Proceedings of the Subcommittee on
Communications

Issue 6 - Evidence

The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 2:06 p.m. to examine the policy issues for the 21st century in communications technology, its consequence, competition and the outcome for consumers.

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

[English]

The Chairman: Honourable senators, welcome to our seventh meeting on the first phase of our study. Today we are reviewing the trust that Canadians have for e-commerce. Phase 1 is about connecting Canadians. We want to review the convergence which is taking place among the principal sectors within the communications industry. We are examining the progress made on Internet privacy and security, on electronic commerce, and on public governance.

We know that the Internet is creating the world's biggest marketplace, accessible by anyone from anywhere. The potential value of this global trading post is enormous. To be successful internationally, Canadian businesses must rethink and review the way they do business.

What are the public policy initiatives that will ensure that Canada has the right environment to facilitate and support success? We have many questions for Ms Blank today. For instance, what is the value of world e-commerce today? What is the estimated growth of e-commerce business being done by Canadians? What is the projected growth? How are businesses embracing e-commerce in their dealings with other businesses? What are the impediments to e-commerce? What can be done to facilitate and encourage Canadians to adapt quickly to the Internet trading post? What goods and services seem to be the most appealing to various customers? Is there a business model? Is it important to be first?

Ms Blank, welcome.

Gale Blank, Senior Vice-President, Logistics and Chief Information Officer, Indigo: Honourable senators, thank you for inviting me to represent Indigo. I will just make a slight correction. We at Indigo are just Indigo. We do not segregate our bricks from our clicks or our stores from our on-line. We do run an integrated model, which we will talk about later.

I will give you just a three-second autobiography. I am a retailer. I have been in retail for 20 years. I started when I was one year old with Loblaws and spent 16 years there. I spent one and a half years at Eaton's as part of a turnaround team which was not as successful as we had hoped. Then I joined Indigo. So I am a retailer first, a technologist second, and that is the perspective I tend to bring.

Indigo is a relatively new Canadian institution. We launched our first superstore format as a pilot project in Burlington, Ontario. By "superstore" we simply mean it is large -- 45,000 square feet. That project took off and, as of the end of November, we will have 16 stores across Canada, but none in Ottawa, unfortunately.

We are 100 per cent Canadian. We focus on who we are and where we come from. We do not call ourselves a bookstore. We call ourselves a cultural department store that is for book lovers. At some other point in time, we can talk about that, but that is a distinction, and we do believe that that is very important to us.

We exceed, on every study, our competition -- who shall remain nameless -- on ambience, selection and service. I just left you a few photographs of what we look like.

The Chairman: I must tell you the most interesting thing. In my five years in the Senate in committee, this is the first time that we have received pictures with a presentation. I would like to thank you. It is worth a thousand words, as they say.

Ms Blank: If Heather Reisman, the chairman and president, were sitting here, you would understand why there are pictures. So much of who we are and what we are is the sense and the feel, so I appreciate the comment.

That is what we call "bricks" in the retail business. Any one who is cool talks about bricks and clicks, bricks being the stores and the clicks being the Internet itself. We entered the clicks, or the on-line business, just over a year ago, when I joined. We were second into the market. Our competition, Chapters, had been there for about eight months, and we followed them in. We launched a campaign.

Senator Finestone: Do you use the same service provider?

Ms Blank: No, there is nothing shared or the same at all. We launched with a huge campaign, which is consistent with any dot-com that enters the market. It was a "Blue Your Mind" campaign, which was sort of cool. We took off from zero to many millions by the end of Christmas, and we believe it was successful.

Again, I have included some pictures. You could go on to your own Internet and see many of these.

We are re-launching the site. It is important for people to understand that when we launched our site a year ago, it looked different from many of the sites that most people had seen. Many people told us, and I do not know if those sitting around here would concur, that it was sort of feminine. It was not heavy on material. It had a lot of pictures, and it was soft. We found that to be very positive. We are re-launching, and it will be simpler and cleaner, with a lot more white space. Most people on the Internet are finding the opportunity to just flood people's eyes with copy and pictures and jazz and things that blow up and spin. Although that is cool to construct, it actually does not sell much, and most consumers do not like it. Therefore we have redesigned our site, after beginning to understand the ergonomics of this new medium. It is a new medium, and nobody really understands it, but we do know that the softer and the less in-your-face the site is, the more people tend to respond, so you will see a new Indigo site the middle of October, if we hit our deadline. It will feel even more spacious and less busy.

If Heather were sitting next to me, she would tell you that the objective of the site is to help people in Canada who are afraid to use the Internet use it. We will make it comfortable and take away the technological words or sense of the site. If you thought you wanted to use it but were intimidated, you would be able to feel at home. We would add people to it, so there would be a 1-800 number. That is a little about the site itself.

You did not ask about this, but I thought I would just mention that Indigo was the first Canadian retailer to do m-commerce. M-commerce is mobile commerce. With certain devices, you can now order a book on a telephone or on a Palm Pilot. The next wave of technology seems to be this wireless that Indigo has launched. We launched in April. We have no business. I think we measure five or six transactions a month, which is nothing stupendous, but we are learning and we are there. I believe it will be a profitable channel as time goes on. I have shown you here some of the devices that one can use to do some mobile. The two in the top right-hand corner, those things that look like pagers, are RIM devices. I am sure you have heard of Research in Motion, that great Canadian firm in Waterloo. These are BlackBerry and BlueBerry pagers that you can use to order Indigo books.

I will now turn to some of the questions you posed, some of which I may have answer for and some not. Most of the statistics I have for you have come from Forrester, which is a research firm. Everyone uses them, so I suspect they are not new to you.

The first graph really depicts the take-off of e-commerce throughout the world, and it really talks about which of the areas in the world are going to fly first. Not surprisingly, North America, with its weighted critical mass occurring somewhere in the year 2000 or just past, will take off in e-commerce. We in Canada are a small part of it, but North America includes Canada. I would say we lag that by 12 to 18 months, so if North America takes off in mid-2000, Canada is probably looking at the end of 2001.

You can see that Western Europe, Asia Pacific, Latin America, and all the areas of the world fall behind. Africa and the Middle East have a long start. I suspect it is the diversity of economies in those entities they call Africa and the Middle East. That is a very big segment. North America, particularly the United States, followed by Canada, will get there before most of Europe and certainly the rest of the world.

Senator Finestone: Will get where?

Ms Blank: Will get to 50 to 60 per cent of their economy using e-commerce in some sense.

The next graph shows world e-commerce growth. Again, it is similar. It shows that North America takes off long before anyone else. There is Asia Pacific, Western Europe.

If you look at the page on e-commerce and North American growth, again my point is that the United States has the lion's share, and Canada takes off following the U.S. The steepest curve is 2002 to 2003.

The Chairman: I do not like to interrupt, but in the e-commerce growth, could you just specify the financial value on the left of the graph? Is it $500 million or $500 billion?

Ms Blank: It would be billions.

The Chairman: It is the same thing with worldwide e-commerce?

Ms Blank: Yes, it is billions.

The Chairman: Worldwide?

Ms Blank: Sorry, I am on the wrong page. That would be millions.

The Chairman: Worldwide e-commerce growth would be millions?

Ms Blank: Yes, and this would be 3.5 million. It is 7.5 billion at the top for e-commerce in North America. That is where it should top out.

The Chairman: It is because we do not have page numbers.

Ms Blank: They were there.

The Chairman: There is page 12, which is e-commerce hyper-growth. That is the timing.

Ms Blank: Right.

The Chairman: Then page 13, which is the worldwide e-commerce. That is millions.

Ms Blank: Top 7 billion.

The Chairman: Okay. Then e-commerce growth, which is page 14.

Ms Blank: Millions.

The Chairman: Is that millions?

Ms Blank: Yes, that would top out at 7.5 billion. If you look across those two, they start to add up.

The Chairman: You see in e-commerce growth on my page, e-commerce growth North America, which is page 14, my top is $3.5 billion.

Ms Blank: Right.

The Chairman: Thank you.

Senator Finestone: Are you saying it is $500 million now?

The Chairman: Yes.

Senator Finestone: I think that is very low. It is actually up in the billions. I think the Canadian portrait -- let alone the American -- is in the billions.

The Chairman: Ms Blank was just saying it is 500 million, not billion. We just want to make sure.

Senator Finestone: It cannot be 500 billion, which is too high, but 500 million is out.

Senator LeBreton: If you go two slides over, we are talking about billions. In the year 2000 it is 3 billion. Therefore, if you go back to the chart it makes sense being millions, and ending up with 3.5 billion.

The Chairman: It would be billions then.

Senator LeBreton: It starts at millions, but it ends up being billions, obviously.

The Chairman: Ms Blank, we do not want to interpret your charts.

Senator Finestone: I just want to understand them.

Ms Blank: I should have put the dates on these charts, but I did not. Some of them start to change as they get closer in time. The ones on world e-commerce growth are newer than the ones on the U.S. revenue and e-commerce revenue. These were predictions from one or two years ago. What is important to me is the relative aspect and the slopes, because I do not think anyone knows exactly. In a year or two, Statistics Canada will know how big these markets are.

Also, on page 15 -- if you had a page number -- the revenue numbers include many of the business-to-business transactions.

The Chairman: That is the American one, page 15?

Ms Blank: Yes, and the same with the Canadians.

The Chairman: Okay.

Ms Blank: I will get you the dates on these, because I think it is important that we understand that every prediction that gets made seems to shift.

The Chairman: In order to keep it simple, could you send to the clerk a set of graphs whereby we have the amounts of money included and the date?

Ms Blank: Yes. The dates are important because the predictions have changed. The slopes of the curve do not change, but the absolute values tend to change.

Senator LeBreton: When you look at the graphs and the actual revenues, and the Canadian e-commerce market, it is still showing the same kind of upward curve.

Ms Blank: They are going in the same direction, which is probably the most significant thing. The absolute value is not as important.

The important thing is that Canada and the U.S. are the biggest e-commerce markets. Canada follows the U.S., but not at the pace at which the U.S. is growing. I do not think that is a revelation. It is a very big opportunity.

I will now talk about retail. There is a huge opportunity for retail. In many senses, there is a threat to retail, certainly in the book business, Amazon is threatening Canadian companies. Therefore, it is important that we do as well, if not better.

In regard to Canadian purchases on-line versus the U.S. -- this is Forrester data -- the research shows that Canadians are wired, but they are not ready to purchase on-line. Twenty-three per cent of Canadians have Internet usage. I saw this number in March 2000 in Forrester, and yet only 20 per cent of Canadians are purchasing, which again begs the question: What is going on? The prediction for on-line spending in Canada -- these are March numbers again -- shows that the slope is the same, but the absolute values are different. If you look at the prediction for 2000, a year ago they were predicting in excess of $3 billion, and now they are predicting $2.2 billion in 2000. That is $2.2 billion in retail revenues. The percentage of all Canadian households making on-line purchases will continue to grow, and we will continue to move in that direction.

The following page, on-line buying households in the United States, shows they purchase more than in Canada. This is a breakdown of categories. Of the people who buy on-line, 41 per cent in Canada buy books, as opposed to 56 per cent in the United States. The purchase of CDs, movies, and videos is 36 per cent in Canada and 47 per cent in the United States. That software is fairly comparable should not be a surprise. Apparel and accessories has a fairly big delta. Then you start to see even bigger differences when you get into the services. Our service sector is further behind than what we would call our convenience or disposable goods.

The quick answer to this is that there are not many Canadian retailers in these segments on-line. Chapters has just gone on-line with CDs, movies, videos, and Sam the Record Man and HMV have only been on-line for approximately a year, so Canadian retailers have not had a presence. If anyone has purchased a CD from the States, he or she will know that it is very expensive with the exchange, taxes and duty.

Senator LeBreton: Would the same apply to such services as airline tickets and hotels?

Ms Blank: Yes.

Senator LeBreton: Are those businesses not on-line like they are in the United States?

Ms Blank: If they are on-line they are not working as well as they could be.

Senator Finestone: Would you say that the difference between the Canadian and American dollar has a great deal to do with whether a person will buy American? That is what the research shows.

Ms Blank: Yes.

Senator Finestone: Canadians are buying Canadian. They have had bad experiences with the United States, both with the charge on the money, the charge on the delivery, and customs charges.

Senator LeBreton: That would not affect this chart because this is simply on-line buying in the United States versus Canada.

Ms Blank: If I bought at Amazon, I would show up in that 41 per cent because I am a Canadian buying books on-line. Many Canadians are buying books, and other things, particularly those items that are unique and hard to find. This is an area where the Internet plays an important role. People will go anywhere to find what they are looking for.

However, people are finding out that it is expensive because they must add one-third more on top of the total cost. Many Canadians do it once and will not do it again. Therefore, it is incumbent upon the retailers to do something about this situation.

This analysis speaks to why Canadians are not shopping. It shows that Canadians would prefer to shop Canadian for 100 reasons, chief among them being the exchange rate. Canadians abandon on-line shopping carts for reasons such as shipping costs. Canadians may abandon on-line shopping carts because a retailer does not ship to Canada. Many American sites have put on their banners or front pages that they do not ship to Canada, because they have received many complaints.

The majority of those included in the study had most recently purchased on-line from a Canadian retailer. The study showed that 43 per cent of Canadians who do shop on-line had to purchase the item off-line because a Canadian Web retailer could not be found.

The bottom line is that Canadians want to buy from Canadians, whether for patriotic or other reasons, and the Canadian retailers are not providing the service.

These numbers are probably eight months old, and I read recently that you can see a huge trend towards women and the senior citizens. The median age for people transacting is approximately 40 years of age. They are mostly male. They live mostly in big cities. They are relatively well-to-do. They are relatively well educated -- 43 per cent of them have finished college -- and they are optimists.

This is the profile of the Canadian Internet shopper. I will say that the profile is shifting, particularly the age and the sex. Women are beginning to shop on-line. My personal belief is that you will see that shift. Whatever the percentage is on the brick side, it will be on the click side. Again, because our senior citizens have disposable incomes, and a curiosity about interesting things, I think you will see them come on to the Internet for books and things like that.

The next graph is relatively new. It shows the growth of the wireless Internet. As a point of interest, I think it will change everything again. Internet types talk about Internet time, in which three calendar months equals an Internet year. Wireless folks talk about three weeks being a wireless year. That is how fast they are moving.

Canadian companies such as 724 are doing remarkable things and pushing the envelope in this market. I think you will see them doing neat stuff.

In the last 12 months, the economic model for Canada has shifted. The capital markets have grown tired of the dot-coms throwing away money and going for what we call "the land grab." Therefore, people who are going to be in this business must make money on the profitable model. The concept is not about getting customers, it is about getting customers, making sure they are profitable, and keeping them. That sounds very familiar if you have been in retail. It is no different.

Eighteen months ago, people in the dot-coms told you it was a different world vis-à-vis Internet retailing. The medium is different; the principles are not. You must make money, satisfy customers, and have a value proposition that works. If my friends from Loblaws were sitting here they would be saying the same thing. That is their biggest challenge.

Indigo has shifted almost every part of its site to reflect this new reality in the last four months. We had to do some very difficult downsizing. We changed our pricing strategy. We are charging people for stuff for which they should be charged.

An example is that if you bought your holiday presents at Indigo last Christmas and you bought six or seven books, we would wrap them all for you -- and we would wrap them unbelievably well because I was out there at midnight wrapping -- all six of them for $2, not $2 each.

The Chairman: Were the gifts delivered to the clients or to the buyer?

Ms Blank: The product could be delivered to either; it was a choice. For $2 you could have all your packages wrapped individually, because that is what Amazon was charging. It will not be that way this Christmas.

The entire economic model was based on, if the product was in the store for 30 per cent off, we would sell it for 40 per cent off. In the meantime, someone would pick and pack and it would be cheaper. There was a notion that because you do not hold inventory, it should be cheaper. Any Internet retailer of any sort can explain that it does not work that way right now.

We have shifted our economic principles. We are focused on having a profitable business. It is integrated into our bricks business. It is not separate. When you see advertising, you will see it for both the stores and the Internet.

Canada Post is our partner on the "last mile." This is a term that you hear with the Internet. The last mile is where the customer is won or lost. People only started understanding that last Christmas. It is easy to make a snappy site and get pretty graphics and put inventory in a warehouse, and you might be able to get it out, but to get it to the customer on time and in good condition is the real challenge.

Canadian infrastructure lags behind that of the United States. That is for a number of reasons, including population density. We also do not have a history of catalogue buying the way the Americans do. We did not always have a focus on delivering packages to people.

The one Canadian institution that did, did it well, and continues to do it well on the Internet is Sears, and they did it with their depots. You will see that model repeated. Our friends from Canada Post are doing that too, but the last mile is the challenge.

We do not have much competition in Canada. A large part of our geography is only serviced by Canada Post because it is so sparsely populated. The Internet deal is the last mile. If you cannot get it, then the item is really worthless.

Credit cards are the current Internet currency. Many Canadians are still very insecure about putting their credit card number on the Internet.

I have contacted our call centre and asked them how many complaints we have received, and the answer is very few. The people who use their credit cards are pretty cool about it. In the 18 months we have been operating, we have never had someone say that the card had been stolen from our site. About six months after we went live, about a year ago, we took away the option of faxing in your order. You could fax or telephone in your credit card number. Those people who were not happy about typing it into the Internet could have called us or faxed it to us.

When we removed that, our marketing people were very concerned that we would lose market share. We may have lost 1 per cent. That leads me to believe that people who are comfortable are comfortable, and people who are not are not. It sounds simple.

We do everything possible, and spend a large amount of money, to ensure that credit cards are secure. We do much more than the gas stations and restaurants do, but that does not make anyone feel any better.

Since we do have these people who are not comfortable, as is their right, it is incumbent upon us to create alternate currencies. We need to create debit card on-line, because with a debit card you have to key in a PIN, which makes it is a little more secure. Perhaps senators could talk to the Canadian banking infrastructure about getting this going. I have made a couple of calls, without much success.

The technology companies are currently working on an electronic wallet, which would be great for the younger generation in particular. It is a mechanism by which you can deposit a maximum of $100, so you can only lose $100. It is sort of like an on-line smart card. Microsoft, the Retail Council of Canada, and others are working on this. That is another kind of currency that will make people more comfortable.

Canada is doing a pretty good job on high-speed access. Today, 2 per cent of Canadians have high-speed access, which is absolutely imperative to make it work. Human nature is odd. Although access felt fast yesterday, it will not feel fast tomorrow. The fibre that is going into most Canadian cities is a very important aspect of this, and that will help.

High-speed access is last on my list because I think it is of least importance. In the United States, where they are doing all the shopping, they do not have high-speed access. However, it helps.

The Chairman: Thank you.

Senator LeBreton: On the whole issue of technology, talking about "bricks" and "clicks," how does a company like Indigo make the leap between the technologically literate and those who are fearful of the technology? Is there a lost generation? Is there some way to bridge that gap, or is it that the older people will use the bricks and the younger people will use the clicks to access what is available at Indigo?

Ms Blank: We just did some redesigning, and we were very sensitive to folks who are afraid to get on-line. I do not want to call them the older people, because there is a huge number of senior citizens who are on-line. It is the people just a little younger who have not had the time to have their grandchildren teach them how to do it who are more afraid of the technology.

We are very sensitive to making it feel safe, simple and unbreakable. When computers first arrived, people were afraid of breaking them. Our design is very much focused on that, to the point where, as I said, we will have help lines that people can call.

Second, the terminals will be in our stores and we will have our own people there. We have 60,000 books in our stores. On the Internet we have 10 or 20 times more. If you ask for a book, we will walk you over and help you find it on the Internet. We hope that will help.

The design is very much focused on the non-techie Indigo customers. We do not define Indigo customers as "techies." They are cultural individuals and we expect that some of them will not be comfortable with technology.

Senator LeBreton: You are quite right not to single out senior citizens. It is the 50- to 65-year-olds who are uncomfortable. They are very afraid to use this technology in case they press the wrong button and end up owing $1 million.

I am curious about how you deal with that.

Ms Blank: It comes from the design and through leveraging the real estate in our stores.

Senator LeBreton: Another aspect would be simplifying the language.

Ms Blank: As Heather keeps saying, "Tell me in English." She will not allow any of that.

Senator LeBreton: Talk of bits, bytes and megabytes scares people.

Senator Finestone: It was a pleasure listening to you. You know a great deal about this new world in which you live and I exist.

With regard to the redesign of your Internet site, you said that kids, in particular, find Internet sites too busy, too active, and too distracting. You think that the clean, neat, more feminine approach is better.

In doing this, do you put cookies into your site?

Ms Blank: Yes.

Senator Finestone: To what extent do you advise the public that there are cookies present?

Ms Blank: I do not know.

Senator Finestone: I would like to know that.

Ms Blank: I would have to sign on and check.

Senator Finestone: I would like to know how you use the information you collect through cookies. Is it strictly for the Indigo shopping network, or is it for the use of the company? Do you protect this information? If so, how? Do you compile client files and do you sell that information?

Ms Blank: The information is definitely only used internally. To date, it has only been used in a growth way. We use the cookies to understand how many shoppers clicked on a particular book. We do not actually know who the shopper is. We simply use it to gain understanding of what is going on. The information is as protected as is our credit card information. We do not currently sell or share any of that information.

Senator Finestone: If I understood what you just said, you develop your client profile and your client interests in order to target those clients more effectively by sending them Christmas greetings and such things. What do you use that file for?

Ms Blank: We use the cookies to understand the navigation of the site, to understand what is working in terms of the process of the site.

We do not use the cookies for the people side of the business, the customer side of the business. If Senator Finestone, who likes Chinese cooking and Martha Stewart, seems to be similar to Gale Blank, then we will tell Gale Blank that those who like Chinese cooking like Martha Stewart, based on purchase history. This is not based on cookies.

Senator Finestone: The confidentiality is within house?

Ms Blank: Yes.

Senator Finestone: In a protected, semi-firewall set-up?

Ms Blank: It is not semi; it is a firewall.

Senator Finestone: It is not a public document of any kind?

Ms Blank: No.

Senator Finestone: Which server do you use?

Ms Blank: It is internal; it is ours. It is sitting in our office.

Senator Finestone: Which server do you use for the Internet?

Ms Blank: We use UUNet as our ISP.

Senator Finestone: Are you aware whether UUNet has a black box structure that monitors what is going on?

Ms Blank: No. I do not even know what you mean when you say that.

Senator Finestone: A black box is an electronic system that monitors who is doing what to whom and when it is being done. The information is all put together and very interesting lists are created and sold. It monitors government in particular. It is a question I will be asking you. If you do not have the answer, please have it before you go on.

Ms Blank: I do not know. I can find out. I will ask UUNet. I just do not know.

Senator Finestone: It is called a "black box." There may be other technical names for it.

Ms Blank: What is the black box's objective?

Senator Finestone: Government somehow uses that information. I was going to find out from you what you know about it. I think it can be challenged on privacy grounds under Canadian law. I gather the British have just passed a law allowing this to be collected and now the British government has all this information.

Do you have some guidelines in your privacy policies for yourself and the people taking the phone calls? What guidelines do you have to protect the privacy of your client, or your potential client? For example, does your client know that you are collecting and storing information through cookies?

Ms Blank: That question is similar to one you asked before. I do not know the answer. I do know that if asked, we certainly tell people, as we have had technical difficulties with the cookies when people turn them off.

Senator Finestone: There is a strong feeling that if you are going to collect and store information about me, since that information is mine, you do not have the right to use it unless I have given you my consent.

Ms Blank: Right.

Senator Finestone: What do you consider as consent?

Ms Blank: When you sign up, we ask you to read the privacy documents. Within those, we tell you that information on your sales history will be stored and protected. We will not sell, resell, or use it; but cookies are different, and that is why I struggled.

Senator Finestone: The individual retains the right to know what you are doing with the information. Do I have the right to say that you cannot use any of this information and to close down my file?

Ms Blank: Use it in what sense?

Senator Finestone: If I have visited your site, I am assessing whether to go to Indigo or Amazon to buy certain things and I am surfing this material. I finally decide I am going to buy from you. I want to say to you, "Listen, what I do is my business. If I want you to write my personal history and taste in books, I will let you know, but until then I want no information included on any of your sheets or at any place within your structure." Can you do that?

Ms Blank: No. What we can do is not send you information. The only other way we use information is to use not you, Senator Finestone, but your behaviour to predict other behaviour.

Senator Finestone: The behaviour might have been rude. Perhaps you should do a psychological test at the same time.

Ms Blank: We cannot currently take you out of the database for a behavioural analysis.

Senator Finestone: Would you elaborate on the wireless aspect? I understand that wired, or anything going through fibre optics, is far safer than wireless. Has any thought been given to that? I believe I have it right. Is wireless less safe or more safe than wired? One is like a broadcasting station and the other one is not.

You were talking about mobile commerce and the fact that wireless has been launched. I believe you are right, that wireless will grow exponentially. We will be quite amazed at what comes out. You made that comment. What gives you the sense that wireless is going to continue to grow to the extent that it is growing now? What kind of new challenges do you think its growth will place before the business world, particularly of books, CDs, and all the cultural products that are out there and that some people say are being stolen off the Net?

Ms Blank: That is a separate question. Why do I think wireless is going to take off? I believe that because it is everywhere. The thing about technology -- again, this is my personal point of view -- is that the more ubiquitous it is, the faster it grows. We are talking about something that comes off a cell phone or pager that everyone is carrying. I do not know what the penetration of those devices is in North America, but I do know for sure that in the last 15 years, almost every individual has bought one. If you own something, the market will figure out how to sell you something through it. That is why I believe it. It is really simple.

There are tremendous challenges, because the device itself, being portable, is ugly. You will have to figure out how to sell something in this ugly mode, and it will be a challenge.

Indigo bought Cruickshank's not too long ago, a catalogue gardening company operating out of Toronto. I envision people walking in their backyard with their mobile phone and ordering from the catalogue. It is a great ordering device.

Again, perhaps not in Ottawa, but in Toronto, if you are stuck on the 401 and you have forgotten to buy someone a gift, you have lots of time, as you will be stuck in traffic for two hours.

I see many applications. The challenge will be to make it work well. How do you sell that beautiful set of flowers on that ugly little screen? But RIM is working on that. Their BlueBerry and BlackBerry are beautiful little things.

You can tell me if I am out of line. There are different levels of security in the mobile world. The banks are very strict about it. Bank of Montreal is the first bank to go wireless and their security is huge. Rogers, which is also doing some wireless things, has different security levels. There are different kinds of security associated with the wireless protocols. There are very secure ones that are encrypted 40 million times, and then there are ones that are not as secure. Indigo has taken the point of view that they will only go secure.

Senator Finestone: That is good news. What impact do you see from authors publishing their books directly, without a book publisher? I believe it was Stephen King who did that. Do you know how successful it was, putting that book directly on-line, and bypassing the publisher and distributor?

Have you had a discussion in house on the issue of access by independent authors to use of the Internet?

Ms Blank: Stephen King's was very successful, if you measure success by the number of hits. Did he make more money? I doubt it. I do not think he made more money, because he is Stephen King. If Gale Blank were to write a novel and put it out that way, it would not work, because publishers serve the important purpose of marketing and creating artists. I do not see it as a way for very talented people to get their work out there. They would still need marketing.

There are many challenges for Canadian publishers in particular. I do not see that as the first one.

The Chairman: You spoke about currency. In my opening remarks, I said that we are looking for public policy issues to ensure that our environment is facilitating e-commerce for both buyers and sellers. You said that you have been trying to have the banks develop a system of secure on-line debits and that they have not been able to do it thus far. Do you recommend that the banks take on that responsibility and work at it? I find that very interesting.

Ms Blank: When we transact a VISA card on-line, we are using bank software and the bank's infrastructure. Our expectation is that just as they created software and capability to allow a VISA card to go on-line, that they will create that same capability for Interac. They have many technical issues to deal with before they can do it. It will not happen that quickly. I think the electronic wallet will happen before we see on-line debits.

The Chairman: What about the old fashioned way? When I was a little girl, my mother arranged to charge everything I bought from the little grocery store where I went to pick up things for her. Has Indigo created a business model by which it can send my bill by e-mail for the books that I buy? Is that being practised? Is it convenient? Is there software for it?

Ms Blank: My mother used to call the corner grocer too, but my mother knew him. It is technically possible. However, the challenge is avoiding fraud. The Internet is everywhere. We do have that model working for corporate sales. For instance, the government can have an accounts receivable and we can send you an invoice. The technology exists.

The challenge is fraud on the Internet. Not knowing our customers and not having a relationship with them precludes us from being that open at this point.

It is a not an issue of technology but of fraud. There is fraud on the Internet, but it is not coming about from stolen credit cards. It is coming from really smart university students who have figured out how to make our lives miserable.

The Chairman: On the research regarding customers, you spoke about who the customers are and where we are moving. Have you done any analysis of the time factor? For instance, is it true that the busier a person is, the more likely it is that that person will use the Internet for all types of shopping, such as personal, business, or just plain gift-giving? Has there been any research done on that?

Ms Blank: No. It has been assumed that the people with the higher incomes are more time compressed. There have been many studies which show that double-income families have no time.

The Chairman: What about luxury items?

Ms Blank: I do not know.

The Chairman: Has there been no research done on that?

Ms Blank: Indigo plans to sell a lot of gifts, but I would not call them luxuries, although they are non-essentials.

The Chairman: I would like to come back to the comment you made about the Canadian pace versus the American pace. Could you tell us the key factors that you have found to explain the slower Canadian pace?

Ms Blank: The first one is that our retailers are not on-line. It is too expensive. I have to believe that is the first problem. I do not think we are more risk averse. I do not think that fewer Canadians are willing to surf, because we are more connected than the Americans. I do think that there is just not enough selection on the Internet with which they are comfortable.

Had all the Canadian brands been out there when Amazon launched, that is, Loblaws, Eaton's, Roots, Holts, Indigo, and Chapters, then I think you would have seen something different. Two years ago there was nobody there.

The Chairman: What could be done to increase the pace of Canadian retailers becoming available on-line? What would be your recommendations?

Ms Blank: What is holding up the biggest Canadian retailers -- and we are not one of them -- is the model. The fact is that they want to make money, and they have to figure out how to make money in this world.

The Chairman: Are you referring to the business model?

Ms Blank: Yes. Some of them have shut down because of it. I am not sure if Roots is still on-line. It is a real struggle. It is very expensive and hard to make money this way.

The Chairman: It was interesting to hear you say in your opening remarks that this is really "in development." It is a new medium. It is a new way of doing business and it is definitely in development.

Ms Blank: Yes. The model that came out, that is, a discount model, has had many repercussions. I think that is what slowed us down in Canada. We are not big enough. We do not have enough people to lose money.

The Chairman: Thank you. We appreciate your comments and your answers.

Honourable senators, our next witnesses are from Canada Post.

Welcome, gentlemen. After hearing our discussions with Ms Blank, you are probably aware that we will likely have many questions for you as well.We are looking forward to hearing about your projects with this new communications revolution which is creating a whole new opportunity for Canada Post.

Mr. Gerard Power, Vice-President, General Counsel and Corporate Secretary, Canada Post Corporation: Honourable senators, without dwelling too much on what Canada Post is, because we all have an idea of what Canada Post is and what it is about, I would like to try to perhaps change some ideas about that.

A post office is a very technologically dependent network. We have used technology within Canada Post and continue to use technology in the sorting of mail. We are one of the leading postal administrations in leveraging technology in order to provide all Canadians with access to the best postal service at the lowest possible price.

If you travel to other countries, you will find that in fact Canada's postal rates, not only internationally but also domestically, are amongst the lowest in the world. We have the second lowest postage rates among OECD nations. That is because we focus on technology, not because we have the lowest wage rates amongst developed countries.

Our business is to move information, goods, and messages from one point in the country, not only to another point in the country, but to anywhere in the world. That has caused us to watch trends in e-commerce and also to participate in those trends in order to meet the needs of all of our stakeholders. That is not just business users of the mail, but also consumers who rely upon us for delivery to the home.

One of our fundamental ethics within the company is the protection of the sanctity of the mail. Therefore, we do not want to embark on any venture where the security of the mail is subject to any form of tampering. Obviously, in the physical world, it is possible to break into somebody's mailbox. In the electronic world, it is not possible to close all the doors in an absolute sense. It is, however, possible for us to seek the most effective security means to ensure the protection of our customers' information, our stakeholders' information.

The e-commerce world has evolved rapidly for us with the advent of the Internet. Canada Post is a major consumer of goods within the Canadian economy. We contribute roughly $5 billion worth of purchases to the Canadian economy, both through labour and through the purchase of goods and services. We have forged e-commerce links in dealing with major suppliers. We have effectively done electronic data interchanges. We used to call it "EDI." EDI works well when you have large enterprises doing business with each other. It becomes very costly in achieving communication with the last 20 per cent of our suppliers, and that often represents 80 per cent of your suppliers, so 80 per cent of the goods or services you are buying can often cost you a great deal more than that first slice. That is where the Internet offers us, today and into the future, the opportunity to do business more cost-effectively.

Senator Finestone: You said what percentage again?

Mr. Power: We have seen within our own organization that the first 20 per cent of our suppliers account for 80 per cent of our transactions, and that is where the real cost savings come in. In the end, the tremendous cost of doing EDI is in connecting the last 20 per cent of business, but that is also 80 per cent of your suppliers. The Internet enables us to go that additional step, but it is not a traditional EDI link. It is a link such as the EPOST service recently launched by Canada Post to provide for electronic billing.

I noted the interest in the valuation of the e-commerce market. I must admit that it is difficult to measure. We use certain proxies to do so. We look at where the U.S. economy is. We have looked at some round table studies, as well as published articles in the Globe and Mail, and also the Forrester research that Ms Blank referenced earlier.

We have suggested that the market in Canada is $28 billion, which is somewhat different from what you heard earlier. The question there is what is the market, not what is the size of the market. Perhaps our figures are the same, but we have taken a different look at the market. We have not just looked at the business-to-consumer market in this $28 billion number, and I believe Mr. Hewitt will be able to provide the background for that. That represents e-commerce generally, so it would include the EDI exchanges, which, with automakers, for example, are very significant. Automakers such as General Motors, Ford, and Daimler Chrysler have gone almost exclusively to EDI procurement.

Senator Finestone: Does EDI account for just-in-time, or JIT?

Mr. Power: Yes, the just-in-time procurement is a component of it. That is one of the drivers behind it, but another of the drivers behind moving towards e-procurement or EDI was long before JIT. It was to avoid the clerical costs of processing paper orders and the loss of efficiency within the market of the paper order being transmitted.

Senator LeBreton: Therefore, the difference between the figures she had and the ones you have is that she was just talking about straight retail and you are talking about a much bigger market.

Mr. Power: I cannot speak to her numbers specifically, but that is one explanation as to why there is such an order of magnitude of difference.

The other number we quote in our study of this area is that Canadian companies made only 0.2 per cent of retail sales to consumers as a result of on-line orders, so it is a very small proportion of Canadian retail.

We are preparing ourselves, through our business plans and the dedication of people and resources, for fulfilment of electronic retail orders. We expect that will grow and we hope to participate in that growth. We feel that a healthy postal system will help in creating a network that is able to reach all Canadians, and for Canadians in non-urban areas to have access to the broad range of goods and services.

In our preparation research, we discovered that Canadian consumers are looking for trustworthy services. They are also looking for Canadian retail goods. There is concern about goods coming from foreign retailers. Part of that is the customs processing, the currency exchange. That concern can be resolved. There is a service called borderfree.com, which is a Canadian company that will enable you to order from a U.S. retailer that does not ship to Canada. They handle all of the customs brokerage for the consumer, they calculate the exchange, and they tell the customer before the order is placed what the total cost will be, including the shipping and handling from the Canadian point forward.

Those are some of the answers, but the element of trust, of knowing with whom one is dealing, is not answered there. Being able to go to a Canadian retailer knowing what their bricks and mortar look like gives the consumer some trust. Also, being able to find out who the Canadian "e-tailers" are is a challenge for Canadians. One can spend a large amount of time at portals like Yahoo and Alta Vista trying to find retailers, but the retailers who come up are those who pay to be displayed. Those, by and large, are American e-tailers.

Canada Post has offered to many of its customers who use our parcel services the ability to appear on a click-through basis on the Canada Post Web site. Other shippers may in fact make that option available as well, so that it is possible to find Canadian retailers.

We are sensitive within Canada Post to the need to find graduates from Canadian universities who can help Canadian businesses participate in the Internet economy. We have ongoing business challenges in finding and recruiting people who can help us move forward. We try to develop our own people. However, we must accept the skills with which they come to us. We try to recruit new people with these skills, but it is a very hot market. The tower adjacent to our headquarters building has the Entrust Technologies name on it, and is filled with Entrust employees. You can bet that whenever we develop a public-key encryption expert, or recruit one, it will be but a few weeks before they get wind of the opportunities available at Entrust and start looking at moving into those areas. Those are challenges. We cannot develop these people quickly enough.

As an agent of government, we are concerned about the privacy of what is going through the Internet and how we can help protect that privacy. Canada Post has been a traditional instrument of government in providing secure ways of transmitting information. That is done, for example, through our income tax returns, which most of us still file through the mail. That is done in many other ways in providing for security of government information that is travelling through the mail.

We feel that as an instrument of government, we have a special responsibility in securing our clients' information that may be transmitted to us through the Internet. We do not use cookies on our site, although we do sell stamps and a few other items.

In anticipation of a possible question about what we do to make the information secure, while we do have our own servers for the exchange of information, we also must use outside parties for certain services. We insist upon strict confidentiality provisions within those. We insist upon respect of the Privacy Act, to which Canada Post is subject, so that information coming to us, or held either by us directly or through an agent, is subject to all those protections. It is not being used for a purpose other than that for which it was collected. It is not collected from a party other than the person to whom it relates, unless there is a valid reason. Typically, that is a security reason.

I do not mean an information security reason per se, but an investigatory reason, because we do have an investigative body within our corporate security function. We will not divulge the information to third parties. I am sure information swaps would be very attractive to others, but we do not feel that is appropriate for a corporate body in which the trust must be as high as possible.

In looking at some of our competencies, we see the questions relating to the roles of intermediaries. Many have set themselves up as portals, trying to act as intermediaries, and that is one role that can be played. I suppose one could refer to our Canadian shopping site as a form of intermediary, but that would be an over-embellishment. The postal service acts as an intermediary in delivering messages from a business to its consumer, and from a consumer back to a business. That can be a very costly venture to set up, and that is why, typically, there is but one postal administration within a country.

There is no legal barrier in an electronic world to setting up a location to exchange billing information. There is, however, a cost barrier. It is very expensive to set up a secure e-billing site. There are people in the United States with very deep pockets who can set up such a site. Some large Canadian businesses have set up effective sites for their own customers, but by and large, Canadian businesses are not large enough to set up that kind of service cost-effectively.

In a joint venture with Cebra, a technology arm of the Bank of Montreal, Canada Post has established an intermediary organization called EPOST that enables the establishment of an Internet billing facility at relatively low cost; that is, a way to present bills to customers in a secure fashion by using the secure sockets layer of the Internet. It is not a monopoly, nor is it within the exclusive domain of Canada Post.

These services will ultimately take away from much of the volume that physically goes through Canada Post, but more importantly from a Canadian perspective, a Canadian e-billing site such as EPOST resolves some of the concerns of the public, namely, that it be a Canadian-located site, as opposed to a U.S. service like CheckFree, where Canadian information moves south of the border before appearing on the Internet.

Within that realm, I have spoken a little about EPOST. In response to customer needs, we established a service called PosteCS. We offer a secure courier service in conjunction with the United States Postal Service and Poste France. A secure courier service allows attachments in documents that are too large to go through traditional e-mail systems to be delivered.

Most e-mail systems will not accept an attachment of more than two megabytes. That may not seem like a lot today, but an MP3 file or many Adobe files for pre-publication review, the blues of advertising copy, and so on, are too large to move through the e-mail system. They can, however, move through the PosteCS service. This service also offers the advantage of confirmation of the address immediately upon sending. It returns immediately if it was a bad address. You need not wait two or three days. That system gives some confirmation that the person with whom I am dealing did in fact receive the message.

Again, the site is protected through HTTPS, the secure layer of the Internet. The messages are also encrypted on the server, so that only the person for whom they are intended is able to open them. Password protection is available, again offering the same continued security that people expect from any of our mail services.

I will now turn to the Electronic Postmark. Following from how we have relied upon the postmark in Canada to prove that something happened at a certain time -- sometimes going so far as mailing yourself a copy of an invention you intend to patent to prove that it was invented on a certain date <#0107> we have undertaken this additional response, trading in part on the trust that Canadians have in our postal service.

Why is Canada Post here? We have been participating in electronic markets since their outset. From the 1970s onward, the telegraph services in Canada used Canada Post for delivery of telegraphs. Bicycles went away and Canada Post was used as a delivery system. CNCP Telecommunications put printers into our postal services. Messages would be printed in the post office and then delivered by a letter carrier.

When electronic mail began with the invoice service of Bell Canada, Canada Post, along with Bell, offered Envoy Post, so that a message from an Envoy user could be printed at one of our offices and delivered through that physical mail system. Those services have disappeared as society has moved forward, but so has Canada Post moved forward in offering new services in an electronic domain.

Canada Post, as the previous speaker mentioned, is a key player in delivering for Indigo.ca. We are a delivery partner for other Canadian e-tailers -- in part because we have the reach; in part because we have the services; in part because we know this country. We live here. We have offices across this country. We have 18,000 places where you can post things, buy stamps, and buy access to our services. Its an unrivalled and unparalleled network.

We have engaged in pilot programs that provide Internet kiosks in our post offices in locations that are accessible to all Canadians. Some people may argue about the hours of service in some of our post offices, and that is a challenge. Other of our post offices, because of our partnerships with the private sector, have longer hours so that people can get in and access all of our services.

A barrier to e-commerce for Canadians is trust. We need to know with whom we are doing business. As someone who uses the Internet frequently for making purchases, I want to know with whom I am dealing. If I am doing business with an established retailer, it gives me a certain degree of trust in placing an order. However, if I am doing business with someone I have never seen before, other than through their Internet presence, I want to see on their Internet Web site where they are located -- that is, their physical address. If I have to go and knock on their door because the goods were not entirely satisfactory, I want to know if there is a door on which to knock.

Our consumers are looking for a degree of security that can be provided without going to retinal scans or fingerprint recognition, which is available as a technology today. Scanning someone's eyeball might be considered intrusive. However, providing for a PIN number, as one does to access a banking site, in combination with a password, is a level of security that our customers have found to be satisfactory in signing up for the EPOST Web site, for example. There, we send two separate physical mailings. One gives customers their user ID; the other one sends their pin number or password. Someone who happens to crack into the mailbox may get one, but given that they are sent out on different days, that person is unlikely to get both. Again, that enhances trust and security.

Canada Post participated with the Canadian Marketing Association, the former Canadian Direct Marketing Association, in the development of a Canadian Standards Association standard for privacy. That standard has been effectively codified by Bill C-6 and establishes a baseline for the protection of consumer information, not only in Internet commerce, but also in commerce generally.

As a participant in both the electronic markets and the direct marketing industry, we felt that we should play a role in establishing that standard. Having lived with the Privacy Act since its inception, we also felt that we had some expertise in that area and we were able to assist in establishing a direct marketing business in Canada that enjoys the trust of Canadian consumers.

Bill C-6 was an extremely important step for Canadians. Not only did it provide a greater degree of security of their information and privacy protection, but also, from a business perspective, it helped to lay the foundation for exchanges of information with European Union member businesses. Without something of that nature, Canadian businesses could have found themselves cut out of full participation with EU businesses.

Canadians have been concerned about knowing which laws apply. Last week, the European Parliament adopted legislation that would resolve the conflict of law issues by making the law of the consumer the applicable law. That is a challenge for business people; much less so, perhaps, for consumers, who do not think of that when they are placing the order.

I shall now turn to page 9.

The post office is a location where one can find a great deal of information about government services. One can obtain government forms such as passport applications, tax forms, and so on. Moving into the future, as Canadians become connected to an electronic universe, not all Canadians will have PCs.

Putting a PC into every Canadian's home might be an interesting challenge, but we may not necessarily be able to address it in the next 5 to 10 years.

The problem is that as we offer more of our services electronically, we risk limiting the access of certain Canadians. Rather than marginalizing those Canadians, using the post office retail network is one mechanism to ensure that Canadians who do not otherwise have a connection are able to connect.

Many of our post offices today have connections through the Internet, in order to provide us with retail point-of-sale information. Knowing how many stamps we have sold in a given post office is important because we need to know if we should send more stamps.

That kind of exchange capability, that kind of backbone, can be used and expanded upon to provide a host of services, such as the kiosk experiment that we have ongoing right now. That would provide for access to government information relating to individuals. Thus privacy access requests might be automated and the access provided through such a kiosk.

Simply obtaining information about government services and programs could also be possible through that kind of kiosk network.

Canada Post has been a trusted intermediary in providing government services and a host of interconnections for over 100 years. We feel that our background in maintaining the security of information and providing consistent infrastructure -- that is, a Canadian-identified infrastructure -- has benefits in enhancing the trust that Canadians may have in doing business electronically.

Senator Finestone: I am a great supporter of Canada Post. I have been of the firm belief that if we could use those facilities across this country, people would be happier and feel more secure, because Canada Post has a good reputation. You have underscored and underlined trustworthiness as an important aspect.

There is no question that Canadians are fundamentally interested in maintaining their privacy. It is a quality that differentiates us in a democratic society from the Americans.

In regard to Bill C-6, I have been to meetings of business people, and there is a significant degree of concern as to how to apply the proposed legislation and how to adapt their information sources and resources. Are you comfortable that you have met all the criteria listed as the qualifications for privacy rights? Do you have your own standard that you would apply in terms of characteristics or definitions of privacy rights?

Mr. Power: Canada Post is currently not included under Bill C-6. We fall under the federal Privacy Act. Therefore, the programs developed over time, by and large, were all developed after the Privacy Act was brought into force. Part of any product manager's checklist is ensuring compliance with the Privacy Act.

Senator Finestone: Have you ever appeared in the reports of the Privacy Commissioner?

Mr. Power: We have appeared from time to time in Mr. Phillips's reports, and before that, in the reports of John Grace.

An organization with 55,000 employees will undoubtedly appear in such a report from time to time. By and large, our appearances have been in relation to employee access requests under the Privacy Act.

There are occasional instances where mention is made of Canada Post. We have tried to respond as fully as we can to those instances, be it in improving the security of mail delivery, implementing specialized delivery mechanisms for government departments that were the subject of reports, or ensuring that additional signatures and additional security mechanisms are provided to avoid any risk of sensitive personal information falling into the wrong hands.

Senator Finestone: Do you have any concern about materials delivered in paper form versus the electronic system?

Mr. Power: We have a number of concerns about that. Mr. McInenly may also wish to respond to this question. We are concerned about the viability of the postal network if a significant volume of those physical messages turn into electronic ones. However, we must not be Luddites. That is part of the reason why it is so important for us to offer additional services. Physical messages will always be sent because of trust factors, or because that is the best way to send a hand drawing to an aunt, uncle, or grandparent. We will continue to offer those services. That is an obligation that Canada has accepted as a member of the Universal Postal Union.

The security of the message and the expectation of privacy concern us. We have monitored how the courts have handled this issue. To date, Canadian courts are beginning to recognize that there is an expectation of privacy in electronic mail, but they also recognize that there are a number of vehicles by which that privacy can be invaded.

Senator Finestone: Do you have any surveillance systems in place? Do you have video cameras over washrooms or do you check your 55,000 employees' computers, e-mails, or fax machines?

Mr. Power: We have security in the workplace. Closed-circuit cameras are a sensitive issue within Canada Post and have been since the late 1970s. Therefore, most of the closed-circuit cameras are placed on the outside of buildings to ensure that people are not breaking in.

We have supervisors whose responsibility it is to ensure that there is no depredation of the mail. By and large, all 55,000 employees of Canada Post take that seriously.

There will be some people who abuse their position within that employee base. When they are discovered, they are dealt with through our collective agreements. In effect, that means immediate dismissal from the company.

Senator Finestone: Does the electronic surveillance consist of watching the mail going through the system? Is there electronic surveillance of personnel gaining access to other parts of buildings?

Mr. Peter McInenly, Vice-President, Strategic Planning, Canada Post Corporation: We do use various levels of security, depending on the nature of the facility and the nature of the issues at risk. As Mr. Power said, there is generally security of perimeters at all of our facilities, but it is not intrusive. Closed-circuit television is used only in those instances. They are not used to track individuals, unless a specific issue arises where that type of intelligence is required, such as a theft, in which case we use portable devices from time to time.

Mr. Dan Hewitt, Corporate Manager, Electronic Services: My colleagues are referring primarily to mail in envelopes. In the area of the company in which I work, we receive information in electronic form. We receive "real" information, as opposed to sealed envelopes. We distribute that information across the country electronically, print it on people's stationery, and put it into the mail stream.

In this area of the business, security and privacy of information are of utmost importance. You cannot go from one room to the next without swiping your card. My group is located entirely in one separate site here in Ottawa.

I do not know if either of my colleagues here today could get into the building, let alone into the rooms where they might be able to access actual data as opposed to envelopes.

In the electronic side of the business, we are concerned about security and we demand that the locations where information is contained are very secure.

Senator Finestone: Are you comfortable that the OECD or the European Union would say that your collection and distribution of data protects the privacy of the individual and is encoded in such a way that Canadians cannot be caused discomfort, loss of reputation, or anything of that nature?

Mr. Hewitt: I cannot make reference to the particular standards to which you refer.

Senator Finestone: I am speaking of the international practice standards in the European Union, which apply to any business transacted internationally and intranationally.

Mr. Hewitt: We have had the RCMP review our processes on more than one occasion to ensure that we are able to handle secure information for the federal government. The RCMP made some recommendations that we subsequently implemented. We now handle millions of pieces of electronic mail without trouble.

The Chairman: Is that PosteCS, the Electronic Postmark, or another one?

Mr. Hewitt: This is a different service. We have something called digital document services, electronic letter mail, or electronic ad mail.

Senator Finestone: Mr. Hewitt, I did not quite understand how you respond to a request for information from a police force. How do you balance the right to privacy of a citizen using your services with the need for security and safety in society? Do you have a set of rules and guidelines relating to that?

Mr. Hewitt: I would need direction from the president's office to meet such a request for information.

Mr. McInenly: We have a long working relationship with the RCMP and other police forces across the country. Those relationships have been both rewarding and challenging at different times, to say the least. Our relationships with the police are conducted within the limits of the sanctity of the mail, the constraints of the Privacy Act, and the limitations imposed on access to information by the RCMP working through the Federal Court.

If the RCMP need access to certain things, they can apply to the Federal Court, and we always cooperate with a court order. However, the days of being able to walk in and pick things up are long since gone, subject to, as Mr. Power said, every now and then someone doing something inappropriate.

This continues to be a significant challenge for us, as law enforcement agencies around the world are feeling the pressures associated with organized crime and other forms. We have been vigilant in this and it is a subject of great sensitivity for us.

Senator Finestone: I am glad, because it should be.

There is much talk about making the post office, especially in medium-sized and small towns, the gathering place for the Canadian clan. It is thought that we should be able to obtain banking, long-distance, and photocopying services there, as well as commuter services and access to the Internet.

Are you moving into new areas of business management besides those listed on page 5 of your presentation? I think this may be an answer to some of the anger many Canadians felt as a result of the closure of many services, especially of large banks in small communities.

Mr. Power: We started offering agency banking services on an experimental basis about seven years ago.

Senator Finestone: Are you speaking about accessing the Bank of Montreal or the Royal Bank, for example?

Mr. Power: That is correct. Post office savings banking was closed down in 1968, although similar institutions continue to be used in many countries. However, usage in Canada was in serious decline because Canadian banks had very extensive and effective branch networks.

Senator Finestone: So you are the guys who closed that down.

Mr. Power: We may have been the first to close something down, but we were doing so as everything else was growing, and in 1968 it did not appear to require that the federal post service provide consumer banking services.

That is changing, but given the extensive investment required to create a bank today, we opted to offer an agency service, where our personnel offer the service at a particular location, while the banking interconnection is provided by one or other of the major banks or near-banks.

That was a more efficient model for us. We did not have Interac or electronic clearance in 1968.

Senator Finestone:There could be an ATM in every post office. Why is there not? When I want to do some banking, I would like to be able to do it via an ATM in the post office with whatever bank card I have.

You have the obligation because you are para-governmental, in a sense. You have gained a reputation as a service-oriented organization. Where is André Ouellet? Tell him I think he should be doing that.

Mr. McInenly: Thank you very much, senator. We appreciate the message. One interesting thing about the post is that, traditionally, it takes on a particular format of operations. In other countries, it is quite different. In many respects, it is as distinct as your thumbprint. In reality, however, it has always been a balancing act in this country between what services should be provided at the "government level" and what services should be provided within or by the private sector.

We are greatly interested in providing a whole range of services. We would dearly love to be able to expand the range of services offered through all of our retail outlets across the country, but there are other points of view, equally strongly put forward, that we should not if there is someone in the community capable of doing it.

Senator Finestone: You are in the private sector now. You have been privatized.

Mr. McInenly: We have not been privatized. We are somewhere between the two.

Senator Finestone: You are a Crown corporation.

Mr. McInenly: Yes.

Senator Finestone: I will not privatize you, then.

Mr. McInenly: We are dealing with that kind of balancing act on a day-to-day basis. As far as the future is concerned, we are looking closely at what we can do in certain communities. Mr. Power made reference to the fact that we have been providing banking services. We now have a new initiative being carried out on a pilot basis in the province of Newfoundland that will involve a dozen sites where the banks currently do not operate. We will be providing services in conjunction with one of the principal banks. We can foresee the not-too-distant day when we will be able to do more business with the banks that will give us a greater presence -- and I am not talking about replacing the banks -- in the provision of financial services than we have had in the past.

It is always a balancing act: what can we do, as opposed to what do we want to do, as opposed to what the community as a whole wants, the people who pay the taxes and who represent a significant equity interest in Canada Post.

Senator Finestone: Do you have the right, in this Newfoundland experimental undertaking, to make loans such as small-business loans?

Mr. McInenly: We are not into that. We will process paperwork. We will handle minor banking transactions such as access to funds, and so on. However, I should say that this is just the beginning. If it proves as popular as we hope it will, it will open up a whole range of alternatives in the future. We have had good relationships with many different banks over the years.

You asked a question about ATMs and other devices. We have tried these things in different locations. It is certainly well within the realm of the possible. At this point, though, the banks control the level of investment they want to make in that technology in given communities. We are quite willing to do a lot of this, and we have done it in some communities in the past on an experimental basis. We are wide open.

The Chairman: Did I hear you say, Mr. Power, that Canada Post has 18,000 walk-in service centres?

Mr. Power: There are 18,000 retail locations.

The Chairman: You call them retail?

Mr. Power: That is correct.

The Chairman: Why would you call them retail, when you are going into a new business which is more like a service centre than just retail?

Mr. McInenly: It is part of our terminology, senator. Basically, there are any number of services that can be provided, but as Mr. Power pointed out, the nature of those locations, the level of sophistication, varies from what we refer to at its most simplistic as a "mom-and-pop shop," where they sell stamps, to the more sophisticated locations such as some of our corporate outlets and franchises.

The Chairman: I have some questions of a totally different nature. The first is to the vice-president of strategic planning. One of the biggest challenges that I have faced is finding the e-mail address of someone whose business card I do not have.

Has Canada Post given any thought -- I agree with you it is truly a trusted Canadian corporation and part of our history and our legacy -- to creating what I would call the "e-mail address book for Canada"?

Mr. McInenly: The answer is yes, in the context of something much larger than that. We envisage a future for ourselves, senator, where CPC, Canada Post Corporation, can not only be a repository for all kinds of useful information for getting access to people, but can be in a position, in certain circumstances, to make connections. For example, if we know where you live and work, and the numbers by which to access you, such as if you have a place in the country, a cell phone, and so on. How we use this information, the approach that we take, is still very much in an evolutionary state, having regard for our high level of sensitivity to privacy issues.

Quite frankly, we do see ourselves in a position to act as a clearing house, where we do so with the consent of the person who is currently protected.

Let me give you an example. When we talk about an electronic post office, which is the first of its kind in the world and in many respects very advanced in its thinking, one of the great advantages it offers to people who enlist is that they choose what they do and do not want to receive. There is an opportunity there which we have not chosen yet to exploit because we are not certain exactly how we will do it. If you want to be made aware of certain new developments or certain new publications based on your expressed interests, and have it kept confidential, we would like to be in a position to provide you with the right contacts, or release information to people from whom you would want to hear.

We think there is a great opportunity there, and not only in the commercialization of such a service and the flexibility it offers to consumers. We also think it has a high level of efficiency, because, at the same time, people will not put useless or unnecessary messages into the system that will not reach their destination, which indeed has an economic impact.

We are thinking about many of these things, and we do have a very bright view of how Canada Post can, in the future, be a kind of "directory manager," if you will.

The Chairman: You are saying a directory of e-mail addresses can have the downside of trash mail. Am I hearing you correctly?

Mr. McInenly: That is right. We are concerned about anything that contains that type of information. It would not just be e-mail addresses. It could be everything -- every number, every street address. We are always concerned about the potential for abuse if access to such a database were to be granted indiscriminately.

The Chairman: My next question concerns a comment by our previous witness about pace. She said the pace is slower in Canada than in the U.S. for retail businesses, goods and services providers, e-commerce providers, to come on-line.

One of the things we have heard over the last months is that when Canadian businesses want to offer their goods to clients outside of the country, shipping is a major challenge because of the whole issue of international trade. What role do you play in this? How do you offer that service to retailers to ensure that you are contributing to increasing the pace of Canadian retailers' getting on-line?

Mr. McInenly: Perhaps I will answer that. I know my colleagues have a point of view as well. Fundamentally, two of the elements of e-commerce that most often come to our minds relate to fulfillment, that is, actually getting product to the destination, and a return service. How does one get it back?

If I can digress for a moment, retailers in Canada, as Ms Blank has pointed out, have been slow in getting into this area. Canada Post Corporation is the largest e-commerce fulfillment operation in the country. We do business for many, many retailers. We have watched them grow and learn, but they are not all the same.

Ideally, retailers do well in areas where they send small packages that are easily transportable and less likely to be returned, such as CDs, videos, books, and similar items.

It is different in other retail areas such as clothing.The people at Roots said not so long ago, when they were concerned with their challenges, that they have become a virtual try-on centre: People will order items, try them on, find they do not fit, and send them back -- a different experience from books and videos.

The Chairman: That must be interesting for certain postmen.

Mr. McInenly: It is good revenue for us, but it may not be economical for them. Many dot-com companies have failed in the last 12 to 15 months. We are interested in working with retailers who have had this difficulty. When they were developing their own business viability equations, they made certain assumptions about the cost of doing business. They removed certain costs that they thought would not be necessary from the costing formula -- for example, advertising. Therefore, they did not advertise. The big question is, how do you learn someone is on-line unless you can get to them? That has been a windfall for us as more people advertise their sites through such conventional means as hard copy. That is a significant additional unplanned-for expense.

In addition, there is the cost of customer interface, which such companies did not realize would be necessary. Indeed, instead of doing everything on-line, they have needed to put in chat lines, telephone operators, and people with product knowledge to make up for the deficit.

I do not do much shopping on-line. When I go into a store today, I am looking for gratification. I see an item; I will be able to walk away with it. When shopping on-line, one may be held up a few days or weeks. Last Christmas in this country, 12 per cent of people who purchased on-line never received the product, and not because it got lost in the system. It was never sent out to them. It was not available. The logistical support for those ostensibly making the product available was not there. By comparison, the figure was only 6 per cent in the United States. Either number is atrocious if you want to be successful in terms of e-commerce.

We want to be accessible. We want to make our entire network available to all retailers, but they need to make fundamental decisions on how they want to participate.

For example, if one wants something sent back, does one send it postage paid so that it can simply be dropped in the street letter box? Does it go back to point of origin or does it go back to the closest retail point? These are choices that must be made and costs that must be factored in.

I have been following on-line grocery shopping for at least 10 years. I have watched people struggle with it, first in the United States and now here in Canada. If you hear from the Loblaws people, they will provide an interesting perspective.

As we know from our own youth, when the bread man, the milkman and the dry cleaner disappeared, it was for a reason. I worked in those industries as a student at law school and I watched them fold for different reasons. It is a challenging economic equation.

We want to make our network as available to as many people as we can, but we cannot afford to do it for free.

The Chairman: Do you offer the services, for instance, of a broker for those businesses who sell products to customers out of the country?

Mr. McInenly: I would have to look at it from this perspective. We do a tremendous amount of business inbound into Canada. Generally speaking, our international business is probably worth about $800 million or $900 million per year -- postal revenues. A substantial part of that, 65 per cent, is north-south traffic between ourselves and the Americans.

We have often gone out of our way to deal with companies like L.L. Bean and others to facilitate access into the country. I was responsible for this area not long ago, and that business is under significant challenge. Exchange rates are a big part of that. When people do not send, they also do not advertise, and all the other things that drive revenue.

The Chairman: My third question is of a totally different nature. Do you find that access to the new technology has reduced your overall number of employees?

Mr. McInenly: No. We have trimmed our services and the number of full-time and part-time employees in our organization since 1981, but this had precious little to do with the information technology that we are talking about today.

There is no question that information technology does have an impact on jobs. Today, in our developing view -- I say "developing" because we are learning more every day -- the single greatest point of differentiation for companies doing business in Canada, and perhaps in the western world, is the amount of knowledge their employees have.

To give you an example, every time we change a rural route contractor or have a letter carrier off sick and use a supplementary letter carrier, the difference in service can be remarkable, not just in regard to knowledge of the street and house numbers, but in all the other things that employees know about the needs of the people in their area.

Information management has made our employees more important to us than we ever realized in the past. We expect that to continue.

The Chairman: My question has a double interest. As you know, in phase 1of the framework we were also looking at governance. Since you went from a publicly funded company to an arm's-length agency -- a Crown corporation -- I feel that you entered into that issue of governance with the new communications.

One of the worries expressed to us is the following: With the new technology, we must look hard at how we rate our management employees. In other words, we have looked at salary scales based on how many employees were supervised and how large a budget a person had as a vice-president, director general, or director. I am sure Mr. Hewitt is trying to conduct his business with the fewest employees possible, but the expectations for him are as high, in terms of results, as they are for another person at your level.

Has any thought been given to that in strategic planning for the governance of Canada Post?

Mr. McInenly: There has been an enormous amount of thought on a continuous basis.

Our business is not greatly different from any other. I will say this to you as objectively as I can. We are always trying to balance the cost of our services with the revenue we receive for them. If you and I were in the purely private sector, we would find that our employees, our unions, our management, our board of directors and our shareholders would be pulled together by, essentially, one common understanding: the economic survival of the business.

When the Government of Canada is a shareholder, the equation is essentially the same, except that the Government of Canada chooses to extract economic value on a much broader base. One talks not so much in terms of dividends; one talks about locations, accessibility, how many people one employs, and many other things.

Our jobs as management of Canada Post Corporation is, as an instrument of government policy, to try to balance that, to ensure we have sufficient revenue to satisfy the legitimate expectations of our shareholder. We do that all the time.

We have been careful about our approach to employees. We have been careful about our approach to physical presence, and so on. We have become careful about how we are seen in the larger community.

It goes back to what I was saying to Senator Finestone a few moments ago about our balancing act. It is critical to us and we think we understand it better than most people in the country.

Senator Finestone: In answering your questions, Madam Chair, Mr. McInenly was discussing the relationship between customers and consumers. You have consumers on both sides of the issue. You have to satisfy both sides and still tread carefully and softly with respect to the information you are gathering.

You did say that you have been watching X, Y and Z for 10 years; let us put it that way. While watching, you gather information. Is there any way that that data could be misused? Could intellectual property or business management material be stolen? Is there an awareness that the customer has to be considered and you have to take care, and do you do that? I heard it the other way from Mr. Power, but I wondered about that after I heard your remarks.

Mr. McInenly: The answer is yes. Good strategy is rooted in good facts. Good facts, insofar as we are concerned, principally come from two sources. You can look at the broad economic picture and ask how the GDP is doing, how many homes are being built and how the car manufacturers are doing. We draw down that information.

Equally important is the information that comes from our many stakeholders. We are talking about the Government of Canada as shareholder, Treasury Board and Finance as regulator, our own board of directors, our customers, those who are not only consumers but who interface between us and consumers -- the major retailers and major financial institutions, et cetera. We are talking about our employees, unions, subsidiaries, and senior management group. These are all stakeholders. We take what they tell us about their issues and their expectations and put that information into a factual foundation. We try to develop sound strategies that will reflect, as much as possible, as many of their interests and concerns as we possibly can.

Things are changing rapidly. The pace of change impacts us on a number of fronts. On the point that you made a moment ago, as people become more innovative, they present us with new and different challenges from a security point of view.

In response to that, we are doing not only what Canada Post has done for 100 years, but what other postal administrations have done for hundreds of years: adopt new technologies and adapt them to customers' needs. In terms of security, we do not talk about PosteCS with the 128-bit encryption. That is the best we can do at the moment. As it improves, we will take advantage of it.

When PKI, public key infrastructure, actually kicks off, we will be involved in that, again, from Mr. Power's point of view, to help both consumers and commercial interests know with whom they are dealing.

We are trying to do everything we possibly can within the limitations of how quickly we can keep up with what is happening. We believe we are doing a fair job.

Senator Finestone: You are big business.

The Chairman: Witnesses, thank you for your time. If our researchers have additional questions, I trust they can contact you, Mr. Power?

Mr. Power: Yes, please.

The committee adjourned.