Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 39 - Evidence - October 2, 2018
OTTAWA, Tuesday, October 2, 2018
The Standing Senate Committee on Transport and Communications met this day at 9:32 a.m. to examine how the three federal communications statutes (the Telecommunications Act, the Broadcasting Act, and the Radiocommunication Act) can be modernized to account for the evolution of the broadcasting and telecommunications sectors in the last decades.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Last June, the Senate authorized the committee to examine and report on how the three federal communications statutes (the Telecommunications Act, the Broadcasting Act, and the Radiocommunication Act) can be modernized. Today we continue the special study.
I would like to welcome our witnesses, William G. Hutchison, Distinguished Fellow, Innovation Policy Lab, Munk School of Global Affairs, University of Toronto; and from Nordicity, Stuart Jack, Partner. Thank you both for attending our meeting.
The floor is yours, Mr. Hutchison, to be followed by Mr. Jack. Please proceed.
William G. Hutchison, Distinguished Fellow, Innovation Policy Lab, Munk School of Global Affairs, University of Toronto, as an individual: Thank you, chair and senators. Good morning. This is the first session I’ve been at since watching the Judge Kavanaugh event in the United States. I will try not to mimic him. For those who saw “Saturday Night Live,” that one either. It is a real pleasure to be here. Thank you.
I’m Bill Hutchison, and I’m a McGill engineer from many years back. I will say a few opening remarks.
I asked the clerk, “If you have been around for 60 years, can you take longer for opening remarks?” She didn’t give me any grace at all. I won’t speak faster, either, but I will be open for questions.
I have had 60 years of pioneering and helping Canada to do its digital transformation. I think I have to get retreaded every five years, so many things have been happening. Today I keep ahead of the curve. I always have to do that, especially as you get older because the young folks think they know more than you do. I am on three research boards at the University of Toronto as a partner and as chair of one of them. Two of them are funded by NSERC or SSHRC, the national funding organizations, and involve 15 universities across Canada focused on new technologies for tomorrow and economic and social issues as well.
I have a business, and today I am leading the design of a new community in Caledon, Ontario, that will have about 15,000 residents. We’re trying to make it one of the most advanced, and this phrase “smart,” which means all kinds of things, but generally the use of advanced digital for social and economic purposes, a real model for Canada.
I spent most of the last year involved with the City of Vaughan, Ontario, leading a project to interact with citizens to have them identify the things they wanted to see in their smart city of tomorrow.
The reason for mentioning these two things is telecommunications and content availability is the foundation for this transformation of our cities. More than 60 per cent of everyone in Canada live in cities, which means likely the GDP and most of our innovation happens in cities. Yet from a telecommunications perspective, the rural and remote communities in Canada are, first, terribly important and, second, an area that still needs a lot of attention.
I will highlight a few of the things I have done in the past. I’ve been the founding chair or a founder or co-founder of 14 not-for-profit initiatives in Canada all focused on helping with our transformation. Forty years ago I was involved in the creation of the Canadian Advanced Technology Alliance, or CATA. Of greater relevance to this is that 25 years ago today, this evening at the National Capital Centre, we are celebrating the founding of CANARIE. CANARIE is Canada’s national backbone or the Trans-Canada Highway, if you like, for all of our research and education communications. It was created 25 years ago because government funds most research in Canada and was fed up paying commercial rates for communications between our universities, and said, “Let’s create a special infrastructure as other countries have done.” And CANARIE has lasted for 25 years.
The federal government retained me for three years to lead the steering committee that planned and created CANARIE. Some of the big communication companies didn’t like the idea. Some of them were supporting the Ottawa Citizen. The day we named it CANARIE, the headlines in the Ottawa Citizen were, “This bird will never fly.” I am not sure about how well the Citizen is flying, but CANARIE is celebrating 25 years today. It’s one of the world’s leading national high-speed broadband networks. It also supports organizations that represent Canada around the world and does a lot of things to stimulate innovation in the public and private sectors.
I was involved with a couple of other ones in the public sector. I was partly responsible, as a lot of others were, when Prime Minister Mulroney created the National Advisory Board on Science and Technology. I was the founding co-chair of that.
About 25 years ago, I began to focus my communications and computer experience on cities, because I started to realize that if the cities don’t make things happen, not a lot is going to happen. Other levels of government can certainly create the frameworks and have an important role to play, but if it doesn’t get going in the cities or the communities — rural and remote — then nothing is really happening. So I created Smart Toronto 1994, only to be told by Mayor Hazel McCallion, who even then was the oldest mayor in Canada and probably the world — I gave the presentation to the communities around Toronto about what was going on and what Hutchison was doing in Toronto. I gave a nice presentation, I thought. At the end I said, “Are there any questions, mayors”? She said, “It is not a question, Mr. Hutchison, but a comment. You went to McGill”? “Yes, Madam Mayor.” “I guess you don’t understand ‘oxymoron’ because ‘smart’ and Toronto don’t go together.” All I could say was, “Smart Mississauga didn’t roll off the tongue, but we will change the name, Madam Mayor, if you like.”
My point is that what you will be focusing on is the rewriting of the various acts. They are fundamental to the transformation of all of Canada. In fact, seven years ago, the Finnish Parliament declared access to broadband as a human right. They did that so they could get the incumbent phone companies to provide services in the North, which they didn’t want to do. I have done a lot of that in Singapore, Hong Kong, all over the world, helping.
The thing that is also relevant to my background is for six years I was involved with Waterfront Toronto. They wanted me to lead the creation of them being one of the world’s leading smarter, intelligent communities because they had been given a mandate to create 20,000 new jobs. If you are one of the world’s leading smarter, intelligent communities, history has shown over 20 years that you create more jobs and get more incoming investment than your neighbours.
I said, “Well, you had better have the world’s most advanced broadband communications infrastructure for a community,” which we did. We created what is essentially the Waterfront communications network and infrastructure without using any government or public money. Even today, for about $60 a month, you can have a gigabyte per second, all fibre, in your home, the same speed going up and down, an open portal into the community, free wi-fi throughout the community, and a lot of other things. You would pay close to $200 or more for this any place else in Canada. And it makes a profit. That gives you an idea of the margins and where we are. Waterfront Toronto will always maintain — the group that has the concession has to be one of the world’s top seven community communications infrastructures in the world.
We have a lot to do. Yesterday was a big day with NAFTA — or what is it called? I am calling it Can-Trum-Mex. I put Trump in the middle, not right at the front. But, anyway, it is tomorrow’s version of NAFTA.
It is very important for the dairy farmers. Back to communications, milking machines for dairy cows have tremendous intelligence in them. You need to have 10 gigabytes per second of transmission from that milking machine out into the cloud in order to do all the analysis that the milking machine allows the farmer to do on the cow and milk at the time. Tell me about a farm where you have 10 gigabytes in Canada.
The dairy farmers have a problem with NAFTA. It will be even more competitive, and communications are going to be even more important to them.
That is the extent of my introduction, Mr. Chairman.
The Chair: Thank you, Mr. Hutchison.
Stuart Jack, Partner, Nordicity: My name is Stuart Jack. I am a partner with Nordicity in Ottawa. I run the telecoms ICT practice. We are a small boutique consultancy, focused in strategy, which means we do plans for telecommunications service providers, operators, new entrants, along with the regulators and policy-makers. We have successfully run projects ranging from Samoa to Singapore to Cyprus and Suriname, not just to go through the S’s and C’s, but Denmark, the European Community, in particular.
We are fairly familiar with regulatory frameworks. Yes, Canada is 30 years out of date in terms of the OECD countries’ best practices in adopting a unified communications act.
I will not focus on the details of the legislation. Other more competent people have done that. Professor Winseck and Professor Geist have come in and focused on some of those aspects.
I will focus on specific objectives within the communications legislation framework that will work its way through or be remediated by the regulatory frameworks by setting the proper objectives for the new communications act. This will enable the subsequent and accompanying regulatory frameworks to operate efficiently and equitably. That is the focus of my comments this morning.
There is a narrow window for putting in place this new communications act. As we have seen under the new trade treaty, a telecommunications committee will be adjunct to that. It will be a tripartite, tri-country committee that will be overlooking our telecom legislation.
There is an urgent need to adopt unified legislation and put into place the appropriate regulatory mechanisms. The window of opportunity is probably 12 to 24 months to get this up and running. Otherwise, it will be subsumed under the new U.S.-Mexico-Canada trade treaty to the detriment of Canada, I believer.
So there is a compelling need to move forward not only for the impetus of providing equity to Canadian players amongst Canadian players, but also the impending opening up of our market to U.S. telecom service providers.
I will first talk about levelling the playing field. The global content service providers, mainly out of Silicon Valley, but from other places, have access to the Canadian market. They provide streaming services. They are dominant in the market. They could be deemed, under the Competition Act, to be dominant market players. They do not contribute, in any substantive fashion, to the Canadian ecosystem of content production. They are, in other terms, content providers.
There is the question that if it walks like a duck and quacks like a duck, why isn’t it treated like a duck in Canada? The Canadian content distributors are at a competitive disadvantage. They are subject to various taxation contribution mechanisms that the U.S. and global service providers are not.
There is a fundamental principle that if they are dominant and functionally equivalent to Canadian service providers but on other platforms, then they should be subject to the same regulatory regime, again recognizing that the focus of your hearings today is on the legislation.
In terms of setting the stage for subsequent regulation, there has to be recognition that these are players in the Canadian marketplace and that all players in the Canadian marketplace should be treated not equally but equitably.
The accompanying recommendation would be to recognize what the facts are on the ground and how technology has changed the marketplace since these acts were first brought in, which goes back into the 1940s, 1950s and 1960s. Technology has completely changed that. It is a global marketplace. Let’s recognize who the players are in the Canadian market and move forward. Where they perform similar functions, they should be subject to the same type of framework but also the legislative framework that sets out all the goals to include all the players on an equitable basis.
The next point is similar to the previous point. The 5G networks will make intensive use of a whole other category of infrastructure owners. These are municipalities, hydro companies and others, where, if you are talking about picocells and other 5G delineation of networks, there will be intensive use of this infrastructure especially in the urban areas but also in the rural areas, as Bill was pointing out with his example of dairy cows.
Currently those owners are not actively involved in running telecommunications networks, but they will be. They will be co-owners or leasers. They will have their own large VPN, if you look at the current technology, but the equivalent will be that they will be running portions of the network on their own; yet, as far as I can understand, there is no provision to include those in the new legislation. That should be thought about seriously. All owners of communications services, where there are common carrier provisions, should be considered in the new legislation.
This is particularly important. As I mentioned under the USMCA, with this telecommunications committee, there is provision for opening up all public network access to foreign operators. Virtually this means that, for example, in Ottawa, Hydro Ottawa facilities would be opened up to U.S. service providers such as Verizon.
With that perspective in mind, it is urgent that the new legislation consider who is providing services or infrastructure under a new communications act. Ensure you are comprehensive in terms of capturing all the significant players and treating them on an equitable basis. Recognition and fair treatment are critical to the success of this new communications act.
The recommendations follow in terms of the recognition of all substantive players, and recognition of the principles of equity and fair rate of return. Those will be critical to the incumbent operators. If they have to deal with the large global companies, you need a rate-of-return framework that incorporates the principles of equity and fairness as you move forward.
With regard to regulatory efficiency and wireless devices, the biggest growth in the consumption of communication services has been over wireless. It’s growing at a geometric pace. Wireless devices are increasingly capturing bandwidth required for streaming video, data, et cetera. It is imperative that the spectrum, which is a limited resource, as no one is creating new spectrum, be used efficiently. Currently, this is a regulatory function under ISED, which is both the policy-maker and the regulator. ISED’s current spectrum management practices go back into the night of time, going back to the original Canadian Radio Broadcasting Act back in the 1930s. Long-term licences are now 15 and in some cases 20 years. It is an exclusive lease. There is provision for subordinate licencing. So a subordination to secondary users can happen, but it is left to the discretion of the primary licencee.
Alternative regulatory mechanisms could be used. Instead of long-term leases or exclusive usage that allows the primary to dictate the terms of the subordinate licencees, a new regime has been tried out in the States under the FCC. It is called dynamic spectrum allocation, where secondary users are prioritized. Public safety is top, followed by the operators and then third-party users. They take the spectrum where it is available and put it back in. It is done on a dynamic basis, hence dynamic spectrum allocation. Instead of exclusive licencing, it is according to the demand in the various areas. There is a regime to ensure equitable access and also fair pricing for that limited resource. After all, the residual property rights do belong to the people of Canada.
There are other regimes. This is not necessarily the only one that should be considered, but given that there is a bottleneck with wireless infrastructure and this spectrum, this should be recognized in new legislation. There should be encouragement that a regulatory regime take into account the various issues that go along with this bottleneck.
The recommendations would be to recognize, particularly in rural areas, the way the spectrum regime currently operates with these longer-term leases, exclusive licences and larger licencing areas. Industry Canada currently goes down to tier 4. The FCC goes down to tier 5 and 6 — basically a postal code area — which allows the smaller licencees to access affordable, secure spectrum at a reasonable cost.
Moving forward, an appropriate legislative regime would recognize the special needs of rural service providers and niche service providers to have this scarce resource and perhaps facilitate a new management regime under a new legislative act and regulator. It would be a more dynamic regime that recognizes the needs of rural customers, subscribers and service providers.
That is the gist of my comments. I am ready for your questions, in French or English.
The Chair: Under content providers, I noticed that you mentioned Google, Netflix and Facebook. You don’t have YouTube on there. Should they be on there?
Mr. Jack: It’s illustrative. Sure.
The Chair: You mentioned Netflix, but there are competitors to Netflix and Google. I’m not sure if there are competitors to Facebook, but I think there are. Why is that a problem as far as your consideration of production? Why do you see them as a content provider that is getting a better deal than other content providers?
Mr. Jack: It’s a lack of equity in terms of contribution regime. When they do act as broadcasters — and I am not talking about putting your pet cat on YouTube — but where they do provide equivalent services but over a different platform, they should be recognized as having equivalency and be subject to the same regime. If you talk about Bell Canada, Vidéotron or any of the other distributors, they are subject to a contribution regime over their platforms. The same content or content with similar objectives in terms of capturing eyeballs is provided by these global streaming services, and they are not subject to the same contribution regime or regulatory regime. They are outside the regulatory regime according to the 1998 exclusion, where they said that the Internet will probably not be important enough to regulate. It is time to recognize that after 20 years the Internet is important.
The Chair: But aren’t Canadian service providers granted monopoly status in a way? You can’t start a new service or a broadcast service. You have to go through a CRTC approval process. In some cases, it is denied. Should it be easier to get into the business in Canada in those areas? Right now, the business is basically a monopoly, both in telephone and broadcast.
Mr. Jack: The last I saw, in Montreal, for example, Vidéotron competes with Bell. There is a healthy competition in terms of eyeballs, both through their broadcasting and their content distribution, their BDUs. Yes, there are capital requirements to get in and there’s vertical integration, but there is competition. These sectors are regulated, and part of that regulation is the contribution regime.
Canadian streaming services are negligible in terms of actual market share. If you use the Competition Bureau definition of dominant market power, the sniff test, there is dominant market power among the streaming services in terms of their ability to define access, set prices, capture advertising revenues, et cetera. They are dominating the marketplace, yet they are not subject to the same regime.
The Chair: How would you fix that?
Mr. Jack: In a new legislative framework, I would recognize their role in the Canadian marketplace. I would make them subject to the same contribution regime. The term is “functional equivalency.” Where they act like content providers that are similar to a Bell or Vidéotron, they should be subject to the same regime. Otherwise, you are giving away a portion of our marketplace and disadvantaging Canadian companies.
Senator Dawson: Since you wanted to call a duck a duck — you were talking about Netflix but avoided naming them. Netflix would be the dominant player in that and would be the one that is not putting back in — they announced they were giving $500 million worth of investment, but they’re not obliged to. It seems to have been a negotiated agreement between the former Minister of Heritage and the company.
How do we regulate them? I could start a new Netflix tomorrow. Some people have tried and failed. Do we encourage them? Do we subsidize Canadians to try to compete with them? Or do we give restrictions to Netflix to continue dominating the marketplace in the area of streaming?
Mr. Jack: Contribution regimes can work in various ways, but they do draw advertising revenues out of the Canadian marketplace. They do set terms. For the ISPs, for example, up to 50 per cent of their bandwidth is captured by Netflix. It is a dominant player in the Canadian marketplace. Yes, they have some production in terms of individual programs here in Canada, but there’s no framework by which we say, “Okay, if you’re drawing this amount of money out of the Canadian marketplace, then you are, in effect, a Canadian player,” and have them register in Canada. They are a business. They provide services to retail in Canada. Make them subject to the same regime as Canadian service providers.
We can do that in virtually every other field. If you’re operating a dairy farm in Canada, you’re subject to a Canadian agricultural regulatory regime. These guys are providing content. It’s similar content, but not always. However, where it is functionally equivalent, that should be recognized as “a duck is a duck,” and they should be subject to the same equitable treatment. Perhaps not exactly the same, given their global network and their ability to shuffle things around to Ireland or wherever they’re going, but there should be a regime that recognizes targets and equity in contribution.
Senator Dawson: That brings me back to the agreement with the former minister and the fact they announced they were heading towards $500 million over — I don’t remember the period of time, but I think it was five years. Last week we read that they’re reaching those goals. But I don’t know how we can measure how much they’re investing and how much they would have invested had there not been an agreement with the minister, and also how much is market driven and how much of it is the fact that they’re producing a show in Vancouver because it gets some support from the community. We know for our broadcaster that it’s quantified. We don’t know how much is really being invested in Canadian content versus American content being produced in Canada.
Mr. Jack: The first step on the road to clarity would be if they’re operating in Canada and providing services to retail customers in Canada, then ask them to report as a Canadian business, the same way Bell Canada has to report various portions of its vertically integrated companies. It produces broadcast and distributes content. Netflix should be subject to the same reporting requirements. From there, once we fully understand what their Canadian operations are, make them subject where there is an equivalency on the same basis that our Canadian players are required to report and contribute.
Senator Dawson: Mr. Hutchison, how do you measure the planning you made for the “smart” Toronto — I don’t know if it’s an oxymoron or not — but you had objectives. I know there’s a bidding process going on. How close are you to attaining the objectives you had fixed when you made that plan?
Mr. Hutchison: That’s a great question.
I was there for seven years but left at the end of 2011 to go and do some work in Moscow. Moscow became one of the top seven smart cities of the world before Putin started his nonsense in Ukraine.
The measure, first of all, was kind of subjective, except there’s an organization, a think tank in New York, that for 20 years has been running a competition to pick the intelligent community of the year. They have seven different measures, one of which is broadband capacity, but some social measures as well. They’ve been running this, and every year they announce a winner. If you can win that, then that’s just one slightly subjective measure, but you’re competing against the world.
The City of Toronto, driven by Waterfront Toronto, won Intelligent Community of the world award two years ago and was in the top seven for two years as well. That was one measure, and it’s probably the best one there is.
The checkpoints along the way are capabilities — the cost, penetration and usage of broadband infrastructure. Bell and Rogers are in these buildings as well, so is Waterfront Toronto. So if you achieve on those levels and rank yourself against the world, that’s another measure.
The ultimate measure is whether you get the jobs you’re after? Of course, we won’t know that for the next 10 years, probably, because it’s a long-term project.
I’d like to make one point, though. This ability of the American communication companies to start to provide services in public spaces, this is a good news and bad news thing, I hate to say it. It’s bad news for the Canadian incumbents, and we’ve got to find ways to protect them or help them get more innovative and get with some of the numbers in the world.
I’ll give you one example. I mentioned I’m designing this new community to be a world leader. Two of the others I’ve been most impressed with are in the United States. San Francisco is redoing their old shipyards and in Austin, Texas, they’re doing another one. You go down the list of the things that they do with their citizens — little apps to even help you walk home by monitoring you on streetlight cameras as you go. They’re all powered by Google fibre, so it’s Google putting the communications in. They started installing fibre in communities nine years ago in the United States. They’ve got the leading smart city implementations in the United States, in my view.
Can you imagine what the mayors are going to start to say? They’re going to start saying, “Now we have to get communications in here, and here comes Google. They’ve already been doing it with some of the biggest advancements, and that’s going to create competition.” The mayors and city staff are going to be inclined, because now they’re competing against other cities, to say, “Sorry, guys, but we have to go that way.”
In Waterfront Toronto there was a backlash. When Waterfront Toronto created the Sidewalk Labs deal you may have heard about, Google had done a lot more research, and they’re doing a good job, I think, of collaborating locally.
I just wanted to mention that good news, bad news scenario. I’m the guy out there working with people trying to do these things. I’m not the regulatory expert that Stuart is, or others, but we’ve got to get the framework set so that we can really become a world leader, as we were 30 or 35 years ago.
Senator Dawson: Thank you.
Senator Bovey: Thank you for the presentations. I found them very interesting.
I want to ask a question about Canadian content. Obviously we’re in the early days of the USMCA, but yesterday CBC was talking about the language of the agreement. I want to refer to some of their questions, and I would be interested in your thoughts.
What happens to digital audio and video content? Could the Canadian government design future regulations or funding programs to help Canada’s cultural industries thrive in the digital sphere? It would be a new, hard new language about digital content prohibiting discrimination between foreign and domestic digital content. Favoritism or incentive for Canadian content could bring litigation from American or Mexican competitors.
Could you talk more about the content? I know it’s early days, but funding of Canadian content, I believe, is important to our citizens.
Mr. Jack: I agree. There is still this carve-out for Canadian cultural industries, but increasingly we’re seeing that a competitive focus is driving the framework.
With this new telecommunications committee, given that the big players are almost all vertically integrated, we’re going to see competitive pressures being put on the content. If you can’t discriminate between Canadian and American content — as an ex-CRTC employee, it was always a question of how you balance that. It has always been a cross-subsidization model where Canadian content was cross-subsidized by purchasing the rights to U.S. programs. That’s not new. What is new is that the screen time has moved from linear programming into streaming platforms. There really is a need to make sure that those platforms also contribute back to the Canadian content through not selling quotas, like we have in terms of Canadian content distribution quotas — the tonnage, as they call it — but also in terms of the contribution to the actual production.
Increasingly, as Bill was saying, Google is involved in Boulder, Colorado, and Austin, Texas — various places — and they will be involved here. They will be owners of infrastructure up here, or they will be leasing infrastructure and become a major player. They could purchase the whole telecommunications industry in a coffee break. They are that big. They have the loose change to do it. So before they arrive and before they start demanding access to municipal, electrical and other common carrier infrastructure, some thought should be given to their potential role and how to ensure they bring contributions in but also, importantly, how the current infrastructure owners are treated by the international players. There must be fairness in terms of return so that the risk of building those infrastructures is recognized and it’s equitable on both sides.
Senator Bovey: You’ve both mentioned rural and remote areas and the importance of access to rural areas. I’m going to presume that includes the North and the Arctic in terms of access.
Mr. Hutchison, you’ve commented before that Canada needs to invest $60 billion in capital costs to become a leader in communications infrastructure. I wonder what you feel the role should be of the Canada Infrastructure Bank in providing investment in communications infrastructure to reach those rural and northern areas.
Mr. Hutchison: Thank you, senator. Every time I mention the $60 billion, I duck. I try to mention it after I mention that we spend more than $200 billion on health care in Canada, by all of the estimates that we studied, and with a system that just services the health care community writ large. And certainly for that $60 billion, we could save, conservatively, 15 per cent of that per year. That is about $15 billion a year. So in four or five years, you’d pay off the whole investment.
But if you tell somebody it’s going to cost $60 billion, they say, “Well, we’re putting $500 million in.” The problem is that the world is going faster and that’s getting us nowhere, even though it’s nice to have, no question about it.
The other problem in the rural and remote areas is that from a planning point of view, the government will say, from some other people’s stories, that the average there is 10 gigabits. Well, lots of people have drowned in a river that’s two feet deep on average because there are holes in the middle. There are all kinds of holes.
So in the rural and remote areas, all of them, we’ve got to be spending the money. Unfortunately when electricity came along, it took a long time before it got to the rural areas, too. Other countries are doing it. Australia bit the bullet and it has been up and down, but they are getting there. They set aside $40 billion to go after their national network.
The other point I’d like to make is that, particularly in the rural areas, we’re doing a very good job with small company creation and innovation. You may have seen the stats not long ago that Toronto created more technology jobs than Silicon Valley and New York combined last year. There is a lot of innovation going on. Even Google would be partnering or trying to buy, obviously, with some of these new ones.
In the rural areas, the issues, even from a regulatory point of view or national policy, should be to try and create these new connectivity centres and do it in a way that the small Internet service providers have a balanced, level playing field, even against the big guys. They’re innovative, and they’ll get in there and do things. That’s a way to recognize the innovation but also help in the rural areas.
Remotely, there are some good things starting to happen, but we’re going to have to spend more and more money. Even with that, we’re starting to support flying drones, and they are being licensed right now to deliver health care and other parcels up into the North where the roads melt in the summer and you’ve got to do different things. But we need the communications. We need 5G.
I’m a little off track here, but it’s relevant. First of all, it was announced yesterday that in Monaco they turned on 5G all over the city. They demonstrated it by flying drones around with people watching through virtual reality headsets, which you need 5G for.
Let’s say we use today’s technology to communicate between cars. If an autonomous car is going 60 kilometres an hour and it senses that the guy in front says, “I’m going to stop,” by the time the signal gets to the next car and to the brakes, that car would have gone 4 feet before it even starts to stop. With 5G, it would have gone 2 inches. This is the difference between speed and what we call latency. So with 5G, as Stuart said, we need to get behind that. That’s going to create all kinds of new structures in cities wanting to get there, local utilities and all the rest. Somehow that has to get onto the agenda.
[Translation]
Senator Cormier: Thank you for your presentations. My main concern is about funding and access to Canadian content in these amendments to the legislation.
My first question goes to you, Mr. Jack, and deals with the current Broadcasting Act. Broadcasters have to pay into various funds to help develop Canadian content. Given the decrease in their advertising revenue and the scale of the advertising revenue of new companies that are not subject to that requirement, what should Canada be doing, in your opinion, to make sure that those funds, which help to support the development of Canadian content, are maintained?
Mr. Jack: It is about recognizing those international players and having them contribute. Even though they are located outside, they conduct their operations in Canada. One example is Netflix, others are YouTube, Google, et cetera. They may be international players, but they receive substantial sums of money from Canada. We recognize them. If they are Canadian companies reporting their annual financial reports to the CRTC, or to the new regulating agency, they provide equivalent services, just on other platforms. They also provide their annual financial statements so that we can see what income they derive from Canadian sources. At that point, it would be possible to impose equivalent programs, in terms of contributions either to the Canada Media Fund or to other available funds.
Senator Cormier: Along the same lines, one of the questions I have had since this study began is whether we should combine the Broadcasting Act and the Telecommunications Act. From the outset, I gathered that the Broadcasting Act focuses on content and the Telecommunications Act focuses on delivery and services. We have heard different positions on companies like Bell, for example, that now provide all the services, broadcasting services, mobile services and digital platforms. In your opinion, do we have to combine the two acts?
Mr. Jack: The companies are vertically integrated. We are seeing that integration more and more, both in Canada and in the United States. Content is essential, and the large companies’ account statements —
Under the Body of European Regulators for Electronic Communications (BEREC) —that’s ORECE in French — the Europeans still have the ICT Distribution and Electronic Services Act, vis-à-vis the Culture and Content Act. The piece of the puzzle that we call “content” is essential for the proper operation and viability of those companies. It must be said that, inevitably, if the two pieces of legislation are separated, there will be duplications and it will become too complicated. I suggest a single piece of legislation with the same players, making fair contributions, either in Canada or abroad.
[English]
The Chair: Are you saying that if you listen to somebody else broadcasting outside of Canada or watching, they have to be under this legislation?
Mr. Jack: The distinction I draw is where there’s functional equivalency, they are providing streaming services similar to our linear content that is regulated and provided by Canadian players — similar content over Netflix, YouTube, Google, whatever — and would be subject to the same regulatory regime in terms of equity.
The Chair: What’s preventing Canadians or Canadian businesses from getting on YouTube? Jordan Peterson is doing really well on YouTube, and he’s Canadian content.
Mr. Jack: So are you referring to individual content providers on the U.S. platform, or are you referring to companies that provide rival services to YouTube or Netflix?
The Chair: I’m just asking, why would YouTube be under any of these provisions? Maybe we should unleash them all and forget about subsidizing Canadian content.
Mr. Jack: To the detriment of Canadian content and the ability to have windows that express our cultural uniqueness.
The Chair: How do we know that’s going to happen? Canadians can’t compete, or they’re not smart enough to compete in the North American economy?
Mr. Jack: I wouldn’t frame it in those terms. I would frame it in terms of if you’re providing services to Canadians that have equivalent characteristics. These are basically agglomerators of content around the world, but where they’re providing streaming services equivalent to linear programming, that portion of the business that is functionally equivalent to services provided by Canadian distributors should be treated equitably.
The Chair: The same would apply in Canada, then? Because in Canada we subsidize some but not others. So we should level the playing field in Canada so that we’d have the same access for all Canadian providers that you’re saying we need to have in the world framework. In other words, CBC gets a subsidy and nobody else does. Perhaps we should eliminate that so we have the same kind of equity in Canada that you’re saying we should have against U.S. providers or European providers.
Mr. Jack: Senator, my comments were limited to the BDUs, the content distributors and the content producers.
Senator Gagné: Mr. Hutchison, first of all, thank you for your contribution to research and also all the work you’ve done with CANARIE, because all the universities and research communities did certainly benefit from that project. Congratulations.
You mentioned that it was really important to get the small businesses, cities and municipalities involved in all the work done in telecommunications. I was wondering how, if at all, the federal government should encourage the continued expansion of broadband infrastructure in Canada. Should they be involved, and how would they do that?
Mr. Hutchison: That’s a great question and it’s a follow-up from the other senator’s question, which I didn’t answer fully.
Let me just go back to CANARIE. Being around a table, we’re not going to solve world hunger here, but those great questions. These are important things and it is great to get into policy issues, but it takes a while.
CANARIE came about because we had regional research networks. The federal government funds university research, basically, and they’re paying all this cost for communications. So the question was twofold. They retained me in 1990, and it ended up being for three years, to pull together a steering committee to answer this question: What should Canada do to be a world leader in gigabit networking by 2000, in 10 years? Could we look at this model of university research infrastructure?
So I got 25 of my closest friends to start to talk, and I was immediately told by my friends in the federal government, “This is a federal program bill. If you need 25, you need 25 from every province.” So I ended up with 250 people on the steering committee, which we broke down. I then created an executive committee, of course.
It took three years of arguing and debating and all the rest of it, but my point is we came up with a plan; it was a business model. At the time, there were only two national communication companies, Bell and Unitel, that became AT&T and then Rogers. They would not go into the same room together, ever, other than to shoot at each other in regulatory hearings. In the end, I had the two of them working together, along with Nordicity and others, putting a business plan together, a seven-year, billion-dollar business plan, and $900 million in service and in kind from the private sector, and $100 million from the feds.
My point is that we did that and came together with an idea for governance, a business plan and then retained good management such that this has been doing very well for 25 years. I think that’s the only way that we may solve some of these other issues that you raise, senator, on how we do the North. I keep saying, “Why don’t we try health care?” I think it would be almost impossible to say, “Why don’t we do Canada?” That would be ideal. Australia did it, but I think it’s so far from reality at the moment.
So we could take one of the two, the North or health care — they’re both quite different in size, but they are both tremendously important — and say, “Let’s do a CANARIE-type thing and start off with an effective consultation.” The reason I say that CANARIE was effective, it is not because they retained me but because they retained somebody like me, with entrepreneurial background and the ability to pull people together. But it wasn’t the government, the public service, saying they want to chair this thing and another notch on their belt and away they go, and then we all just go to rooms and talk.
It was the public-private sector, universities. The governance in CANARIE was 50 per cent from the private sector, 50 per cent from the university world, and because nobody trusted each other, there was one more. So there’s a balance. The one more every year changes from private sector to university. For 25 years, they still don’t trust each other, but they haven’t changed that structure.
I believe we need to do that kind of thing. It’s not a royal commission, but at the end of the line the federal government was holding a pot of money, and it’s amazing how people come to the table when you do that. That was evidenced by the Smart Cities Challenge they ran.
I think it’s a way to come at both of those. I believe it could be done. It takes a lot of discussion and initially nobody believes anybody, but it can be done. I think that’s a way to get there. It’s going to cost money, but you can nibble away at the $60 billion. I wouldn’t even put it up initially. It is about our goal here. How are we going to solve the North communications issue or the cities or all the rest?
On the cities side, I think the Smart Cities Challenge makes a lot of sense or things like that. I was a founding chair and co-created i-Canada, which was done seven years ago. This is a national association, kind of a consortium. If you look at the website right now, it’s not very good because it’s lying idle because we have now created i-Valley in Nova Scotia to get something going in rural communities. We have 10 rural communities in Annapolis Valley where locals have put in some money and there is some federal money. They’re now going to be, we hope, the first globally certified ISO standard smart region as a way of dealing with small rural communities.
We did i-Canada because seven years ago I had been working in the U.K. and the U.S., and they had come out with the Smart Cities Challenge. The way cities budget every year, councillors hate to raise taxes, so they tell staff, “Do your budget for next year and you can go up 1 per cent.” Well, where do you get a transformation fund or anything like that when you have to go up only 1 per cent?
As soon as the federal government says, “Here is a $50 million prize,” two things happen. They all come together. There were 200 submissions finally. We can never get the previous government to even spell the words “smart city,” never mind do anything. So with i-Canada, although I created a council of governors, it could only be a mayor or CEO on the council. And they’re still there. The mayors of Edmonton, Surrey, Halifax, all across, lobbied to do this. I think by doing something like that, you get something going in the cities.
The federal government can kind of camouflage it by saying, “We are not getting into the broadband question, but we will give you money to become a smarter city.” The first thing they are going to do is that, so that’s a way to do it.
[Translation]
Senator Boisvenu: Thank you very much for your very enlightening presentations that are both interesting and troubling at the same time. At a time when the federal government is investing billions of dollars in conventional infrastructure, bridges, roads and highways, the impression is that there is little in the way of technology and the infrastructures of the future. It only happens on occasion in regions that exert a little pressure, so they go and put up a tower.
Where is Canada in terms of other countries? Are we at the bottom of the class? Are we near the top? Where does Canada rank in terms of these technological advances?
Mr. Jack: My answer is that it is 50/10 for download and upload. That is not all bad. It is competitive and it is exactly what communities across the country need. Among OECD countries, Canada does not have policies that structure the objective. The objective of 50 megabits per second was created by the CRTC, which maintains 50/10 as an objective, a standard. So it is rather unusual for a regulatory body to establish policies and for ISED to follow those policies. Usually, the European countries have policies with well-established sections. For example, they are at 10/2 and they will move to 25/2 in a year with an investment of such and such. The policy includes everything. The fund is permanent. These are not programs like Connecting with Canadian Communities or Connect to Innovate that come and go in two years. This is a permanent policy with permanent funds so that the objectives can be achieved. The funds are established by their respective communications ministries
Senator Boisvenu: Canada is lagging behind other countries. Is that because of a lack of competition? Communications technology rests with three or four companies. We do not have a lot of small suppliers. Do we have little in the way of innovation because of a lack of competition or a lack of government investment?
Mr. Jack: Canada’s telecommunications networks are as good as, if not better than, those in other countries from the perspective of reliability, and so on. Mr. Hutchison was talking about latency earlier, in terms of Bell, Rogers, Telus, and all the national companies, Eastlink and Vidéotron.
Senator Boisvenu: So the problem is with investment?
Mr. Jack: No, I would not say that. Especially in rural areas, even where the infrastructure is in place, it costs 40 per cent more, kilometre for kilometre, in Canada than in the United States.
Senator Boisvenu: Because of the lack of competition or because of the regulations?
Mr. Jack: No, because of the population density. The costs of setting up and operating a network are higher in Canada. Despite that, we have networks that rival the best in the world. The costs of the services to subscribers reflects those costs in part.
Senator Boisvenu: Density.
Mr. Jack: In the Canadian model, the government does not provide the networks or the services. We subsidize those who do. As for financing, we must open up the access to financing for all those who can provide the services.
Senator Boisvenu: Mr. Hutchison, you said that we are a long way behind in terms of 5G. You mentioned automated cars. We undertook a study on that subject last year and we saw that Canada was somewhat behind in developing those technologies. According to the real experts, autonomous vehicles are ready and waiting for us. So we might have the autonomous vehicles, but we apparently do not have the technological support to use them with any regularity. Is that the case?
Mr. Hutchison: Thank you for the question, senator.
[English]
Let me go back to the first part of your question as well and then I’ll come back.
I have a slightly different view than my friend. I started my life working at Bell. In fact, I even worked for Ontario Northland Communications up in the North.
The fact is that over the years, we have created, as has the United States, a communications environment of regulated monopolies and duopolies. That is a fact. We have been doing a lot of things to open it up and to keep pushing.
The fact is that if you read independent studies of us nationally — and I will come back to the population density issue because it is important — we will be sitting, in various measures, at number 20 in the world. We used to be down around number 30. We are not in the top tier when the OECD or Harvard or other organizations do national measures.
Now, there are a few measure issues: cost, penetration and performance, namely, the bandwidth.
I have done a lot of work in Kazakhstan. Kazakhstan has even less density than we have. Australia doesn’t have much population density. Australia bit the bullet.
You are absolutely right that we spend a lot of money, and we have to, on roads, bridges and everything else. A lot of people — and certainly politicians as well, because they are citizens — if you say “infrastructure,” broadband doesn’t come to mind. People think of roads and bridges because we are used to that. We have so much per mile and all the rest of it, and we have great roads pretty well.
If you tell someone you need $60 billion for broadband, and if you told them you needed $60 billion for roads and bridges — I don’t know what we spend, but that wouldn’t be a problem — they don’t think of it in the same terms.
As to density and all the rest, there is no question that it costs more here per person when you get into the rural areas. I’m not sure that is a reason, though, for leaving all these dead spots out in rural areas. I am not talking about the northwest or other places. I’m talking Caledon and Ottawa. You can get way out into the rural areas here and there are dead spots.
We have people in Toronto who don’t have the Internet. Generally they are poorer people and parents cannot afford it. The kids either have to go next door to do their homework, because the school says they have to do it on their computer, or go to Tim Hortons. How demeaning is that for kids to even admit that they don’t have the money.
I believe there are two issues. There is the social issue of getting in people’s heads that this is really important from both the social and economic development points of view. And then we have to put a couple of extra digits on this thing.
We have to have a coming together. It is not to shoot at Bell and Rogers. They have made tremendous investments. They do a tremendous amount for society. Some would argue they are just using the tax they get from the user for mental health and all the rest. So be it. I am not getting into that. That is good stuff.
But we have to solve the issue. The markets are continuing to open up. We are facing a bully in the United States. He will keep playing games, and who knows where the rest will go in the future. So we’ve got to be even more competitive. It took 60 years before the high-tech industry got to the point where we are now creating more jobs in Toronto than Silicon Valley and San Francisco. It takes a long time.
This is where I argue for coming together with the right people to do a CANARIE-type of thing. This is not to shoot at the incumbents; everyone has to be at the table. They have to say, “We are all Canadians, and we have to solve this.”
Senator Griffin: I had a couple of great questions, but they have already been asked and you have already answered them. My issues were primarily related to rural areas and cost, because I come from Prince Edward Island. We pay a lot for our Internet service there.
Mr. Hutchison: You sure do.
Senator Griffin: The reason has already been given, so I will pass.
Senator Galvez: I have a question for Mr. Hutchison and Mr. Jack. It will be outside the box, because this subject is complex and outside my expertise, but I want to understand.
I am fond of smart cities. Because I am a geek, I like technology. It facilitates many things in life and equalizes some social differences. At the same time, Dublin is a smart city. We want Toronto and Montreal to become smart cities. You talked about Austin, Texas. These are cities close to water.
Recent studies have said that with climate change, there is a lot of flooding, and Internet infrastructure is vulnerable — cables and optic fibres. They expect that in the next 10 years thousands of miles of cables will be unusable because of flooding. That has already happened in New York and Houston.
Will we favour wi-fi satellites? Is someone thinking about the danger we will put on this new $60 billion infrastructure that we are planning to construct?
Mr. Hutchison: That is a great question. There are all kinds of names for tomorrow’s cities, and it confuses the market, too. There are about 20 definitions for smart cities: intelligent community, sustainable, and resilient is a word that is coming up now too.
Holland has no problems with flooding. It is a country basically below sea level, and they have come around with flood control and management. It is unbelievable the things they have done, and cities on the coast will have to do that kind of thing. Long term, a lot of those problems can be solved properly. Short term, there will continue to be problems. People will have to understand that when you are putting — it doesn’t matter about fibre, as there is a lot of fibre under the sea except it is waterproof. They have to waterproof it all, in a sense.
Waterfront Toronto was not allowed to create a new housing area right next to the Don Valley until they spent $100 million creating what are essentially berms. They’re better-looking dykes, but they look like parks. They are now spending $1 billion on the Port Lands to do the same thing there, which is rerouting rivers and everything else. People have to recognize that.
Even wi-fi and radio things are on towers, and then they come down into little electrical boxes and connections to fibre. The whole thing can be solved, but they have to smarten up and really do it. I think they will start to put their mind to it now with all these problems.
Senator Galvez: Who is putting their mind into it, which authority?
Mr. Hutchison: It will be all of them in a combination of federal, provincial and city funding to be able to figure it out — even the insurance companies. After the Bow River flooding in Calgary, the insurance companies started to say, “Wait a minute. We are not paying for your house. That’s a city problem. They shouldn’t have let you build there, because they know it is a flood zone.” People were pointing fingers, but they will all get involved.
[Translation]
Senator Galvez: Mr. Jack, I do not understand. The relationship between the developers, the distributers and the broadcasters of content is very complex. You are proposing that a single piece of legislation should cover all those aspects, but we have heard from other witnesses who say that content is one thing and the means of transmission is another. Clearly the expertise and the technical and cultural needs are very different. If I understand correctly, the content depends on the region, on the culture. It is very local. What transmits the content is the technology and the engineering. Those are two completely different things. I am wondering if a single act can really cover it all. Would it not be better to have separate legislation?
Mr. Jack: As I spent part of my career on the commission, I have no firm opinion. From a commercial point of view, if Canadian audiovisual content is built into the business plans of vertically integrated companies such as Vidéotron, Rogers, Bell and Shaw, all the big companies with 98 per cent of the market, how can we tease out the part dealing with content from the entirety of their communications activities?
From a commercial point of view, it is almost impossible. That does not prevent us from having legislation on the commercial content in all its forms, such as theatre, video, or anything else. But to capture the vertically integrated companies, we have to recognize that content is an integral part of their activities. It is almost impossible to isolate it and regulate it differently.
[English]
The Chair: Mr. Hutchison, could you comment on that question as well?
Mr. Hutchison: That is interesting. When it comes to acts and that sort of thing, I am a bit of a neophyte. Being a private-sector guy, I tend to go along with some of the thoughts that say, “Let’s put it up in the air and see how we do,” because we are pretty innovative. My cultural friends would kill me, but as Mr. Jack would say, it is getting difficult to separate some of these things. Smarter people than me would know how you might be able to measure some of the content activities.
When I am down in the field trying to create a new community and, in that particular case, Bell and Rogers don’t want to do what my RFP said someone has to do, it’s a third party that wants to do it. They have their broadcast licences, but even so, they will be creating content. Most of it will be local, but they will be creating content. Some of it may be interesting to other communities, and it may go national. But they have to do it in order to create the smarter communities. That is a very difficult question.
Senator Galvez: Let’s say we have a general communications act, but we have seen so many bills that have two or three parts. Could it be one but where the two separate things are there?
Mr. Hutchison: I think that is what Stuart is saying, put it into one but some parts relate to fibre and what it looks like and others to some of the cultural issues.
When I listen to the CB — notwithstanding that I am in the private sector — everyone should be the same. There is a national knitting together on some of the things they do that would be hard to get a lot of advertising for. You get those issues as well, of course.
The Chair: Thank you for your presentations. This has been an interesting discussion.
We will suspend for a minute so we will be able to say goodbye to our guests and thank them for coming personally. Then we will spend about five minutes in an in camera meeting to approve future witnesses and discuss how to organize ourselves.
(The committee continued in camera.)