Proceedings of the Subcommittee on
Communications
Standing
Senate Committee on
Transport and Communications
Issue 5 - Evidence
OTTAWA, Wednesday, February 12, 1997
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:32 p.m. to study Canada's international position in communications.
Senator Marie-P. Poulin (Chair) in the Chair.
[English]
The Chair: Honourable senators, I would like to welcome Mr. Michael McCabe and Mr. Peter Miller from the Canadian Association of Broadcasters. I know Mr. McCabe from past experience in the domain of communications.
Mr. McCabe, today we need your insight, your good judgment and your recommendations. As you know, one of our growth sectors is the communications sector. We want to hear from every area of industry; the technological area, the area responsible for content, commercial and regulatory interests, and from those hiring and training our human resources. We want to hear how people think that Canada can remain at the leading edge of communications as we enter the year 2000, given the rapid growth and evolution of the industry.
Please proceed.
Mr. Michael McCabe, President and Chief Executive Officer, Canadian Association of Broadcasters: Thank you very much, Madam Chair. We appreciate the opportunity to be here.
I do not know how much expertise we have because, as you point out, things are moving so quickly. However, your decision to look at the three-year period ahead of us is very sensible. When we made strategic plans a few years ago, we looked ahead five years and more. Now we cannot look more than three years ahead. Sometimes we try to cast ourselves beyond the three years and make some wild guesses about what might happen in ten years, for example, but three years makes the most sense to us.
My colleague, Mr. Peter Miller, is our senior vice-president and general counsel. He is also the leader in our television area. He is key to a great deal of our policy thought in that area.
The Canadian Association of Broadcasters is the national trade association for nearly all the over-the-air television and radio stations and networks. We have recently also begun to represent the specialty services owned by our members, so we have a somewhat broader interest.
Our business is programming. We will not be talking in particular about the technology, which everyone seems to want to focus on when they talk about communications. We want to talk about the programming.
As private broadcasters, we have the largest audiences in general and the largest audiences for Canadian programming as well. Private radio stations get approximately 85 per cent of total tuning. Private television stations capture about 52 per cent of total television viewing. Our television members also provide 57 per cent of all television viewing of Canadian programming. That is on private stations. We are, in a sense, the dominant players in the business.
Although we reach most Canadians in terms of viewership and tuning, both our television and our radio broadcasters compete daily with our American neighbours. This competition is fierce. For example, we estimate that direct competition for revenues from U.S. TV border stations took $52.7 million in revenue from Canada in 1995, an increase of 68.1 per cent since 1988, and there is a continuing erosion.
Quite apart from the direct advertising dollars going out of the country, indirect competition in the form of audience erosion from spillover viewing from U.S. signals in Canada amounted to a total of 100 million hours per week, even with the current simultaneous substitution rules. This diminishes the value of our advertising on Canadian services, and it undermines the program rights that we own and that we have acquired.
Remaining competitive on the national and international markets presents a formidable challenge. In order to maintain and increase our competitiveness, government policy as set out in the legislation and regulations must strengthen the mechanisms we require to succeed in Canada and abroad.
Moreover, we will not become more competitive in radio broadcasting unless we make it attractive enough to investors and finance the conversion of our stations to digital radio. This conversion is the key to our future: we must achieve a certain level of prosperity in order to contribute to the welfare of our communities and to the country as a whole.
To achieve this, we have to identify new business opportunities that will arise from digital radio in order to improve our services to listeners and eliminate regulation that obstructs our progress. The CRTC must allow us to move to rationalize and to strengthen our business with multiple-licence ownership. Just as television does, radio needs a copyright bill that does not create new fees which will eat into radio profits which are needed to upgrade our businesses.
As a case in point, the very restrictive time-shifting exception and the lack of a transfer of format exception for broadcasters in the copyright bill will add new cost burdens to broadcasters which will, in turn, affect our ability to compete.
Both of these measures are essential to carrying on our day-to-day business, and their treatment in Bill C-32, we believe, offends common sense.
If we are to succeed in this new information age, we must at least be on an equal footing with our fiercest competitors in both television and radio. Otherwise, we will never achieve our goals.
In the past two years, private television broadcasters have made great strides with our plan to improve our Canadian programming. You may recall that the Canadian Programming Initiative, which we introduced to you the last time we were before the full committee, was an initiative with two objectives. One was to improve the quality and the quantity of Canadian programming. The second was to strengthen the system that develops, finances, produces and exhibits Canadian programming.
We have been meeting, we think, with considerable success. The CRTC has, in fact, adopted most of what we have put forward in terms of formal distribution rules. We are expecting the next phase of that early in March. They have required some distributors, such as direct-to-home, to make a specific contribution to programming. We are expecting and hoping they will do the same thing with respect to cable and other distributors in their upcoming decision. They have agreed with us that they will hold a hearing in June on advance substitution.
As well, the federal government has recognized that the future of the Canadian television industry rests with the production and the exhibition of top quality Canadian programming. In this regard, Minister Copps is to be congratulated on the establishment of the new $200 million Canada Television and Cable Production Fund.
However, we still have a long road ahead of us to achieve real competitiveness for Canadian programming. Trade Minister Eggleton's call for a review of the ongoing effectiveness of our cultural protection policies in light of both major technological advances and a rapidly changing world trade environment is especially timely. Heritage Minister Copps' recent cultural summit began to come to grips with some of the issues.
I do not plan to speak for other cultural industries, but I would like to make a proposal to you for strengthening Canada's television, broadcasting and production industries.
As far back as 1989, in our "Taking the Lead" plan, Canada's private broadcasters decided that our future depended upon our having more and better Canadian programming. As more and more television channels become available, our competitive edge will be our unique, high quality Canadian programming.
However, we face two major obstacles to achieving our goal. They are interrelated. The first is that it costs $1 million to $1.5 million to make one hour of top quality drama, and we can only earn about $200,000 in advertising revenue for a national network play. The second obstacle, related to the first, is that there is not yet enough top quality entertainment programming being produced in Canada to make a significant contribution to our schedules. That, too, is something that we must address.
There is a way in which we think we can overcome both of these obstacles. We will be proposing to the government a national industrial strategy for television programming. We have in this country created the foundation in having a strong, domestic production industry. In 1995, over $2 billion was spent in Canada on all types of production. We are, as a country, the world's second biggest exporter of television product, second only to the U.S. For a national industrial strategy to succeed, it will have to be focused on the world market. Television production is too costly and Canada's market is too small to make most television programs for the Canadian market alone. That is the reality. If we try to build an industry that is aimed at Canada alone, it will ultimately fail to provide a significant volume of Canadian programming, and our presence on our own screens will sink beneath foreign waves.
The only way for us to have a significant Canadian presence in the 500-channel universe is to build a large, financially successful industry which, because it is owned and operated by Canadians, will bring a Canadian presence to our screens. To ensure that our interests are well served, we should develop initiatives integral to the strategy that favour productions that tell the Canadian story.
To be clear, I am not suggesting that this is a good way to achieve our national goals in the area -- I am saying it is the only way. Those who argue that we will dilute all our production to meet the needs of foreign markets are misled. We can build incentives to tell our own stories into a large, thriving industry, but we will never get enough good Canadian stories out of a small and weak industry.
What then are the elements of a national industrial strategy for television programming? There are many pieces to this puzzle. There is no magic bullet.
First, we need Canadian content rules that provide a domestic window for Canadian programming and encourage excellence. Second, we need a strong CBC that is focused on national programming that tells Canadian stories. Third, we need continued significant contributions by the government to the Canadian Television and Cable Production Fund. Fourth, we need CRTC mandated contributions by all distributors to Canadian production. Fifth, we need the legal right for all broadcasters to access subscription revenues. Sixth, we need the full involvement of all Canadian production companies, both independent and broadcaster owned. Seventh, we need advanced substitution rules which enable broadcasters to derive full value from the programs they own and which protect the integrity of the Canadian rights market. Eighth, we need a strong, Canadian-owned distribution sector, including broadcasters. Ninth, we need enhanced tax incentives for investment in television production. Tenth, we need foreign ownership policies, export incentives and assistance that encourage strong Canadian companies but that open up opportunities for partnership in other markets. Eleventh, we need incentives to encourage broadcasters to diversify into new media, including the Internet. Twelfth, we need incentives within each of the various policy areas to favour the telling of Canadian stories. Thirteenth, we need incentives for the nurturing of talent and for program development processes that enable and encourage trial, error and improvement. Fourteenth and finally, we need an overall regulatory framework that recognizes the competitive realities.
I urge you to propose such a strategy in your report. It is the only way to ensure that we can see ourselves on our own screens in the years ahead. It will make two industries, broadcasting and production, domestically and internationally competitive. It will create a lot of jobs for Canadians, and I think it will be cheap at the price.
We look to you to help us realize these goals. Canada's communication industry requires policies that foster competition, not prevent it. No industrial strategy can succeed if Canada's policies stifle the opportunities so desperately needed to make Canada a world leader in communications.
Thank you. We would be happy to answer any questions you may have.
The Chair: Thank you very much, Mr. McCabe. You have given us a lot of food for thought.
We spent two full days with our American colleagues in Boston looking at how Canada can play a greater role in the American market, We believe that we have much Canadian talent to offer and we want to ensure that it is enhanced and better distributed. You appear to be on the same wavelength.
Are any of your members active at this time in programming for the Internet?
Mr. Peter Miller, Senior Vice-President and General Counsel: First, the majority of television broadcasters and a significant minority of radio broadcasters have set up their own web sites. They are experimenting.
Second, some companies, in particular CTV and the CHUM Group, have been quite effective in using the Internet as a direct link to their conventional services. CTV, for example, used their web site very effectively during the international skating events in the fall. Instead of putting up a permanent site, they put up a particular site that had information on contestants. They had a tremendous volume of interest. Similarly, the CHUM Group is experimenting with new media opportunities and putting things on the Internet.
Most people now see the Internet as an R&D opportunity. It is not a business opportunity at the moment. It is something that requires experimentation. I am happy to say that most of our members are involved in that experiment.
Mr. McCabe: In actual programming, one or two of our radio stations are putting their signal out on the Internet. In other words, if you are in London, England, or Moscow, Russia, and have RealAudio, you can get the CHUM station here in town. The CBC has done the same thing. I think that a couple of our other stations have done the same thing.
The Internet is not yet advanced sufficiently for most of our people to be actually programming in terms of video on television. However, that is just around the corner, and our people had better be there.
The Chair: In other words, your reference to a national industrial strategy for television programming could mean a national industrial strategy for programming, knowing that there will soon be a convergence of the computer screen and the television screen.
Mr. McCabe: I should have said video programming. Technology will change, but people do not change as rapidly. People will always make a distinction between their entertainment and their work. They may, in effect, view the device in the home differently.
As we know, there is a blurring of those lines, especially with younger people. As it becomes more possible for video to be available on the Internet, we have to explore how to multipurpose news, for example, to make it available in various ways and categories on the Internet so that people can access it. However, no one is doing that right now.
Senator Spivak: Your question, Madam Chair, is basically one of money and of ease of use. If the computer were as cheap as television and as easy to use, I do not think people would care what the instrument was. However, that is not the gist of my questioning.
You talk about a national strategy for Canadian production companies, owned by Canadians, but Canadian broadcasters are criticized because they use American programs. They rely heavily on sitcoms and other things, and this is encouraged by simultaneous substitution. So, really, the question is: What will we get if we invest in you? You indicated that private TV stations account for 57 per cent of viewing of Canadian programming, but what percentage of Canadian drama are you showing in prime time?
Mr. McCabe: Yes, we do have American programming. Forty per cent of our schedule is, broadly speaking, American programming, which means, of course, that 60 per cent is Canadian programming.
Senator Spivak: Is this true of Global, for example?
Mr. McCabe: Absolutely. In prime time, the requirement is 50 per cent Canadian and 50 per cent foreign. If we did not follow those rules, we would lose our licences. This is the most fundamental and basic rule that we must follow. We have used American programming over the years to cross-subsidize Canadian programming. There is a good economic reason why we do not put on a lot of prime time drama, and that is that we do not make any money at it. The last figures we have are from CTV two years ago. At that point, for every dollar we spent on American programming, we made $1.60 in revenue. For every dollar we spent on Canadian programming, we made 80 cents in revenue. We lost 20 cents. Most of this money would not go to us but to production companies, such as Alliance, Atlantis, Cinar and so on.
My expectation is that if we can take in more through advance substitution and subscriber fees, we will be required by the CRTC to spend it on more and better Canadian programming. Our view is in the future we will not be able to make a business out of running more Cosbys and X Files. There will be too many available sources of those programs. As a pure business matter, we will have to get more and better Canadian programming which is unique. The proposal we are putting forward is a way of driving money into the business, the production business in particular, so that it can be profitable.
Senator Spivak: That is an interesting point because I think that anything that does not make good business sense will not fly. However, is the answer to my question that you actually have 50 per cent Canadian content in prime time on all your stations?
Mr. McCabe: Absolutely. We must do that.
Senator Spivak: The way to bring down the cost of Canadian production is to have a huge market for it. There are several views on how to achieve that. I am not sure what the real answer is. If we are producing for an export market, is it a race to the bottom? You only have to spend a little time in the United States to realize that, other than PBS, you get pretty poor television. Canadian stations are better. What are producers doing at the moment in order to sell to that market?
I have read that you have to finish a production before you show it to the Americans, so that they have to take it or leave it, that you cannot get involved with them in the initial stages because they will get you to pronounce "Z" the American way and to set your story in Omaha instead of Toronto.
What is that export situation now? One could perhaps agree with the changes wholeheartedly if it were indeed excellent -- although maybe I should not use that word because there are many different varieties of entertainment -- or if it were indeed really Canadian.
Mr. McCabe: It is true that we cannot assume that we will have any significant volume of Canadian programming, if we are making it for this market alone. We have to look to a broader market. I think we will have a mix of product. As Canadian companies, such as Atlantis and Alliance and Cinar and Baton Productions and so on, become stronger, they will increasingly have the capacity to have more influence on the product.
As an example, Traders, which is made by Global, is set entirely in Canada. It is a very Canadian show. To make that more attractive in foreign markets, you might set some episodes in Hong Kong or in the London stock market. Canadians would like that too. However, I do not believe that our productions suddenly become diluted or less good for Canada because there are foreign partners.
I believe that, internal to any strategy, we should provide incentives. We should say, in effect, your tax incentive will be greater if the shows are more Canadian. In other words, we make it a good business decision to make them more Canadian. These are simple economic questions. It is all very well for a company to say, "We will not make this to please the Americans. We will sell it to Germany, Australia and the U.K." If they can make the budget and make a profit, that is wonderful, but what if they have to sell it in the United States? There is still a problem there. That is the biggest television market in the world. I do not see why we should not try to sell to them but I do not think all our product has to be brought to the lowest common denominator just for them.
Senator Johnson: Mr. McCabe, you mentioned the Copps summit. What do you think it accomplished from the perspective of your organization? As you know, there were no artists at the table. It was attended mostly by executives, not by any of the people who make a living in the cultural industries. Of course, that may take place at another time, but it was interesting that they are always excluded. What did it mean for you and what did you think it achieved?
Mr. McCabe: I was not invited, so I do not know.
Senator Johnson: From what I read in the papers all the talk was about money going toward CBC and Radio-Canada, English and French. Was it just a rush job to look as though we are interested in cultural issues because they involve a variety of people, or do you think something useful will come out of it?
Mr. McCabe: I am encouraged and I am worried.
First, this did not flow out of the WTO decision and Minister Eggleton's comments. It flowed from the disarray which exists in cultural policy in Canada in an attempt to get some focus.
Without commenting on the attendees, they did include a group of people who broadly think alike about maintaining our cultural protection and probably not changing very much. The process got them together to cheer lead a bit. That may be useful at furthering the cultural agenda in the sense of making it more important to the government as it proceeds to budgets and elections.
Minister Eggleton has opened up some serious questions. He did not say, "Get rid of everything we have." He said, "The world is changing and we had better think about whether what we are doing now continues to serve us well."
If that gathering served to cement the status quo, that is too bad. I do not know because I was not there. I hope this conference serves to foster more discussion about what changes we need.
Senator Johnson: I asked the question because it is fundamental in terms of policy making and affects everything we do in this committee. All the people who were there are involved in this industry. We are talking about regulations in this new era.
How do you react to the World Trade Organization's comments about cultural protectionism? How will that affect the things you are recommending in terms of Canadian content in our own country?
Mr. McCabe: First, we do not consider that the specific decision the WTO made in respect of magazines has undermined our whole system of cultural protection. We feel that the WTO suggested this as a way to do it. We still have the right to develop inventive ways of protecting our culture.
We should not, however, kid ourselves about what is really happening in respect of the United States. They went venue shopping and decided they could not do it at NAFTA so they went on to the WTO where they had a better shot at it, and they will continue to do that. They will continue to lean on us in every way they can because it is to their commercial advantage.
We have to be smart, tough and develop inventive ways to win in that marketplace and defend ourselves.
Senator Johnson: I agree with that. I am concerned that they are saying that regulations may be a thing of the past and we are sitting here for endless hours talking about how we can make more creative regulations in the new environment in which we are living.
Senator Spivak: They work well in certain areas. Why throw them out?
Senator Johnson: I am learning.
Mr. Miller: You have to separate the legal from the political ramifications of that decision. It is a narrow legal point. They found that the 80-per-cent excise tax contravened the WTO.
It is interesting that Canada's Bill C-58, or section 19 of the Income Tax Act which allows only advertising deductibility when it is on Canadian magazines and Canadian broadcasters, was not challenged.
Moreover, WTO did specifically say it acknowledges the right of member countries to have cultural support measures. Legally you must recognize that this is a very narrow decision.
Politically what does it mean? We know from past history that the Americans will use any lever to their advantage. As Mr. McCabe says, you have to pick and choose. You also have to realize that the Americans are not targeting us so much as ensuring that we are not a precedent for the rest of the world.
It is interesting to note that our proposals for advanced substitution are specifically permitted in NAFTA, which takes precedence over the WTO, and would bring us up to the level of protectionism which the U.S. already has. The U.S. has very strong program rights and protection measures. This is why we say we have to look at it all.
Senator Johnson: Are you saying we are protected by NAFTA?
Mr. Miller: That is certainly our view.
Senator Johnson: Many people do not think we are. The perception is that we may not be.
Mr. Miller: Remember that under NAFTA the U.S. has the ability to take measures of equivalent commercial effect. So even if you win, you can lose, because they can take you on elsewhere else. The situation is neither black nor white. There is not absolute protection, but there are some very useful clauses.
Mr. McCabe: In the area of protection of programming rights, there is specific language which protects Canadian and American broadcasters, as well, because they want to keep their regime for protecting local programming rights.
We must seriously take into account Minister Eggleton's statement that the so-called exemption may not finally be much protection. We would be better off if we had national discussion and were clear about what we want to protect and what our strategies are, and then negotiate deals rather than just saying, "It is exempt; we don't want to talk about it." That may not be the best strategy.
Senator Johnson: As a member of the Friends of Public Broadcasting, what is a strong CBC? Thirty million Canadians would like to know. What do you mean when you say "a strong CBC"?
Mr. McCabe: I thought Jeffrey Simpson had it right this morning.
Our suggestion is to focus on national programming that tells Canadian stories. The decision of the board and management to cut all over the place, leaving most of the pieces in place but weaker, is a bad strategic decision.
They should have decided to focus on being an excellent national and international broadcaster, to have a powerful international and national news operation, to do drama that is national, that tells Canadian stories, and that is excellent, and to do children's programming.
There is absolutely no reason why the CBC should do local news in areas where we have three and four stations which regularly beat them. Theirs is a different kind of news and there is a segment of the population that listens and watches it. However, CBC television and SRC taken together have 8 or 9 per cent of viewership across the country and on the radio. In radio, the CBC comprises 10 to 12 per cent of all networks. The CBC has an important role. However, it should focus on a national scale, not a local one.
Senator Bacon: On page 2 of your brief, you speak about a copyright bill. I should like to hear more about that.
You say that the restrictive time shifting exception and the lack of a transfer of format exception for broadcasters in the copyright bill will add new cost burdens to the broadcasters which will, in turn, affect their ability to compete. You speak of certain measures which are essential to carry on your day-to-day business.
Mr. Miller: First, 28 countries around the world have these kinds of exceptions. They are absolute exceptions; they do not have any caveats. In fact, in the U.S. there is a full six-month ephemeral exception. Quite frankly, that means that when we are competing with the U.S. in things such as skating, they have a distinct cost advantage. They do not have to worry about the music component; they just pay the performing rate, which we also pay. Under law and under this bill, we will be required to negotiate the so-called reproduction right.
From a local programming perspective, that means that this programming is very much at risk. Local programming is the programming we do in support of community telethons, local talent shows and that type of thing. Quite frankly, we do not make any money out of that type of programming. However, we do it because it is an obligation to the CRTC. It is generally acknowledged that it is a good community-building exchange.
Our concern is that unless we have a time shifting or ephemeral exception, that is, without the number of qualifications that are in the proposal right now, we will simply not be able to do much of the programming that we think is very important to communities across the country. We think it is part of the shared Canadian experience, whether it be coverage of Canada Day or the Saint-Jean Baptiste celebrations. That is the kind of thing which, unfortunately, is very much at risk.
Mr. McCabe: We have paid for all the music in all our programming. If we play it live, there is no requirement to pay any more. However, if we tape it so that we can play it later, there is a requirement that we pay more. This applies also if we play it in the B.C. or Manitoba time zone. That does not make any sense to us. Half of all radio stations are now on computer hard drives. In other words, their music is on the computer. If a record company asks us to play a CD of its hot new artist, the only way we can play it on air is to transfer it on to our computer . They say that we should pay extra for making that transfer. We say that does not make any business sense to us. That is what we have been fighting about.
It is hard to know what this might cost us. On the basis of some lawsuits we face, particularly in the province of Quebec, it could be millions of dollars. However, the Copyright Board might be kind to us and say that it does not cost very much. I do not know.
Senator Bacon: The CRTC faces difficulties in regulating a global industry. How could the CRTC be reformed to make it more effective?
Mr. McCabe: A major step forward has been made in the appointment of the new chair. Appointing someone who takes a global and forward-looking view is of major significance.
There are a number of vacancies on the board, with a number to come. I urge the government, as we have in the past, to appoint people who are competent and knowledgeable. In many ways, I do not care if they know our business, as long as they can think and they have some understanding that some of the national objectives have be met by businesses. They should understand a bit about business. They should understand a bit about communications broadly, albeit not necessarily telecommunications. We need people whose views extend into the future.
Finally, the CRTC should be focusing more of its efforts on what I call policy processes. It should serve to pull the players in the industry and society generally together to discuss the challenges presented by technology, society, programming or whatever, and to come up with ways of solving these problems, rather than worrying about whether a particular song had an American co-writer. They are moving in that direction.
There is nothing wrong with the institution. We need an institution that is a centre of expertise and is independent of government. We just have to staff it with the right people.
Senator Spivak: When we were in Boston we met Nicholas Negroponte, the guru, who told us that there will be no such thing as prime time in the future. When asked about the competition between television and the computer, he claimed there is no competition, that TV is a thing of the past. What is your reaction to that?
Mr. McCabe: That is his song, and he has been singing it for some time. I come back to the point that I made earlier. People do not change as quickly as technology. People still want to know that they can get a particular program at a particular time.
However, over time, especially as our kids' kids get more hands on with the computer and can access things directly whenever they want, what we call appointment television or scheduled television will start to fade away. That is why we have to be in the business of programming for these other on-demand uses and the Internet.
Senator Spivak: Some else spoke to us about using a server which has a Canadian filter. Actually, that is the whole thing. If people begin to use servers, that will change the whole nature of television.
Mr. Miller: History teaches us that new media do not replace old media. Newspapers were not replaced by radio. Television did not replace radio. Anyone who tells you that the Internet will replace television is wrong. It is as simple as that. It will turn television into a mature industry. It will have impacts and there will be migration; but it will continue to exist.
The digital server issue will be a real challenge for Canada. Essentially, we have to figure out how to create Canadian navigation systems or filters to encourage access to Canadian product on servers. We have to ensure there are Canadian servers, not all of which are based in Los Angeles.
Also, as Michael has pointed, we have to ensure that the distributor, be it cable today or some other service provider tomorrow, contributes in some way to ensuring that Canadian production happens and is available. It will not happen overnight. The problem is not quite so sudden as DTH. We have a time frame of two to three years in which to grapple with those problems.
Senator Johnson: Countries smaller than Canada which are now having to deal with DTH, which were protected before from the so-called American culture, must be grappling with these same issues. Do you have any idea how they are dealing with them? In the final analysis, is quality of programming not about what people watch, no matter what country or what server it is from? We really have to produce better stuff.
Mr. McCabe: Focusing on the programming will be our best defence.
If we can figure out how to drive more and more resources into programming, we will succeed. I do not think we can do without the navigation systems and so on. Without knowing an enormous amount about it, I think most other little countries are not doing very well. People who know more about that will follow us. The key is the programming.
The Chair: It is interesting that you should say that because even the representatives of the hardware industry have said that the future is in content. The technology has become so refined that we must now look at our content and the way we approach it and invest in it.
I have a question on the point of people's habits. As Senator Spivak was saying, we had interesting discussions in Boston. We asked Harvard professors what they thought would be the greatest need for us to answer as we evolve in communications.
I thought it would be the need to answer curiosity, for instance, or the need to give quality programming. They said it will be simplicity. Since we know that one media has not replaced the other, it must be our habits that have changed.
For instance, during the Second World War, radio was a social activity. Today, radio has become a private activity. We listen to it in our cars, when we are alone in the kitchen or to wake up to news. It has become an individual's activity. Social activity has become much more centred around the television. The computer today is still an individual activity. As Senator Spivak told you, Negroponte says that it will become a joined social activity with one screen where people, instead of waiting for their program, will call it up.
Can your association help to ensure that when we call up what we want to watch, the first things on the menu will be Canadian? How can we as a country ensure that?
Mr. McCabe: I think about my house. I will likely not have one screen on which I do everything. I hope to have a little screen in the kitchen where I can bring up menus and recipes as I am cooking. I hope that there will be a screen in my bedroom on which I can watch something when I am going to sleep. I suppose that in the living room or the den there will be a communal screen which may involve work, or both work and entertainment.
The Chair: Would you want all your screens to be able to do everything?
Mr. McCabe: Yes, I think you would want most of them to be quite flexible in terms of access. You talked about simplification. The question is to help people get to the Canadian stuff. We have argued before the CRTC that they should be requiring distributors, including the new video-on-demand distributors, to build Canadian screens and Canadian navigation systems.
This is what is called the default menu. When you turn on the screen, you should get a Canadian menu first. Regardless of whether you flip to sports, drama or mystery, the Canadian stuff should appear first. We have been pressing for that for some time.
Mr. Miller: The key to Canadian programming that will succeed is this notion of shared experience. It must be something to which we relate and which we value. Like many of you, I have become a fan of This Hour Has 22 Minutes. I want to watch it. I want to know who they are lampooning next. It is quintessentially Canadian.
In the future, if I cannot make it at 9 o'clock Monday night, I will dial it up on my server at whatever time I want. It would still be available at 9 o'clock, but if I missed an episode I could dial it up at any time that suited me.
The Chair: Or, if you liked it that much, you might want to watch it again.
Mr. Miller: Precisely. This is why broadcasting as a media is so important. That is a self-serving statement, but I think it makes sense. As long as you have that vehicle for shared experience, as long as you have that "event television" which people will want to catch as it comes up, where they do not want to miss it, where they want to catch the latest episode, you can lead them from that into this world which will be much harder to navigate.
The Americans have more marketing power and much more ability to lead viewers to their product than we will have on our digital servers. We have to be very creative to ensure that that Canadian product is multi-purposed. Broadcasters will have a big role to play there.
The Chair: Mr. McCabe, you said earlier that there is a specificity to our country in terms of a balance between public networks -- because we have provincial networks also -- and private networks in broadcasting.
You have said that a strong CBC would focus on national programming. You are probably saying this because it is the only broadcaster which reaches Canadians from coast to coast at the same time in English and in French.
I come back to the example of This Hour Has 22 Minutes. It began as a regional program. It was slowly developed in Newfoundland, in a small area. It took many years and a lot of development to bring it to a quality where it became of national interest for everyone. That development was done with public funds in a small area.
We are a country of regions. If you became CEO of CBC, how could you ensure that that regional talent is developed while focusing on national programming?
Mr. McCabe: I do not think it follows, when I say that programming has to be national, that it has to be made in Montreal and Toronto. Newsworld is an example of a much more national CBC network. When I go west of Ontario, there is a much greater connection with Newsworld because it does not seem to only reflect Montreal, Toronto and Ottawa. There is no particular reason why regional production companies cannot sell their product to the CBC. The CBC can work with them in the development of these very same programs. I do not think that is precluded.
I see a CBC which, in being national, is busier at telling stories of one region to the other and less busy telling the Toronto story, to tell you the truth.
Mr. Miller: One of our problems with production in Canada is that we do not have the opportunity to fail because it is so expensive. You have one shot at it. One would hope that a combination of an increasing number of specialty niche services and some of the things we are talking about in terms of promoting talent in the regions and providing showcases for experimentation will allow a bit more of this, because you must be able to fail to succeed.
The Americans fail constantly. For every successful prime time U.S. drama, there are 15 that go nowhere. We must be able to fail, too, and that involves all of this use of talent in the regions and experimentation.
Mr. McCabe: The specialty services have smaller budgets for programs because of smaller audiences and revenues. In the past, the growth in the workload of regional producers across this country came from the budgets of specialty services as they reached out to make programs for a niche audience.
The Chair: We have spoken about the balance between the private and public broadcasters. There is also a new balance of networks and specialty channels. Is there still a place in our environment for networks other than specialty channels?
Mr. McCabe: I think so. Our specialty channels -- the sports networks and Newsworlds and so on -- have been around for a long time. They cover many of the major areas of interest, including movies, sports and news. We have added a few more. They account for 7 or 8 per cent of viewers. That indicates that theirs are niche audiences. They have taken pieces off us, but the networks, the general purpose broadcaster, left us as major players. I do not expect that that will change much.
Mr. Miller: We often forget that 25 per cent of Canadians do not subscribe to cable but get their television off air. That is a significant proportion of the market. Even on cable, everyone knows that the conventional broadcasters have programs on the dial.
There are many preferences that, in a sense, accrue to conventional broadcasters. The one down side, to make it clear that it is not all bonus for us, is that conventional broadcasters are the only element in the system that do not get access to cable subscription revenues. Everyone else gets a chunk of that -- conventional broadcasters do not. This has been the balance which, at least historically, has worked.
The Chair: What are your views on foreign ownership of Canadian television? We know that Izzy Asper, for instance, owns television in Australia and New Zealand.
Mr. McCabe: First, I should like to refer to the position that Minister Copps took on Canadian ownership. I do not think that is something about which we should bang them over the head. In fact, we did raise foreign ownership of Canadian television to 46.7 per cent a while ago. Curiously, we did not at the same time say to the Americans, "Your numbers are down there at 20 per cent of a licensee or," -- not "and" -- "25 per cent of a holding company." Why in the world did we not negotiate at the same time? This is not something about which you beat people over the head; it is something about which you negotiate. Nonetheless, our view has been that we must maintain Canadian control of Canadian companies.
I do not think, though, that it is beyond our power to go up to something like 49 per cent and regulate in such a way that we require companies owned 49 per cent by others to perform in ways that are useful in society. The truth is, as we all know from corporate life, that there are people who own 20 per cent of a company and run it. All these things are relative.
Our view has been that it would not be healthy to have the majority ownership of broadcasting companies pass out of the hands of Canadians.
Mr. Miller: To pick up on the other side of your question, we believe broadcasting is an export business as well. Production is an export, but so is broadcasting. Izzy Asper is in New Zealand and Australia and has put the world on notice that he intends to buy a chunk in the U.S. MuchMusic is also available in Argentina, and they are negotiating.
That is positive in the sense that there is a Canadian expertise in broadcasting which we can also export. Certainly having somewhat increased foreign ownership limits in Canada allows access to capital and allows companies like Canwest to take a launching position in other countries.
The Chair: This has been very interesting. I am sorry that we do not have more time to continue. Our researchers might communicate with you to obtain expansion on certain questions.
Mr. McCabe: Thank you. We would love to talk with them on all the points we put forward here.
The Chair: Our next witness is Mr. Chris Frank from Expressvu.
Mr. Frank, thank you very much for coming to meet with us to discuss how Canada can remain at the leading edge of communications as we approach the year 2000 and as communications continue to evolve at the pace it has been evolving for these last years. We are extremely interested in your recommendations and suggestions because, as we were saying to Mr. McCabe from the CAB, the subcommittee has just spent two days in Boston where we were told, in no uncertain terms, that the future is digital.
Since Expressvu has committed itself to that new technology, we want you to share with us your views not only on how we can remain at that leading edge technologically but also your views regarding content, our human resources, staff that you are hiring or considering and staff that you are training today for tomorrow, as well as your views on commercial ventures and regulations.
Please proceed.
Mr. Chris Frank, Vice-President, Government and Regulatory Affairs, Expressvu Inc.: I will be as brief as possible in order that I can answer as many questions as possible.
Before I get into my formal presentation, I should respond to your remarks by saying that Expressvu will be 100 per cent digital from the start. We certainly agree with the comments that your American colleague made. You will see a marked difference between the current satellite services, which are all digital, and the current cable analog services. The difference is like night and day, both in terms of the picture, which is laser-disk quality, and the sound, which is CD quality. In fact, many of the services have -- as will Expressvu -- an all-music commercial-free digital service, supplied by the CBC, featuring about 30 genres of stations.
The Chair: Is it only audio?
Mr. Frank: We have this one specific service. It is packaged with all the other services but it features 30 all-music services which are commercial-free, talk-free, and have lots of Canadian content supplied by the CBC. My kids, who are audiophiles in the extreme, cannot tell the difference between that and the CDs they play. Of course, that quality of sound carries over to movies, the pay-per-view and pay-TV movies, so I agree that digital is the way of the future. I am very pleased to say that Expressvu will be digital from the start.
Expressvu is the first Canadian authorized and licensed direct-to-home broadcasting company. We will serve all regions of Canada in both official languages via satellite starting this summer.
Before I address the questions raised in your issue paper, I will give you a brief update on Expressvu. As you may know, Expressvu had hoped to launch its service in the fall of 1995. We experienced manufacturing and integration problems with our digital receiving equipment. By the first quarter of 1996, we had solved these problems and were set to announce a summer 1996 launch. However, Anik E-1 suffered a partial but permanent in-orbit failure. This totally unforeseen catastrophe robbed us of all our satellite capacity. It has taken us until now to accumulate a critical mass of satellite channels to launch a robust DTH programming line up.
During the interregnum, we were caught up in bilateral debate on satellite facilities reciprocity which ultimately undid Telesat Canada's proposed high-power direct-broadcast satellite plan for 91 degrees west longitude -- and for 82 degrees west longitude as well, but it was 91 we were fixed on. Had this proposal been accepted by the U.S. government, we would now be in business with a complete range of broadcast and turbo Internet-like services.
However, today I am happy to report that we have all the building blocks in place to support a summer launch with as many as 100 digital signals. This service will be launched on Telesat's Anik E-2 satellite. We hope that within 24 months Telesat will have launched a DBS facility which will give us much-needed additional capacity for programming and high-speed Internet-like services. After that, we anticipate an advanced communications satellite -- a so-called KA band satellite -- which will offer true two-way communications, thereby unlocking the potential of the nascent multi-media market.
On your first point on technology issues, skeptics used to refer to this industry as a technology looking for a meaningful market. Satellites were viewed as a peripheral element in the telecommunication network chain, ideal for vast land masses like Canada but of limited utility in densely populated regions or corridors; useful in rural and underserved areas but of limited cost effectiveness in highly populated regions.
Digital video compression -- DVC -- changed this paradigm. By dramatically increasing the throughput on a satellite channel, DVC has allowed entrepreneurs to distribute seven video signals where only one could be accommodated previously. With the advances in new technologies, like statistical multiplex, this ratio will increase substantially.
Today, DTH service is the hottest electronic consumer product of all time. With greater compression ratios, and hence more throughput on the horizon, and real two-way transmission capability in the offing, DTL will provide an instant digital-transmission capability over all of this country, bringing the information skyway to all Canadians.
It is my primary submission to you this afternoon that Canadian companies must be allowed to exploit these technology advances or our markets will be overrun by foreign competition. For "foreign competition" read "the U.S." Furthermore, by developing a solid domestic industry we can begin to export both satellite facilities as well as programming and Internet-like services. We believe that the Canadian government should move with all speed to conclude a facilities-based reciprocity arrangement with the U.S. This should not be confused with a services-based deal that would inevitably and quickly lead to the demise of domestic broadcasting companies and the cultural industries that support this vital sector.
Far from a slippery slope, a facilities-based reciprocity treaty would allow Canadian companies to use U.S. satellites and American companies to use Canadian satellites. It would lead to a highly efficient use of Canadian orbital locations by joint ventures between Canadian and U.S. companies without compromising the ability of Canadians to receive domestic broadcasting services.
In point of fact, under such an arrangement, Expressvu could cohabit on the same satellite with a U.S. company like EchoStar. EchoStar, by the way, is the third-largest DBS company in the United States. Expressvu would own enough of the satellite to deliver all of the licensed and authorized Canadian services, now and in the future, and EchoStar would do the same for the popular American services. Each company would use the same underlying transmission technology but control its own product through individual conditional-access and subscriber-management systems. In this way, Expressvu could own a smaller portion of the satellite but still have the beneficial use of the remainder of the satellite at incremental cost, while providing only CRTC-approved U.S. services from the EchoStar portion of the spacecraft.
If program-rights issues are clarified, or if they evolve with the technology, this transmission scenario has the potential to provide an excellent export vehicle for Canadian film, video, sound- recording and computer-software products.
I should now like to deal with commercial issues. My first topic is "bypass", and this is a scary number. Bypass of Canadian telecom and broadcasting facilities in our DTH business could result in a direct loss of half a billion dollars or more by the end of this year if the grey market for DTH satellite services is left unchallenged. I would be delighted to do that math for you later. We at Expressvu believe that the best way to arrest the grey market is to launch and support a robust Canadian DTH service. We trust Expressvu is that vehicle.
We currently have 14 channels on Anik E-2, which will support 100 digital signals, but DirecTv, the leading U.S. DTH service, boasts 200 or more signals. Consequently, we need more satellite capacity, and we need it quickly.
As I already stated, the most efficient and effective commercial way to satisfy the chronic need for additional high-power satellite service is through a regulatory structure which allows facilities reciprocity. The CRTC, the broadcasting watchdog, has already licensed an identical proposal. We now need the Departments of Industry, International Trade and Foreign Affairs to follow suit.
The Chair: Could you explain to us what you mean by "facilities reciprocity" so that we understand clearly?
Mr. Frank: That is just an arrangement between Canada and the United States which deals only with the transmission capability; that is, the satellite.
Senator Spivak: I thought the Americans turned that down.
Mr. Frank: You are quite right.
Senator Spivak: How can you have reciprocity if they do not want it?
Mr. Frank: They do want it; it is the terms and conditions that are at issue.
Senator Spivak: You want the Canadians to cave in a bit more.
Mr. Frank: No, I do not want them to cave in. I would like the government to seek urgently this kind of arrangement by clarifying its position. The application failed on a technicality. The Americans felt that the American applicants, WTCI and Telquest, had not proved satisfactorily that Telesat Canada, the satellite provider, had the Canadian government's permission to launch a satellite into both orbital locations, so it was a technicality. There is more to it than that, but a deal is there to be had, and we are urging you to urge the government to make that deal as quickly as possible. However, we do not want them to sell out the services side. Quite clearly that would be a slippery slope.
The Chair: Thank you. That is helpful.
Mr. Frank: On the cultural issues, the federal government has made it a matter of public policy that the Canadian DTH industry will be at the forefront of competition. With this as a given, it is vitally important that competition be both fair and sustainable in all ways. Existing monopolies like cable, with whom DTH is expected to compete, should have no advantage, either direct or indirect. For a new capital-intensive business like DTH to survive, it must be among the lowest-cost service providers.
If I may, I should like to give you some points to contemplate. Satellite delivery among competing technologies must be equalized. Wholesale programming costs, the programming costs charged by the broadcasters, must be identical. Licensed obligations, such as program substitution or deletion, must be similar, and all broadcast distribution undertakings should contribute to the production of Canadian film and video in a like and reasonable manner.
DTH companies should not be expected to perform non- simultaneous program substitution or deletion when cable is not similarly encumbered. How can Canadian DTH companies compete with the heart of their network programming blacked out while U.S. grey market continues unimpeded and cable has no such obligations? As current regulations stand, Expressvu's network services can be gutted at the simple request of a local broadcaster. How can we possibly compete with cable in the grey market if each Canadian network service on our system resembles Swiss cheese?
Expressvu recognizes the rights of local broadcasters. In fact, it is not far-fetched to say that without local and regional expression, national service becomes a hollow shell. I believe that is a question you were addressing a little while ago. That is not in there for window dressing; we believe that very strongly. However, legislatures and public policy makers must recognize that new media delivery systems, like DTH, are by definition national in scope. Consequently, fair and reasonable rights solutions must be found or the domestic DTH industry will be lost before it reaches sustainable momentum.
Expressvu is proud to contribute 5 per cent of its gross revenues toward the creation of new domestic program production. However, it should not be lost on you that cable currently contributes significantly less, in spite of its 30 years plus of monopoly privilege. In rushing to create new sources of financing, or by simply compensating for reductions in public funding, legislators and public policy makers should not siphon unduly critical cash flow from new start-up businesses. Nothing will betray the promise of new technology, choice and options faster.
DTH offers the prospect of promising opportunities, albeit gradual, for exporting Canadian productions. Through common satellite distribution platforms, Canadian cultural exporters can reap the benefits of immediate and virtually complete overlay of the U.S. market. With the services safeguards already maintained, this opportunity should not be missed.
In conclusion, DTH offers the Canadian broadcasting industry the opportunity to establish an important distribution network, both at home and in the U.S. through facilities-based reciprocity. Quick government action on this front will assure us of an important export opportunity as well as the addition of much-needed high-powered and advanced satellite capacity.
Thank you for your attention. I would be happy to answer any of your questions.
The Chair: Thank you very much, Mr. Frank. That was extremely interesting.
Before I invite my vice-chair, Senator Spivak, to ask questions, I should like some clarification on Expressvu. You are saying it will start this summer. Like many addicts of Canadian programming, I am looking forward to receiving Expressvu but we have heard on several occasions, "It will be tomorrow. It will be tomorrow." How can you be so sure now that it will be this summer? What is new?
Mr. Frank: That is an excellent question. I am glad you asked it because, to be honest, there is a certain credibility problem. I addressed that at the beginning of my presentation. The exact words in my presentation are that "we have all the building blocks in place".
Our first problem had to do with the set-top box that we were going to buy from one of our shareholders, who was going to manufacture it in Canada. That was late in coming. We did a re-evaluation at the end of 1995 and selected a new manufacturer using the same underlying technology. We had that arrangement in place by March of 1996. Unfortunately, the satellite suffered a partial but permanent failure.
Now we have satellite capacity. We have 14 RFs under contract, not merely a hope of getting 14. By July 1 of this year, we will have 14 satellite channels available to us, and probably more. We have a turnkey contract with a company called EchoStar Communications, who have built three turnkey DTH systems around the world, on time. The technology we are using is off the shelf. There will be no production problems because they are pouring off the assembly line as we speak. We are using worldwide technology, the DTH world standard, which means our prices will be the lowest possible, given the economies of scale. Save for an act of God, there should be nothing impeding our launch.
The Chair: There is an old French saying, "Quand je me regarde, je me désole, quand je me compare, je me console", which, roughly translated, means that the grass is not always greener on the other side.
DirecTv is already technically available to Canada and is offering 200 channels. How can you compete with that?
Mr. Frank: I will not pretend that we are satisfied with 14 RF channels. We are doing everything we can to get more; hence the company's desire, and my request to you, to urge the Canadian government to arrange for more satellite capacity as quickly as possible by allowing a joint venture for 91 degrees west longitude through a reciprocity arrangement.
Fourteen RFs, with the prospect of two or three more, would give us 100 plus signals. The primary reason we think our service will be of interest to Canadians is that we will have all of the Canadian networks, specialty services, premium pay television, multi-channel pay-per-view, multi-channel digital audio, and all of the popular American services. We will have the best of DirecTv that the CRTC allows us to have, and all of the Canadian services. Of course, they will have to be priced competitively, but we think that will be a winning combination.
The Chair: What will be your footprint?
Mr. Frank: All of Canada.
The Chair: Why would you want to limit to Canada? Why could it not be international?
Mr. Frank: By "international", do you mean bilateral; Canada and the United States?
The Chair: Yes.
Mr. Frank: That is exactly what I am urging here, Madam Chair. With a facilities-based reciprocity arrangement, with a Canadian-owned satellite located at 91 degrees west longitude, with a high-powered footprint that covers both Canada and the United States, we can offer that opportunity.
For example, we could allow the CBC to sell their digital all-music galaxy service throughout North America where the rights can be cleared. That is not a trivial exercise, but there are some services that can clear rights for south of the border. For those services, a bilateral U.S.-Canada footprint would allow them a much larger market.
The Chair: Two years ago, you criticized Power Corporation because they wanted to do a joint venture with an American company. The American company was DirecTv. Today you are proposing the same type of work plan that we heard about from Power Corporation two years ago. Why have you changed?
Mr. Frank: When you say "we", do you mean Expressvu?
The Chair: Yes.
Mr. Frank: Expressvu was never against a business case that was consistent with set Canadian government satellite policy.
A number of broadcasters, including Expressvu, were concerned about a proposal that would allow for the use of a U.S. satellite and all the U.S. services that would come with it.
At the hearing, we did not oppose Power Corporation's application, per se. We just wanted to have checks and balances placed on it such that the conditional access system and a subscriber management system would restrict the programming that Power Direct offered to licensed and authorized services.
That is why I say in our document that the CRTC has already approved the concept of a facilities-based reciprocal arrangement. If the CRTC is satisfied that there exists sufficient control to keep unlicensed and unauthorized U.S. services out of the country, then I do not see why we cannot allow it to exist.
Senator Spivak: You are saying that is possible. The CRTC would not allow DirecTv to do what they wanted to do, and that is why they eventually failed. You are saying that it is possible to have controls now so that you could broadcast Canadian programs to the United States, and the United States would only beam into Canada authorized and licensed programs; is that not the whole issue?
The Americans are not fools. They now have 98 per cent of the market. They want 100 per cent of every market. Are you saying this is already in place or it has to be negotiated to make sure that the Americans agree with this?
In your coventure right now is everything lined up so you do not have to worry about that?
Mr. Frank: We do not have a co-venture with Echostar. I am just using Echostar as an example. We have a technology agreement with them which will allow us to build our digital video compression system by this summer. We do not have a joint satellite arrangement. We are not using Echostar's satellite; we are using Telesat's satellite.
You are asking why the Americans would allow a facilities-based reciprocity arrangement to take root.
Senator Spivak: Well, unless they can dominate it. If they cannot dominate the Canadian market, what is the advantage to them?
Mr. Frank: Because the Americans are out of orbital spots. It is a question of supply and demand. We have something they want.
Senator Spivak: I see.
Mr. Frank: We have two, arguably three, prime orbital locations; 91, 82 and 72.5 degrees west longitude. The Americans want greater competition in their marketplace from U.S. companies.
By allowing the joint use of a Canadian satellite under certain rules and regulations, they can encourage that kind of competition. That is why I believe a deal is possible.
Senator Spivak: That is the way of the future. Canadian programs can be easily accessed by Americans while they are programming for Canada at the same time. That would be great.
How large do you estimate the gray market is?
Mr. Frank: Two hundred and fifty thousand would be a good guess.
Senator Spivak: I do not understand. First, is the market saturated? Second, how will we get them to switch over? What will be the incentive for someone who already has a dish up there and is already happily getting only American programming?
Mr. Frank: There are two answers to it. First, we have to offer Canadians the programming they want. None of the U.S. gray market areas offer any Canadian services, with the expression of DirecTv, which has two CBC services, Newsworld International, Trio, which is a rerun service, and MuchMusic, which is a music service. Aside from those three services, none of the U.S. companies offer Canadian services.
If we offer a full range of Canadian services along with the best of the U.S., we hope we have the right programming mix. As well, it is a question of price. We have to make our service price competitive and we have to offer incentives to switch over.
The Chair: Give us an example of an incentive.
Mr. Frank: An extreme example would be exchanging a user's DirecTv box for free. Please do not take that as a promise of what we will do.
Senator Spivak: Do the market surveys show that Canadians who have DTH are also getting cable?
Mr. Frank: If the United States, 50 per cent retain cable. We believe the number is considerably lower in Canada because most of the gray market dishes are located in rural Canada.
The Chair: Where cable is not accessible.
Mr. Frank: That is right.
Senator Johnson: I sat here about two years ago and listened to Expressvu and Power DirecTv talk about their business plans. You condemned Power DirecTv as leading to a cultural invasion of Canada. Now you are in a venture with a U.S. company yourself. Can you tell me about this? Have you changed your view?
Mr. Frank: Echostar is just supplying us with the set-top boxes and the integrated software for our digital video compression system. They have nothing to do with our programming supply or with the satellite service. We are using a Canadian satellite and we are getting our programming from Canadian sources or directly from the U.S. supplier.
As far as criticizing Power Direct's business case, we were concerned about the prospect of Power Direct using exclusively a U.S. satellite and having a conditional access system and a subscriber management system which could be leaky. The commission attached conditions to their licence which precluded exclusively using a U.S. satellite and ensured that there would not be a leaky system. That dealt with our concerns.
It was not a universal condemnation of their business case but rather a concern that what they were advocating might lead to unfair competition, since we were advocating the exclusive use of a Canadian satellite.
Senator Johnson: You continue to use this with Echostar providing just a certain amount of technical expertise.
Mr. Frank: A certain amount of technology, yes.
Senator Johnson: Out of curiosity, you are controlled by Bell Canada?
Mr. Frank: At the present time, there is no clear-cut control of Expressvu. However, there is an application before the CRTC for a change of control in favour of Bell Canada Enterprises, which is the holding company and not the telephone company. The CRTC has not ruled on that.
Senator Johnson: When will that ruling come out?
Mr. Frank: We are hoping it will happen within a month.
Senator Johnson: Will that give you total control?
Mr. Frank: Yes, total control; majority control.
Senator Johnson: Are you comfortable with Bell Canada controlling the satellite industry?
Mr. Frank: I would not be sitting here if it were not for BCE. When we went to the CRTC for our original license, our business case called for an investment of $55 million. That has quadrupled. Without BCE, Expressvu will not happen. It is that simple. This is a very, very rich business.
Senator Johnson: Yes, it is.
Mr. Frank: If we want to be world class, we need a world-class uplink and we need a world-class satellite. We have an interim arrangement on Anik E-2, which is a medium power, fixed satellite which will require us to use 24-inch dishes. If we get the high power satellite that Telesat is asking for, that will shrink the dish size to 18, 16, or perhaps even 14 inches in certain parts of Canada. It will radiate enough power so that none of us will have to shovel our laneways any longer. That is a slight exaggeration, but I think you get my point.
The advent of the high-powered DBS satellite will provide Telesat with a springboard to advanced satellite communications, such as KA band that will give two-way capability which is essential in rural and underserved Canada. People in Yellowknife, Sioux Lookout or Flin Flon should be connected every bit as much as people in Ottawa and Toronto. Our service will be able to do that with KA band.
Senator Spivak: Let me see if I can figure out the competitive picture here. You are competing with cable. Do you think this is the way that the telephone companies will be competing with cable? What about LMCS?
Mr. Frank: That is wireless cable.
Senator Spivak: Is that also your competition?
Mr. Frank: Yes, it is.
To answer your question, as we speak, two phone companies are in front of the CRTC applying for licences to operate test bands in London, Repentigny and Edmonton. The phone companies are wedded to wireline technology.
Senator Spivak: Is that not a bit expensive?
Mr. Frank: It is expensive.
Senator Spivak: There have been suggestions that there will not be direct competition because neither medium wants to invest that kind of money.
Mr. Frank: The pundits are saying that within five to six years there will be full-blown competition between the cable and the telephone companies.
Senator Spivak: Both will be offering telephone and TV services, and what else?
Mr. Frank: Presumably, high-speed data services as well, multimedia services, total interconnectivity. For DTH to survive, we need that two-way capability as well. Canada needs the two-way capability to provide that kind of information skyway service to rural and underserviced Canada.
The Chair: Mr. Frank, thank you very much. We appreciate your good suggestions.
The committee adjourned.