Notes for an address

by Andrée P. Wylie
Vice-Chairperson, Broadcasting
Canadian Radio-television and
Telecommunications Commission

at the Canadian Cable Television Association’s
Convention (CCTA)

Vancouver, British Columbia
May 17, 1999

(CHECK AGAINST DELIVERY)

Good morning, everyone. Thank you for inviting me to your most important national gathering of the year. It is a pleasure to be here.

First, I would like to share with you the CRTC’s view of the changing world of communications. Second, I would like to put this view in the context of the CRTC’s regulatory mandate. Third, I will have the pleasure to share with you a Commission decision, hot off the presses today. Now, I have your attention!

The communications environment is in a period of great flux – not only here in Canada, but worldwide. Drawing conclusions from the past, responding to the present, as well as predicting the future are complex undertakings for you, as cable industry leaders, as well as for myself and my fellow regulatory policy makers at the CRTC. The changing environment can also be bewildering for us as consumers. We expect to be offered, and that the regulator will ensure that we are offered, an increasing array of services, at better prices.

In this complex world of new competition and convergence, new technologies, new types of services and demanding expectations, the unexpected is the norm.

Let me give you a few examples of surprises and predictions that didn’t quite turn out the way some believed they would.

Four or five years ago, the competitiveness of the cable industry was being challenged by many. Some even suggested that your industry faced imminent demise at the hands of the telephone companies, satellite companies, and broadband wireless, particularly if the regulator didn’t offer some protection. Today, cable is among the leading edge industries in high-speed Internet access, the promise of Internet Protocol telephony, interactive games, as well as conventional broadcasting distribution. And yet, many of you have felt at various times that the regulator failed to respond to your appeals for help.

Another prediction gone wrong is the one that said consolidation and Internet behemoths such as America Online and Microsoft and the regional telcos, and cross border ventures (like one that is being explored between Bell Canada and U.S. portal companies such as AOL), would make immediate roadkill of the small ISP providers. Yet, in both Canada and the US, mom-and-pop ISPs continue to thrive. AOL and Microsoft’s share of the market has slipped by 11 points down to 56% by late last year. The Baby Bells hold a tepid 3.5%. Among the biggest reasons the smaller ISPs are holding their own is plain, old-fashioned better, more personal service responsiveness to their customers.

Certainly, the cable industry has shown that there is room for aggressive competition in the ISP market as high-speed access rolls out. With about 150,000 high-speed-access subscribers, the @home service of Rogers and Shaw is now reported to be the ISP provider with the second largest subscriber base. (Report on Business, March 31, 1999, B1)

It seems too that online activities have had an impact on television viewing. In Canada, for example, Media Buying Services found that time spent online more likely came out of homework time rather than television time for young viewers. CBC research showed that "Internet neophytes were not big TV watchers to begin with." I’m not sure where that leaves teachers, however.

Similar studies in the US have shown that only a very small percentage (6%) of those who reduced their TV viewing did so to spend more time online. And that most of those, who watched less TV, were light viewers to begin with, anyway. (Report on Business, February 22, 1999, B1)

Other researchers have found that there is a new niche of users out there who sit in front of two screens at once, passively watching television while actively accessing information off a related web site. They are most likely to be young males, who spend a lot of time online – and are already heavy TV viewers.

Certainly, if this tells us anything about consumers, it is that all of us here today have still much to learn about who watches and interacts with what, when and how often.

Both you, as Industry leaders, and myself and my colleagues, as regulators, must be prepared to expect the unexpected in this business and to adopt to it in accordance with our respective roles.

This brings me to my second point – what is the CRTC role in this unpredictable environment.

Without question, your jobs would be easier if I could tell you with 100 percent accuracy what every CRTC decision from here on out may mean to your business. Ours would also be easier if your business plans or your timetable never changed course. Both of us make our decisions in an imperfect and changing world where the only constant is that the consumer’s expectations pull you and push us.

Nevertheless, I can tell you what informs our decisions…and how…and for what purpose. I can also assure you that your input in the process has been, is, and will continue to be vital.

For the CRTC, the two words that best characterize the communications environment today are convergence and competition.

Competition and convergence, to my mind, are not ends in themselves, but the catalyst that drives consumer choice, fair market pricing and innovation by industry.

In the broadest sense, from a regulatory perspective, the evolution of convergence and competition in Canada has moved and will continue to progress through four major stages over a period of years.

The first stage was the recognition and commitment stage in which government recognized the coming impact of the Information Age on all aspects of this country’s future and made a commitment to restructure the mechanisms governing both broadcasting and telecommunications. It was highlighted in 1991 and 1993 respectively by the recasting of the Broadcasting and Telecommunications Acts and a commitment to the establishment of a competitive marketplace for information-based industries. The Commission’s Convergence Report followed in 1995 with more guideposts toward a competitive landscape.

The second stage can be characterized as one where government and the Commission developed major policy thrusts, strategies, and road maps to support convergence and competition.

Once these "master" policies were in place, the Commission was able to move on to phase three – implementing competition in telecommunications and in broadcasting, with an eye to the possibility of these two sectors competing with each other in the delivery of each other’s care services.

The third stage – the one we are in now – can best be characterized as the one where many of the mechanisms necessary to put these policies into effect are implemented and where the fine-tuning must take place for the desired end to be achieved.

Once through the third stage, we will all be ready to move on to the fourth stage. In this stage, a greatly enhanced Canadian presence in content is a fact; reliable and affordable services of high quality for all Canadians are ensured; increased choice and diversity in delivery are sustained, and a dynamically competitive and efficient Canadian communications industry that operates in the public interest is supported. These are the objectives that we are now trying to ensure.

Our primary job at the Commission today is to manage the transition through the implementation phase to the fourth phase.

Since the mid-1990s, we have been in this implementation phase. This, I suggest, is the most difficult phase for cable operators and regulators alike. The unravelling of years of monopoly, in a reasonable, non-destructive manner, is not an easy task. It does not occur overnight and it does not occur without "stops" and "starts".

Moreover, the role of the regulator is not to just to set the rules and judge what is and is not anti-competitive. It is to create and implement regulation so that a pro-competitive environment is developed and sustained. In some cases, it may mean regulation that actively nurtures competition in the public interest.

This is the Commission’s mandate during the implementation stage. The Commission is not anti-cable, but pro-competition. As for the consumer, it is simple: he or she wants more, particularly more choice, for less.

The process hasn’t been made any easier by the fact that the Commission must foster new competition in two industries at once, industries whose business paths converge more and more.

So, where are we now with respect to policy implementation in the cable industry, and what will come next?

With the exception of a full-scale rollout of the digital box, the goals of the rate increase incentives that came out in the 1986 Cable Regulations and the 1993 structural hearing have largely been met over the course of the last four years, or are very near to being met. For these successes, you should be congratulated. They include upgrading cable’s distribution infrastructure to Digital Video Compression capability, increasing contributions to Canadian programming, maintaining the affordability of the basic service, and increasing subscriber choice.

Subscriber choice will of course include the remaining four English specialty channels that were licensed in 1996. I would also like to take this opportunity express the Commission’s appreciation for your collaboration in making the September 1^st target date for the roll-out of these four channels.

Over the past few years, direct competition to cable has been introduced through licensing new competitors using DTH and MMDS technologies, as has direct competition to telcos through the development of high-speed Internet access by the cable companies.

This past year, the Commission held a number of other proceedings and undertook several initiatives to further advance its core objectives.

The Commission has reviewed its policies on Canadian television programming in a multi-faceted context of technology, competition, export opportunities, funding, domestic synergies and global issues.

The conclusions of this review are expected to be released in June.

As well, the Commission will continue to address many access issues as we go forward. Competition, convergence and a growing hunger for high speed access in urban centres, established and new, in rural areas, will likely be especially challenging as we try to balance the interests of the incumbents and new players alike in the larger interest of the consuming public.

Our proceeding for developing a licensing framework for pay and specialty licenses, for its part, seeks to determine whether or not there should even be a licensing process for new pay and specialty licenses in light of available analogue capacity and the status of the deployment of digital decoders by cable companies. And if we determine that additional services should be licensed – how should we delineate the terms and conditions under which both English-language and French-language new pay and specialty services could be licensed and brought to the consumer?

In order to ensure that Canada and Canadian programming remain leaders in the global economy, we need to do two things. First, we need to agree on some basic realities and assumptions about the digital future, and that is what the process has sought to achieve. Second, we need to ask ourselves. Given the changing environment, should any new services be licensed? If so, should they be licensed for analogue or digital distribution? And what sort of criteria should be applied?

I’d like to thank any of you who have made submissions in response to our call for comments. I can’t say it often enough – your participation is crucial for our decision-making.

We hope to issue the result of our determinations in the fall.

Much has been achieved to date, but a great deal still remains to be done. Creating a truly market-driven, customer-centred, and competitive communications landscape in Canada is a challenge – slow and painful at times, exhilarating at others, never boring.

The cable industry remains, and will remain a powerful business force today, even more so with introduction of competition. As for us regulators, we are sometimes leading, sometimes reacting, sometimes wishing we had predicted more accurately, and increasingly, irritated that we can’t buy your shares.

My question to you is this: If you were a Commissioner, and your mandate was to create a pro-competitive environment, what would you do? What would you do to address access issues and rules? What would you put in place to ensure that consumer complaints to the Commission are addressed adequately? What would you do to increase the Canadian production of content? What role would you want to play in the introduction of new technologies and services? I know you don’t want to be a Commissioner but we always welcome you telling us what you would do if you were.

Now for the third item on the agenda – hot off the presses – our announcement on the new media.

In July 1998, we released our call for comments on the state of the new media industry in Canada. We felt we needed to examine these important new phenomena which touch on the two main industries we regulate.

We wanted to ask three questions:

• How do the new media affect the regulation of the traditional broadcasting undertakings of radio, television and cable?

• Do any of the new media constitute services already defined by the Broadcasting Act or the Telecommunications Act and if so, how should they be regulated?

• Do the new media raise any other broad policy issues of national interest?

Well, the new media hearing did capture the attention of many Canadians. It was unprecedented for the breadth of the range of individuals, industries, and interest groups from which the Commission received comments. And also for the media attention it has generated.

In response to the public notice we sent out in July, the Commission received over a thousand submissions on the new media. That translates to roughly 6,500 pages of documentation. Close to eighty parties made presentations at the oral sessions held last November and December. As well, the McLuhan E-lab Unit hosted an on-line forum on behalf of the CRTC, which received hundreds of e-mail comments on this issue.

I would like to take this opportunity to thank all those who appeared before the Commission, or who made submissions for their time and effort.

So what have we determined?

Canadian new media industry is vibrant, highly competitive and successful without regulation. In October 1998 it was estimated there were between 650 to 1,000 multimedia firms in Canada. Together these companies have generated 17,000 jobs for Canadians. In September 1998, an estimated sixty percent of Canadian households owned at least one personal computer. And by the year 2001, we expect that approximately five million Canadian households, or forty percent, will have access to the Internet.

The numbers I am using are taken from submissions made to the Commission over the course of the Hearing into the New Media. Of course, as you all know, the rapid rate of change and growth in the new media means that these numbers have likely changed since the time they were submitted. But I think they still serve to provide you with a snapshot of the state of the Canadian new media.

There is also a substantial Canadian presence on the Internet today. It is estimated that five percent of the world’s web-sites are Canadian. These web-sites are supported by a strong demand for Canadian new media content.

We believe that Canada’s open new media environment will attract investment to both the broadcasting and telecommunications industries and their new media partners. Given the creativity, the presence, and the entrepreneurial spirit demonstrated by the new media industry in Canada, we see no reason to intervene. We feel rather, it would be better to allow innovation to continue to blossom on the Internet without our intervention, meaning without regulation. In other words we do not believe that regulation would serve the objectives of the Broadcasting Act.

In coming to this determination, the CRTC is one of the first regulators in the world to clarify its position on the Internet.

Now, if I may, I’d like to quickly go over with you some of our key findings arising from this hearing that relate to issues of concern for many of the interested parties who appeared before us. I’d like to look specifically at the areas of broadcasting and telecommunications.

Much time during the hearing was spent examining the issue of what might constitute broadcasting on the Internet as defined by the Broadcasting Act.

Regarding this issue, we have made the following points in our report:

1. First, everything transmitted over the Internet that is predominantly alphanumeric text is by definition not broadcasting under the Broadcasting Act.
2. Second, material transmitted over the Internet which is significantly "customizable", or capable of being uniquely tailored by the individual user, does not involve the transmission of programs for reception by the public and is, therefore, not broadcasting.
3. Third, the remaining material would fall within the definition of broadcasting, but will be exempt for the following reasons:

• We have found that the new media complement, rather than substitute for traditional broadcasting. Before the new media could substitute for traditional media, key technological and other developments would have to take place.
• The Commission does not believe that regulation of the new media would further the objectives of the Broadcasting Act.
• There is a substantial Canadian presence on the Internet today, supported by demand for Canadian new media content.
• There are ample business and market incentives to support the continued production and distribution of Canadian new media content.
• The new media industry requires local Canadian content to develop their businesses. AND,
• Both the Federal and Provincial governments have initiatives in place to support Canadian content on the Internet.

The Commission also examined very carefully the issue of offensive and illegal content on the Internet. We acknowledge the concerns that many of the parties coming before us had on this issue. In keeping with our approach to the Internet; however, we will not regulate offensive and illegal content on it.

We believe, as did many of the people who made submissions on this issue, that appropriate tools already exist to deal with offensive and illegal content. Tools such as Canadian laws of general application, industry self regulation, content filtering software as well as increased media awareness.

In telecommunications, the new media process gave us an opportunity to explore whether there were any problems of access to the Internet for producers and creators of content as well as for users and citizens. And while we have no intention of regulating the Internet, we are aware that our decisions and policies in the area of telecommunications do influence access. Two main access issues that touch on concerns regarding access were raised during the hearing.

First – a number of Internet Service Providers told us that in order to be able to compete, they needed access to the high-speed services both the telephone companies and the cable companies already provide to their own customers. In the opinion of the Internet Service Providers, competitive access to these services is vital for competition in the Canadian new media industry to succeed.

In response to this concern, I’d like to note that the Commission already requires telecommunications companies and cable companies to offer Internet Service Providers access to their high-speed services. The Commission has already approved the prices for the high-speed services offered by the telephone companies. Further, it will also shortly issue a decision that will describe its approach to the pricing of high-speed services for the cable companies.

Second – we heard many concerns about access for the public to the Internet. Many of the people who came before the Commission were worried that many Canadian citizens, for a number of reasons, might not be able to get on-line themselves and take part in this important technological revolution. This issue is fundamental because it is clear that the promise predicted for the Internet cannot be realized if we do not have access to it.

Although many of aspects of this challenge lie outside the scope of its jurisdiction, the Commission will examine those issues over which it has jurisdiction, in the context of the issues of remote and high-cost areas.

So I think now I’ve kept the promises that I made at the beginning of my talk. I’ve shared with you the CRTC’s perspective on the changing world of communications. I’ve explained this view in the context of the Commission’s regulatory mandate, and I’ve also brought news hot off the presses on the Commission’s determinations on the new media. I believe that now I’ve earned the right to sit down.

I’d like to wish you all the best for the remainder of the conference and wish you all success for the coming year. I look forward to seeing you at the next public hearing, or meeting we have together.

Thank you.

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Contact: Denis Carmel, Ottawa, Ontario K1A 0N2
              Tel.: (819) 997-9403, TDD: (819) 994-0423, Fax: (819) 997-4245
              e-mail: denis.carmel@crtc.gc.ca
              Toll-free # 1-877-249-CRTC (2782)