Proceedings of the Subcommittee on
Communications
Standing
Senate Committee on
Transport and Communications
Issue 1 - Evidence
OTTAWA, Thursday, May 2, 1996
The Subcommittee on Communications met this day at 1:15 p.m. to organize the committee's work.
[Translation]
Mr. Timothy Wilson, Clerk of the Committee: Honourable senators, we have a quorum. As Clerk of your subcommittee, it is my duty to preside over the election of the Chair. I am ready to receive motions to that effect.
Senator Spivak: I move that Senator Poulin be appointed Chair of the meeting.
Mr. Wilson: Are there other motions? Senator Spivak moves that Senator Poulin be appointed Chair of the subcommittee. Do you agree to the motion by Senator Spivak?
Some Hon. Senators: Agreed.
Mr. Wilson: Senators, the motion is agreed to. Senator Poulin is elected Chair of the subcommittee.
Senator Marie-P. Poulin (Chair) in the chair.
The Chair: Thank you, senators, for your trust. I am prepared to receive nominations for the election of the Deputy Chair.
Senator Roux: I move that Senator Spivak be elected Deputy Chair of the subcommittee.
The Chair: Does everyone agree to Senator Roux's motion?
Some Hon. Senators: Agreed.
The Chair: We have just agreed that Senator Spivak be the Deputy Chair of our Subcommittee on Communications. I thank you very much for accepting. Something tells me that we are going to work hard and have fun during the meeting of our subcommittee.
We have a few usual motions: that the Subcommittee on Agenda and Procedure be composed of the Chair, the Deputy Chair and one other member of this Subcommittee to be designated from time to time after the usual consultations.
Do we have someone to make the resolution, please?
Senator Maheu: I move the resolution.
The Chair: It is moved by Senator Maheu that the subcommittee be authorized to invite witnesses and schedule hearings. That will be the responsibility. Honourable senators, are you agreed?
Some Hon. Senators: Agreed.
The Chair: The motion is agreed to. Under the heading, Motion to print the subcommittee's proceedings, it is suggested that 200 copies be printed. So I would need a resolution for the subcommittee to have 200 copies of its proceedings printed and that the Chair be authorized to adjust this number from time to time to meet demand.
Senator Spivak: I make the motion.
The Chair: The motion is made by Senator Spivak. The resolution is passed.
Item 6, Authorization to hold meetings and to print evidence when quorum is not present. It should be moved that, pursuant to Rule 89, the Chair be authorized to hold meetings, to receive and authorize the printing of evidence when a quorum is not present.
Senator Roux: The only question, Madam Chair, is that, as there are so few of us, does that mean that the mere presence of the Chair, for example, would be sufficient?
The Chair: Yes, but only for the appearance of witnesses.
Senator Roux: It is not that I have an objection. It is a question.
The Chair: I think our clerk could perhaps answer you. As this is a subcommittee, perhaps Mr. Wilson could tell us what the procedure is.
Mr. Wilson: Here is what is written in Rule 89:
A quorum is required whenever a vote, resolution or other decision is taken by a select committee, but any such committee, by resolution thereof, may authorize the chairman to hold meetings to receive and authorize the printing of evidence when a quorum is not present.
The practice has always been that this motion is agreed to so that, if we do not have a quorum, we may start a meeting if we have witnesses who have come from far away, but we usually have a quorum and we never make any decisions without a quorum.
Senator Roux: Very well, I put the motion.
Senator Spivak: It is a matter of politeness.
The Chair: The motion is put by Senator Roux. The motion is agreed to. Order number 7, Research Staff: I need a resolution that the Chair be authorized to direct the research staff in the preparation of studies, analyses, summaries and draft reports. I think this is also necessary.
Senator Spivak: I put the motion.
The Chair: Senator Spivak puts the motion. The motion is agreed to. The following order, number 8: travelling and living expenses of witnesses. We need a motion that, pursuant to the Senate guidelines for witnesses' expenses, the committee may reimburse reasonable travelling and living expenses to no more than two witnesses from any one organization and payment will take place upon application. Senator Maheu seconds the motion.
When could we meet regularly? What are your suggestions? Perhaps we should look at the regular schedule of all the committees and subcommittees. I believe we all have a scheduling problem these days.
If we could aim for a certain regularity, that would make everybody's lives easier as far as schedules are concerned. What time slot would be free?
Mr. Wilson: This is very difficult. All Mondays and Fridays are free.
The Chair: And Saturdays and Sundays.
Mr. Wilson: Which is obviously not possible. Today is Wednesday morning. We usually avoid Thursday afternoons. That leaves us then with Tuesday mornings or Tuesday afternoons for committee meetings, Wednesday afternoons, in the evenings and on Thursday mornings.
The Chair: On Thursday mornings, there are already three committee meetings, which are meetings of the committee of the whole. I am aware of them.
Senator Spivak: Wednesday evenings or afternoons?
The Chair: Wednesdays at 5:00 p.m.
Senator Maheu: Is it possible to request a dispensation from the Senate?
The Chair: I think we would have a great deal of trouble, especially for a special study, Senator Maheu. In certain cases or for certain objectives, it is accepted, but since we have all the time needed to achieve our objective, we would have trouble obtaining permission, I believe.
Could we perhaps aim for 4:30 p.m. nevertheless, instead of 5:00 p.m., because I have noticed that, on Wednesdays, we finish around 4:30 p.m. Would you be comfortable with that suggestion, Senator Roux?
Senator Roux: Yes.
The Chair: Perfect. On Wednesdays at 4:30 p.m., then?
Mr. Wilson: Thank you, Madam Chair. I believe it is not clear at the moment whether the Senate is sitting at 1:30 or 2:00 p.m. on Wednesdays?
The Chair: These days, it is 1:30 p.m.
Senator Spivak: Yesterday, we finished at 4:30 p.m.
Senator Roux: Couldn't we say upon adjournment of the Senate?
The Chair: That's even better.
Senator Maheu: That could be at 1:00 p.m.
The Chair: At 4:30 p.m. or upon adjournment of the Senate, but then we have a problem. I believe that would make life more difficult for the clerks and research team.
Senator Maheu: With witnesses at 4:30 p.m., if by chance they finished at 5:00 p.m., a half an hour would be an enormous amount of time.
Mr. Wilson: On Tuesdays, for the Transport and Communications Committee, we usually enter in the agenda upon adjournment of the Senate, but not before 4:30 p.m. If the Senate adjourns earlier, at least we have a fixed time.
The Chair: It should also be said that, since we are a subcommittee, fewer of us will be leaving the Senate. So we could in fact try to do it, once the day comes. So we agree on 4:30 p.m.? Would you repeat it as you said it, Mr. Wilson?
Mr. Wilson: Yes, it is upon adjournment of the Senate, but not before 4:30 p.m.
The Chair: Could I perhaps bring to your attention the fact that we could nevertheless begin certain stages at this point? I believe that, since our objective is to ensure continuity in a study that was begun before Parliament was prorogued, could I request your authorization to talk with the people who do the research to see exactly in detail what has been done to date, what methodology has been used and what witnesses have been heard so that we can then review what has been done to date?
We therefore have to undertake what I call a period of advance research before determining a work schedule for the next stages. Do you agree that I should proceed at this time and conduct meetings?
I am going to schedule meetings and I am going to take the liberty of calling you at your offices so that, if you are free, you can come to the meetings with the research service. I am sure we would all like to see what has been done in the previous proceedings. Does that suit you?
I would very much like to receive from each committee member, based on the order of reference, specific questions regarding communications, if you have any. Since this is a special research matter, each committee member would perhaps like us to clarify certain subjects. I know, for example, that Senator Roux is interested in the cultural question. I therefore take it for granted that there is a cultural aspect that he would like us to review, as well as the entire question of communications and telecommunications.
Senator Roux: That can go quite far because it could cover the Internet as well.
The Chair: Absolutely. When I say communications, I mean everything relating thereto.
Senator Roux: We have the entire audiovisual field and the revision of the Copyright Act.
The Chair: Yes, everything, absolutely, but I would like that to come from you. You can do it orally or in writing. Please feel free. You may communicate with Mr. Wilson or with my office, and we will ensure that your specific concerns are included.
[English]
Senator Spivak: It is a question of time. If we are going to review the study from before, that will be very comprehensive.
The Chairman: Yes.
Senator Spivak: I think it is good to hear everybody's ideas, but, if we do that study first, we may not get to the other ideas so fast.
The Chairman: You are absolutely right. That is why, when we have reviewed what has been done before and have identified the individual interests of the members of the subcommittee, we will be able to look at a work plan that is feasible and deliverable in the amount of time and with the amount of resources we have at our discretion.
The third point is to have a budget which we can work on at the next meeting.
[Translation]
Senator Spivak: I hope not.
The Chair: Perfect. The meeting is adjourned and we take it for granted that, failing notice to the contrary, we will meet next Wednesday at 4:30 p.m.
Senator Roux: There is the annual general meeting of the Interparliamentary Association.
The Chair: Then we could perhaps allow ourselves two weeks to do the preparatory work. We could then meet on Wednesday, May 16.
The committee adjourned.
OTTAWA, Wednesday, October 30, 1996
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:30 p.m. to study Canada's international position in communications.
Senator Marie-P. Poulin (Chair) in the Chair.
[Translation]
The Chair: I am pleased to welcome the contingent from Teleglobe Canada to the Subcommittee on Communications of the Standing Committee on Transport and Communications. I am Senator Poulin, the Chair of the Subcommittee as well as a member of the Standing Committee.
It is my pleasure to introduce to you my colleagues: Senator Forestall, Deputy Chair of the Standing Committee of Transport and Communications, Senator Watt and Senator Perrault.
Since the Senate continues to meet at this time, we have received special permission to sit. Colleagues will be joining us as the meeting progresses.
We are pleased to have this opportunity to discuss with you international communications. As you know, we have distributed some documentation. Although this is a very broad and very complex issue, it is nonetheless very topical. We would like to focus your attention to four areas: technology, human resources, commercial relations and Canadian culture.
I believe Mr. Stewart is the CEO of Teleglobe Canada. Would you like to introduce the people with you?
[English]
Mr. Guthrie Stewart, President and CEO, Teleglobe Canada Inc.: With me today isMr. Claude Forget, special advisor to our chairman,Charles Sirois. Mr. Forget is the author of The Medium and the Muse which deals with subjects of interest to us all.
The Chair: That book is on the reading list of this committee. It was sent to all members this summer.
Mr. Stewart: Mr. Forget also assisted our chairman with his involvement in Information Advisory Council activities in 1994 and 1995.
Also with me is Mariel Bradford, Vice-President, Government and Regulatory Affairs, here in Ottawa for Teleglobe Canada.
The Chair: Welcome.
Mr. Stewart: I will begin by speaking extemporaneously from some points which we have on slides. I will ask Ms Bradford to join me part way through the presentation. I would like to start with a conceptual viewpoint on some of the important issues facing Canada, the Canadian market and the Canadian industry in the area of international telecommunications. Ms Bradford will speak about some specific issues from the Teleglobe perspective.
As you may know, senators, the subject of international telecommunications is very near and dear to our hearts as we are, at the moment, Canada's exclusive telecommunications overseas operator. As I am sure all of you are aware, our status as such is currently under review by the government. Ms Bradford will add a few comments on that subject.
We would like to approach this subject by giving you our view on what we believe are, and ought to remain, the main policy objectives of policy makers here in Canada. We believe that it is extremely timely that you are engaged in this review as there are a number of very important decisions which the government and regulators in Canada are facing now, and will face over the next very short while. We think appropriate policies in Canada should ensure that Canada maintains and enhances its infrastructure development.
As you are all aware -- and I am sure you will hear this many times over -- we have much to be proud of in this country in regards to our existing telecommunications infrastructure. However, as a person in the industry, every time I hear someone else in the industry say that, I reply that that is all very well, but it is a very fast-moving industry, and we must be very conscious of where we need to go to continue to be at the front edge in this country and not rest on our laurels, if you will.
You will detect in my comments some remarks specifically related to the industry interests, but at the same time, we wholeheartedly subscribe to the very broad and important objective that the market itself benefit from the rapid introduction of new and varied services and also, as has already been observed in the marketplace, that we continue to benefit from the heat of competition, which, as it is doing right now, will drive the cost of telecommunications down.
Another very important objective, which is of broader interest to perhaps our friends in the broadcasting sector, and which we would obviously support, is that Canada should be promoting Canadian services on its information highway. I will speak mainly about telecommunications services, but we also believe that there is a special place for policies that support the introduction and promotion of Canadian services and content on our information highway.
The next slide shows a perspective on Teleglobe, and I will take five or ten minutes to give you a bird's-eye view of who we are and what we are up against in the marketplace.
We are ourselves a company which has been very strongly shaped by government policy. In fact, we recognize that those policies have in many ways contributed to our current success and position in the marketplace. In turn, we strongly believe that we have ourselves contributed to Canadian policy objectives. It is undeniable that Canada has a very privileged position in the international infrastructure marketplace. We have one of the world's foremost international networks. I will speak more specifically about that. The policies that governments and regulators have pursued in the past have enabled us to make investments in our network that otherwise might have been difficult to pursue.
Another very important theme in the way that we approach the marketplace as a company is that we operate as a wholesaler. We are essentially a network operator, and this is a theme upon which I will touch from several different directions because we believe it is a very important theme for you. In your study, you will hear from many people who are both network operators and very heavily involved in service delivery as well. I will repeat myself on this, but we believe very strongly that one of the key issues for Canada in setting its policy course for the future is to foster the development of a very vibrant service sector which can operate in conjunction with, and independently of, the network infrastructure. I will expand more on that in a few minutes.
As a company, we have pursued this wholesale network strategy. That means, by the way, that our customers are other service providers, such as the telephone companies, the resellers, companies like AT&T Canada, Sprint, and so on, and also our provincial telephone companies. We have a policy of keeping our door as wide open as possible to encourage anyone who wants to come on our network for international services to buy our services on a wholesale basis and turn around themselves and package the services and price those services into the market.
A few years ago, Teleglobe actually determined how much it cost you to make a call from Canada to London or Paris. That is no longer the case. We now pursue a wholesale role where we give a flat wholesale rate to our service customers. They in turn then compete for your business. They set the prices. You have seen very dramatic reductions in international service prices while clearly maintaining the very high levels of service that we have in this country.
As a company faced with the rapidly changing environment, and very conscious of the strengths that we have as a Canadian company, the strengths that we have been able to develop in this market, we have been, over the last two to three years, pursuing a very aggressive expansion strategy of our own. To touch perhaps on the theme, Madam Chair, of human resources, we are very strong believers that Canada has much of which to be proud. In many ways, Canadians have been reticent to exploit the very natural capabilities that we have.
When I speak of international expansion, one of our major areas of interest has been to go into that very natural market south of the border and use our Canadian capabilities in Montreal, Toronto, Vancouver, and on the East Coast, as well as our network, to expand our presence, which will of course only benefit the Canadian marketplace by enabling us to generate more activity on our network, reduce our costs and also enable us to introduce new services. We have a very aggressive, outward-looking strategy, if you will.
To continue with our corporate profile, again I mention that we are a Canadian provider of intercontinental services. We use the word "intercontinental" to distinguish from merely Canada-U.S. services. Our Canada-U.S. services are obviously a very important international market, even for Teleglobe, but increasingly that is a very integrated market in many ways, and the interconnection that occurs for telecommunications purposes between Canada and the U.S. occurs between the local telephone companies, the local service providers, who themselves exchange traffic across the border, and we are not currently involved in that business.
To look at it from another perspective, when you make a call from outside Canada to Canada, we are country number one, the same status as the United States, which is also country number one in the world.
I mentioned already that we pursue a wholesaler's strategy. In terms of our world ranking, we like to point to the fact that we are the sixth largest in overseas traffic. That is quite a phenomenal statistic and underlines the traditional importance that telecommunications has always had for this country. It also underlines the very international nature of Canada, which always bears repeating.I participated recently in a trip with Minister Manley to Sweden, and I listened to the Prime Minister's comments in Montreal the other day, and I think we have a lot to be extremely proud of in terms of our international reach. We in business often do not realize what a dramatic success we have been having in the export sector over the last few years.
Our network, as I mentioned, is one of the foremost networks in the world. We reach over 240 countries and territories. We are very interested in new technologies, and one of the recent "sexy" areas, if I can call it that, involves new satellite technologies.
Our next topic is size. In Canadian terms, we are a very sizeable company, I suppose, with $1.5 billion in revenues.
As you can appreciate, we are in a marketplace with very large companies from outside the country. When I say that we are the sixth largest in terms of our transport capability in minutes at the moment, we are comparing ourselves with the likes of AT&T, MCI and Sprint, which are many times our size, as well as Deutsche Telekom, France Télécom and others.
I have already mentioned one of the key platforms of our strategy. When I speak to investment analysts, they invariably ask me about the regulatory regime in Canada and how we feel about our mandate. What I always say to those analysts, and what I would like to leave as an impression here, is that as a company, we are very focused on succeeding in the marketplace with the full benefit of our own resources and our own capabilities. Since Mr. Sirois joined the company in 1992, at which time I and many other managers joined as well, we have focused on exploiting the natural advantages we have in the marketplace.
As a very large international carrier based in North America, we already have a privileged position in the marketplace from Canada. As I mentioned, our network compares very favourably with AT&T, MCI and Sprint, the three largest U.S. carriers. They carry more traffic on their networks, but the capability of our network compares very favourably. We have the distinct advantage of being in North America, as are they. North America by itself generates over 50 per cent of the international traffic around the world. Being in Canada, we have a very significant geographical advantage. We have been extending this natural geographic advantage to Europe, Asia and South America. In the past, the company had been typically Canadian and reticent to expand beyond our borders, but we have seen natural opportunities and have extended our presence to other countries. Now we have a considerable amount of business and traffic on our non-Canadian network, international business going from country A to country B through Canada. This is a very significant part of our business.
Given the importance of North America and our natural advantage sitting here in Canada, there has been a natural evolution of the company to extend its presence into the United States. I will not dwell on the saga of our efforts to enter the United States. The United States is publicly proud of its reputation as the most open and competitive market in the world. We and others -- notably <#0130>ONOROLA, one of the Canadian resellers -- have had direct experience with what is involved in obtaining authorization to enter the United States. It was a very long and frustrating process. The good news is that we have those full authorizations as we speak. This summer we obtained permission for Teleglobe to operate in the United States in the same manner that it operates in Canada, using international facilities. We see tremendous opportunities to use the strengths that we have in Canada as a lever to service the United States market. That is absolutely essential.
For those of you who followed our story, one of the main issues we faced was being side-swiped by policy concerns in the United States which had nothing to do with Teleglobe. At the time, Canada and the United States were embroiled in a little dispute over country music. The U.S. trade representative took retaliatory action by essentially ordering the licensing authority in the United States to withhold our licence. We received extraordinary cooperation and support from the Canadian government to help us through those road blocks, and the situation was eventually resolved. While I refer to it as a frustrating experience, again I would underline that it was absolutely essential, in our strategic view, to enter the United States market. We are very content with the progress we have made.
We now have a thriving business in the U.S., employing both Canadians and Americans in the U.S. market. Our business there alone represents almost a third of our business in Canada. This has been accomplished in 12 short months.
You will hear others talk about new service applications. We are equally focused on bringing new business applications into the Canadian market, to support exporters in their ability to access foreign markets through such things as various international 1-800 services and other calling services.
We are focused on developments like the Internet. One of the interesting facts of life on the Internet is that it can be a frustrating experience navigating around. It takes time. Traffic obstructions occur. I can tell you that this is even worse on an international level, which is good news for a service provider such as ourselves. We are committed to increasing the capacity on our network. It is available for services like the Internet.
I also mentioned broadcasts. An interesting development on the international front is the ability now, with our network capabilities, to access with greater ease broadcast services in other countries. As well, we can also promote Canadian services into other markets, not only from the traditional technologies of broadcasting by satellite internationally -- which would be the traditional way one might follow the Olympics in another country -- but now we have increasing network capabilities to put programming on our fibre and store it so that it can be then accessed in non-real time. In that way, someone in Europe who wants to follow a hockey game in Canada but does not want to watch it in the middle of the night will be able to benefit from this service. We will be able to store that programming and retransmit it at a more appropriate time for the audience in another country.
The next couple of slides show you our international presence. In Canada, our main presence is in Montreal, with an important presence in Toronto and Vancouver. We also have facilities on the East Coast just outside Halifax.
Our U.S. presence, for traditional regulatory reasons, is in Virginia, just outside Washington, D.C. Over the last few years, we have also been assertive in developing a presence in Asia and Europe.
I would like to show you a quick picture of what our network looks like. I hope this makes some sense. Essentially, our network consists of underwater fibre cables. This is the main backbone of our network. People often ask me, "Isn't cable an outdated technology? Isn't satellite technology going to take over from cable?" The exact opposite is the fact. In terms of the ability to transmit large amounts of information at very high speeds, nothing rivals fibre optic cable. We pride ourselves in having one of the most modern networks. At the moment, in particular between North America and Europe, we have the most modern and extensive capacity available between those two markets.
We also have a very important involvement in satellite capabilities. Satellite technology will always play an important role in reaching markets that are not as easily accessible by cable, but also will increasingly play a role -- and I am sure you will hear more from others who are directly engaged in the satellite business -- in addressing niches in the marketplace that cable facilities perhaps do not address directly at the moment. Mobile services, which is an area we are particularly interested in, is an obvious application.
As well, there has been an expansion of demand for services in the home. We are witnessing direct-to-home broadcasts.
Again, 10 years ago, if you asked an engineer if it was likely that broadcasts over satellite might rival cable, people would have scratched their heads and said that it did not seem very likely. I would still maintain that cable is a more efficient medium at the end of the day. However, because of the relative states of technology and the flux in technology development, broadcast over satellite is very much rivalling broadcast over cable as we speak.
I have every confidence that, again, technological developments will move us on to another place on the chess board, but we will likely see the same thing with the possibility of Internet access over satellite.
This slide just emphasizes our company's strong interest in the satellite area. We are very proud of our involvement in two global satellite systems. Traditional systems have what is called a geo-stationary orbit; they orbit at the same speed as the earth and, therefore, appear to be stationary over the earth. The new systems are being brought closer to the earth which dramatically increases the quality of the service. As you know, now when you make a call overseas, you can almost immediately detect whether it is on satellite because of the delay in the conversation. If it is going over fibre, there will not be the slightest delay in the signal.
I turn now to the context facing our company and facing Canada more generally. You have heard, and I am sure you will hear again -- the international sector is a dramatic example -- that we are facing changes every day in the marketplace in terms of technology.
What does changing technology mean? In policy terms, it means that you have the ability to introduce new services more rapidly, but you also have the ability to use different delivery systems in the market. This translates into a very natural ability to introduce and foster more competition in the market. An example on the home front, which also translates on to the international front, is the introduction of cellular services. Now you have successive iterations of wireless services where there is no doubt that the wireless services will become increasingly viable and reliable both domestically and internationally.
I spoke about fibre and satellite. These are all technological advances which change the traditional viewpoint in the international sector that one company like Teleglobe is required to speak to one company like France Télécom. There are now many different ways for people in Canada to speak to people in France.
We believe that these are very natural trends. Policies in Canada ought to be oriented to seizing the advantages of that progress while also enabling companies like ourselves to have a fair opportunity to participate in those opportunities.
On the international front, you are seeing very dramatic liberalization initiatives. Deutsche Telekom is being privatized as we speak. Right across Europe -- the U.K. and Sweden are the two most notable examples -- there is almost wide-open competition in these markets. A few years ago, such a situation was unheard of.
Every day in the international marketplace, you hear about alliances as companies link up across borders with a very focused objective of being able to service their customers who have international interests. It is no surprise that these alliances have been led in many ways by the U.S. carriers who naturally have the customer base and the strongest international links. We have seen AT&T, MCI and Sprint pursue aggressive alliance strategies.
I will say that we have perhaps contrary views about the ultimate success of these alliances, but they are a phenomenon which is very much present in the marketplace. It has very important consequences for Canada. Again, we have seen AT&T and Sprint come into the Canadian market in a very strong way, and they are obviously operating in a very coordinated way with their operations in the United States. MCI operates in concert -- no pun intended, that is the name of their service -- with the Stentor companies.
On the international front, there are obvious trends and pressures to open markets. We are in the midst of GATT world trade negotiations as we speak. I spent a very enjoyable evening last week with the deputy ministers of the Departments of Industry and Foreign Affairs discussing negotiating strategy. Teleglobe, as an international carrier, is vitally interested in these issues. There are very clear trends and some very important decisions must be made on the Canadian front.
Broadly speaking, we are strong believers in having a regulatory policy which enables the market to encourage investment in new services. I hasten to add that the most important driver is the need for creative development of services in this country. A theme to which I allude repeatedly is this: You hear too often amongst industry participants, particularly network-based telecommunications companies like ours, the expression of views which mix the two interests of a carrier. Carriers have an obvious interest in encouraging investment in its network but, at the same time, have an interest in protecting and even enhancing its relatively dominant position in the service marketplace.
We are strong philosophical believers in encouraging investment in network while simultaneously encouraging creative service development in Canada. We feel the real promise for Canada lies in the latter area. There is no better way to achieve these goals than by encouraging access to networks on the most open and liberal basis. That assures companies in the network business that they will have investment for future building.
I am often asked if I am concerned about the development of the Internet. To perhaps exaggerate the point, the phenomenon of the Internet has not been promoted by the telephone companies. The Internet grew out of a network for educational, scientific reasons but it has been promoted by a whole handful of entrepreneurs. There are a whole multitude of so-called Internet access providers across the country, many of whom have less than 2,000 customers.
I am asked if there is concern about these suppliers who might control the customer and thereby determine their use of my network. My response is: Absolutely not. As a network provider, nothing makes us happier than to see expansion of the ability to use the network. At the end of the day, that usage enables us to invest more and to continue to grow.
I would caution you about the rather self-serving argument that in order to encourage investment in network, you must be very careful about how you measure access to the network from people who are not network providers. In other words, you will hear the argument that people are not themselves investors if they are only resellers or if they simply use someone else's network. That is an argument which I do not find very plausible. Again, as a network provider, nothing will make me happier than to have people reselling my network and using it to develop new services and expand their markets.
The next two issues are the specific policy issues of importance for the Canadian environment right now. The first is the question of access to capital to invest in this country. You will you have noted the rapid increase of services in this country, with such services as cellular telephones and the new PCS services. There are more to come. In order to stay abreast of these rapid increases, our company must make massive investments in our infrastructure.
Our last cable facility, which we laid between Canada and Europe, cost us approximately $500 million. It is a capital- intensive business. An element that helped us make that investment was the knowledge that we were engaged in expanding our business throughout North America and, ultimately, would be able to use that cable for business in the United States as well.
The second issue is the importance of having our policy initiatives encourage competition at the service level. Again, we believe that the best way to do this is to ensure competitive access to infrastructure and not to confuse those two issues. In the Canadian market at the moment, most of the large players who are involved in network are also involved as the most significant players on the service side. For the future, we strongly believe that the success of the ability of the industry to stay at the forefront will be marked by our ability to foster a competitive service industry and follow the model that we have been promoting at Teleglobe, the model of allowing the most open access possible to our own network by other service providers who offer international services in the Canadian market.
To speak specifically about these questions, the first question concerns the issue of foreign ownership, which is front and centre in the GATT and world trade negotiations at the moment. It is time to take a new look at this question. It was strongly felt at one time that we needed to have almost an overwhelming Canadian ownership policy in the telecommunications sector to encourage investment. We think the results speak for themselves. We have a world-class industry in this country and, increasingly -- and, you will hear this from others -- the question of foreign ownership compromises our ability to have competitive access to capital to continue to make investments in this country. For example, if our company wanted to access the U.S. market directly for our U.S. operations -- which is something that we have no particular interest in doing -- it is quite clear that the U.S. market has a much more competitive access to capital. You will also hear from others that, as we develop services in Canada, this can be an important constraint.
The other side of the coin, which has been a much more important consideration for ourselves, is that Canadian constraints can translate into barriers in other markets. We have had this experience in the United States; we will have this experience in other markets. It is difficult to make the case that we should be able to enter into another market if the policy makers in that country are facing an approach from a Canadian company that comes from a market which is fully protected.
Policies should be focused on regulating the behaviour of capital -- that is, encouraging research and development. One of the best examples in the Montreal area is the Erickson story. Erickson is not a Canadian-owned company. It is a company that was encouraged to come here at the time of the introduction of the cellular business to make an investment in research and development. This is a perfect example of an effective policy initiative. They opened a shop with approximately 50 engineers. Today, they have 950 and are in the process of adding another 150. They say that it is been one of the most extraordinary successes and a wonderful discovery, to come to the Canadian market and invest in this market, to see our know-how. One of the executives put it to me bluntly the other day, "The Canadian market has been a wonderful market for us to be involved in. You have highly skilled people and a very loyal work force."
The research that Erickson is doing in Montreal has a world mandate. It is being done in Montreal but it is related to their cellular wireless activities with a world mandate. They have said that in the United States they would have much higher turnover issues. That example strikes me as a wonderful example. If we can entice people to come here and invest in this country, we have a strong environment to encourage continuing investment in this country. We have had other examples in the Montreal area -- Softimage, which was recently acquired by Microsoft; and DMR, which was acquired by Amdahl -- where people might initially be concerned about the involvement of U.S. companies. The current results have proven that the Canadian market is a natural market in which these companies can invest and not take our know-how out of the market. We have a highly skilled work force and very significant cost advantages in our market which enable these companies to increase their presence here to serve other markets and to create more and better high-skilled jobs in Canada to serve not only the Canadian market but also the other markets.
There are international trends, which are difficult to ignore. Clearly, the government is being placed under pressure to review rules on foreign ownership. As I have mentioned, we think there are positive policy reasons that suggest that now is the time to look at greater flexibility on our foreign ownership rules, to encourage foreign capital to invest in Canada and be productive in the Canadian market for the benefit of Canadian employment and for the benefit of the Canadian market in general. In the long term, this is the way to ensure a healthy, vibrant, Canadian industry.
The other issue is our domestic structure issue, which, from a Teleglobe perspective, will become even clearer when Ms Bradford adds her comments. The policies must be very much focused on removing any artificial internal barriers, which slow down our ability to use our infrastructure most effectively. Specifically, I am thinking of two things.
First, we have current policies which have traditionally created a natural separation between companies that operate to provide local service, companies that operate to provide domestic long distance, and companies like Teleglobe, which are involved at the moment in intercontinental service only. We think it is only natural for the Canadian market -- and it is inescapable if you look at the North American market as a whole -- to remove any internal barriers that would obstruct our most efficient use of our own domestic infrastructure to provide services.
A specific Teleglobe-sensitive issue here is the question of fostering the carrying of intercontinental traffic over our own Canadian network. We have an issue called bypass, by which some service providers, some customers, may find it more attractive to access U.S. services directly. In this case, we are facing competition from U.S. players who are not even in our market. They stop at the border, so they are not subject to any Canadian market constraints. They are a definite competitive force. There is a need to have regulatory rules to deal with this question and to give our market time to make the transition, but, in the end, we must have an efficient Canadian structure which allows us to compete on fair terms with this structure on the other side of the border.
Also, in our own case, it will give us a very fair opportunity, which we have already observed, to carry traffic again from outside Canada on our own network over our facilities in Montreal, Toronto and Vancouver.
That is the theme on which I should like to end.
The Chair: Mr. Stewart, you are speaking about Canada's international competitive position in such glowing terms that we could listen to you for a long time.
Ms Mariel Bradford, Vice-President, Government and Regulatory Affairs, Teleglobe Canada Inc.: Senators, I am very excited to tell you that we are urging the government, as probably the only monopoly carrier in the world, to get rid of our monopoly and move into a competitive environment. When I go abroad, people ask me if we have truly asked for this. I say that indeed we have. We think it is better to move quickly, because that is the way world forces and trends are moving. It would disadvantage Canada if we were to lag behind.
In July 1995, Minister Manley launched a review through the Gazette process. Briefs were presented by ourselves, by others interested in entering this business in Canada, and by user groups. That review was completed last December. In our brief, of which we have copies here for you, we argued for the abolition of the exclusive mandate of this company and for the government to put in place a competitive international structure for Canadian business to participate in what we consider to be a very important part of our international trade and international telecommunications life.
We are now many months later in the process and still without a decision on this very important question, important not only for our company but for this country. Time has marched on and we are now almost in November of 1996 without a decision from the government on how it sees the international telecommunications industry for Canada and what sort of policy framework would be advantageous to this country.
In a nutshell, honourable senators, we have asked the government to introduce international facilities-based competition in overseas services. The first and most important step from the legal and legislative point of view is to get rid of the act under which this company came into being as a private enterprise. This act dates from 1987. It may predate the tenure in this place of some of the honourable senators in this room. At the time of privatization, there was a rationale for the terms and conditions in the act which limit equity participation in our company to zero for any foreign carriers and to one-third of the voting shares for any domestic carrier. This is patently out of date when one considers world trends. We have argued that this act should be abolished and that this company, and all other companies that would participate in this business, should be brought under the Telecommunications Act of 1993.
These are very important questions for the survival of this company and for putting Canada in the right framework for international competition. Delay would not be to the advantage of Canada and certainly not to the advantage of this company.
In our brief, we also argue for restraining the direct entry into the international business of our main customer base, which is comprised of the local Stentor companies in Canada. They account for about 80 per cent of our customer base. If they were unilaterally to enter the business directly, it would leave a stranded investment of this company without having had the opportunity to build a customer base in Canada. We are asking for a transition period in that regard.
Finally, in order to build a truly North American-based competitive business, we will need to ensure that current restrictions against the carriage of Canadian traffic over other infrastructures that are not Canadian facilities be observed. In fact, we have asked that the regulator apply these current rules more vigorously than it has in the past. This is very important until the rules of the game have been changed and we can move to a truly integrated North American marketplace. We would see that happening at a time when the Teleglobe Act no longer exists, other entrants are in the market and we can truly have a North American structure in the marketplace.
Madam Chair and honourable senators, that is the message I would like to present to you today.
The Chair: Thank you. I should like to ask a question about something which has preoccupied me over the last 10 years.
[Translation]
Mr. Forget, you spoke a little in your book about the separation between infrastructure and services. Mr. Stewart also alluded briefly to this in his presentation. Why do you advocate this approach?
Mr. Forget: I am not certain that I understand your question.
The Chair: Why do you advocate a clear separation between infrastructure and services?
Mr. Forget: In his presentation, Mr. Stewart alluded to the distinction between infrastructure and services.
The Chair: Between "network and services."
Mr. Forget: This is consistent with what we say in our brief about encouraging greater competition in the services market. In our book, we state that despite the existence of infrastructures and of technological innovations that capture everyone's imagination, the most important activities do not take place at the infrastructure level, but rather in the area of service applications. Innovation must occur at a rapid pace in these areas which, for the most part, are where small and medium-sized businesses operate. When we talk about innovation, it is important to remove the barriers.
In the telecommunications industry, as in the broadcasting industry, the essential condition to accessing the services and applications market has traditionally been to own infrastructures, that is to either own or build infrastructures. Often, this requires tens or hundreds of millions, if not billions, of dollars.
Clearly, the country's interests are not served when infrastructures and services combine to prevent entrepreneurs with ideas and job-creation skills from accessing the industry and creating wealth that can be exported.
When separately maintained, infrastructures can develop. The process will be all the more easier if services and applications develop. There is a kind of synergy between the two, provided they remain separate. This may seem somewhat paradoxical, but it is a fact. In the case of at least one business with ties to Microcell via Telesystem which was granted a special services license last year, there is a clear structural separation between a subsidiary that oversees the development of SCP infrastructure and a subsidiary in charge of service marketing and relations with the subscriber. What sticks in our mind here is that the infrastructure is accessible to everyone.
Based on the studies conducted to justify this corporate structure, we know that this approach maximizes growth, in particular growth in infrastructure installation.
Therefore, it is truly to everyone's advantage. I think we are starting to see this in many industries. It is unfortunate that infrastructure owners are not overjoyed with the prospect of having to relinquish their monopoly.
We saw evidence of this recently during the CRTC hearings to determine network interconnection conditions. This is a fundamental requirement if we are to have the network known as the information highway. At these hearings, we do not get the feeling that infrastructures owners are thrilled with the prospect of having to share them. I think that they are wrong and that they are jeopardizing their own interests. Obviously, they would disagree with me.
Certainly their interests differ from those of the community and of the country. However, for the reasons that I have just given, we must remove the barriers to provide access to all sectors where creativity and innovation abound. Infrastructures do not play a part in this.
The Chair: I find it fascinating to discuss this issue publicly. For the past five years, the media has been focussing on technology issues. As you can see, our study of Canada's international position in communications looks at services and infrastructure because we have been asking ourselves the same questions.
What role do you see the government taking on today to facilitate and encourage creativity in Canada in the services sectors, for example, in telecommunications programming and so forth?
Mr. Forget: That is a broad question. I do not know if I can answer it fully. I think not. As I said in response to your first question, I think we can accomplish a great deal by removing barriers, by making networks more accessible and by advocating, even requiring, a separation between services and infrastructure. However, this is not a panacea or the only solution.
Policies in place in many sectors are pointed in the right direction. The recently announced production fund is certainly a step in the right direction.
In our book, we touch on another aspect, namely traditional policies as they pertain to content. We have some doubts about the effectiveness of protectionist measures or regulations which impose content and leave consumers, or users, with an ever-wider choice. We do not see how this kind of intervention can continue to be effective in the short term. In the medium term, we can of course impose certain conditions, but as a long-term approach, it is rather doubtful.
With respect to promoting the creation of a French-language market, we need to adopt a radically different policy because we are talking about a critical mass. The francophone market in Canada is simply too small to justify a certain number of productions.
Obviously, this is a difficult issue because we must constantly deal with the problem of specific content. We are told that we will lose our way if we produce for the international francophone market.
We have to make some difficult trade-offs. However, we are telling the Canadian government the same thing that we told the National Assembly cultural commission less than two weeks ago, namely that the cultural and linguistic challenge posed by the information highway has been underestimated. To meet this challenge, we must certainly not strengthen our protectionist measures, but on the contrary, take clear steps to establish a genuine common market among Francophonie countries in order to create this critical mass.
I am not certain that we were able to fully convince our listeners in that other forum. There are natural objections and practical obstacles, as well as attitudes to contend with that the government alone cannot change. There is, however, important work to be done.
The Chair: I have another question. You recommended that Teleglobe share its monopoly. What impact would this have on your market share?
Mr. Stewart: In the first place, it is fairly obvious that our market share could shrink.
The Chair: You spoke about a transition period.
Mr. Stewart: Once again, I believe we have adopted a consistent conceptual approach in that it is inevitable that we will share in the benefits that will flow from international competition.
As Mr. Forget mentioned earlier in commenting on another subject, the real question is how, as a Canadian company, we can participate in this growth. We want to focus on the rules for this transition phase so that ultimately, as a Canadian company, we can accept more competition in our own market in order to acquire the tools with which to be more successful in other markets. Inevitably, this means the company will pursue a growth strategy. As I indicated, this is already the objective that we are pursuing.
As a Canadian company, we are experiencing growth, not because we are dependent on securing a dominant share of the market in Canada, a goal to which we aspire, but because we are competitive. As CEO of Teleglobe Canada, it is my duty to ensure that we remain competitive and that we acquire the tools with which to pursue a more global growth strategy.
The Chair: We are out of time. We appreciate your coming here to talk to us. I hope that we can have copies of your presentation for the minister.
[English]
I welcome the witnesses from the Canadian Cable Television Association. I believe you have received the documentation.
[Translation]
I trust you received the documentation we sent you outlining our study. You also had an opportunity to listen to Teleglobe's presentation. Would you kindly introduce your colleagues?
Mr. Richard Stursberg, President, Canadian Cable Television Association: To my right is Jay Thomson, Vice-President in charge of legal affairs and an expert in the field of broadcasting copyright. To my left is Dave Watt, Vice-President of economic and technology issues.
We have a brief 10- to 15-minute presentation to make. First, let me say that it is a great pleasure for us to be here with you this afternoon.
[English]
We have given out copies of the presentation, both in French and English.
We start from a very simple premise: The key to being internationally competitive in all of these markets is to foster intense domestic rivalries.
There was an enormous study done by quite a famous Canadian by the name of Michael Porter, a professor of Economics at Harvard. He surveyed all the businesses throughout the world that were internationally competitive, and he found that the one thing they have in common is they are subject to intense domestic rivalries. Whether it is the American computer industry or the Italian clothing industry or the Japanese consumer electronics industry, at home, the rivalries were incredibly intense. All the firms who participate in that intense domestic rivalry must become very innovative and efficient because they are challenged every day. Then, when they leave their home markets to take on people in other places, they do exceptionally well. The key to international competitiveness is intense domestic rivalry.
Fortunately, in Canada, we are moving right now to full competition in all sectors of the communications industry. We are not falling behind internationally in any sense. Canada is intensely competitive through all aspects of its communications markets, and I will show you some numbers on that.
One thing about which we are very concerned, and which we think is absolutely essential, is that we eschew or avoid the doctrine of national champions. National champions are the opposite of intense domestic rivalries.
The Chair: Could you explain what you mean by "national champions"? It sounds like a race horse.
Mr. Stursberg: In the past, it was common for people to say, "We are a small country, and so we should choose certain companies that will be advantaged. They will not be subject to intense domestic pressures and rivalries. They will be allowed to conserve their capital. They will be allowed to have a safe harbour within Canada so they can venture forth and do well internationally."
This is a doctrine that was pursued with catastrophic effect, I think it is fair to say, in Europe for many years. The large European governments would want to choose domestic champions or national champions in the hopes that they would do well internationally by protecting them from local competition. Most famous, I suppose, is Alcatel in France, which last year lost about $10 billion. I think it is fair to say it is in very bad shape financially.
The Americans have said that the last thing on earth they want is designated national champions. By and large, in these kinds of businesses -- computers, television, telecommunications -- they do very well internationally.
There is a temptation on the part of the Government of Canada to say, "Yes, we should have national champions because we are a little country," and there has been a temptation for the telephone companies to say, "Treat us as national champions so that you will insulate us somewhat from competition so we can do well internationally." We think this is wrong-headed and will not accomplish its goal. We will not get internationally competitive companies; we will simply get fat companies. If you were in the business of training boxers, and if you wanted them to be world champions and to be internationally competitive, you would find the best sparring partners you could lay your hands on and you would have those boxers work out and fight many rounds before they went into the championship matches. The last thing would you do is designate them as the national champion so they will not have to box a lot of matches before they go and compete internationally. If they were so designated, they would just sit there and eat cream puffs and bulk up. That would not be a good recipe for becoming internationally competitive, whether as a boxer or a company. We think the key to this is competition, and the key to effective competition is to ensure that the rules are the same for all players.
[Translation]
I would like to quote some figures on broadcasting and the level of cable penetration in Canada compared to other countries. The level of penetration is higher in Canada that in any other country in the world. We have a highly sophisticated network. The same is true of telephone services. The level of penetration of telephone services in Canada is higher that in all other G-7 countries. Our network is highly sophisticated and complex.
Regarding infrastructure quality, if we compare Canada to other countries -- these are not our figures, but rather those produced by telephone companies that commissioned a study by MESA in the United States. The study compared our level of competitiveness with that of other G-7 countries and found that Canada was more advanced that all other countries, ranking second only to Singapore which is not really a country, but more of a city state.
[English]
The situation is such that we are ahead of the rest of the world in terms of the deployment of both cable and telephony. We have a very sophisticated infrastructure that leads these other countries.
In terms of competition, this is where we are. I am speaking now of competition between ourselves and the telephone companies, which we think will be the fundamental competition at the local level. Here I am speaking locally not internationally, as the Teleglobe people just made clear. We are not in the international markets, nor are the telephone companies for that matter. We are not in the long distance markets; we are in the local markets.
Competition for cable and for the distribution of broadcast services is such that there will be many competitors. Right now there are already three licensed satellite competitors: ExpressVu, Power DirecTV and Direct Choice. A couple of them had some trouble launching, notably ExpressVu, but we expect they will be in the market by the end of this year or the beginning of the next.
There are two more applications in front of the CRTC for direct-to-home satellite services to compete with us. There is a thing called MMDS, which is a microwave form of cable television. It has already been licensed and is in service in Manitoba. Licence applications are currently in front of the CRTC for all of Saskatchewan and Southern Ontario.
Yesterday afternoon, the minister announced that he had given two licences out for the 66 major metropolitan areas and one for the areas outside the 66 for LMCS services, which are a form of a cellular microwave service that will be competitive with cable.
Finally, the telephone companies are keen to get into the cable television business and are building infrastructure. They currently have applications in front of the commission to do two big trials, one in London and one in Montreal. However, they are prohibited from entering the cable television business until such time as the cable companies can effectively enter the local telephone business. We cannot do that until their monopolies are broken by the CRTC on local telephone service. There will be many competitors for cable television.
As far as telephone service is concerned, right now there is some very limited competition between the telephone companies and ourselves for what we call dedicated lines, which are non-switch telephone services. They are essentially big pipes in the major metropolitan areas. We have been spending a lot of time over the course of the last year and a half attempting to get the local switch telephone markets for both business and residential telephone opened up to competition. We recently concluded a very long hearing at the CRTC on this matter. We are confident that we will get rules shortly that will force the telephone companies to open up their local monopolies to competition. We believe, however, that the only people likely to be real competitors for basic telephone service will be the cable companies in competition with the telephone companies.
You probably heard a lot about various wireless-based services, such as cellular, PCS, LMCS, MMDS. They will provide interesting niche services, largely for mobile purposes, but we do not believe that they will provide an economic substitute to local telephone service for many years to come.
The third big area we will compete in is access to the Internet for computers, although this will eventually spill over into television sets and other devices as well. This chart compares how quickly the different kinds of services actually operate. To try to imagine it, let us assume you wanted to download what is described here as a 10-megabit graphic file. Think of it as a page from a very glossy magazine. It is a very high-resolution page. If you wanted to download it on a computer screen using the three different kinds of services that are out there, this is how quickly you could do it.
Most people on the Internet dial up through the telephone lines. They use a 28 kilobit modem. It would take you about 45 minutes to display that glossy page in all of its detail. If you used the telephone companies' fastest service that exists right now -- it is called ISDN -- the page would come down in about 10 minutes.
We have a proposal we are working on, and will have more to say about it next month. We are proposing to offer what are called cable modems. They will provide blazingly fast access to the Internet. Where this process would take 45 minutes on a telephone line, we could download the same page in a second. Suddenly, this transforms the Internet from a slow, rather clunky kind of operation to something where you can quickly move multi-media and motion pictures. You can engage in the creation of brand-new, interactive, high-speed content products. Then the Internet becomes something quite remarkable as opposed to what it is now. We will be competing there as well for high-speed access to the Internet.
If you turn the page, this is our best summary of when we think competition will come into those three different markets: cable, telephony and high-speed personal computer access services. This is our best sense of when things will begin to happen.
It is fair to say that there will be plenty of competition for cable services, which are referred to here as broadcasting or broadcasting distribution. There will be competition between ourselves and the telephone companies for high-speed access to the Internet and for telephony.
It is important to note that this competition between ourselves and the telephone companies is not between companies of comparable size. This competition is between companies of dramatically different size. The telephone companies are among the largest companies in the country. Their total revenues are approximately seven times the total revenues of the cable industry. They have free cash flows in excess of $2 billion a year. Ours is negative. These are last year's numbers. I dare say their return on equity will be closer to 10.5 per cent this year. Ours is about 4 per cent. In real dollar terms, that would mean that they are making over $1 billion a year, and we are making about $45 million a year profit after tax. Of course, our industry is much more heavily levered in the amount of debt it carries.
These are very different industries. We believe that for competition to work effectively between these two industries of very different sizes, it is important that the rules are equitable and that they be the same for both industries.
I come back to the general notion of national champions. If the government says, "They are the national champions and we will give them an advantage," then if you are going to have competition between the big industry and the small industry and the big industry has an advantage vis-à-vis the small industry, the outcome is pretty straightforward. We think that would not only be bad policy, but we think that would also lead you in a direction you would not want to go. It would weaken the telephone companies over time and eliminate competition.
Our view is that competition is the best thing, but the rules must be the same. First, when the telephone companies come into the cable markets, they must assume the same sets of obligations as we have. In return, they can enjoy the same rights. They should be obliged to carry Canadian content, to contribute to the production funds, to contribute to community broadcasting, to respect the tiering and linkage rules, and so on. When we come into their markets, we believe that we should operate on the basis of carrying the same obligations, such as being obliged to provide basic telephone service to people, including the 911 service and operator services. Local telephone service is essential.
However, we should enjoy the same rights: access to the same pools of subsidy that they enjoy, and the same quality of technical interconnection that they provide to each other.
Finally, we think it is very important that we be treated equitably in terms of financing issues. One of the things that Teleglobe is referring to is access to capital. Obviously, for the smaller and more heavily indebted industry, access to the international capital markets is even more important than it is for the telephone companies. They can finance most of the investments ahead of them on the basis of their existing cash flows.
Right now, we have a problem with B.C. Tel. It is foreign-owned and the second largest company in the country. It is allowed to get into the broadcasting markets despite the fact that it is foreign-owned. They also have better access to the international capital markets. While we are constrained to 33 per cent foreign ownership, they are allowed to venture at 51 per cent foreign ownership.
In summary, then, our message to you is that the key to success in all of these matters -- in terms of being internationally competitive and ensuring that businesses and consumers get good prices and innovative, high-quality service -- is competition and intense domestic rivalries. These rivalries will emerge, however, only if the rules are essentially the same for both sides. No company, particularly the larger entity, is disadvantaged.
The Chair: Thank you for an excellent presentation. The conditions that you pose for sane domestic competition are very clear. What role do you see for the cable companies internationally in the short term?
Mr. Stursberg: The cable industry pioneered international investment in this country. When the markets opened up internationally, they opened up principally in the United States and in the United Kingdom.
Right now, there are a number of cable companies that continue to have holdings in the United States. Rogers had very extensive holdings in the United States which they repatriated a number of years ago for the purposes of reinvesting back in Canada. They brought back over $1 billion in the process.
Videotron has been most recently in the news, but CUC -- and Shaw after it took over CUC -- and Fundy and a number of other cable companies were pioneers in terms of investing in Britain.
More recently, Videotron announced that it has sold its British assets and is repatriating the money back into Canada to invest in Quebec.
We have had a long history of doing this. To deal with the present challenges in the industry, we are selling some of those assets, probably as a result of the financial reasons I have discussed. We face investments that will be as large as the investments faced by the telephone companies to get into the various markets just discussed. The telephone companies have ventured, but in a nervous and limited way, into foreign markets.
That is the history. As far as the future is concerned, we will have to wait and see. Historically, the cable industry has been the principal external venturer.
Senator Perrault: It is an extremely interesting area. Along with 350 million other people, I am on the Internet. Downloading graphics can be a tortuous process at times.
How will this affect the consumer? There are deals out in the market now, presumably as a result of competition. We see things like $20 per month for unlimited access with certain additional charges for peak hours.
This blazing, high-speed access you are talking about, how much will that impact on family income? What will it cost per month? Do you have any estimates?
Mr. Stursberg: I hope you will not mind if we do not steal our own thunder on this. We will be making an announcement in a couple of weeks.
Senator Perrault: This shall be attractively priced?
Mr. Stursberg: People will be astounded at the pricing.
Senator Perrault: Sign me up.
The Chair: I take it the announcement will be a result of this meeting.
Senator Perrault: I am in an area which was serviced originally by Shaw but is now serviced by Rogers. Part of the Lower Mainland is designated as a test market. What kind of test will that be and where will it be?
Mr. Stursberg: I can tell you briefly where things are right now. There is a commercial offer available only in Newmarket. There are a commercial tests going on in a number of other areas. This is for the high-speed digital access for your computer. You will be able to access not only the Internet but other computers, for example, within your building on your own "intranet" or within your metropolitan area.
Senator Perrault: It is a very exciting prospect. It is almost universal information carried to the Canadian home and office.
Mr. Stursberg: That is an excellent description. That is exactly what it will be.
Senator Perrault: Are you interested in doing anything in the area, using the Internet in conjunction with cable for shopping, for example? We are now talking in terms of virtual reality stores where you choose the items from the shelf and have them sent over.
Mr. Stursberg: Maybe I can just put it this way. I really do not want to jump the gun on our announcement in two weeks' time. If you would like to invite us back in a couple of weeks, I would be delighted to return and take you through it.
Senator Perrault: This whole concept is tremendously important to the country.
Mr. Stursberg: It will be, and it will transform what people can do on the Internet. Not only will shopping be available, but there will be access to educational services, to new kinds of entertainment services, to information and news resources, to databases from the point of view of library-type services, and so on.
When we can start to deliver those services in a way that is attractive and quick and allows for full-motion video, it will completely change the way people think about this.
Senator Perrault: We are at the beginning of the whole revolution, you are suggesting. There is more to come.
Mr. Stursberg: Yes, I think so.
Senator Perrault: I saw a report in the newspaper about some illicit reception of signals from certain U.S. operations. Is there anything like that happening?
Mr. Stursberg: Yes, there is.
Senator Perrault: In our community, some people have postal boxes down in Blaine, Washington. There was a report in the paper this week that there is a special bonus being paid to Rogers employees to report any illicit antennae that they see in the Lower Mainland. Do you operate that kind of sleuthing service?
Mr. Stursberg: I do not know about the sleuthing service. What you say is true. The estimates I have seen say that somewhere in excess of a quarter-million people are subscribing to service providers in these grey markets. It is very bad because the problem is totally money-related. These people are essentially disconnected from the Canadian broadcasting system. They get no Canadian services from their U.S.-direct TV services. All that money from all those people, which would normally be flowing back into the Canadian broadcasting system to support Canadian production, flows into the United States. The more that goes on, the worse it gets.
Senator Perrault: I can understand your position. How many channels will the cable systems be operating in the future: 100, 70, or 50? Is it possible for a human being to cope with it all?
Mr. Stursberg: We presently operate, in most cases, about 60 channels. By the end of this year, we will begin to roll out the television signal -- which we currently provide in analog form -- in a digitized, compressed form. One analog channel can, depending on compression, be turned into six or eight with dramatically improved picture quality and surround-sound audio quality.
Senator Perrault: When will your announcement be made?
Mr. Stursberg: This is a slightly different thing that we will try to announce. This is called digital video compression strategies. We will have something to say about that in the not too distant future. The commission recently licensed 23 more services. There are four services in French, and the rest are in English. They said they will take four of those and put them on analog, and the rest are for digital. They have been encouraging us. We would like to be able to get those digital services out as quickly as possible with as many channels as possible.
The Chair: What did you think of Telecom's recommendation that we separate the hardware from the software, the content from the distribution, but with a strict separation?
Mr. Stursberg: I do not know exactly what they mean by that. They could mean companies that hold broadcasting licences should not hold those broadcasting licences in the same companies as their telecommunications companies. However, I do not know that they would particularly want to hold those licences in the same companies in any event because they are different kinds of arrangements. In fact, the commission has suggested they should be held through structurally separate companies.
They could mean something slightly different: that companies that own infrastructure should not be allowed to sell services. For example, you could own a local network but you would not be able to sell local telephone service. If you were the telephone company, you would have to make up your mind whether you were in the local network business or the local telephone service business. I think that is on its face impractical, and I just cannot imagine how you would go about the process of trying to strip things into those two big camps in that way.
The Chair: Thank you very much. Our officials will be communicating with you for information.
The committee adjourned.