standards Act and also imposes certain responsibilities to ensure that there is either encryption or a trust, something that ensures that my personal information is not re-transmitted or transgressed. I have the human right not to have surveillance in my life. Do you think that that is enough legislation? Do you think that we need more protection? I am talking about e-commerce, not life in general. In e-commerce are you satisfied with that? Do you think we need more protection in cyberspace?

Mr. Goldstein: I should like to see this legislation proclaimed and see what happens for a bit before I say that we must do more or that we have done too much. I think it is a good first step.

I think that media literacy is part of it, too. The whole question of understanding about giving information and educating people is part of it, too. This is as fundamental a shift as the shift of technology away from reliance on the regulator and to reliance on the family and on the school. We have to educate people to understand these privacy issues.

There are all kinds of rules about the selling of stocks, but you still see people shutting down these boiler rooms where people are phoning to sell fictitious stocks and other things. They are breaking the law. There will be bad characters out there.

Organizations like Concerned Children's Advertisers, the Media Awareness Network and others will say, "These are standards. These are people who are following these standards and these are the people who are not following the standards." It is in the interest of every responsible person who wants to do business on the Internet to promote industry codes of conduct, because they want to distinguish themselves from the fly-by-night operators. That is one of the ways in which they can do it.

Senator Finestone: We have such a patchwork quilt across this country, we need some kind of overarching first principles against which you can measure. You can then determine whether or not you are within the bounds and norms.

Mr. Angus: In terms of privacy, the Internet poses many problems that we have not even begun to imagine. I agree in part with Mr. Goldstein that media literacy is closely related to this issue -- not simply in the sense of people having to be smart about where they type their address or phone number on the Internet, but also in the sense that there is a whole role for non-governmental organizations and other types of watchdogs. The case of Double Click comes to mind. It is a company in the U.S. that puts out banner ads. It turned out they were tracking which banner ads you clicked. They were putting that information together and then selling it.

Basically, the whistle was blown on them not by police or by government people but by the kind of people who are on the Internet and who are concerned about privacy. They raised the issue. They made a fuss on the Internet. Eventually, they forced Double Click to change its policy. Double Click was not a boiler room. They were a respectable company that got written up in all the magazines as a great example of e-commerce. They simply were into an area that was brand new. The whole area of encouraging policing by the Internet itself, by the participants in it, as well as providing support and education, is very important.

Senator Johnson: On this very point, it will be an international set of rules that we will have to develop. Is that not the direction that we are taking? It is fine for countries to do things, but this crosses every border in the universe. Have you seen any indicators in that direction in other countries?

Mr. Angus: The difficulty with the Internet is the chance that some country decides to be a haven for people who break the rules. We have seen that in the telephone industry with whole hosts of phone sex and phone this, that and the other thing. It is a way to make money. On the Internet, there is no way for an end-user to tell for sure that a Web site that looks like it is in Canada is really in Canada. It could be in any country that has chosen to completely ignore our laws. Ultimately, I do not know how you will cover that problem.

Mr. Goldstein: The G-8 is meeting on this as we speak. It is interesting, because the Americans are saying, "Let us make this as open as possible." If you were to examine the activities of the Federal Trade Commission in the United States, you would find that they have taken on privacy as one of their causes.

Senator Johnson: That is a big issue.

Mr. Goldstein: They have done some very interesting stuff. It has been a balanced approach, however. It has not necessarily been a legislative or a regulatory approach. The approach has been, "First, let's get people together and raise consciousness about this issue, and then let's blow the whistle on people we think are bad operators."

Senator Finestone: I wanted to ask you about this whole business of domain names and fraud in the use of domain names. How is a name issued to a company? How do you get it registered? How can someone take your name and change either one name or one letter in it, thus misrepresenting it? That is an intriguing point. There were two decisions on that, one out of the United Kingdom and one out of the United States. One was based on free speech and the other on the Internet service provider's responsibility. Yet, they took a domain name and they actually had fraudulent use of that name. How do you handle that?

Mr. Goldstein: Concerning the domain name, there was a bit of a land rush for domain names about three years ago. People said, "I will go and find all the big companies I can find and I will register their names -- not because I am in the same business as Procter & Gamble or IBM but because they will pay me something for this name." That is slowly but surely being handled through the copyright and trademark laws that are on the books. Recently, a new copyright law was passed in the United States. It actually deals with someone famous now protecting their own name.

Senator Finestone: Where do you go to buy it?

Mr. Goldstein: There are registrars. For a few dollars, you just register it. It grew up that way. Even before the Internet, there were people who were appropriating other people's names. There were lawsuits. That has not changed. It will continue.

I would suggest to you that a more important issue you might want to look at is the question of "deep linking," -- whether I can establish an Internet site, run some advertising on it and offer a service that goes right into your site so that the person gets your content but bypasses your ads. There has been very little jurisprudence on this so far, and it is unclear where it will go.

Mr. Angus: On the question of domain names, the situation exists in part because the system was not created by great geniuses who planned the huge Internet. It was created by a bunch of computer folks who wanted to communicate. It grew up from a small net where everybody knew everybody else and no one would do fraud because everyone knew who everyone else was. It grew into a gigantic enterprise without the governance keeping track. There is a lot of effort going on right now to address some of these questions.

A case that came up this week illustrates the difficulty with how to protect a name. Bell Atlantic and GTE are in the process of merging in the United States. The name they are going to use is Verizon. It means nothing at all. They registered the name verizon.com and just in case they registered verizonsucks.com, because they thought their critics might register it. Whereupon a group of people who do not like them registered verizonreallysucks.com. Verizon sent them a letter accusing them of copyright violation and threatening to sue them. They then registered "verizonshouldspendlessmoneyonlawyersandmoreonimprovingitsnetwork.com." The point is that, ultimately, if someone wants to beat the system, they can beat the system.

The Chairman: Mr. Goldstein and Mr. Angus, I cannot thank you enough for your outstanding presentations. As you can see, you really have our minds going. We appreciate it. I am sure that probably in the next few weeks our researchers will get back to you with additional questions. I know we will be able to count on your thorough cooperation.

The committee adjourned.