Proceedings of the Subcommittee on
Communications

Issue 2 - Evidence, May 16, 2000

The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 9:32 a.m. to examine the policy issues for the 21st century in communications technology, its consequence, competition and the outcome for consumers.

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

[English]

The Chairman: Honourable senators, we are continuing our study of communications technology issues. Our first witness this morning is Ms Sheridan Scott from Bell Canada.

Welcome, Ms Scott; please proceed.

Ms Sheridan Scott, Chief, Regulatory Affairs, Bell Canada: Honourable senators, I am pleased to be here this morning. The communications industry is an industry that I find incredibly exciting, and I hope to give you a perspective from my own background, which includes a number of years of working for the CRTC, working at the CBC, and now working at Bell Canada in different positions. I think you will get a bit of my background reflected in a number of the comments I make.

When I was thinking about this area of convergence, competition and communications, I was thinking about the changes that I have seen over the last several years. When you look at how much has changed over a short period of time, it is quite remarkable. Six or seven years ago, I attended the National Association of Broadcasters' conference in Las Vegas, a major event. It had six football fields worth of exhibits that broadcasters could visit. At that time, I was at the CBC. The association was having a multimedia exhibit, and it was the first time that Apple Computer had ever shown any of their wares. When we came back, there was a short video prepared on it, and people were asking, "What are these computer companies doing at a broadcast conference?" That was six years ago.

About four or five years ago, I participated in the Information Highway Advisory Council, and we actually had a debate about whether the Internet was the information highway. In IHAC 1, we had not mentioned the Internet. In IHAC 2, we debated whether it was. That was just four years ago.

Three years ago, Bell Canada launched something called the Bell Broadcast and New Media Fund. That was a fund that was going to provide support for programs that had both a broadcast dimension and a new media dimension. People told us, "It will never work. You will not get a single application. That is not where we are going." This is common now. That was just three years ago.

I find the pace of change extraordinary. When I look at some of the activities inside my own company -- or the group of companies, and I would like to talk to you a little bit about BCE and what is going on there -- I also find that quite remarkable.

To discuss this, and convergence in particular, I thought it might be useful to use a diagram. This is a diagram I have taken from a 1998 report of the digital media champions. That was a group of folks, from the cable sector, the telecommunications sector, private broadcasters and public broadcasters, trying to come to grips with digital media in Ontario. The group was under the aegis of the Ontario government. This report is from just two years ago. They tried to describe who or what they thought the digital media industry were, and they saw it as the intersection of these three circles.

I find this quite interesting from a BCE perspective. If I think about BCE and Bell Canada in particular, we began up in the top circle that you can see, telecommunications, and clearly that involved telephone and satellite, but even over-the-air broadcasting is sometimes useful to think about in the telecommunications part of the business because, if you do not have content in it, then it is just a pipeline into the home. In fact, digital over-the-air broadcasting is certainly an area to watch with great interest. It will be over-the-air, digital, receivable on PCs and television, and the implications of that could be fairly significant.

If I look at telecommunications, which was, as I said, where Bell Canada was largely playing, in more recent years BCE has started to make investments in the computing sector. If I look down there, I think of companies we have, like Emergis and CGI. CGI is a company that works in the IS/IT area. Emergis is a company that is focused on e-commerce. When you look at the intersection between computing and telecommunications, you have Internet service providers, and Bell Canada right now has Sympatico, which is the connectivity part to the consumer, and that is the result of that intersection between telecommunications and computing.

Then, if you look at where convergence is going, you see the third circle, where there is the content, and you see the intersection of broadcast. That is where it becomes very interesting if one looks at the decision of BCE to invest in CTV. What that is doing is entering the creative content industry. That is the production part of CTV. CTV has a number of interests in production capabilities. Then the broadcaster itself takes some of that content, putting it over the airwaves and sending it to homes. That is the intersection with telecommunications.

All of our various activities and all the companies in which we are involved fall into these various spheres of a converging industry. We are not involved in all of them. We will not play everywhere. We will probably play a little, but not much, in the recording and publishing industry.

Look at the digital media developer in the centre. We have an investment in a company called Extend Media. Extend Media does extremely interesting things. For example, with the CBC television program called Drop the Beat, a customer with a Web TV Plus Box can click on an icon that appears on the screen and, immediately, the television signal and the Web content fill up on to the television screen.

The customer can also go to a URL on the Internet and see Internet-based content relating to the television screen. Drop the Beat is about two hip hop radio DJs. They have their own Web site where they talk about their favourite music and about what is going on in their lives. The customer can track what the DJs are doing off-screen while on the PC. This is a good example of the converging circles and where the industry is going.

BCE's involvement can be referred to as a sort of facelift because it shows some of the investments that have been made in order to bring about this transformation, this move towards the three circles.

We see, for example, the investment in Bell Mobility, which is now a 100-per-cent-owned company. There are investments in Intrigna. Bell Canada is making sure it has a geographic footprint across the country and indeed into the United States with Nexia. Mobility being owned 100 per cent allows for bundling and packaging.

A lot of our activity in these converging circles is about consumers. What do consumers want? They want packages of services. They want dial-up access, high-speed-dial-up Internet access, local telephone service, long-distance service, wireless service, Internet service, programming services. Our studies tell us that when consumers think of bundles, they want Internet and programming services in a single bundle from a single supplier.

Some of the investments take us across the country. The Teleglobe investments take us around the world and into the global industry. We need a footprint that extends throughout the world for some aspects of our business.

The third area of investment is media. You will find in there the $2.3 billion investment in CTV, plus an additional amount of money that has been poured into ExpressVu, our direct-to-home company that provides programming services to consumers. This total of $18.2 billion has realigned the revenue mix that will come into the corporation to make it quite different from the BCE we have seen in the past.

That is the investment side, but, equally interesting and important, we must think about what this means to our customers: Who are they? Where do they come from? How do we connect with them? In terms of bundling and packaging and providing services, we have many channels into the market, many channels to consumers.

Back in 1995, we essentially provided business lines and residential lines. It was a standard telecommunications business. That is where our customers were. That is how we spoke to our customers. We provided them with phone service.

What does 2002 look like? The scene has changed dramatically. We still provide residential and business lines, the basic connections for the telecommunications network, but our wireless business is one of the great growth sectors. We have about 20 per cent penetration in Canada. Countries like Finland have over 60 per cent penetration. As you walk around, you see all the young folks with cell phones on their ears. We will see additional growth there.

We will also see interesting wireless access to the Internet. Data will be made available in new ways, such as stock quotes being available now on PCS phones. That is clearly a growth sector for us.

We will see a shift to data lines and away from our traditional analogue business. We also have Internet subscribers and ExpressVu subscribers.

In thinking about the communications industry, it is my sense that these are the sorts of services our customers want. When they think about competition and what they are seeking, they want Internet access. That is extraordinarily important. You can see the penetration numbers going up every year. The forecast is for 50 to 60 per cent penetration of the Internet, half of that high-speed, within three or four years. That is a huge, dramatic change. High-speed access will enable people to access video content from around the world.

With ExpressVu again, the satellite-based, direct-to-home system, or DTH, has been a growing business. In the United States, approximately 12 per cent of consumers receive their video programming from DTH as opposed to cable. In Canada, it is through ExpressVu and Starchoice.It is through DIRECTTV and Echostar in the United States. So there are huge shifts in our business.

This is all about what customers want and it is my sense that they are looking for these vertically integrated suppliers. They want to have a one-stop shop. They want to deal with a single service supplier. There is no doubt that niche suppliers will continue to exist. There will be small Internet service providers. There is no doubt about that, but people want a single interface. Our customers are telling us they want a single interface for local, long-distance, Internet, et cetera. We see in this country the emergence of several clusters or blocks that can provide this.

This is just to give you a sense. It is not rocket science. One could be critical of what is put in what box and how comparable they are, but this gives you an idea of what I would call the sphere of influence that is emerging in this country.

Under BCE, a number of companies are coming together. These are the companies that fit into the three converging circles. They come from the computing industry, from the telecommunications industry and from the content industry. Those companies can create the bundles that customers want. This is a very similar line-up to the emerging AT&T and Rogers Constellation.

Look at the relationship between Rogers and Shaw. They are pursuing a strategy where Rogers will occupy half the country and Shaw will occupy the other half of the country. Together, they will provide national programming services.

Another company that I watch with great interest is Excite of Canada, a high-speed cable access company. In the United States, AT&T controls Excite@Home, which is the amalgamation of two high-speed-service providers, Excite and Home.

AT&T has made an investment in Excite@Home, which is the high-speed access service that our cable industry will use. They have a 22.5 per cent interest, I believe. Otherwise, it is controlled by Rogers with around 51 per cent and Shaw with around 22.5 per cent. Excite@Home, from the States, now has a way of reaching in to Canadian consumers by means of this Canadian company owned by Shaw and Rogers.

Who knows what will happen with Rogers and Videotron, but they would be in the same sphere of influence. There will likely be partnerships amongst the cable companies.

The GT Group, Telecom and 360 Networks are closer to fibre backhaul. 360 Networks is that $20-billion-capitalized company that has fibre coast to coast. Shaw and Rogers have invested in that company, giving them fibre coast to coast on which they can transport telecommunications tracks.

Senator Spivak: Does 360 Networks also have American investors, such as Microsoft?

The Chairman: Could we hold our questions to the end?

Senator Finestone: It is very hard to learn and understand at the same time. You cannot understand the next sentence if you did not understand the last one. Please allow us a few interventions.

The Chairman: If you prefer it that way.

Ms Scott: I do speak quickly, but I am also watching the clock. I will give you the share structure, but you are absolutely right, I believe AT&T has an investment and there are some other large companies, but I will pull up the list of investors.

Corus is the company that is owned by Shaw, and they hold the licences for programming services. AT&T, through Liberty Media, which is 100 per cent owned by AT&T, have taken an investment in Corus. Corus is 20 per cent owned all the way up the chain by AT&T. There you have the programming services.

Within AT&T/Rogers you see very much the same range of activities as you have in the BCE grouping. AT&T is being precluded from taking over a number of these companies in light of our foreign ownership restrictions, but clearly they must be thinking along those lines, looking at their involvement in a number of these companies, and preparing themselves for a very competitive horizon.

The last grouping, and it is just starting to emerge, is Telus, QuebecTel, the recent investment there, Telus Mobility, and Information Systems Management. They have said that they will get their content through partnering arrangements, but you can already see that there is an alignment that is happening.

Finally, I just thought we would ask the question about where these other companies will go? My sense is that some of these companies will move into these clusters or spheres of influence or indeed they may be the niche operators. We should watch the movements of Time Warner, AOL and Royal Bank. For the time being, it looks very interesting in Canada. We are preparing ourselves to have a very strong presence so that we can compete against the world. Quite frankly, the Internet will bring the world to us and we should be ready to meet it.

Those are the only comments I wish to make by way of introduction and I am happy to respond to questions.

Senator Spivak: That was a very interesting presentation. In regard to high-speed access, how will BCE position itself against the access through cable?

Could you explain the advantages and disadvantages of cable versus the telephone access? Also, let me broaden my question. What will it look like? Is it possible to combine all of the computing functions with the interactive functions and the television? Will we be left with one or the other? Which one will survive? There are really a number of questions there.

Ms Scott: High-speed access delivered by a cable network is shared bandwidth. Thus, the bandwidth is huge. There is a lot of capacity there, but it is shared. If there is only one person that is using the access, they would have stuff like this, in fact it would be too fast for real time, there is too much capacity. As more and more people come on to a given node, then you have shared bandwidth.

What the cable industry does to address this, because they get complaints by folks who paid big bucks to get their high speed access, is that they build out their nodes further and further and have less homes around the node. That costs money to do that. That would be the limiting factor with cable, but you do get it immediately if you are on cable and there is lots of bandwidth, and that is the future of telecommunications there.

Senator Spivak: It is a competitive issue, is it not? Is BCE not threatened?

Ms Scott: Yes, they are, but in terms of the way it is delivered through our office every single person has a connection into our central office so you have dedicated bandwidth; you do not share that bandwidth.

It is an extremely competitive issue for us and extraordinarily important because we are convinced that the Internet and high-speed access will transform the way we do business in many ways.

Last February, during the senior management conference, we were told that this is incredibly important. Each and every person in that room was told to focus on high-speed access, and we were told that an extra $1.5 billion would be spent to get us there.

Senator Spivak: Does that mean ADSL will be as fast?

Ms Scott: ADSL currently operates with one meg, which is 1,000 kilobits. At present, in Toronto, we are experimenting with VDSL, which provides 27 megs over your phone line. That is enough to feed three television sets separately, gives you high speed access to the Internet, and provides your local phone line, all on a single hair of copper.

Senator Spivak: Is that comparable in terms of speed?

Ms Scott: That is at real time speed you would be getting from the cable modem, yes. What you would actually have is managed bandwidth. Thus, you would decide how much of your bandwidth you would use.

Senator Spivak: When will that be available?

Ms Scott: There is already a trial going on in Toronto right now. We have applied for regulatory approval to have this provided to multi-unit dwellings in the Toronto area.

Senator Spivak: BCE shareholders will like that.

Ms Scott: I will tell you, in terms of competition and where we are going, our targets for this year are just past 70 per cent of homes in our territory with high speed access; so you can get it if you want it. Next year, 80 per cent of homes will have access to high-speed lines and the year after, 85 per cent.

Senator Spivak: That is good. I understand now the disadvantages of --

Ms Scott: The advantages of DSL.

Senator Spivak: The advantages, yes, but both, because you have pointed out the disadvantages to cable.

Since everything is happening at the speed of light, practically --

Ms Scott: Speed of thought.

Senator Spivak: Speed of thought; that is better. I like that. You speak about what consumers want. My own view is that it is not so much what consumers want, as it is what they are being told they want, and advertised into wanting. That is another question.

What will we end up with? Surely, if things are happening so fast, why do I need a computer and then a Web TV and a television? When will true convergence happen and what will it look like?

Ms Scott: That is a very good question and no one has the answer. I had a colleague who used to say, "If you are not confused, you don't know what's going on." People can speculate, but I would doubt anyone who answers your question by saying, "This is what it is going to look like." Frankly, I do not believe them.

We are at the very beginning of huge structural changes. I would think it will be another 10 years before we look back and say, "I see where we are now." The changes are happening so fast.

Let us talk about the TVs and the PCs. People tracking this information are finding that more and more consumers have a PC and a TV in the same room. They are using them at the same time, which is quite interesting.

In the beginning we supported programs that kept the Web and TV separate. Now people have an infrared keyboard that allows you to interact with your television and you have Web content on it.

Where this will go will depend on whether consumers like it. Will they do e-mail on TV? It is not as bad as one might think. I have done it. You have to experience it. It does not have as many disadvantages as one might think. It will depend on the role of digital, it will depend on the sets' top boxes that are rolled out, what they look like, what capacity they have, how well they will allow one to interact with the signals.

Mr. Keeble is an expert in this area, quite frankly.

Senator Spivak: I am a linear person and this kind of thing where you have to do two things at once does not appeal to me. However, that does not matter.

This technology is currently in the natural process of evolution.

It is governed by money and huge companies that are trying to go one way or the other. For example, it seems to me that we would have had high definition television if not for the money aspect.

Are we looking toward a universal standard, in wireless or whatever, that will determine how the thing will look?

Ms Scott: The question of standards is incredibly important. The tradition in the United States has never been in favour of mandated standards, HGTV notwithstanding. They have not developed standards. In Europe, they have had standards for digital TV, and we find that Europe is ahead of the United States in the development of interactive programming, because of those standards.

I did not put our recommendations on the record, but one of them is that we should focus on standards. Another one, which is of great interest to me, is media literacy. We are going to be getting our information this way. It is extremely important that our kids know how to deconstruct images as well as they can deconstruct text.

Senator Spivak: Analytical thinking is just as important as the multi-tasking that my grandchildren are learning.

Ms Scott: They are the Sesame Street generation and they learned to do parallel processing. I observe my children very closely on this. They do that parallel stuff and they multitask all the time. It is quite interesting. I think it is a different way of consuming.

Senator Spivak: Consuming is different from learning.

Ms Scott: Yes. The question is whether they will end up learning as much by consuming in that fashion, and the jury is out on that.

Senator Spivak: Without asking you questions, I want to tell you what I am interested in. I would love to hear you talk about open source and e-commerce. A Lands' End article in The New Yorker said that the whole thing about e-commerce is how your factory is organized to send the goods.

I know that other people have questions, so I will cede the floor.

The Chairman: Ms Scott, you said that you had not reached your recommendations in your presentation. Do you want to put them on the record?

Ms Scott: Yes, perhaps I should.

First, our government policy must focus on training, education, business environment, encouraging risk in investment, and a high standard of living. I believe that if this country is going to have strong industry players we need to have vertically integrated companies and we need to invest our resources in cities where there is a cluster of critical mass along a number of key dimensions. This is essential for e-commerce, in particular, but also for all the new industries that are emerging.

We must look at those cities in this country that have world-class educational institutions that will train young people and where research is being done that can feed into businesses so that they can improve the way they do things, and businesses can feed into universities so that they understand the direction we think we are going in.

I do not think that is all we should do at universities. I believe in liberal arts degrees. We need to have curiosity, because that is what takes us to new places, but we must have strong relationships between business and universities. We need to have large, strong companies that can spin off other companies. We need a strong high-tech sector and we need venture capital. We should identify those centres in our country and invest in them to make them strong and world-class.

In Toronto there is Sheridan College, the University of Toronto, and big business. Toronto does not have the high-tech sector that Ottawa does. Maybe we should build up the universities in Ottawa to ensure that we have a world-class, high-tech training ground.

I have with me a slide illustrating an analysis that was done by the e-commerce round table analyzing Canada on exactly these dimensions. It shows how many technology firms we have and looks at venture capital, public equity markets, and strong research universities. They concluded that Vancouver and Ottawa do not have world-class universities. They may be right or they may be wrong, but it is a very interesting way of figuring out what we should do. If we start investing beyond these cities, are we using our dollars in the most efficient way, and are we making ourselves strong?

This shows the need for vertically integrated large companies that can attract investment and offer stability. Think back to those clusters indicating emerging spheres of influence. Market capitalization of the entire group gets investors interested, because they are not investing in only one company but will see the benefit of dollars spread across a number of companies.

Senator Finestone: Thank you for your fascinating presentation.

Yesterday we talked about the role of the CRTC and I would like to discuss that with you. You talked about the integration, close relationships, and emerging roles of telecommunications, broadcasting and, therefore, I presume, copyright.

Ms Scott: Yes.

Senator Finestone: What is the model on copyright? Yesterday, one of our senators spoke about the loss of revenue in music and books due to the downloading of those products. How do we ensure the copyright rights of our artists? How do we address telecommunications and broadcasting, which are intersecting in so many different ways? With your background at the CRTC, CBC, and now with Bell Canada, how do you see this all working? Can the CRTC be effective in its present role?

Ms Scott: About two years ago, I wrote an article on the role of the regulator. I was looking at the early stages of these emerging trends, not envisioning that BCE would buy CTV. In the article, I spoke about the crossovers I was seeing in the legal frameworks, definitions that you find in copyright legislation, and I made observations on the issues one deals with in the context of copyright, and discussed what telecommunications means to the general public under copyright legislation. I looked at the definition of "broadcasting" in the Broadcasting Act and discussed issues of access under the Telecommunications Act. These are all related issues.

About a year after that, there was a filing by SOCAN to have Internet service providers pay a certain proportion of revenues because people were tapping into music on the Internet.

The Copyright Board made that decision, decided that ISPs should not be responsible, that it is the folks who post the content that should have to make copyright payments. That is before the courts right now and everyone will follow that debate with great interest.

My sense is that it would be useful to have a single agency that was responsible for the administration of three pieces of legislation: telecommunications, broadcasting and copyright. I would not say it would necessarily be the CRTC. In fact, one could make changes to the CRTC. My own sense is that having 13 people on the commission is probably too many people. You have to have very strong, coherent, national policies for this area. Again, in the article where I talked about broadcasting regulations, I saw things moving towards copyright. We will not be able to license services for much longer. Look at the commission. There were 452 applications for specialty services. What do you do with that situation? Stamp, stamp, stamp? You cannot do that. We are going to lose the ability to license services, I believe. Perhaps we will be able to deal with over-the-air services, where there are spectrum issues, but in terms of specialty issues, I do not know.

Then there is the Internet on top of that bringing video services over the next several years.

I think it would be useful to have a single group of people looking at different pieces of legislation. I might refocus the legislation; I might change those laws, but I would have a single agency addressing their minds to the competing concerns. You have economic concerns and you have social concerns, and they are sometimes in collision. I think it would be useful to have discussions around an agency table trying to trade off those interests.

Senator Finestone: I feel very strongly that control of the spectrum, which is outside the CRTC's mandate, is a very serious problem.

The Deputy Chairman: Honourable senators, we are running out of time. Please ask your questions quickly.

Senator Banks: For the record, I will ask these questions, and I would ask that you answer as many of them as you can or choose to now, and then just send us a note later with respect to the ones you do not answer.

The chairman, who is unavoidably absent but who will be back, asked me to ask you whether fibre optic cable is going to become the pipeline of choice. We heard yesterday that it will be, for a variety of reasons, and I would very much like to hear your response on that, and what your reaction will be if that becomes the case. You said earlier that your customers are telling you they want one-stop shopping. What is it going to be?

A corollary question to that is: Do you think we are going to end up some day with BCE and either AT&T/Rogers or Telus beating each other's brains out? Are we going to end up with one of those groups providing the one-stop service or both of those groups sharing the provision of one-stop service to different customers in different parts of the world?

My second question: Should we be following, or at least looking very closely at, the Irish model?

My third question: You just talked about the development of what you referred to as world-class centres of development and education. Recently, there was an announcement of the Centres of Excellence in Canada. I do not know if you noticed that. Certain cities were identified. Are you saying there were too many of those?

Ms Scott: Is this the Smart Communities Program?

Senator Banks: Yes. I used the wrong word.

Senator Finestone has already asked about the role of the CRTC in all of this, and you have partly answered that question. In respect of the regulatory questions, I am curious. If I can find this information otherwise, I will, but you made me very curious about the question of Canadian ownership, ownership requirements, foreign ownership restrictions, as they apply to all of these areas. As convergence occurs, I suspect there will probably be different regulations with respect to foreign ownership in one sector and another. For example, in broadcasting I suspect they are now probably different from what they are in telecommunications.

Ms Scott: Actually, they are remarkably similar. There are two small differences.

Senator Banks: You mentioned a few minutes ago developing those capabilities in the cities. I want to make sure that that was not going to be something that would more or less disenfranchise rural Canada. You spoke about making sure that the actual physical infrastructure exists in the cities. What about the people who do not live in the cities and who need to have, and are in some sense entitled to have, identical access for the identical reasons, in order to compete, particularly with things that have to do with the Internet? As you well know, you could be in Timbuktu and be an ISP.

The Deputy Chairman: Unfortunately, we do not have time to deal with those questions in any detail. I am sure it could take you a day to answer them. I am wondering whether you could just give a very quick answer now and then you could give a detailed answer in written form. Would that be okay with you, Senator Banks?

Senator Banks: I would be happy if all answers were written.

The Deputy Chairman: Could we also have the questions tabled? Could you also give us your article on regulation.

Ms Scott: Certainly. I would like to make one point with regard to what I was talking about in terms of these clusters. You may have misunderstood. These clusters are not about infrastructure investments; they are about people thinking about stuff. This is about information economy, and not facilities. That is what it is about. The rural areas will benefit from the urban activity. Then you ask yourself: Do you have facilities throughout this country? The CRTC -- and I will send you a note on this -- has said that local service includes access to the Internet; so that is mandated by CRTC policy.

The Deputy Chairman: Thank you. We now welcome Mr. Keeble. Please proceed.

Mr. David Keeble, Independent Consultant: I am going to come at this from the opposite angle, and maybe it will be a good complement to what Ms Scott said. I come at technology developments and their impact from the consumer point of view.

If you have been reading the papers, you will have seen a great number of announcements of new kinds of consumer media appliances over the last couple of years. That is intensifying. There are more every week. We are talking about things from the little MP3 players you can carry around with you, to emerging technologies that will allow to you deliver video to a cell phone, to things like the Sony Playstation 2, which is not only a game machine but also has a DVD player in it and also can hook up to the Internet so it becomes a media appliance, to the little personal information managers on which you can receive news on cellular spectrum. There are large numbers of these new appliances, and many people are saying that what we are seeing on this level is not convergence but divergence, because we are seeing so many new platforms, and those new platforms are going to cause changes in the way people use media.

You do not use news the same way when you are getting it on your Palm Pilot over the air as you do when you sit down with a newspaper, clearly. Nor do you use it the same way when you are working with a computer. The way that people use media is going to change the way the media industry has to organize itself. Ms Scott talked about that, when she mentioned Constellation. I will talk about it from another point of view, coming up from the consumer rather than down from the industry. That, in turn, changes the demand for public policy, which is where I would like to wind up the presentation. The kinds of things we need to be considering in terms of our national policies become very different because the structures are different, and all of that can be traced back to the way the consumers use the medium. That is what I want to present to you in a very short period of time.

I cannot deal with all of those appliances in ten minutes, so I am going to take two single technologies, a very narrow slice here, and deal with them in some detail. I will try to do it in lay language. I do not mind being interrupted. If I lose you, stop me.

Let me start with this one appliance, which is a personal video recorder. There are several names for it. Digital video recorder is one. You may have seen announcements of a couple of technologies or brands of this. TICO is one. Replay is another. Echostar, the satellite network in the States, is now building these things into some of their satellite receivers. What they are is simply a very large hard disk inside a box, with software to control it. What the software does is allows you to record video on the hard disk, just as you would record it on a tape, but now you are recording it onto a hard disk in a dedicated appliance.

A lot of implications arise from that. It is a very simple idea and very easy to implement. If you are a consumer and you own one of these things, let me just give you some of the things can you do with it.

Let us say you are sitting and watching a sports event. In the middle of the sports event, you get a telephone call. You hit "pause" on your remote control. At that point, you get a nice still frame of the sports event where you were watching when you hit "pause." The program keeps recording in the background. When you finish your phone call, you hit "play" again and the program resumes from where you left off. You have not lost anything. You are watching it where you left off. It still records in the background. In effect, you can watch the rest of that program three minutes behind real time except, of course, that as soon as you get to a commercial, you hit "fast forward." Some of these devices are set up to actually let you skip right through a commercial or let you fast-forward through them, depending on how aggressive the software provider is in terms of dealing with television.

That is the first thing that worries television broadcasters, because these devices are out there now. They are being offered in the States at consumers' prices. One can expect them to become as ubiquitous as the VCR.

The software for this device contains an electronic program guide. You can click on your remote control and see the rating and the source of the show you are watching. The background contains even more information that is not seen here. I can set up the machine to record anything in advance by selecting up to seven hours of material from the program guide.

That is simple enough. It is easier than a VCR, because I need not worry about changing tapes. The titles are always stored in the memory -- unlike my own current tape collection of about 70 unlabelled tapes. If you run out of space, you can choose to record over any title.

Because the program guide has more information, you can implement a smart feature to record programs. This is the TiVo machine. This model has a "thumbs up" and a "thumbs down" button. If I like what I am watching, I hit the "thumbs up" button once, twice or three times, depending how much I like it. If I do not like it, I hit the "thumbs down" button. That information is stored. When the machine is just sitting unused, it says to itself: "The guy who owns this machine likes action adventure and this particular actor, so I will record these matching shows which are playing. If the owner does not like the shows, he will erase them, but if he likes them, he will watch them."

That creates an entire program guide personalized for the owner. The first things offered on TiVo's opening menu are the programs that it has recorded for the owner or that the owner has chosen to record.

People who use these machines say they rarely watch live television any more, unless it is a live sporting event. They just turn this on when they normally like to watch TV and they browse through whatever is there. If they do not like it, they erase it. If they do like it, they watch it. They can also dump it on to their VCR to have a permanent copy.

Just think about the implications of this little box for a minute. If we are no longer watching live television, the value of prime time is lessened, but currently all television economics are built around the huge value of prime time. The value of premium shelf space -- being low on the cable channels, in numbers 2 to 13 -- is also not worth very much because this box can record programs at 3:00 a.m. off channel 78 or channel 535. It will not matter. One program is worth as much as another.

The commercials are worth less than they used to be, because I can skip them very easily. The whole economic model of television is dramatically changed by this single device, and that is only one of the devices that are out there.

The Deputy Chair: Is that a good thing or a bad thing?

Mr. Keeble: We will get to the response in a minute. It is important to understand that the electronic program that makes this box perform its wonders and that contains all the information becomes a very significant gatekeeper between the consumer and the media provider.

In the case of TiVo, they actually have showcases for their channel partners and their investors. NBC is one of them. You can imagine that if, based on my preferences and the way the software works, there is an even choice between two or three programs, it will probably record the program from NBC. That is my guess. The software and data developers then become the gatekeepers.

Remember, we are only talking about two out of many, many technologies that are being developed.

I also want to talk about interactive television. How do you respond if you are a program provider? First, you must make your programs more interesting because people will now watch only voluntarily. You must provide a different kind of value to the advertiser.

The response has been this thing called interactive television or enhanced television, which is developing in a variety of different ways. Let us look at Jeopardy, in this case in its interactive mode through a Web TV Plus Box. It could also be taken from any number of digital set-top boxes as well, if they have interactive software.

In the corner of the screen is the current question being asked on Jeopardy and, surrounding it, a variety of choices that allows the viewer to play along with the game. The viewer can select an answer; the score is recorded and, at the end of the game, the score can be sent back to Columbia TriStar, the Jeopardy producers, and prizes may be awarded.

That is an interesting interactive program technology because it is also what they call "sticky." That is, it only keeps recording my score as long as I stay on the program. If I surf away to some other channel, it erases my score and I must start again when I come back. So I am encouraged to stay with the program and its commercials by the nature of this technology, if I want to play along. That is one way to respond.

You can do more with interactive television than play along with games. One provider allows you to access weather information from the city of your choice.

In another example, a Ford commercial allows me to use my remote control to request that a Ford dealer contact me. Here the value of the advertising to Ford is increased because they are now getting qualified buyers. It is no longer just eyeballs watching the screen. It is people who can respond to the commercial and indicate an interest in the product. That is of greater value to the advertiser.

The last example is direct e-commerce where a video is offered for sale for $19.95. If the viewer clicks yes, their response goes back through the system. Fulfilment is a key part. Someone must have a warehouse with videos and actually be ready to send it to the viewer. The viewer's address is already known to the company. In fact, they know a great deal because they are monitoring viewer responses including which programs are preferred and all the other information provided through e-commerce activity or what is being called TV-commerce activity here. That information is available to someone.

This brings up a number of other questions, but we are basically looking at a TV-commerce model that many people like better than the e-commerce model. E-commerce on the web has turned out to be disappointing to a number of suppliers because people on the web tend to engage in things that suppliers do not like, such as comparison shopping. TV commerce looks like a better model because there is a degree of impulse buying.

The buyer is limited by a certain number of channels necessarily and there is some limitation, although let me shade that a little bit. What Ms Scott was saying to us about the globe coming to us is perfectly true. If you take these two technologies and put them together with a fast Internet connection, there is no reason that I cannot be downloading programs from anywhere on the Internet into that hard disk recorder, and they will look just as good as a program that comes off my television set.

So our ability to control the universe is being fractured, but tools like TV-commerce and interactive television will allow people to respond to that.

What does that mean in terms of industry structures, you may ask. I shall show you a little slide that demonstrates the way things used to be, back in the beginning of television, where fundamentally you had an integrated set-up. On the blue, to the left, one person, the station group, creates programs, produces them, assembles them into schedules and transmits them to Canadian viewers. That is a very simple, very old model.

They then can begin to acquire programs from other producers. Thus, we disintegrate the model somewhat; it is not totally integrated. We now have a variety of suppliers and several station groups reaching consumers.

That changed when cable came along because it provided a new route to the consumer and allowed us to create more channels, including more American channels coming to Canadian viewers through the route of cable, but cable was the gatekeeper. Cable determined the access of those program providers to consumers in a very systematic way. One was either on cable or one was not, and one either had a good channel position or one did not.

When DTH came along, it offered a competitive way of getting to consumers again. We now have three ways of getting to consumers. It did not fundamentally change that gatekeeping model.

What we were thinking, and what may still come out to be true, is that when the Internet comes into it, where video and entertainment programming can be provided over the Internet, that changes the gatekeeping model, because now, through ISPs, the producers and the broadcasters can bypass cable.

There is also the video dialtone model, where from your PC or your television set you can access any channel anywhere around the world, if the technology is fast enough to get that video to you. Producers can obviously bypass broadcasters in this case, as well. This is almost the opposite of any kind of gatekeeping. Any consumer can access the world of resources.

In terms of the set-top boxes and the PVRs that are being introduced in the marketplace, gatekeeping is reintroduced in a different way. In that case, the electronic program guide and the software that runs it mediates between my choices as a consumer and the world of media that is out there, not in restricting my access necessarily but by influencing what I tend to choose, promotional gatekeeping, if you like. The gate is partly open, but it can control what I do to a degree.

I should just back up for a second. When Ms Scott was speaking about constellations, what one sees is people in the industry trying to integrate as much as they can across that whole chain of supply. One can extract more value from it, one can become the gatekeeper. If one is the gatekeeper, one can buy back into the production end of it and have a totally integrated system all the way from the production of programming to the consumer. That is what one is getting in these large integrated constellations.

That clearly raises a few policy issues, a few of which I will put on the table today. I am sure you have already heard about the importance of privacy in terms of consumers and data. Let's also look at the flip side of that. For Canadian e-commerce and t-commerce to work it is necessary to have some of that information about people. It is not necessarily a bad thing. I was thinking before I came today that I would not mind if the telemarketers who phone me every night actually listened to me when I said that I never respond to telemarketing. They do not. They keep calling. If a database existed that indicated that a particular person never buys anything over the telephone, perhaps the telemarketers would not waste their time telephoning that person.

Senator Banks: No.

Mr. Keeble: I am too optimistic, perhaps.

There are aspects of permission marketing that work -- which addresses another part of the information. If I have given my permission for someone to have the information and know that they will only send me things that I am actually interested in purchasing, that is a plus. It beats receiving a tonne lot of junk mail. The information flow can be a positive for the consumer. It is not entirely a negative. Let us remember that, when we are looking at this debate.

Second, for Canadian commerce and e-commerce to work, a way must be found to solve privacy concerns and allowing people access to the data that make the model work, because it does not work without that information about consumers.

Ms Scott raised the issue of technical standards, and I agree with her in this regard. There has been a public policy vacuum on technical standards for a while. We have tended to follow the American model of letting the marketplace decide. However, the marketplace can take a very long time to decide, the result of which can be confusion, which hurts both the consumer and the industry.

The Europeans are ahead on interactive television by at least two years because they put in place workable standards early on. It is true that those standard-setting processes take a little time, but in some cases they can take less time than the market. It is true that they stifle innovation, to a degree, but they also permit innovation on the creative side.

When you have standards, the people who can create programming do it. If they know they will have to meet four or five different technologies out there, they tend not to do it.

Standards will also be important from the point of view of consumer choice. If you want to have set-top boxes available at retail from Sony, Samsung, Panasonic, and so on, standards must be in place where the companies are not able to build boxes that work on these systems.

On the same level, we are talking about the degree of competition possible between electronic program guide providers. With standards, I can choose the program guide that I use. Without standards, I am locked into the technology choice of the box I bought and I am locked into their software.

Finally, clearly there will be some issues about self-dealing within these integrated companies. I agree with Ms Scott that, whether or not we want them, we will have these large integrated companies. However, we also want to have an open marketplace, one that permits small companies to survive and thrive. That depends partly on standardization, which will allow them to work in an open marketplace. It also depends on putting in place rules about self-dealing, so that they will get a fair shake in the marketplace -- access to the consumer or the ability to sell to the consumer whatever it is they have to sell.

In terms of cultural policy, we cannot ignore the fact that we are still dealing with one small English marketplace and a much smaller French marketplace. Do not forget that our product will also drive our business, because it is our media product that helps to drive the whole e-commerce model for Canadian businesses. If we want that product to be attractive to consumers, we will still have to think about ways to encourage people to make it, given that you cannot recover the cost of a Canadian program in the marketplace in the same way that you can recover the cost of American programming.

I am sure honourable senators saw the headline that the cast of Friends will receive a total of $240 million in the next two years. That amount represents the entire Canadian Television Fund, all of it, for two years.

The Chairman: We have a problem with timing. We must leave the room at 11:30 because another meeting is scheduled to take place here. We do have witnesses who are here and are scheduled to appear before us. Could we, therefore, table our questions to these witnesses and have them answer in writing?

Is that convenient for all of you?

Senator Finestone: I will say it is convenient, Madam Chairman, because we have no other choice. I would like to suggest that we never do this again. It is very unfair to those who put time and effort into coming here to present to us, who have given us very thoughtful questions and thoughtful issues to address.

It is almost impossible to assimilate all the information that they have given us and to be able to ask the kind of intelligent questions that are the hallmark of senators. I do not wish to do this ever again, please. In that case, I will agree; under no other circumstances, however, please.

Mr. Keeble: If it is convenient, we could return at a later date.

The Chairman: You both reside in Ottawa, so we would appreciate that.

I understand the frustration of all of us because of the complexity of the issues. It is difficult to assimilate as quickly as you are speaking. We really appreciate it.

Let us invite Mr. Keeble and Ms Scott to return and we will ensure with the Clerk that we have a little bit more time with our panels.

I should like to invite Ms Lawson and Mr. Rosenberg to join us at the table.

Mr. Richard Rosenberg, B.C. Freedom of Information and Privacy Association: Madam Chair, I have included a brief description of the activities of the B.C. Freedom of Information and Privacy Association on the first page of our brief. Our association was incorporated as a non-profit society in January 1991 in order to advance the principles of freedom of information and privacy protection in British Columbia. Since then, the society has become a national voice for these principles. In fact, FIPA is the only active, non-profit group in Canada devoted solely to freedom of information and privacy issues.

About 15 months ago, I appeared before the House of Commons Standing Committee on Industry to present the views of Electronic Frontier Canada, of which I am a vice-president, on Bill C-54. Since then, renamed Bill C-6, it has received Royal Assent and will take effect on January 1, 2001.

Today, my contribution will be in the area of privacy and security of shared personal information, the third area of study in phase one of the committee's terms of reference. I have listed these, for convenience, in my presentation.

I want to respond to some of these. Of particular concern are the following, which relate to a number of the points that the committee is obliged to cover.

The first is the increasing assault on privacy by the private sector on the Internet, the different models for protecting personal privacy in the U.S., Canada, and the European community. I will talk about the first part of that more than the rest.

The second is the necessity to implement procedures that recognize the fundamental principle of informed consent by requiring, among other actions, default conditions to be made explicit. So much happens to people who get on the Internet and other sources without their knowledge. It all appears in the background. It is crucial that people make decisions. As I noted in my last presentation, the information is undoubtedly valuable to businesses and marketers. I am happy to supply them with information when I have the choice of whether I want to. If I do not want to, I should not be supplying it. If they are going to pay me for it, that is fine, but if I do not know what is being supplied, I do not have informed choice.

My third point is the crucial role that education will play in informing the Canadian public of its responsibilities of protection under the provisions of Bill C-6, the Personal Information Protection and Electronic Documents Act.

The fourth is special concerns related to protecting electronic, or on-line, personal medical records. We note that the act will not apply to this area for at least a year. I and a colleague in Vancouver have been working on a document on privacy related to medical records. If the committee is interested, I can have that sent to you in the next two or three weeks.

My final point is an example of privacy protection in the U.S., where the Children's Online Privacy Protection Act of 1998 became effective with certain procedures about a month ago.

On May 11, a coalition of well-known ".com" companies released the following statement:

The CEOs at Amazon.com Inc., eBay, America Online Inc. and Lycos Inc. sent out a letter to more than 400 of their colleagues earlier this week, urging e-commerce companies to take the lead to protect consumer privacy more seriously.

They said:

We believe that a key aspect of consumer confidence on the Internet is making sure consumers understand when and how their personal information is being used as they engage in e-commerce and other online activities.

That is a curious statement, given that, for a number of years in the States, the Federal Trade Commission has been monitoring privacy statements for Web sites. In a survey conducted about two years ago of 1,400 Web sites, they noted that only about 14 per cent had a privacy policy, to say nothing of whether they were effective privacy policies. A recently conducted, soon-to-be-released survey indicates that the figure is up to 20 per cent. After two years of urging by trade industry that privacy policies are made available, they do not exist.

The FDC in the United States is finally going to recommend that Congress act on privacy protection. It is important that Canada has already acted. The model is, of course, the European community with its privacy directive, although, unfortunately, a number of European countries have still not signed on.

With regard to informed consent, it should be obvious that not having sufficient information to make a decision may render that decision flawed. The Internet, by virtue of its hidden technological complexity, leaves many of its users, especially those who have come aboard in recent years, unaware of the information they are revealing just by browsing Web sites. The most prominent hidden technology is the ubiquitous cookie, whose operation is dimly understood by many.

When the average user is first introduced to Netscape Navigator or Internet Explorer, the operation of cookies is completely transparent. Behind the scenes of Web visits, pieces of information about the user and his or her activities are saved and deposited as strings of data on the user's hard drive. The benefits for the user are that return visits to the Web site will result in this knowledge aiding in the service provided by the site. Furthermore, cookies will aid in convenience because the user will not be required to repeatedly enter such information as physical and e-mail addresses. Presumably, such a convenience is supposed to compensate for the loss of privacy, but, because of the inherent transparency, the average user will be unaware of these processes and hence unaware that it is possible to choose not to have cookies deposited by so instructing the browser in advance.

The Web site benefits by being able to track, in a precise and automatic fashion, the micro behaviour of visitors and customers. All this information is a valuable marketing tool for tailoring Web sites in order to increase sales. The individual information itself, combined with that of thousands of others, creates an extremely valuable database that can be sold to other sites and marketing agencies. It is not surprising that companies are reluctant to give up or to compromise their access to increasingly large and useful sources of personal information.

Thus, a fundamental principle of fair information practices is negated under most Internet activities. If informed, a user can go to the "preferences" tab under "edit," click on "advanced," and discover a range of options in accepting or rejecting cookies. The simple message here is that the default should not be the acceptance of all cookies but the information about the options available to the user. However, even this option may not be sufficient, in that, increasingly, sites require an activation of cookies before entering, giving no choice with respect to the deposit of cookies.

There are more problems. Cookies deposited by one Web site can be read by other Web sites when they are visited. I give examples of this in my brief. There are examples given of how other companies can act.

Let me turn now to the role of education in implementing Bill C-6, the Personal Information Protection and Electronic Documents Act. Most privacy protection procedures enforced through legislative means are complaint-driven. That is, unless someone is affected by the misuse of personal information and launches a complaint procedure, practices that may violate the law will continue in operation. Thus, the act provides for the Privacy Commissioner to investigate a complaint that is filed with the office or on his or her own initiative. Furthermore, section 23 states that the commissioner may disclose, or may authorize any person acting on behalf or under the direction of the commissioner to disclose, information in the course of prosecutions, hearings or appeals as defined. Section 24 gives the commissioner a public education mandate. These responsibilities, the importance of public education and the necessity to adequately publicize the activities of the office require sufficient funds to be allocated. It would be difficult to overemphasize the importance and ultimate benefit of these activities in ensuring that Canadians receive the full benefits of the act. It should not be forgotten that, in a democracy, only an informed public can behave responsibly.

On the issue of electronic on-line or personal medical records, I quoted sections of this report that I mentioned previously, and I will leave that and not comment on it here because it will be available to you.

The Chairman: And it is on the record. Thank you.

Mr. Rosenberg: Just two more parts and I will be done. I want to comment on the on-line protection of children. I am not sure yet how effective our legislation will be in protecting children. In 1998, the U.S. passed the Children's Online Privacy Protection Act in response to complaints that many Web sites designed for children had no privacy policies and, in addition, extracted personal family information from children in the guise of providing games and interesting information. Children were asked questions like: What car does your family drive? How many cars do you have? What kind of television set do you have? What kind of cereal do you have in the morning? All of this was gathered as part of the child's interaction with the Web site.

This legislation requires that all Web sites that gather personal information from children under 13 have clearly posted privacy policies stating how those data are used, and they must gain verifiable parental consent before gathering any information. On April 21, almost a month ago, guidelines drawn up by the Federal Trade Commission in the U.S., under which Web sites could cater to children under 13, took effect.

It should be noted that such a law, while necessary and important, is indicative of the U.S. sectoral approach to privacy protection. Rather than pass comprehensive privacy protection, such as Bill C-6, the U.S. Congress is currently committed to self-regulation in the marketplace, with occasional special-purpose legislation, such as COPPA. I stress some of the U.S. activities because many Canadians, in spite of Bill C-6, when interacting on the Internet will be interacting with American Web sites and will have no protection. Therefore, many of the things I say, which may have coverage under Bill C-6 in Canada, will have no coverage, and therefore people still must be informed about what happens to information when they are interacting with U.S. Web sites.

Those are some examples of the issues surrounding privacy policy and how parents have to do certain things. It is interesting that some sites that cater to children have decided not to continue their activities because of their belief that the financial costs are too great and because of the difficulty of verifying parental consent. COPPA requires that any site that collects e-mail addresses, names or birth dates must request a signed permission slip or credit card number from parents or face fines from the Federal Trade Commission. It remains to be seen whether or not Bill C-6 will be effective in protecting the privacy of children and to what degree parents will play a mediating role.

Finally, in these particular privacy issues, I should like to discuss the distinction between privacy and security and associated threats. It is important to distinguish between privacy and confidentiality and between privacy and security. Let me skip the confidentiality part and comment on security. Privacy and security are orthogonal concepts. In other words, security is the means to an end: the protection of designated information by a variety of physical and hardware equipment and software techniques. Note, however, that the important and prior decision is to decide that security is required to protect such information. Indeed, once that decision has been made, it is important that adequate security be in place. Otherwise, dire consequences could follow. As such, the focus is on obtaining adequate privacy protection for personal information under the assumption that it will be secure, both in storage and in transit.

Let me skip the comments on encryption. This is an important way that individuals can protect their own privacy in the transmission of e-mail and other ways.

I will go to the final remarks. The passage of Bill C-6 must be considered an important achievement on the road to privacy protection for all Canadians, and many people and institutions must be thanked, including Industry Canada, Justice Canada, members of the House of Commons and Senate, privacy groups such as FIPA and the Canadian Medical Association and PIAC. However, more work needs to be done. In the short run, there must be legislation developed to protect personal medical information. All provinces except for Quebec must develop their own legislation for the protection of personal information in the private sector or default to the federal legislation. The Privacy Commissioner must undertake a comprehensive program of education to inform all Canadians of their rights.

Given that a continual stream of technological developments offers challenges to personal privacy that can only be dimly anticipated, we might be better served if privacy were clearly defined as a basic right independent of the specific environment in which encroachments occur. As such, it is important to acknowledge the important contribution recently made by Senator Finestone. Her attempt to craft a document that defines a charter of privacy rights for Canadians is a worthy enterprise. All Canadians should contribute to the discussion to produce a clear and ringing endorsement of privacy as a basic right. Its omission from the Charter of Rights was a serious error, one that can be rectified if we are all sufficiently convinced of the fundamental importance of privacy in a democratic society.

Senator Finestone: That is very kind of you. Do I take that as a full endorsement, or are there some amendments you would suggest before I table it?

Mr. Rosenberg: I will send you some comments on that.

The Chairman: That was an excellent presentation. We commend you for the work you are doing with your association. It is so important in this emerging world, and we comprehend your work even more so through the study that we are doing.

Our next presenter is from the Public Interest Advocacy Centre. Ms Lawson, welcome and please proceed.

Ms Philippa Lawson, Counsel, Public Interest Advocacy Centre: Honourable senators, I wish to apologize for not providing a paper in advance. I will be providing one to the clerk this afternoon. It will be based on my comments today. I certainly do not have enough time to cover everything orally.

At this time, I should like to discuss the problem and some of the solutions. I will then talk briefly about some implementation challenges with Bill C-6. Finally, I will provide some recommendations.

I will not take the time right now to go into any details about PIAC. Those details will be included in the paper. We have been representing consumer interests for 24 years now, and privacy is one of the areas we have been looking at recently. My comments are from the perspective of a consumer advocate focused on the privacy concerns of individuals, in their role as consumers in the marketplace. That is not to say that there are not enormous privacy concerns with respect to data collection and use by governments and by private parties engaged in research or other non-commercial activities. I am just not going to be addressing those issues today, but I urge you to consider them as well.

When we go shopping in the real world, especially if we are using cash, no one is watching every store we go into, every item that we look at, every item that we purchase. When we go on-line, that is exactly what is happening. Through the use of computer technologies, private companies are collecting detailed personal data about us and using those data to target their advertising to us. They are trading that data in the marketplace, so much so that a huge industry has developed in the collection and trading of personal information. It is growing by leaps and bounds. Many Web sites depend on the revenue from selling user data to third parties, or delivering specific demographics to advertisers.

Consumer profiling is by no means unique to the on-line world. It has been going on off-line for a long time. However, Internet technology permits a whole new level of consumer surveillance that simply is not possible in the off-line world.

I had planned to describe cookies; however, Mr. Rosenberg has done that already. Cookies are the basic means by which this on-line surveillance is accomplished.

Let me just touch on a few examples that we have seen recently.

You may have heard about Double Click. Double Click is an on-line advertiser. It puts those banner ads on Web sites when you are surfing the Net. It uses cookies to track the surfing habits of Internet users. You do not even have to click on the banner ad to have your data collected and monitored by Double Click. You just have to go on the Web site where the banner ad is. Every time you do that, the fact that you went there is passed on to Double Click. This company now has a data base of over 100 million users.

Last fall, Double Click bought an off-line marketing agency. I should preface this with the observation that cookies do not actually contain personal data. There is computer identification in there by which the computer user is known. Double Click bought an off-line market research firm by the name of Abacus Direct with the intention of linking its non-personal surfing usage information, termed as "quick-stream data," with the personal information held by Abacus. A huge consumer backlash, as you may have read, caused Double Click to, at least temporarily, suspend its plans.

Two other high profile Web sites, one called Real Networks and the other Alexa, a subsidiary of Amazon.com, also stand accused of linking personally identifiable information with users' Web trails. The companies deny the charges and have taken measures to block such data matching, but again, this is only because of tremendous consumer backlash and public concern.

Another interesting example of what is happening in the marketplace right now is a company called freeatlast.com, a new ISP. It recently announced plans to offer free Internet access to people who agree to install software that, like Double Click, will track their every move on the Web. These people can then have their advertisements targeted and customized to them.

This particular company assures critics that it is not going to connect the individual names that it has with the click stream data. It will obviously have the capacity to do so.

This business model of offering free services in exchange for personal information is becoming more and more common. It raises the question: Do consumers appreciate the implications of this kind of exposure?

Another interesting development is what has been termed "Web lining." This is a practice similar to red lining, in which certain geographic districts are considered off limits by marketers because such districts do not produce enough profit or whatever. Web lining is a practice in which companies use your on-line profile to determine the choices they will provide you, in terms of products and services, and even the price at which they will offer those to you. We are seeing geographic stereotypes giving way to market segmentation based on all sorts of factors, including ethnicity, religion, race, gender, and age.

Here the risk is that the choices presented to us as individuals in the marketplace are going to be based on a computer programmer's determination of what we would most like, which, in turn, is based on our data profile. Those judged of minimal value to marketers will receive fewer offers and fewer opportunities.

I am going to skip over the issue of on-line data security because you are probably well aware of it. Hardly a week goes by when we do not hear about some major security breach. Last week it was Microsoft's Hot Mail service, which had to be shut down for a number of hours while a security breach was patched.

Those of us with e-mail who receive spam, or unsolicited e-mail, will be interested in another development. There are now an increasing number of investigative companies that specialize in collecting data on specific individuals and then selling it to anyone who will pay a fee. The header of one message I frequently get is: "Find anything out about anyone on the Net." They say they can pull up your credit reports, your personal history, your age, a physical description, phone numbers, details of property ownership. They seem able to pull up any kind of information on an individual. This information is undoubtedly very useful to creditors trying to track down recalcitrant debtors, but it can also be used by stalkers to locate their victims, as was the case in the death of a New Hampshire woman last fall.

Another problem that these developments are leading to is identity theft. Not surprisingly, we are seeing a new wave of identity theft, as Internet sites offer easy access to detailed financial and other personal information.

How do we respond to the problem? Many people say there is no privacy on the Web; let us just get used to it and try to figure out technological ways of dealing with it.

There are basically three different tactics, all of which are complementary and each of which is necessary but not sufficient.

One is the technological fix. I will not go into that in detail because Mr. Rosenberg has covered it. The simplest one is configuring your browser to tell you when a cookie is being demanded or requested. There are a number of different programs and tools avaible to users, all the way up to Zero-Knowledge Systems, a program called Freedom. Zero-Knowledge Systems is a very promising Montreal-based company. It offers an encryption product that allows you to remain totally anonymous while you are surfing the Net and sending e-mail. A limitation with it right now is that, when you want to transact, you have to reveal yourself. It is of no value to consumers who want to transact.

The second response is for voluntary codes of practice, industry self-regulation. Just this week a number of the biggest American on-line providers issued a major challenge to their colleagues, saying "Let us get together. Let us reign in data collection practices and show government that we can self-regulate." Unfortunately, the record, as Mr. Rosenberg has pointed out, shows that self-regulation is simply not sufficient.

In terms of privacy policies, a recent poll of Web users found that only 38 per cent think that most privacy policies are easy to understand. Whether or not they are understandable, most of them are incomplete and inadequate. They certainly do not measure up to our new law. Also, studies show that many sites do not even comply with their own privacy policies.

The third prong is legislation. Legislation is clearly needed to back up self-regulatory efforts and to guide technological and market developments in the direction of socially desirable and acceptable information practices.

This fact is now becoming recognized in the United States. Again, Mr. Rosenberg alluded to the FTC's move. Just this past week, it published a rule requiring financial institutions, broadly defined, to notify customers about the collection of personal information and to offer choice as to how that data is subsequently shared. President Clinton has announced his intention to legislate privacy protection aimed at giving consumers more control over their personal data.

With the recent passage of Bill C-6, Canada is clearly ahead of its major trading partner. We should take advantage of that. It is an initiative that this government should be congratulated for.

I will list my recommendations after a few comments on the implementation of Bill C-6 and, briefly, on the international context.

The Chairman: Could we have those in writing, Ms Lawson? We would like to have some time to ask a few questions.

Ms Lawson: Yes. Am I at my ten minutes now?

The Chairman: Yes, twelve actually.

Ms Lawson: I will just move on to my recommendations.

The recommendations are focused on the implementation of Bill C-6 and what Canada can do in the international context.

We are recommending, first of all, that the Privacy Commissioner be provided with sufficient financial resources to effectively publicize, educate, obtain compliance from and pursue non-compliant actors under the new data protection legislation. The legislation is not going to work unless the government puts its money where its mouth is.

Second, we recommend that the effectiveness of the new law be monitored closely over the next five years, with a view to a five-year parliamentary review.

Third, we recommend that a fund be established, possibly as a new component of the existing court challenges program, to assist individual complainants in exercising their rights and enforcing the law through court actions where appropriate. By way of background, Bill C-6 is set up as a complaints-based model. Instead of government prosecuting and enforcing it that way, it shifts the burden to the consumer -- that is, the individual -- to take cases of non-compliance to court. People will not be able to afford that.

Finally, we are recommending that Canada take a leading role in the development of international standards of data protection through ISO, the International Organization for Standardization. We have a model that is beautiful to take internationally. We have a real opportunity here, and I hope that Canada will take it.

The Chairman: We look forward to reading your full brief.

Senator Finestone: First, I wish to thank both of you for your excellent presentation. Also, thank you for your patience in the overcrowded agenda that we have today.

With respect to your last point, on the international data protection, you said that you were "comfortable enough." By that, do you mean that our Bill C-6 should be used as an international model?

Ms Lawson: Yes. I am actually referring to the CSA international code on which Bill C-6 is based. We have a national standard of data protection now that was taken word for word and put into the new legislation.

Senator Finestone: If I understand you correctly, when you were talking about the protection of the individual, be it cookies or any other gathering mechanism of information, big brother has a picture of me wherever I have been, and "big brother" happens to be the big commercial undertakings of this country. You are comfortable in suggesting this model for the world? I do not understand.

Ms Lawson: No, I do not think we are there yet. I do not think we are yet compliant with our own legislation.

Senator Finestone: Would it not be appropriate to wait five years, to see where the big holes and the mistakes are and to see where individuals are having to go the court route because there is not much will or desire on the part of "Business" to be respectful of my individual rights and my human rights as a person?

Ms Lawson: There are two different issues here. One is agreeing on minimum standards of protection; the other one is enforcement and compliance activities.

Internationally, we need some agreement on those minimum standards. Europe is taking the approach of saying "We will not trade or engage in data with countries that do not meet our own standards." The European standards organization is moving ahead in this area on its own. The default is that there will be an international standard that will be based on the European standard.

We do not have a bad standard right now. I agree that we have huge challenges in terms of getting compliance with that, even domestically. We need to convince other countries, like the United States, that this is a minimum standard and that it should by no means ever be considered as a trade barrier, for example.

Senator Finestone: That is a different issue. My sense is that there is a view in governments -- and in government -- that we have now covered all the privacy issues of society with Bill C-6. That is an answer I have received. It is a sense that we have no more concerns -- and Mr. Rosenberg can also address this -- and that our privacy is now protected. Mr. Rosenberg has been stronger in his independent case that our privacy is not protected in many ways, but I would like to understand from where you are coming.

Ms Lawson: I think there are real questions about the adequacy of Bill C-6. That is why we need to monitor it. We need to find out, for example, whether Bill C-6 adequately reigns in the use of cookies, since they do not collect personally identifiable information.

Senator Finestone: What about the fact that we are always clicking onto American programming, for example, NBC, ABC, CBS, private broadcasters, et cetera. How do you do that?

Ms Lawson: I cannot answer that question right now. There are a number of questions there. One legitimate criticism of the code in Bill C-6 is that it may not ensure that consumer consent to secondary uses, in particular of their personal information, is adequately informed and truly voluntary. We must be sure that the exceptions we put in place, such as disclosure for the purpose of debt collection, do not turn out to be huge loopholes that were never intended.

I agree that our law is not perfect. It is a first step and a first crack at this. Yes, perhaps there is concern about moving ahead internationally with this, but it is certainly a lot better than doing nothing. It is a lot better than what we are seeing in the United States.

Mr. Rosenberg: When I testified before the standing committee, I pointed out -- although I never expected it to be recognized other than to say that I had been there -- that the CSA code was designed originally for voluntary adoption by industry. A number of agencies got together and wrote out the code. These were wide-ranging agencies, for example, governments, banks and consumer groups. Since the code was adopted for voluntary use, it made lots of recommendations about what people should do and what companies should do. The code was unchanged in that respect.

I argued that, in the text of the code, a lot of the "shoulds" should become "musts." I am interested in seeing what happens when the law is implemented in January, and whether companies follow it -- that is to say, whether all the "shoulds" are adopted as "musts." If they are not, it will be much weaker protection. It is part of the job of the Privacy Commissioner to ensure that the code is complied with. Part of the Privacy Commissioner's mandate is to autonomously look into how these companies present their codes and how the codes are enforced and implemented within companies. If most of the companies feel that all the "shoulds" are things that they must do -- that is, they cannot choose to do some and not to do others -- that will be effective protection. However, if they do not, they will be quite within the law to do a minimal job -- that is, to implement things that give the impression that it is being done.

In all the years that I have been looking at the privacy issue, the concern in industry has been to give the appearance of concern without actually being concerned.

Senator Finestone: Yesterday, Richard Simpson and Doug Hull appeared before the committee. Their sense was that, if businesses want to do business, they will have to develop a sense of trust and ensure that people who purchase from them have that sense of trust. Therefore, we do not have to worry. Everything will be rosy and peachy-keen. Everything will be on a voluntary basis. If you are a businessman, you will voluntarily look at mechanisms to gain your clients and you will certainly include the trust aspect. Maybe big businesses will do that -- and, if that is true, we can be very appreciative of it -- but I do not think that you can trust the whole world. I may not be a very trustworthy person in my views of this privacy undertaking. It seems to me that this is not the way forward in this area of the individual's right to security of his person and security of information, and the obligation for knowledgeable consent.

We heard this argument with Bill C-6. The information you have about me is like the money that I have given in trust to my bank or to my insurance company. You cannot use that money or break that trust without my full knowledge and my full consent. Why is that any different from my personal information? I have a sense that we have a real problem here.

Unless you want to approach that issue again, I have another concern I want to raise with you.

Ms Lawson: I do not think the human rights approach is incompatible with the data protection business, practice model approach. In fact, I think the two must move together.

We are also very supportive of your initiative, Senator Finestone. It is essential that we see privacy and data protection as a human right. It is essential to our sense of individuality, autonomy and dignity. We did not get into that today, but we could have easily spent all our time on the issues at that level.

Mr. Rosenberg: Ms Lawson mentioned Double Click. When their activities were discovered, Double Click's response was to say they were sorry, as if they were unaware that what they were doing could possibly be misinterpreted. It was very well interpreted. Everyone understood exactly what they were doing. Intel made provisions for your ID number in your computer to be part of your identification, the argument being that it would be a way to recover stolen computers. They did not seem to understand that it was also a way to reveal users' identity.

This happens over and over. I share some of your concerns about these statements. For the years that I have been looking at this, most companies -- and I have to reiterate my statement -- are concerned with the appearance. They are concerned with appearing to be aware of individual privacy and taking it into regard. Because it is good business, they always say that.

The questions continue to arise. Why do these endless examples of privacy violation occur if business is aware of the concern?

Senator Finestone: Thank you for that observation.

I want to look at identity theft, but first I want to support your observation with respect to children. The research shows us that five-year-olds are using the Internet and that what they are accessing is of great concern. The answer is that parents have an obligation to monitor what their children are watching.

The whole question of pornography, homophobia, Negrophobia, Islamophobia, anti-Semitism, you name it, it is all out there are for the kids to watch. Parents cannot be around 24 hours a day. They do not know where the kids will surf.

I am pleased to know there is some kind of protective software to limit children's access to the Internet. I will read carefully your observations on children.

Mr. Rosenberg: In this other area, I take a fairly strong free-speech position. While I am aware of the issues, I have some concerns with the methods used to deal with them. I have spoken at the last two B`nai Brith symposia about hate on the Internet and the various ways to respond. I have been invited to speak as the token free-speech upholder who seems to be, in their view, naive about the serious threats; nevertheless, however, I have been given a forum.

This is a very difficult problem. There are filtering programs used for objectionable material, but there are serious issues about product quality and the agendas of the producing companies.

The other issue is the use of such programs in public spaces such as libraries or community centres. Once choosing to use such a program, implicit choices are made about what will be blocked. In many cases, users do not know what will be blocked because the lists change every day. You cannot tell from a description of a program what will be blocked.

I am concerned that people are fully aware. I do not mind if people decide to use such a program, but I would ask two questions. First, do you know what the program is doing? Second, if the program is for use in a public space, are you creating second-class citizens, those people who cannot obtain access to those things that may not be generally acceptable but which are not illegal under the Criminal Code?

Senator Finestone: Canada does have laws. In a borderless society, do those laws work? We have 2,200 known racist and hate messages out there, plus bomb-making kits and skinheads and the whole business. We have laws against hate. We have laws against racism. We have many constructive laws that reflect Canadian values and which put in place some common values.

Now you are saying that you are for free speech. I am not for total free speech. I am for some control on the information that is out there. The rest of it, you can go and fight in your own way.

Mr. Rosenberg: I recognize the Criminal Code. I would never encourage or allow people to violate the Criminal Code. That is our law, as you quite rightly say. Canada, as a society, has made choices to incorporate their values. Those laws exist.

Senator Finestone: Can we respect those laws in a borderless society?

Mr. Rosenberg: It is very difficult. Enforcement is a whole other issue. When I argue about enforcement, people say I have no principles, that I just argue pragmatics. I do have some principles, but pragmatics are a reality in the world. It is very difficult in the global world to deal with sites that exist outside of Canada. To limit access to those sites is extremely difficult.

Senator Finestone: Can you talk about identity theft and its implications in terms of the American decisions on theft. The case of prodigy.com in New York took a different direction from the decisions of the English courts regarding ISPs and identity theft. In the U.S., the huge bills that resulted were not the responsibility of the company, so the victim was left with the bills. In the U.K., the company was held responsible.

What is your view on stolen domain names? How can we control it? Is there a right of recovery of the name and of the debts?

Mr. Rosenberg: Let me say two things. I did include in my statement some relevant quotes from a recent column by William Saffire in the New York Times. Second, this situation is not all that different from that which exists in the real world, if you view the Internet as the non-real world.

I got a call a few years ago, at about 8 in the morning, from my credit card company, the Bank of Montreal, asking whether I had been in California recently. When I said no, they told me that someone had spent several thousand dollars in California on my credit card. The Bank of Montreal was responsible for those debts.

Credit cards are extremely volatile in terms of theft. When you give your credit card to someone and they walk away to take an imprint, you do not know what else they are doing with it. You do not know if they have confederates within the credit card companies, because there is no point in stealing a credit card with a low limit.

These risks exist. No one asks for additional identification when credit cards are used. There are also risks in using your credit card over the phone. E-commerce has been held up by the reluctance of people to provide their credit card number on-line. Many people do not think the Internet is insecure, and they are right. Better encryption methods are being developed, and that is the only answer.

In terms of responsibility, there is no reason that the existing model for the use of credit cards should not apply everywhere.

The Chairman: If we have additional questions, can we communicate them to you, perhaps by e-mail? We would appreciate your additional input. Thank you for your helpful presentations.

The committee adjourned.