Speech

"New Media -- A view of the future"

Notes for an address

By David Colville
Vice-Chairman, Telecommunications

Canadian Radio-television and Telecommunications Commission

To the Conference Board of Canada
-- Forum on Electronic Business

Ottawa, Ontario
November 18, 1999

It is a great pleasure to be part of the Conference Board's new initiative on electronic business.

Most of you are the senior executives with the responsibility for developing, planning, and promoting the Internet -- or new media -- in your organisations. So, no doubt, you have a burning interest in finding out how the regulators intend to mess up your plans.

My role this evening is to reassure you that the CRTC plans to do just the opposite by:

• Reviewing CRTC's activities to date in support of new media;

• Giving you a snapshot of current Internet usage in Canada; and

• Presenting an overview of the Commission's philosophy going forward and the major issues still to be resolved.

Let me preface my remarks with a quote about new media.

"For the first time, communications can bind the globe into one, and anyone to anyone else. Along with commercial enterprises, a subculture has sprung up. Some intercepted and disseminated proprietary commercial messages. Others transmitted fake messages."

This sounds like someone talking about the Internet.

It is actually a quote from Popular Mechanics. The date is 1901, immediately following Marconi's first trans-Atlantic transmission of the letter "S" from Signal Hill in Newfoundland.

My point? The idea that new media can change the world has been a powerful and ongoing theme of the past hundred years. It will likely continue to be a very important part of the next hundred years.

Today, the newest new media is the Internet. It is a potent economic and social tool for building a knowledge-based economy and a knowledge-enriched society. It is also a rapidly changing force that is still in its infancy.

I am not here as a seer or as the regulating devil, and I am not an expert on the Internet or even on E-Commerce. As Vice Chair of the CRTC, my perspective on the Internet and its role as a platform for electronic commerce, is based on the CRTC's responsibilities under the Broadcasting Act and the Telecommunications Act.

It is against this specific backdrop that I would like to address the first of my three major themes: A review of what the CRTC has done so far to support new media.

A primary emphasis of the Commission over the past few years has been to:

• Actively support market-driven competition as the primary means to promote consumer choice, drive down prices, and foster innovation in the development of new services, including Internet services;

We have done this through key regulatory decisions.

Let me highlight the most important of these decisions.

In 1992, we opened long distance market to competition. In May 1997, we opened our local market to competition.

This goes far beyond making sure plain old telephone service is in place. The effect of what we have done has been to foster the development of high-speed local and long distance data networks, which in turn support the Internet and applications such as e-commerce.

As part of this decision, the CRTC mandated co-location. Competitors can place their equipment in telephone company central offices. This helped competitors to offer digital subscriber lines at a competitive advantage and furthered the growth of more competitors.

The CRTC required the telephone companies to unbundle network elements and to make digital subscriber lines (xDSL) available to competitive ISPs.

For high-speed cable, the CRTC required those companies offering service to tariff access to it by third parties where it is technically possible. To this end, the industry formed a technical committee to develop the common technical solutions necessary to implement the Commission’s decision.

On May 17 of this year, the CRTC issued its new media decision on May 17. This decision was significant in two ways:

• It provided the CRTC with an opportunity to assess the impact of the Internet in Canada.

• It provided the framework for regulatory policy for new media going forward.

The review of new media was very urgent. We had heard from some in the industry, including several potentially large Internet services players, who said that if they had to obtain a broadcasting license to operate in Canada, they would move their Internet activities out of the country. We believed that regulatory uncertainty was a major deterrent to developing Canadian-based services. So we were very motivated to act quickly to clarify the regulatory environment.

After an in-depth review, the CRTC made the decision it would not regulate new media services on the Internet, based on the following observations:

• 5% of the content on the Internet is Canadian.

• 5% of the Internet content is French.

• 80% of Internet content is alphanumeric.

• There are between 650 to 1,000 multi-media firms in Canada -- creating in excess of 17,000 jobs.

• Canada has about 400 Internet Service Providers.

• An estimated 40% of Canadian households, or about 5 million households, will have access to the Internet by 2001, double the number from 1998.

So, by most measures, Internet development is healthy in Canada.

This helped us decide not to regulate new media services on the Internet.

Under the Broadcasting Act, the CRTC concluded:

• Everything that is transmitted over the Internet that is predominantly alphanumeric text is by definition not broadcasting;

• Material transmitted over the Internet, which is significantly "customisable" is not broadcasting, and

• The remaining content that falls under the Broadcasting Act is to be exempted.

The Commission also concluded that initiatives and laws already in place, industry-self regulation, and content filtering software were more appropriate than further CRTC regulation for dealing with such issues as offensive and illegal content, privacy and security issues, and Canadian content on the Internet.

On the telecommunications side, two major questions were raised in the new media decision of May 17 regarding high-cost areas and high-speed access on cable.

The following two decisions were subsequently made to address these issues.

The first key decision affecting the Internet was made on September 14 when the CRTC required the cable companies to permit wholesale resale of their high-speed Internet service until such time as facilities-based access is available.

The second key decision came on October 19 when the CRTC issued a decision on high-cost serving areas. It concluded that only a very small number of Canadians don't have access to toll-free Internet services due to lack of service or technical issues like party lines.

Telephone service improvement plans scheduled over the next few years will address these issues for most without Internet access. The decision outlined steps that would be taken to provide the remainder with basic services.

For those not covered by plans in place, additional steps were put forward which would provide basic service within a few years.

This decision, for the first time, defined basic services to include local access to the free Internet.

To sum up:

• The Commission will refrain from imposing old-style regulation on new technologies.

• If Internet-based services replace traditional services, the Commission will examine how it may want to change the way it regulates the old services instead of concentrating on ways to regulate the new services.

• The Commission will continue to encourage public input and consensus.

• The Commission will continue to be committed to ensuring availability and access for all Canadians.

• The Commission will keep a watchful eye on anti-competitive behaviour and correct it.

These key decisions, I would add, were all made with considerable input through formal and informal forums and dialogue with all interested stakeholders.

As a result, Canada now has one of the world's most competitive, accessible and available Internet service platforms.

This is the point of the second of my three main themes: a snapshot of current Internet infrastructure and usage in Canada.

So, are all of these policies working?

With a population of 30 million, we have about 18 million lines, 99% of which are single party lines, and of these, more than 97% can access the Internet locally. We expect to achieve our goal of 100% access to toll-free Internet services for all Canadians within a few years.

A Yankee Group study showed that Canadians in the major cities enjoyed better rates for local lines and features like voice mail and Internet access when compared to major cities in the US. These Canadian price advantages appear to benefit not only the heavy users but light and medium consumers of telecom services as well -- making our Internet access among the least expensive -- if not the least expensive in the world.

Let me go back to an issue I mentioned earlier -- high-speed access.

The reasons for "pushing" high-speed access to the Internet are compelling.

High-speed digital subscriber lines (xDSL) and cable modems are 20-to-100 times as fast as ordinary dial-up modems.

High-speed access is the key infrastructure required to deliver a whole range of new audio and video applications waiting in the wings. It is the key to making e-commerce work and stimulating what the Forrester Research calls hyper-growth in industry.

We know that Canadians want high-speed access.

As of 1999, Canada appears to be leading the world in the percentage of households with high-speed Internet access. Currently, about 300,000 Canadian households or about 10% of the Canadian household Internet population have high-speed access, compared to only 3-5% of the Internet households in the US.

According to one industry analyst, 20 percent of Canada's residential on-line market -- or a million residential users -- will have high-speed access by 2001.

While the debate continues in the US over whether the cable companies should even provide access to competing ISPs for their high-speed services, CRTC policy already requires such access on the part of the telcos and cablecos, as noted earlier.

I would like to add that you can expect the CRTC to continue to stimulate competition for high-speed cable and high-speed digital subscriber lines (xDSL).

Some people might say this contradicts our philosophy of letting market forces drive the industry. In the US, for example, the current philosophy regarding high-speed access is to let the embryonic industry develop without regulation and hope that competitive alternatives emerge to cable access and with that, services, choice and lower prices to consumers.

We seem to be doing well in making the Internet "pipe" available but there are concerns the growth of electronic commerce in Canada relative to our major trading partner, the US.

Again, let me remind you that I am not an expert in this area and that this falls outside the mandate of the CRTC. As a Canadian anything that suggests we are falling behind our largest trading partner is of concern.

Some analysts believe that Canada's e-commerce market is about 18 months behind the US. Canada is expected to record Internet sales of $1.14 billion this year, up from $690 million in 1998. The US expects on-line sales to reach $53.8 billion in 1999, up from $21.6 billion in 1998.

This puts Canada's e-commerce activity at a paltry 2% of US on-line sales.

According to one recent poll, only 20% of Canadian Internet users have made a purchase on-line.

Many factors may be at work here. The pollsters noted that Canadians were most concerned over the security of credit card information.

The Government of Canada took a large step to alleviate this fear on October 1 by introducing legislation to help spur Canada to become a world leader in electronic commerce by the year 2000.

Among a number of issues covered, the new Personal Information Protection and Electronic Documents Act introduces measures to protect personal information in the private sector. The objective is to support the Canadian Electronic Commerce Strategy announced by Prime Minister Chretién in 1998. This strategy calls for creating the same expectations of trust, confidence and reliability in cyberspace that now exist in everyday commerce.

Despite this, I suspect other factors may still continue to hold us back.

For example, American brand name companies on the Internet are simply dominating that medium as they have other media because of their overriding market power relative to Canadian brands.

Whatever the factors are, the CRTC is doing what we can to address the issues to make sure that the infrastructure is in place and competition works.

So, my question to you is what should be done next, if anything, and by whom, if by anyone, to stimulate greater e-commerce activity in Canada?

I would suggest that whatever Canada does, responsible Canadians in every sector should look for the best ways to make sure Canada is a leader in the global new media business and not sidelined early this important new knowledge-based industry.

I would like to leave you with that thought about the future. Thank you.

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