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EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 15, 1995

.0910

[English]

The Chair: Ladies and gentlemen, we're now in full session, returning to the subject of satellites.

Up to bat this morning, right off the top, from the Consumers' Association of Canada, we have its past president Irene Seiferling; Rosalie Daly Todd, its executive director and legal counsel; and Edward Wade, who is a volunteer and member of the Information Highway Advisory Committee.

We welcome all of you and we would ask you to make your opening remarks to us, so we may get on with the questions.

Mr. Hanrahan (Edmonton - Strathcona): Mr. Chairman, do we have a copy of the remarks?

The Chair: Yes, we have. It's a document that looks like this. Many documents, of course, look like this, but at the bottom it says ``Consumers' Association of Canada, June 1995''.

Please begin, and introduce yourselves so we make sure we know who's who here. I think I figured out who Mr. Wade is.

Ms Rosalie Daly Todd (Executive Director and Legal Counsel, Consumers' Association of Canada): Very good, Mr. Chairman.

I'm Rosalie Daly Todd. On behalf of the Consumers' Association of Canada, I want to thank you for inviting us here to present to your committee. Good morning, Mr. Chairman, members of the committee.

I'd like to give a few more words of introduction about the individuals who are with me today. As you mentioned, Irene Seiferling is the past president of CAC, and the only consumer representative on the Information Highway Advisory Council. She also is a housewife, mother, student, small-business person, recipient of the Government of Saskatchewan's award for consumer of the year and recipient of the Governor General's award for community participation.

Ed Wade has a long background with CAC. He has been helping us on the technical side of communications issues for about 20 years. He is retired and is a former telecommunications consulting engineer, and has a background with military communications. He's here today in case you ask me any tough technical questions, which I hope you won't do.

I'd like to give you just a few more words on background about CAC, just in case you're not sure who we are. We're a voluntary membership organization and we're 48 years old this year. We're composed of individual Canadians who donate their time because they're concerned about consumer issues and who want to represent the consumer and make the marketplace better for consumers.

With that introduction -

The Chair: May I ask how many members you have?

Ms Todd: Sure. About 20,000 members have joined within the last two years, at $25 apiece, Mr. Chairman. Because we're primarily a representative group and an advocacy group, we have not really gone out on the membership drives that we would like to, but we're going to have a more concerted effort in the future.

To get back to our paper, I'm just going to give you some of the highlights of our presentation.

The basic point is that the CAC has been active in telecommunication since the 1970s. We have had a concern for satellites going back in time, but certainly at least since the cable-broadcasting structural hearings early in 1993.

At that time - and I'm going to quote very briefly from our presentation, because I think it shows where we're coming from - we said in our submission to the broadcast structural hearing that:

In 1993, when we addressed the CRTC on the issue of satellites, which at that time were not Canadian satellites, we said that this new technology should be viewed as an opportunity, not a threat, because from our informal research and from the fact that our volunteers and memberships are made up of ordinary Canadians, we felt consumers wanted competition to cable and choice, and they weren't getting it. Therefore the new technology, as I said, should be viewed as an opportunity and not a threat.

We also felt that research that had been done by Angus Reid was correct, and that consumers wanted better, not necessarily more, channels, and that they wanted quality Canadian programs, not necessarily quantity. Again, we felt that behind all this was the desire for choice, and that in a 200-channel universe, the old tiering, linking and some of the rules would have to be phased out because they would not be feasible in this new universe.

.0915

We were very much pro-Canadian content, but we felt that Canada should be revising its policies and looking towards how to foster quality Canadian content. We felt that if this was done, Canadians would gravitate towards this and would prefer, in fact, to watch Canadian content.

When the exemption order from the CRTC came out on the issue of satellites and DTH Expressvu, we were concerned because it was quite clear that there were two Canadian companies on the horizon willing to compete. We felt that this order arbitrarily blocked one of them from the competition.

I'm going to quote very briefly from our letter to the Ministers of Canadian Heritage and Industry Canada. We were speaking about the condition that delivery be via Canadian satellites exclusively, and we said:

We also made the point that entry was being proposed on the same rules, and that this new technology actually has the ability of more addressability than the cable industry does at the present moment, and could give consumers some of the à la carte choices they want. However, that is not even on the table at this point. It's strictly a matter of whether or not we're going to get distribution competition.

We reviewed the panel's report. We were concerned about the licensing requirement because from our standpoint, from the pure consumer standpoint, we want this new technology now. We were concerned that the licensing requirement would mean delay. We also felt that all new Canadian competitors in this technology should be treated the same. Therefore, if there is going to be a licensing requirement, both companies that appear to want to compete now should be put through the same process.

The recommendations of the panel narrowly define the issues. For example, any new satellite or DTH undertaking must be Canadian-owned and they must in effect play by the same rules as cable. If those recommendations are accepted, then really the issues are very pro forma as far as any hearing is concerned. Therefore, any licensing hearing that was mandated could be brief and expedited, and would allow consumers to have the choice and the competition that they obviously want, at least on the distribution side.

We were concerned that the separate licensing requirement for pay services of DTH could be used to delay entry, and we felt that two of the report's recommendations should prevent that from happening.

First of all, one of the recommendations is that there be no exclusive contracts for programming, and we endorse that recommendation. Our understanding is that both the competitors who are on the horizon right now would be willing to play by that.

The report recommended that the approval of the programming service not be blocked because of the effect of any existing or competing service, and we agree with that.

We were also pleased to see that they took the approach of direct support to Canadian programming, because this is something we have recommended. We're concerned that somehow in the present system, the creative side of the Canadian programming industry is not getting sufficient funds, that we have a very elaborate distribution scheme and benefits to business, but not necessarily to the creative and production side. We think they should be funded directly. We supported the 5%, and felt that it was a fair recommendation.

With respect to other recommendations of the report, we felt there should be fair and equitable access to program services. We understand the concerns of DTH because of the cable environment. We want Canada to press for international standards, and we agree with the director that there's no need at the present time for cross-ownership rules.

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Last, Mr. Chairman, we held our annual general meeting in Ottawa recently, and our membership, our elected delegates, passed the following resolution:

Thank you, Mr. Chairman. We would be pleased to answer any questions you may have.

The Chair: Thank you very much. I think with the time available, we can have six or seven minutes.

[Translation]

Mrs. Tremblay (Rimouski - Témiscouata): Good morning, ladies and gentlemen. I'd like us to deal with an issue with the following perspective: the main objective of the Act, which was revised in 1991, was to deregulate in an intelligent fashion, that is to make things smoother, more accessible.

When somebody comes before the CRTC, that person has to be granted an exemption as the Act says clearly: «it shall give the exemption». But the exemption, just as the license, is given under certain conditions, in compliance with sections 3 and 5, which deal respectively with the Canadian policy and the regulations. When an exemption is granted to somebody, we not only enable that person to spend less money than required through the license, but also to save time, provided of course the person complies with the policy and regulations.

Such was the case with Expressvu. But for Power DirecTV, since this company wants to use American satellites and does not therefore comply with the policy and regulations, it only has one solution: go before the CRCT and ask for a license.

In your presentation, you are trying to defend consumers - as your name shows - , but as a consumer, I am a little disappointed. I find that all those who should be representing consumers - you're not the only ones concerned - , are not playing properly their role. In my opinion, there would really be competition if I could today choose Expressvu and tomorrow morning, tired of Expressvu, change over to Power DirecTV or vice versa. But presently, if I am not satisfied with Expressvu, I would have put so much money in it that I would find it difficult to change company, just as what I experienced with my Beta system. I wonder how you can state that you are defending consumers when your only concern is to enable two companies to make money and that we, the consumers, are left out in the cold.

[English]

Ms Todd: You have about six questions in there, and they're all very interesting. I'm going to touch upon the highlights.

First of all, I am a lawyer, but I am not approaching this from a legal viewpoint, which would be whether there should have been an exemption order versus whether there should have been a licensing process. I am approaching this from the standpoint of the policy of my organization, which is what they feel is in the best interests of consumers.

First of all, the exemption order was not a neutral vehicle, in that it had in there a condition that was not something cable was subject to, and that from the standpoint of the consumers would have cost us more money. There's a technical step in there that cable is not subject to and it would have increased the cost ultimately to consumers. From that standpoint, it was not in the consumer interest.

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We felt that - and I'll use the legal term here - it was colourable. There was no reason for that additional condition. What it meant from the consumer standpoint was that instead of getting two companies competing vigorously in a market where there's no competition, we would get one, and initially that company had roots to the cable industry.

There was concern that they would only want to compete in rural areas. It was quite clear that the other competitor wanted to vigorously compete. Looking at it from the consumer viewpoint, not from a legalistic one of whether we should have had an exemption order or whether we should have had a licensing process -

[Translation]

Mrs. Tremblay: I will stop you right here. In life, it always takes one to start. When I arrived in Rimouski, 25 years ago, the fishermen were giving the crab away because they did not know what to do with it. And as people started eating it and liking it, the fishermen figured that they should start selling it. So they sold one crab for a dollar. This year, because the Japanese are very fond of it, they are paying the crab $10 a kilo. For everything there is a start.

The same is true of satellites. Somebody has to start to show some interest for it and the other will understand that there is money to make and will do likewise. This is how competition appears. We must let that kind of thing happens. But how can we have more than two competitors when the others do not have the same technology? This is the problem. One shouldn't try to get people tangled up with illusory reasonings. One has to go to the heart of things.

[English]

Ms Todd: I think the core of the problem is that it should begin on reasonable grounds. That was not in our opinion a reasonable condition.

[Translation]

Mrs. Tremblay: Could you tell me why it was not reasonable.

[English]

Ms Todd: It's not reasonable because there is no need to uplink onto the Canadian satellite. It is not a condition that cable goes through. The cable head end has multiple receivers. It takes the U.S. satellite directly to its head, and it takes the Canadian. There was no reason to put that kind of additional condition, which is costly to the consumer, on the new industry.

The point is that we would like to see all companies in, and our concern is not which one.

[Translation]

Mrs. Tremblay: You know very well that the rates of cable operators are far too high. You know that very well. You are defending consumers, so you should know that their rates are too high.

[English]

Ms Todd: I am. That's why I want a choice. If you choose to go with the one DTH, that's fine, and I may choose the other company. We want as much choice as possible, and over time we think that's healthier for the marketplace. We supported competition on the telecommunications side. We were the only consumer group to do that, and we still feel that long-range that is a better solution.

[Translation]

Mrs. Tremblay: There is just a small thing that I want to clarify. In the answers you gave, you compared the satellite with the cable, whereas in your document, this is only for Power Corporation.

[English]

Ms Todd: No, we want both companies in if they qualify. We want all, as many as want to have a shot at it. We think consumers will be best off.

The distinction with Power Corporation, as I understand it, is that it has more channels. It may be the more attractive proposal from the consumer viewpoint, but let individual consumers decide which of the two or any other comers they want.

The Chair: Mr. Hanrahan, did you generously concede some of your time?

Mr. Hanrahan: I think on occasion I do generously allocate some of my time. I don't wish for that to be taken advantage of.

The Chair: I'm now turning it over to you.

Mr. Hanrahan: Thank you, Mr. Chairman, and thank you very much panel for your presence here today.

I think the question of exemption, in terms of its legality and so forth, is still very much up in the air. We'll try to come up with something in that regard.

Dealing specifically with your presentation this morning, I enjoyed it very much and I congratulate you for your concern for the consumer and particularly consumer choice. I agree with you that the consumer is perhaps the one who has been left out of this process in the long run, if you will, over the last little while.

On page 1 of your presentation, you say:

.0930

You're obviously projecting into the future. I would like you to expand somewhat on this statement that there will be a shift in decision-making from the regulator to the viewer. I speak specifically of the CRTC.

Ms Todd: I wrote that in 1993. What I think I had in mind was the fact that there were technological reasons in the past for some of the rules and for the tight control. There was a limited spectrum, therefore you had to license and decide who was going to be on that spectrum in the public interest. But when you move into a 200- or 500-channel universe, that need to control disappears, and therefore it becomes more apparent what consumers want, and now we have the spectrum to allow them to have that choice. I think just the technology itself puts pressure on the rules to disappear.

Mr. Hanrahan: On the second page in your third paragraph you state that at the hearings CAC said it agreed with the research finding of Angus Reid and the Friends of Canadian Broadcasting that Canadians want better, not necessarily more, programming of whatever origin. I quite agree with that. I think we're all a little frustrated with the many channels we watch that could be considered, in terms of entertainment value, somewhat dubious at best.

In terms of Canadian programming we should emphasize quality not quantity. So we reconsider the goal of predominance of Canadian programming, recognizing that Canadians will support quality Canadian programming without the need of elaborate barriers to keep out competition.

What is it now in your view that prevents the quality of Canadian programming that you speak of? What will contribute to the quality of Canadian programming in the future?

Ms Todd: I think the emphasis now is pretty much a numbers game - having more Canadian channels. It may be that Canada with a goal of predominance cannot support 101 Canadian channels in a 200-channel universe. If you had two superb Canadian channels, despite the fact that you're getting more channels, people are only going to watch television for the 22 to 26 hours they now watch. We actually feel that if they had the quality in the spectrum they would concentrate on it. You don't need to try to win on the numbers but you have to find some excellent basis that Canadians can turn to.

I think the future is à la carte. So although you might have 200 or 500 to choose from, the technology will give you the ability to choose the 3, 4, 5, or 6 that you want. We want to make sure that the Canadian choices are excellent.

We would support some core Canadian content. We think Canada does an excellent job on news and public affairs. But once you start reaching out and trying to do everything, you do nothing well, and even if you continue to force Canadians to take it, my understanding of the research is that a lot of the channels they're forced to take now...and we know Canadians do not like tiering and linkage rules. They don't watch a lot of what they get.

So if the goal is content and actually viewing, then you have to go back and support the excellence that Canada can produce and get away from trying to win at the numbers game, because with selectivity and addressability, even though there are 500 out there you're only going to choose the ones you want.

Mr. Hanrahan: I concur with your sentiments. My other concern, though, is what you see in terms of the Canadian artistic community, which is a very large employer in terms of Canada. Do you see a narrow group of specialized stars, so to speak, or do you see a whole process by which they can develop into the excellence you speak of?

Ms Todd: I think we are only qualified to speak to the output and that we're not getting what we want, which is better Canadian content. Whether it's because of administrative problems or because the moneys are not being channeled directly, we can't really speak to that. We know the Friends of Canadian Broadcasting, who have done a lot more research on the quality side, agree with us that the present system is not fostering Canadian content as it should. We would like to see Canada undertake a study on how to do this better and we would like to be part of it.

.0935

Mr. Hanrahan: You speak of this 5% fund that should be channeled into the artistic community and controlled by an independent body. I think it's on page 5. We also support the panel's further recommendation that funds generated from Canadian programming should then be administrated by bodies independent from those who contribute to them. What kind of body do you see being set up here? How would that affect the average artist in Canada?

Ms Todd: Again, we want them to benefit directly. We think it's just a matter of common sense that the closer you get to the artistic source with the funding the better the product. We don't want it trickled away in administration. But we have not done a study of how to do this. It's not our area of expertise. All we can do is comment again about what is coming out.

We see some countries that are smaller than Canada somehow being managed to produce quality films that Canada isn't producing regularly. We think there's something wrong with our system, because unless all the Canadian talent is being trickled across the border, we have the talent and we're not getting the output we should.

Mr. Hanrahan: Is the money staying in administration?

Ms Todd: I can't tell you. All I can say is that we have a problem and we haven't gotten into how you solve that problem, apart from the very common-sense principle that you give the funds directly.

The Chair: The remaining time will be shared between Mr. Ianno and Mr. McKinnon.

Mr. Ianno (Trinity - Spadina): Thank you very much for appearing. Yesterday we had the Friends of Canadian Broadcasting here, and the last number I heard they represent was 40,000 Canadians who are interested in Canadian content, etc. I gather you represent roughly 20,000 across the country.

Ms Todd: It depends on what you mean by ``represent''. We are in direct contact with another 250,000 who we don't consider to be members. We have a publication they receive on a regular basis. We also surveyed them on this issue informally.

Mr. Ianno: I guess basically you have come to the same conclusion as the Friends of Canadian Broadcasting did yesterday, which is basically that we want to see more Canadian content and competition so that in effect the Canadian consumer has the quality and the choice available to them, taking into account cable, private TV and the DTH. Does that mean you agree with the federal government's direction to the CRTC that they go back to the drawing board and, in effect, use the licensing provision versus the exemption order?

Ms Todd: We think they should support the very good recommendations that came out of this panel.

Mr. Ianno: The panel that they recommended, that they put together...in other words, the initial decision was to create the panel and to direct the CRTC.

Ms Todd: We think the review panel's recommendations are sound. We are concerned that a licensing procedure for the undertaking and for the services, the pay-TV, would delay our ability to have competition in Canada. We think that if those report recommendations are the basis -

Mr. Ianno: I'm trying to start off with the origin first, which is the decision by the cabinet to give a direction to the CRTC to go back to the drawing board and make sure Canadians have a choice, because the way it was presented with an exemption order did not allow others to participate in the process. Do you agree with that?

Ms Todd: Yes, we agree that the exemption order was very basically flawed because of this condition.

Mr. Ianno: Of course we can always carry on to the point of whether we agree with the recommendations the panel presented, which is the 5% and all the rest, which in effect will increase the Canadian content because it will have a lot more money available to the programmers to use to achieve that goal.

.0940

The other question I have is, did you present to the CRTC when they were taking witnesses for the DTH?

Ms Todd: We didn't formally present. We put our comments on the record, yes.

Mr. Ianno: That's fine. Do you know anyone else who basically said that the CRTC should use the exemption order for the DTH procedure?

Ms Todd: Do I know anyone who recommended that as a method?

Mr. Ianno: Yes, do you know anyone from all the presentations that may have -

Ms Todd: Well, my understanding is that the exemption order was already out. So it was a fait accompli, and the issue was should they go back and license at that point. I know a number of -

Mr. Ianno: So before that, before cabinet made its recommendations and the CRTC was having hearings on the DTH, your group did not give its -

Ms Todd: I believe I'm confused. What timeframe are you speaking of?

Mr. Ianno: Well, I would assume that before the CRTC put out its order -

Ms Todd: The exemption order had no public process that I'm aware of. I could be wrong. If there was a public process, we were not aware of it.

Mr. Ianno: Mr. Chairman, do you or the clerk have any information on that from the researchers?

The Chair: I've just been checking with our researcher and I think the answer.... First, an exemption order does not require a public process.

Mr. Ianno: So you're saying the CRTC basically just did this on their own, without hearing from all the participants and interested parties across the country?

The Chair: I'm not the expert, but the researcher indicates that is the normal process for an exemption order. There is no mandatory public consultation.

Mr. Ianno: So in effect what cabinet did then was say basically, we don't like the way it's taking place because no one has participated and it seems like a very closed process. Is that your understanding?

Ms Todd: I can't speak for cabinet.

Mr. Ianno: No, no, I'm not saying for cabinet. But if you had no input in the process and you're not aware of anyone else having any input in the process....

Ms Todd: I think we should have had input in the process. Forgetting the technical side of things, I would like to have had input in the process. We certainly would have spoken out against that additional condition.

Mr. Ianno: Well, maybe I'm misinformed, Mr. Chairman, but we've been doing this for several days and I was not aware that there was no public input on the exemption order.

The Chair: Well I think now that point has been established, we may have to move along to our next questioner.

Mr. Ianno: Hang on. I have just a couple of small ones, just to finish off, Mr. Chairman.

The Chair: Short, please.

Mr. Ianno: Very short, very short.

The Chair: Short answers, please.

Mr. Ianno: The other point you had indicated was that the cable takes the information from the U.S. satellite and then puts it through its system, correct?

Ms Todd: Yes.

Mr. Ianno: And I guess Power DirecTV or others may choose to use the non-Canadian programming also from the U.S. satellite. So in effect, cable and DTH would be acting the same way. Is that correct?

Ms Todd: That's my understanding, that DTH would only be able to take those foreign programs that are licensed for viewing in Canada.

Mr. Ianno: So taking that into account...you may have read the decision that the CRTC put forward. Can you tell me what the difference is between the cable company using it or the direct-to-home satellite users and why one can use the U.S. satellite and why the other one can't?

Ms Todd: It beats me. I have no idea. I can't address that.

The Chair: Let me just return to the question of what's required from an exemption order. It has been brought to my attention that the commission published a proposed exemption order for Canadian DTH distribution undertakings on March 2, 1994 with a number of questions in the document, but there were no public hearings. People may have written in, but -

Mr. Ianno: It's odd. Do they ever do this, Mr. Chairman?

The Chair: I don't know. I'm not an expert in this, Mr. Ianno.

Mr. Ianno: Could we find out if this is an unusual practice?

The Chair: I don't know, and I suspect perhaps it would be more useful for us to do a bit of independent research rather than speculating, as we are now doing.

Mr. Ianno: Especially yesterday, with the Friends of Canadian Broadcasting making some insinuations. It makes this whole process very difficult.

The Chair: We will try to find out more about that process. But in the meantime I think we must turn to Mr. McKinnon for final questions.

Mr. McKinnon (Brandon - Souris): I'm interested in what's been going on wit -

The Chair: Me, too; I've been riveted. But I didn't want to cut you off.

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Mr. McKinnon: I hope you feel equally riveted with my intervention here, Mr. Chairman.

Ms Todd: I would like to speak to that point. I work on the telecommunications side of the CRTC, and they do have paper proceedings. So it may very well be that we just missed this one. I don't want to indict the CRTC. Sometimes they have oral presentations, sometimes they don't. I would have for this one. But that's certainly their prerogative.

Mr. Ianno: Mr. Chairman, on this point, is this not a major new initiative? Is this not something that would require considering direct-to-home satellite as not something we've seen in the past and that maybe we should have Canadians participating in the process?

Ms Todd: I said we would have liked the opportunity.

Mr. McKinnon: Here are just some snippets from things that have been asked earlier. Could you expand a little bit on your views on Canadian content regulations? I'll be a little general in my approach here.

I think I heard you say that you didn't feel that under this new regime of DTH and cable, with the fragmentation, if you will, of audiences plus the increasing number of channels, we could ever hope to hold every present regulation of Canadian content as it is today. Could you expand on that a little for us?

Ms Todd: I'd be pleased to. First, I think the goal of predominance, which is specified in the Broadcasting Act, would technically or literally mean that in a 200-channel universe we would need 101 Canadian channels. I don't know if we can come up with 101 specialties. That's the problem.

We have seven offices across Canada. We know from what happened last January that consumers do not like the tiering and linkage rules. They don't like getting channels they don't want. There are technical reasons for that now that will disappear with addressability, but we still would support, I believe, some core package of Canadian content that everyone would have.

We are saying that this would not include 20 specialty channels. It would be, for example, CBC, CTV, the community channel, and TVO. That kind of thing is core and basic. I think all Canadians would want it. We would support some core, but not a one-for-one requirement for a link with the U.S.

Things like that, I think, are unpopular. We feel that some of the Canadian channels the consumers are forced to take to get what they want are not being watched anyway. So if the point is content, then it's the wrong policy.

Mr. McKinnon: Here's the second snippet. I'm reading between the lines, but do I understand your comments about satellite companies in terms of whether they're Canadian, American or European? You feel that they should all compete in the industry and that we should not favour a Canadian satellite company and utilization as opposed to using other satellites owned by other foreign nations?

Ms Todd: The pure consumer view would be that the technology, or the distribution mechanism, is neutral. However, we're not just consumers but Canadians. So yes, for our economy, we would prefer that we have healthy competition, and we are not challenging the Canadian ownership laws.

Yes, we'd like competition and we'd like it to be Canadian. But it was only, for example, in 1993, when there was no Canadian satellite on the horizon, that we asked for competition. And if it had to come from the U.S., well, so be it. Our first choice as Canadians obviously would be to have a healthy economy, so we prefer to support a Canadian distribution system.

Mr. McKinnon: Okay. But that's not to the exclusion of foreign satellite -

Ms Todd: I think we're neutral on the technology, apart from the fact that we benefit from a healthy economy. I think we're saying that the programming should be allowed in. If that's allowed in through an exclusively Canadian distribution system, then I don't think we would fight that.

I think Ed would like to help me on this one.

Mr. Edward Wade (Member, Information Highway Advisory Committee, Consumers' Association of Canada): I have the feeling that you're missing the point about what goes on now and what could go on in the future with a 200-channel problem.

.0950

The Chair: This would not be unusual for us.

Mr. Wade: Those 200 channels are going at the same time by whoever is distributing, so they have to collect various programs to go into those 200 channels. The collection process is through many satellites in North America. They are Canadian as well as American, and there are several American ones. It is also using international ones to get TV5, for instance.

I see no reason that only this Canadian satellite should be used, because it is only one stream going out on the uplink and then distributed to the home. It is many satellites before them and then only one satellite afterwards.

Ms Todd: I was speaking to the link with the consumer being Canadian, not really caring about what satellite they're using.

The Chair: I think the parliamentary secretary has a sort of piggy-back question here.

Ms Guarnieri (Mississauga East): I just have a small footnote to add to Mr. Ianno's last question.

We have with us in the audience a CRTC representative who wanted me to make the point that a notice was issued in March 1994 and sixty written submissions were received.

Mr. Ianno: Yes, that was mentioned.

The Chair: We didn't know how many submissions there had been.

There is a final question from Ms Brown.

Ms Brown (Oakville - Milton): Welcome to our committee.

It's comforting to have people like you here, because essentially you're in the same business as we are; you're trying to predict the best future possible and to help bring it about for your customers, who are the consumers of Canada. That's the same base we try to serve. This whole thing of trying to guess about the future and make the best possible plans and frameworks for public business and private business to be conducted is what we're very interested in.

I notice you talk a fair bit about empowering consumers, consumer choice, competition and the marketplace. Sometimes we can get an idea based upon previous performance, because none of us knows for sure about the future.

I'm wondering how you feel about your intervention a couple of years ago, or maybe it was last year. You're the only consumer group that advocated for competition in the long-distance telephone field. Do you feel the philosophy underpinning your intervention in that case has proven to work out well for consumers or do you have any second thoughts about it?

Ms Todd: We don't have second thoughts, but the consumer in the residential market is the one with the most inertia and it's going to be the last market to really see the benefits. One of the problems was the high price of long-distance in Canada.

I'm in hearings right now that I'm playing hookey from. It's quite clear that the business community has benefited and that toll rates have come down. They have also come down in the residential market. Residential consumers have not taken advantage of it as much as we would like.

For some reason, and maybe it's deserved, there's more of an identity with the Stentor members than you might find on the cable side. Consumers seem to not be taking advantage of the opportunities and the numbers. But as far as rethinking that decision goes, no, we still think it was the right decision.

Before the hearing, Bell and the Stentor members made it quite clear that there would be no long-distance reductions to the residential markets over the next five years. I think they said maybe 5%. Any consumer who wants to can now take advantage of at least 15% reductions from both Stentor and the other companies.

So yes, there has been consumer advantage. They're a little late to take advantage of it, but we wouldn't reconsider that decision.

Ms Brown: So you're not worried now that the reduction in rates for long-distance, which primarily benefits business, could result in the upping of local rates? You don't mind that?

Ms Todd: It's not that we don't mind it, but that pressure has been there all along.

Ms Brown: One has been subsidizing the other.

Ms Todd: Exactly. There are cross-subsidy issues and allocation issues, and it gets very technical. We are worried that there will be extraordinary local rate increases, but we were worried in the monopoly scenario too.

There are consumers who use long-distance. They have benefited. We are concerned about low-income consumers if local rates go up. We're concerned about the average consumer because they don't have the disposable income they did at one time.

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We feel the CRTC will still play a balancing role in which they decide whether or not it's in the public interest to raise rates an extraordinary amount. We're hoping that will not happen and we're fighting it.

The Chair: In order to be fair, I'll allow a last question from Monsieur de Savoye.

[Translation]

Mr. de Savoye (Portneuf): I must say that I was not impressed by your brief, and I am disappointed. You mentioned several times that you want to guarantee consumers a better choice through healthy competition.

Even though I understand your intention and find it commendable, you didn't touch upon the fundamental elements that would guarantee that result. In your report, you talk about protecting competition between businesses, but you forgot to mention the resulting benefits for the consumer. Would the fact, for example, of having several services suppliers - we're talking here about Expressvu and Power DirecTV, allow the consumer to choose between two sets of prices? As a consumer, would I have access to the higher and the lowest price so that I would be able to take a well thought decision about acquiring a signal?

Secondly, would I have a choice of different programs? Maybe I would have more channels with Power DirecTV, but would the programming be different or would it be split equally between football, baseball and basketball? I would have a lot of channels, but would I have a better choice? And what about the quality of the programming? You didn't mention any of those things and, as a consumer, that is what I am interested in. That is also what all the consumers of my riding are interested in and I think that I can vouch that it is the same for all the Canadian consumers; in fact, all you are saying here, is that I will be able to choose which master I will be a slave of. Either I will pay $1,000 to buy Expressvu equipment or I will invest $1,000 to buy Power DirecTV. Then, I will be a prisoner of my choice until I have another $1,000 to invest.

I admit that I am disappointed by your report. You could have talked about compatibilities tenders, tell us how by switching the knob I could make a choice or another. Why didn't you talk about that? You could have mentioned the bilateral agreements with the Americans to avoid the grey market. Why didn't you touch on those questions?

[English]

The Chair: We will take that as the last, mega, mother of all questions.

Ms Todd: First of all, we were to give you a five- to ten-minute presentation, and there are many issues, so we had to pick and choose. Others will be dealing with some of the issues you mentioned.

Clearly when you have one provider you're not getting any price competition. It should be self-evident that when you let more than one company in the market there is at least the potential for price competition, which you do not have with the current monopoly.

Mr. de Savoye: Not after I spend $1,000, Madame.

Ms Todd: May I continue?

My understanding is they will be leasing the boxes for a nominal amount. Again, I'm not pretending this is the best situation, but it is better than the present situation.

For example - and it is touched upon in here - the technology of satellites gives consumers the ability to have à la carte choice now. There is no hope that we are going to get that until cable has the same technological capability. I wish that were not the case. We have raised that issue in many forums, but no one is listening.

We are saying half a loaf is better than none. Right now we have no price competition, we have no choice competition, we have to take channels we don't want, etc.

That's the brief answer to your question.

The Chair: On that note, I thank the Consumers' Association for being so interesting that we've gone over time.

Of course, as usual, I have lost control of the committee. I'm going to call for a two-minute pause while we change witnesses.

Thank you again for appearing before us.

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PAUSE

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The Chair: I'm going to bring the session back into play.

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We should be having two representatives, Mr. Crawley from ACTRA

[Translation]

and the representative of the Union des artistes, but they are not here yet. Mr. Crawley will be able to go first.

Mr. Alexander Crawley (President, Alliance of Canadian Cinema, Television and Radio Artists): We agree.

[English]

The Chair: Mr. Crawley is no stranger to this committee. We are under the usual pressure of time, so I would ask him, on behalf of as many people as he wishes to represent, to make some opening remarks.

Mr. Crawley: Thank you, Mr. Chairman.

ACTRA is a labour organization that represents approximately 10,000 freelance performers and broadcast journalists, working throughout the recorded media in Canada, primarily in the English language. We have a constitutional responsibility to advocate public policy in the interests of our members and artists of all disciplines for the betterment of cultural development in Canada.

The direction of the CRTC by the federal government is a mechanism to ensure that communications in Canada are carried on in a manner that serves all citizens. The issue before us, the legal application of direct-to-home broadcasting within our borders, is a litmus test of our collective will to maintain cultural sovereignty.

We must accept the fact that the climate in which this policy is being refined is fraught with small-p politics of concentrated and powerful corporate objectives and, for the purposes of this brief, don garments that stave off that heavy weather.

It need not concern us whether the principles of express Expressvu or Power DirecTV are the final winners in the short term. They each bring the value of knowledge and experience in how to run a business. The question is not whether or not to introduce legal DTH services, but how and when to do so, and to whose benefit.

We file this submission in an ongoing effort to encourage the development of policies that strike a balance between corporate interests and the creative potential of the individual Canadians who actually make the content that will foster economic growth. For it is no longer in carriage that wealth creation will happen. As some of our earlier questions would indicate, even the telephone companies, for whom carriage has been the raison d'être, are forging plans to enter the content business.

The issues of the level of contribution - that's toward the creation of content - the governance of the resulting resources, which we'd like to explore with you, and safeguards against the potential abuses of vertical integration are priorities for ACTRA. Sad to say, the federal government and its agencies continue to treat artists and their organizations like unruly children who must be kept in line by leaving their economic and moral rights in the hands of business interests.

Quite clearly, we refer here to phase two of copyright in which performers, for instance.... If we were granted copyright at this point, it would only mean that the contracts we have negotiated would be honoured, which doesn't seem too much to expect; it wouldn't cost an extra penny.

The Chair: Can we leave that for another time?

Mr. Crawley: Another time.

A real cause of concern is that the policy process still responds to the needs of corporations as a priority. That said, we are once again willing to rise above our concerns in an effort to assist in the development of mature and forward-looking policy.

We observe that Canada and the world are moving beyond the age of viable natural monopolies in the field of electronic communications. Since the entrenched monopolies are slow to accept this fact, it is up to the government to force the issue through appropriate legislative and regulatory direction. We believe the current orders, as drafted and in the process of being amended, are the correct direction.

In a real sense, the current controversy over Canadian DTH policy is a clear indication that neither the federal government nor its arm's length regulator have kept pace with the deployment of new distribution technologies. While the recent CRTC report on convergence makes this admission explicit, we at ACTRA are not prepared to accept excuses from that quarter, or from the federal government, when it comes to policies respecting the distribution of cultural works.

The CRTC, operating under what we believe was an outdated policy, took a decision that stimulated the creation of what looked to become a monopoly along the lines of the cable model, but using a different technology. As is the case with most, if not all, DTH initiatives - and our information is that this is case - the choices they made for specific standards relating to the sky-to-home connection guaranteed that they will be operating a discrete closed system for the time being. Since the distribution undertaking is in partnership with the only currently licensed pay-per-view services, it looked pretty much to be a closed shop for now. This is under the exemption order.

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The long-term viability of such an undertaking rests on the willingness of Canadians to respect the boundary between Canadian and U.S. satellites. Yet we have known for some time that the grey market in satellite services is here. The new, inexpensive, addressable dishes can only hasten its growth. New techniques and the long-awaited, but we believe soon-coming, North American standard will result in an irresistible push towards inter-operability.

When the public understands they can have inexpensive access to different systems using the same home technology, any business using a technology that can't plug in will be left behind. To try to block this movement by statute is to conjure Canute. That is not to say the people will not choose to obey the law, given an attractive option to do so. We at ACTRA believe that given a reasonable choice, Canadians will choose to select Canadian-owned and -operated services almost every time for the simple reason that it gives them access to their own content.

Historically, that content included the best of what is available from foreign sources and a stronger and wider choice of our own programs. There is no reason to assume this will not extend to DTH services under guidance from the CRTC, working with modern strategic policy and, we would hope, working with an understanding between the regulator and the government that they're going in the same direction as far as policy is concerned.

We believe such a policy can contemplate the amortization of costs of carriage over a continent - that's the issue before us - with the footprints we're talking about, while strengthening instruments of cultural development such as regulation by the CRTC, the administration of copyright and any other programs that may be fostered under the appropriate section of the Canada-U.S. Free Trade Agreement. We refer here to 2005, the cultural exemption. Indeed, we do not see the liberalization of trade in cultural products and the strength of cultural sovereignty as mutually exclusive.

When the current clouds around the country music television blow away, as we're sure the government will ensure they will, Canada must appeal to our largest trading partner to recognize the positive synergies of the new distribution technologies while maintaining distinct markets. The issue on the table ought to prove that point. It may even help the U.S. to see how to introduce more diversity of choice into its own market against the dominations of its own outmoded monopolies.

We therefore support the licensing of competing DTH distribution and pay-per-view services as soon as possible. The requirements must include:

1. The willingness and capability to deliver all licensed Canadian signals of scheduled programming using Canadian-owned and controlled satellites.

2. Canadian content pay-per-view programming choices at a level to be set by the commission. These levels must be no lower than those currently in place, and as attractive Canadian inventories grow and digital compression is perfected, it should be raised.

3. Non-exclusive licensing of pay-per-view programming respecting Canada as a distinct rights territory with the control of content in Canadian hands.

4. The acquisition of all non-studio pay-per-view programming from Canadian-owned distributors.

5. An obligation to contribute a fixed percentage of revenues from distribution income towards the funding of Canadian works.

6. Obligation to contribute a fixed percentage of revenues from pay-per-view programming income towards the funding of Canadian works. I might add that in both these cases we are referring to gross revenue, not net.

7. Transparent accounting between distribution and programming activities to the benefit of the greatest contribution to the funding of Canadian works.

8. Administration of said contributions at arm's length from the distribution undertakings with appropriate sectoral overview in governance, which includes artists' representatives.

This last provision is key to our brief and must not be taken as incidental. ACTRA is on record as opposed to the cable production fund model, which is voluntary in nature and controlled by distribution and packaging interests that are increasingly vertically integrated. This model creates an unacceptable potential for anti-competitive arrangements between dominant players to the detriment of diversity and innovation, which are necessary to healthy cultural, social and economic development. We assert that a new model is appropriate for all distribution undertakings as we move beyond monopolies in distribution.

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We are also concerned, however, at the prospect of funding these resources through the existing federal cultural agencies. The reason is that we assume that current precipitation from the fiscal clouds will lead the government to use this as an excuse to further withdraw its direct funding of these agencies. ACTRA is convinced that federal cultural agencies are appropriate targets for increased public investment as we enter the era of the information economy. However, we are not convinced that our political leaders recognize this reality.

We believe the CRTC must wrestle with this issue, that the content provider sector should be the prime source of consultation, and that the administration of these new resources for the creation of Canadian works must enfin include direct representation from artists' organizations.

The Chair: Mr. Crawley, could you perhaps summarize the key points on those pages.

Mr. Crawley: I believe my text is crafted in such a way that it has to be delivered in total. It's only a page and a half, sir, if you will.

We started late and we were talking about telephone rates here instead, so that was off topic, sir. So I'd ask you to give me time to finish.

The Chair: I guess the point is, go ahead, but please condense this wonderful text in any way you can.

Mr. Crawley: I'm sorry, but it's fairly condensed already, if you read it carefully.

As to the levels of percentage contributions to funding Canadian works, we believe the new panel underestimated the appropriate range by about half on the distribution side and probably more on the pay-per-view side of the equation.

We are also wary of setting fixed figures in policy and believe that the appropriate levels should probably be set by the CRTC, with the understanding that the intent of this modern policy is to maximize the benefit of funding Canadian works. Indeed, the introduction of competition in DTH services, as with other distribution services, ought to lessen the concern of the CRTC for the profitability of a given licence distribution undertaking and increase the attention to its cultural mandate.

We are not suggesting that the CRTC abandon responsibility to order the marketplace; however, we do suggest that the commission must adjust its priorities in recognition that monopolies are no longer in the public interest. We believe the appropriate DTH policy must relate to overall cultural objectives and must recognize the potential to integrate Canadian and U.S. distribution infrastructures while maintaining cultural and economic sovereignty.

As to the difficult issue of timing, we believe the competitive licensing can and must proceed without delay. The original exemption was inappropriate, in our view, and must be replaced with a licensing regime. We recognize that this issue has been on the table for at least two years, that interested parties have developed business plans, and that they should not be asked to delay the execution of those plans because of the shortcomings of policy-makers.

We therefore suggest that the licensing of DTH distribution services and pay-per-view undertakings be put on a fast track. If the CRTC needs extra resources to meet the deadline, they should be provided. In the case of DTH distribution undertakings, the issue has been explored so thoroughly, surely, by now that the process can move swiftly.

We likewise believe that the licensing of DTH pay-per-view services must be expeditious. We understand the situation is complicated by the fact that the existing pay-per-view licensees are subject to contribution levels below where they ought to be. I'm referring to the funding of Canadian works.

We do not want to see the urgency to start competition result in allowing the licensees to shirk their responsibilities to support the cultural objectives of the Broadcasting Act. Nonetheless, it does not seem to meet the test of natural justice to ask either of the interested parties to pay the price for mixed signals between the government and the regulator. We recommend extra effort on the part of the regulator supported by clear direction from the government as the solution in this case.

Thank you. I don't need to read the rest. I would welcome your questions.

The Chair: Thank you very much.

I think we'll move

[Translation]

we will now go to the Union des artistes.

Mr. Rychard Thériault (vice-president, Union des artistes): I would first like to apologize to you, ladies and gentlemen. We thought that we were to present our brief at 10:30 a.m. Our apologies to you, to our friend and to ACTRA.

Our remarks will deal mainly with the content of the draft order and not with the opportunity to deliver a licence to any programming undertaking, present or future.

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We will reserve our comments on that subject for the proper forum: the CRTC's licensing hearings.

We would like to start by reiterating our respect for the inalienable right of the Governor-in-Council to issue to the commission directions of general application on broad policy matters with respect to any of the objectives of the broadcasting or regulatory policy, pursuant to section 7 of the Broadcasting Act.

The right to review and give direction is an essential element in the smooth functioning and implementation of Canadian broadcasting policy. It is thanks to these powers that the Canadian and Quebec cultural sectors were able to appeal a CRTC decision to the Governor-in-Council when licenses were awarded to the Shaw and COGECO cable companies to distribute radio programming that was essentially American. On that occasion the Governor-in-Council recognized the validity of the grounds for our appeal, thereby confirming the CRTC's role in implementing the Canadian broadcasting policy objectives with respect to predominance of Canadian content.

The same objectives are at issue in the case before us today, not because of a mistaken decision by the CRTC, but because of draft orders formulated by the very body that is supposed to ensure that the CRTC respects the objectives of the broadcasting policy - the government. What is more, in our opinion a provision in section 3(c) of the directions on pay-per-view television programming undertakings that provide services through direct-to-home satellite distribution undertakings flies in the face of those objectives.

How can the government use its powers of intervening in CRTC decisions under section 7 of the Broadcasting Act in a manner that weakens enforcement of several fundamental obligations set out in section 3 of the Act?

The direction in question reads as follows:

In other words, the rules apply only to the distribution of Canadian programming.

Perversely, American companies, broadcasting programming assembled entirely in the United States (and this 100% non-Canadian in content) and distributed direct to Canadian subscribers via an American satellite, would find themselves ``Canadianized'' simply by opting for the services of a Canadian satellite to distribute Canadian programming services. ``Canadianized'' in this way, such undertakings could distribute an unlimited number of American services, unhampered by the obligation on Canadian undertakings to contribute to predominance of Canadian content in the system, thereby reducing the presence of such content and helping to ``ghettoize'' it within the broadcasting system.

But the Broadcasting Act requires all elements of the Canadian broadcasting system to contribute to achievement of the Act's objectives with respect to predominance of Canadian content.

That was, after all, the ground on which we appealed to the Governor-in-Council in the case of the cable radio programming assembled in the United States, and the ground on which the Governor-in-Council upheld our appeal. If it is valid for cable radio, it is valid for DTH television programming. The Governor-in-Council cannot order the CRTC to contravene section 3 of the same Act if it gives the Governor-in-Council its power to intervene!

The Union des Artistes is extremely concerned about the possible consequences that applying these directions could have, and about their ripple effect on other elements of the Canadian broadcasting system. The system has from the beginning had to guard against cultural invasion by its neighbour, not to deprive Canadians of freedom of choice, as its detractors have claimed, but on the contrary to safeguard that freedom.

Concern for freedom of choice led to the adoption of a cultural exemption clause during the free trade negotiations with the United States, in recognition of the special nature of culture and cultural industries, and of the need to protect them from the purely commercial trade rules governing other sectors. This clause was negotiated at Canada's express request. It would be unacceptable for Canada itself to make the clause irrelevant by its own actions, especially in a leading-edge sector like DTH satellite broadcasting.

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On June 2, nine of the main associations active in Quebec's audio-visual sector, representing performers, screen writers, directors, technicians, producers, lyricists and composers, reached the following common position on this issue:

It is equally important, in our opinion, to ensure that DTH satellite distribution undertakings be subject to the same requirements and regulatory framework as cable distribution undertakings, i.e. priority and predominance of Canadian services, obligation to contribute to the financing of Canadian productions, respect for tiering and assembling rules, distribution only of those foreign services authorized by the CRTC, and maintaining Canada as a distinct market.

It is in the light of these considerations that the Union des Artistes is calling upon the government to reconsider its draft orders, so that the CRTC may carry out its mandate to regulate and monitor all elements of the Canadian broadcasting system properly, in compliance with the objectives that have been set for it by the Broadcasting Act.

Thank you for your kind attention.

The Chair: I think we should move right on to questions. Each party will have five minutes.

Mr. de Savoye: I thank ACTRA and the Union des Artistes for two quite remarkable presentations. They are remarkable, because they concern matters I hold dear and which, I am sure, all Canadians hold dear.

You talk of satellites, but you're also talking about modern broadcast methods. I think the information highway, with fiber optics, will, in the next few years, further complicate the broadcasting issue. ACTRA, in its brief, said:

[English]

[Translation]

It goes on to say:

[English]

[Translation]

The Union des Artistes said:

My question is as follows: what then are ACTRA and the Union des Artistes proposing to ensure the market remains distinct from the American one, to guarantee that undertakings broadcast Canadian signals by Canadian satellites and to avoid ``ghettoizing'' Canadian content?

First, ACTRA and then the Union des Artistes, if you will.

Mr. Crawley: Thank you. I will speak English because it will be easier.

[English]

Mr. de Savoye: Go right ahead.

Mr. Crawley: I think the key issue is to keep the control of those services, whichever technology they're using, whichever bird they're using, as someone said earlier. It can be a European bird, it can be an American bird, it can be a Canadian-owned bird, in the hands of a Canadian-controlled company where that service provider has real control over the content coming off that bird. So if there's a plus side for, say, one of these two competitors now using a twin horn to put their Canadian-content movies up on an American bird and also sell them there, as long as the producers and artists here get part of that price as well, there's no danger.

They must have that control. It doesn't matter to me whether the person is sitting in Geneva or Denver or Tokyo, as long as they're taking instructions that follow the regulations laid down by a strong commission with a strong clear policy on this issue.

Mr. de Savoye: How do you achieve that, through bilateral accords?

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Mr. Crawley: In the future, as you say, when the distribution technologies are even more numerous, they will be able to plug into each other. We were talking about this earlier with the consumers. For now, you buy a system and basically you have to stay with the service provider that's attached to that technology. And corporations of all kinds will try to keep that discrete thing as long they can, but eventually the public won't let them do it. I think the government has a responsibility to push that along.

We believe people will choose to follow the law. If you educate them and let them know that their own production in their own country is increasing wealth in their country as well as making choices available to them in their own country, and having an expression of the work in their own country - and we would say not just in news and current affairs, as the consumers seem to be suggesting - that's part of the life of the country. It's also part of the economic growth of the country. People are willing to favour that and follow the law as long as you make it possible with your regulations.

You do have to have the respect of the international community for your distinct market. Canada has a key role to play in the world discussion about that, and we must keep a strong distinct market here. It's possible. There are solutions. It's not so complex.

[Translation]

Mr. de Savoye: Thank you. L'Union des Artistes, please.

Mr. Thériault: Your question is a very simple one, Mr. de Savoye, and I think it deserves a very simple answer.

Things are not very complicated: the law must be followed and licenses granted. The law provides for these things, and we are talking this morning as if a new problem has arisen. No new problem has arisen; we have legislation and we simply have to follow it. It provides very clear mechanisms for guaranteeing we have Canadian products and for reinvesting in production. This was the government's prime concern in drafting the legislation. We are aware of the dangers that exist with our immense partner the United States, but let us not create an unnecessary debate by wondering what we should do. We have legislation; let's follow it! It is quite simple.

Ms Lucie Beauchemin (Consultant, Union des Artistes): I would simply like to say, Mr. de Savoye, that each time new technology appears, we react as if we will never be able to control anything again. Each time Canada has faced new technology from the States or one that had a powerful impact there, there have always been people who said that the market was out of control and that it had to be left alone to allow the new technology to find its place unimpeded. And each time we have shown through the legislative and regulatory process that the technology can be used to benefit our culture.

All we are asking the government today is to encourage the CRTC to carry on in the role established for it by legislation and to ensure that new technologies reflect the distinct reality and culture we are trying to pass on to the public. Quebeckers, as we know, are very attached to the programming they receive, which is produced here. We want this to continue.

The Chair: Thank you, Ms Beauchemin. We will now move on to Mr. Hanrahan.

[English]

Mr. Hanrahan: Both of you went very fast. I have to integrate this, so it is taking just a moment.

I guess my first question is in regard to the ACTRA presentation. On page 3 you list a number of requirements and in the fifth one ``an obligation to contribute a fixed percentage of revenues from distribution income towards the funding of Canadian works''. What fixed percentage do you have in mind there?

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Mr. Crawley: This is where I think the panel went too far in trying to set it at 5%. I think they were being very kind to Canada's corporate clients. I don't think it's appropriate for policy, at this point, to entrench that. If you have a commission that knows its job and knows it has to operate beyond monopolies now, and they get clear direction on the principles from the government, which I think is what the government is attempting to do with this process now, then those percentages don't need to be fixed.

If you want me to tell you where I would like to fix them, I would like to fix them at 20% on both sides, on the retail price. And I think those people would still make a profit.

It is comparable to the noise that broadcasters are making now over the issue of neighbouring rights. They say there is not going to be any private broadcasting if you give artists more money, that it's a killer tax. Look in other jurisdictions where they have neighbouring rights. There is still a healthy broadcast sector, folks, I have to tell you.

You are being inundated with corporate propaganda on this issue. I think it could be much higher. But if the commission gets the instruction from a courageous Canadian government that says culture is the issue here, not which of these businesses succeed, then maybe they will be able to figure out by consulting the process of licensing in which the artists, I am sure, will be there to make sure their interests are looked after, and so will the consumers, etc.

I think those rates should be fixed at the commission, but a healthy commission with a clear direction and strong leadership.

Mr. Hanrahan: Could you see a situation where simple competition - say five or ten years from now, where we have a number of DTVs competing among themselves for the artistic community's production, you put out such a superior product that they will say Expressvu will give you 10% and Power will say, no, no, it's such a good program I will give 12%?

Mr. Crawley: You're getting into a very interesting area, which is vertical integration.

You have licensed services. Expressvu is supposedly a distribution undertaking, but it also has licensed pay-per-view services that have to negotiate deals with it, and that service has to negotiate deals with the people who actually create and own the programming. We believe that artists actually own the programming as well, although we don't have that recognition in law. We have it by contract, but it's not honoured because it passes through so many hands. If you want to make distribution undertakings directly contractual to the people who own the product, there are some dangers in that, because then you have carriage and content issues and so on.

These things are going to keep coming up for us and the government had better start developing some clear policies. Is structural separation going to be enough? Do you need to have the different services owned by different companies? We're not experts in this, but we are innovators. You could probably get some advice from us along the way on this issue, but it is very complex.

Mr. Hanrahan: I appreciate the complexity of it, given the present circumstances. But I'd like to see down the road that if you as an artist produce something that is particularly excellent, you are able to shop it around and get the highest price for it.

Mr. Crawley: Oh, absolutely. That's the case now. That's always the case. I don't think anything in our regulations precludes someone from paying more if they think it's worth it.

Mr. Hanrahan: There is no collusion or agreement or -

Mr. Crawley: Well, there are checks and balances in the markets. You don't want to see more favourable access so you can favour a particular producer. The carrier may have an investment in a producing entity and say we are going to funnel our money this way because we can get it both ways, and then whatever contributions we have to make by regulation we will minimize them because we hide that money in two different operations. Unfortunately, this seems to be a common part of modern business ethics, and this is where the government has a job to make sure it is not abused.

Mr. Hanrahan: You speak in the same section about the administrator of said contributors at arm's length from the distribution undertaking with appropriate sectoral overview and government's, which includes artists', representation. Give me a little more detail on that, if you would, because everybody seems to be coming up with different positions on that.

Mr. Crawley: It is an evolving forum. The danger that we flag on the next page is that if we just funnel those resources, which might seem logical to some people, and say we will give it to CBC, to Telefilm, to the National Film Board, or some other issues that I guess are on the table for this committee in the near future and the present -

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Mr. Hanrahan: My concern is that this group that would administer this fund -

Mr. Crawley: Would be doing so in the public interest, is what basically -

Mr. Hanrahan: Yes, hopefully, but would be so caught up with the administration of it that what gets to the artist would be minimized.

Mr. Crawley: That's always a danger. That's why we make the point so strongly that it's about time you let artists and their organizations have representation in these structures that you put up to direct resources for art, supposedly for creativity. Right now you have producers sitting there. They like to wear the mantle of artists themselves, à la Hollywood mogul model, but this is not Hollywood, folks. It's time to grow up and recognize that the people who actually make the programs will assure that this doesn't happen. That's why they need to be at the table.

Mr. Hanrahan: Would you argue for a model that would suggest that if 5% or 20% or whatever percentage we look at were to develop, included in their mandate would be a minimum amount toward administration and bureaucracy?

Mr. Crawley: As a principle I fully agree with that.

The Chair: Thank you very much. The last questioner is Mr. Ianno.

Mr. Ianno: Looking at the brief you have presented, I gather what you are suggesting is that you want to the DTH to be fast-tracked.

Mr. Crawley: Oui.

Mr. Ianno: I guess you also want to see competition.

Mr. Crawley: Oui.

Mr. Ianno: Do you agree with cabinet giving direction to the CRTC to go back to the drawing-board and creating the competition along with the panel's view of increased Canadian content and paying for that program fund contribution?

Mr. Crawley: In principle I do. I don't want to see the individual competitors now. There's so much arm twisting going around behind these two corporations that I don't think either of them should be put at a disadvantage. So I think it is possible, if the government takes its responsibility to give clear enough direction to the commission, that they could guarantee there would be more or less a simultaneous launch at this point, under licences.

Mr. Ianno: Right, under licensing. So in effect, you agree with cabinet sort of not being happy with seeing just the exemption order and not a licensing, and only giving one versus many participants the opportunity to create this new entity in terms of DTH.

Mr. Crawley: Our interpretation is that there was an attempt to create perhaps the last viable natural monopoly in distribution of a particular service. Perhaps it was a worthy attempt on the part of that vision of things, but it's just not a viable vision. So yes, we think the original exemption was flawed.

We would also go further to say that perhaps the exemption of games was not such a good idea. We would go so far as to suggest that maybe even newspapers should not be exempt from licensing once they enter distribution electronically.

The Chair: Mr. Ianno, do you intend to find out from the other group as well if they share these views or not?

Mr. Ianno: Mr. Chairman, I have one other question and then I'll let you ask the other question you thought of.

The Chair: Well, it was really just to find out the reason -

Mr. Ianno: Were you given the opportunity to give a submission to the CRTC prior to their exemption order?

Mr. Crawley: You have to understand that if you're on the file, if you're trying to watch the CRTC, there are so many orders. I do my work on a voluntary basis, although it seems to have become full-time. I have one secretary for three days a week. If I tried to answer everything that I saw a cultural connection to at the CRTC, I would not be alive today.

Mr. Ianno: Thank you.

Mr. Chairman, please continue.

[Translation]

The Chair: I would like to know to what extent the answer from l'Union des Artistes will differ from that given by Mr. Crawley to the same questions? Do you agree or not?

Mr. Thériault: I think that if we are here this morning it is because we agree with ACTRA.

The Chair: But there are nuances.

Mr. Thériault: Yes, and Ms Beauchemin could give a more specific answer.

Ms Beauchemin: The nuances do not deal with the substance. In fact, we completely agree with ACTRA, as we pointed out in our brief.

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The Governor in Council, under the law, has this power and exercises it, and we have no problem with either his power or his right to exercise it.

All we want is that, in the licensing process, the directives given to the CRTC be in keeping with the mandate established for it in the law as regards the composition of Canadian property, the predominance of Canadian content and support for the production of Canadian programming. In this regard, our brief is very clear, and everyone can agree on that point.

We would perhaps like to qualify the concept of competition in two other ways. We are certainly familiar with the laws of the market, and there's no problem there, but we have to qualify things a bit: at the cultural level, the Canadian system has always attempted to counterbalance natural market forces to reflect certain cultural realities, and the reality of the Canadian market side by side with the dominant American market. I do no need to go into details in that respect. Other elements, not just the issue of the free market as such, but the system's ability to integrate new services while preserving Canadian content must be taken into account.

The final point, the one I think is quite natural, is the following: the Union des Artistes represents the francophone sector primarily, and we want to recommend to the government that it reflect the specific nature of this market in its directives to the CRTC and that it not allow francophone production to drown in an ever-swelling sea. These are the two points we wanted to qualify.

The Chair: Thank you very much, Ms Beauchemin. We have to say goodbye to you, because we have other witnesses to hear. I thank both ACTRA and the Union des Artistes. We will no doubt meet again one of these days.

We will have a short two-minute break.

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PAUSE

.1050

[English]

The Chair: Welcome back. Now we turn to the Bureau of Competition Policy. We welcome Mr. George Addy, Director of Investigation and Research under the Competition Act. He has brought with him a team and a text. He has the team and he has the text.

Mr. George Addy (Director, Investigation and Research, Competition Act, Bureau of Competition Policy, Department of Industry): Given your time constraints and your heavy agenda today, I'm just going to highlight the statement. You've been provided with a full text in English and French, and with your permission, I just want to hit the highlights so we can get on to the question period.

Appearing with me today is Mr. McAllister, a senior case officer in the bureau on the Telecom task force; Mr. Ménard, Deputy Director of Investigation and Research and the senior manager responsible for the Telecom task force; and Mr. Annan, another senior case officer in the group.

As you know, Mr. Chairman and members of the committee, the issues you're dealing with are very significant. Cable television dominates the distribution of television entertainment, passes 77% of Canadian households, and provides households with a ``take it or leave it'' choice. As we've seen recently this year, consumers want competition and they want a real choice. The uproar we saw earlier this year over the negative marketing option was just the latest example.

I'm very excited at the prospect of the competition that DTH can bring to this market. It's a very attractive form of competition, it has tremendous assets, and in fact it's already generated a competitive response from the cable companies. They've expanded capacity. We've seen them investing in CableSat - the satellite service delivering expanded pay-per-view services - and they've announced they will be offering Internet access as well.

DTH is exciting, but it can't replace cable altogether, primarily for three reasons. First, it's more expensive for the subscriber to get into. Second, cable offers local channels, which DTH generally does not. And in the future, cable will be offering interactive services, which you don't get over the DTH services. I think also in the future, cables will be facing competition from telcos and perhaps other types of technology, and that is very encouraging.

The importance of the issues facing you today is that DTH is available, and it's available to offer competition to cable now. It's able to ensure that consumers will have better prices, better choices, and that there will be a wider market for Canadian programming.

Dealing with the specifics of the report itself, I think it's important to recall the three types of competition that are recommended in the panel report and reflected in the directives. Firstly there is the competition among DTH firms, then there is competition between DTH and cable, and then there's competition between service providers to DTH, including pay-per-view.

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I wholeheartedly agree with the panel's recommendations and the directives. I think, as the DTH panel found, that we need a satellite policy that balances the competitive and efficiency objectives with support for Canadian infrastructure. The rules guaranteeing access to Canadian programming by DTH firms are also important, as is open competitive licensing for PPV.

One of the issues you've already canvassed is the satellite usage issue. I think exclusive use of Canadian satellites for all DTH signals is inefficient and anti-competitive. It's inefficient because it requires retransmission of signals twice, which will add a lot of cost to DTH operators. It's also saddling DTH operations with a cost that their cable entities don't face, because the cable entities pull the foreign signals directly off the foreign birds.

I don't think exclusive use is necessary for the viability of Telesat. I think as well that exclusive use for all programming is not required by the Broadcasting Act or the Telecommunications Act. Indeed, subparagraph 3.(1)(t)(ii) of the Broadcasting Act supports the efficient use of technology. I think encouraging efficient use of satellites complies with that technology.

On the access front, I endorse the DTH panel's finding that we need a rule to ensure that DTH firms can access Canadian programming on non-discriminatory terms and conditions.

With respect to competitive licensing for PPV,

[Translation]

the Panel also recommended a competitive model for pay-per-view programming. As you know, this service is now provided on a monopoly basis. One firm is licensed to serve Western Canada and the other licensed to serve Eastern Canada.

In my view, there is no reason why the benefits of competition, which would include lower prices for consumers and greater market access for Canadian film producers, should not be realized. Under the model proposed by the Panel, cultural objectives are safeguarded because all licensees of DTH pay-per-view programming would be subject to the same terms and conditions as the current pay-per-view licensees in terms of Canadian ownership and support for Canadian films.

As the Panel pointed out, concerns about the new pay-per-view licensees purchasing films on an exclusive basis are unwarranted. Pay-per-view is a transaction-based service in which revenues are earned only when the consumer decides to purchase the right to view a particular film or event. Consequently, Canadian and U.S. film producers have an incentive to have their films carried by all modes of distribution and by all distributors in order to obtain the widest possible exposure of their product to the consuming public and accordingly generate greater revenue.

The Panel also recommended that the proposed direction make it clear that all pay-per-view licensees must acquire rights to feature films or other programming on a non-exclusive basis within Canada.

[English]

I would now like to make a few comments on the proposed directions themselves, first dealing with unrestricted market entry.

What is implicit in the panel's report could be made explicit in the directions in relation to - and they refer to it on page 19 in their comments and in the preamble of the report - the issue of viability. The directions could make it clear that the CRTC should not refuse to issue a DTH or PPV license on the grounds that the economic viability of existing licensees may affect it. It's completely consistent with the whole thrust of the report and the directive that we should be relying on market forces to achieve the most efficient results.

My second comment on the directions relates to satellite usage, which I alluded to earlier. Section 3(b) of the DTH directions allows DTH firms to use foreign satellites as long as cable firms are allowed to do so. I don't think that linkage is necessary or desirable.

DTH firms should be allowed to choose the most efficient delivery mechanism regardless of the mechanisms chosen by cable companies.

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For instance, if the cable company should later opt for a technology other than satellite delivery to obtain its signals for broadcasting over its networks, that would in effect, if you read this very narrowly and strictly, disallow continued use of satellite facilities by DTH broadcasters. So I don't think you should automatically tie the usage, but the playing field should be level.

On the issue of timing, Mr. Chairman, I know it's been an issue here and it's been an issue before the Senate committee. The timing for entry is an important consideration when you recall the three types of competition we're talking about. We're faced with a bit of a difficult choice here.

The ideal solution would be to ensure that the CRTC engages and concludes its licensing process as soon as possible - if possible, before September 1. I understand from Mr. Spicer's testimony that he doesn't think that's possible until December 29, if my memory serves me right. The sooner we can do it the better, because you end up trading off one type of competition for another. If you allow Expressvu to go ahead on September 1, you may have an impact on the DTH-to-DTH competition. If you hold back Expressvu until the licensing is processed, you may be trading off on the cable-to-DTH competition. You're facing a Hobson's choice there. The best solution is to get them both done as soon as possible.

One alternative that has been suggested, other than directing the CRTC to proceed expeditiously and have a fixed date for conclusion of the licensing process, is to suggest, direct, or ask the CRTC to - As I understand the law, Mr. Chairman - but I'm not an expert in their rules - it can do this on its own motion. It could revisit its existing exemption order. If it revisits it on its own motion, the timing there is apparently a lot shorter than a full licensing process.

So you could have the two tracks moving in parallel. You could shorten this trade-off between two types of competition - and I want to see them both, as I think we all do - and cost to the marketplace by perhaps having a dual track, having the licensing process proceed, and having the CRTC revisit its exemption order and perhaps remove what I think is the key component there - the exclusive use provision - in a revised exemption order. I am advised that may be 75 to 90 days versus the process that's been suggested for the licensing product.

Those are all the comments I had by way of opening, Mr. Chairman.

The Chair: Thank you, Mr. Addy. Those are fascinating remarks, and may be very helpful to us ultimately in our deliberations as we try to figure out what we can do to help the process ourselves.

[Translation]

Mr. de Savoye: Mr. Addy, I read your report. My comments on your remarks are fairly critical. Please do not take them personally. I know you will not interpret them that way, but I would like your reaction to my remarks and my questions.

On page 3, you say that you strongly endorse the pro-competitive model proposed by the Panel. To my knowledge, we are not limited to just one pro-competitive model. A number of models may exist. Why do you like this one more than others? Why do you not explain your reasons for rejecting the others? What is wrong with them?

You then mention that the CRTC's requirement that Canadian satellites be used exclusively was not appropriate because it prevented entry and favoured one competitor over another. These are not the only rules in Canada that lead to the preferential use of our own resources rather than those of others. We are looking at a market that will create thousands and even tens of thousands of jobs. We are looking at a market that represents billions of dollars.

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If I follow your reasoning, it seems to me that we will see American trains on our railways in the future. American airlines will be linking Canadian cities, because it will cost less and because service facilities will be able to maintain the aircraft at a lower cost.

You also do not seem to make any distinction between the wholesale and the retail markets when you talk about cable companies obtaining signals from American satellites. It is nevertheless noteworthy that they subsequently retail them from their own facilities.

You say it would be too costly to have to use two up-links, one in the United States and one in Canada. Then why even have a Canadian up-link? Let's use the American facilities. So according to this principle, if you turn the logic around, any Canadian company setting up its own up-link starts off with a loss of several hundreds of millions of dollars, according to your figures.

Are we trying to establish competition where all the players are at the same level, or do you want to see a competitive situation where, in order to reach the same level, the players will necessarily have to use American up-links?

In the automobile sector, several decades ago already, Canada concluded the Auto Pact with the Americans, for the purpose of distributing money and jobs in a way that was equitable for the Canadian market. In this case, it seems that your solution, this pro-competition model you so strongly support, will deliver us bound and gagged to the Americans.

This is the position that ADISO was defending yesterday before this committee by showing that the approach would completely remove Canadian programming and culture, to all intents and purposes, from Canadian territory.

I have said a lot of things. I am checking, because I still have copious notes. I see you mentioned that no license should be refused on the grounds that its granting could hinder competing services. At the same time, however, you are defending the fact that a license exemption should be refused if it guarantees competition within the rules established by the CRTC.

I do not understand your logic. In my opinion it serves the American economy, and does not properly protect Canadian economic interests, nor those, necessarily, of competition and consumers.

I am waiting to hear what you have to say.

[English]

The Chair: That question took four minutes and five seconds. Is your answer yes or no?

Some hon. members: Oh, oh!

Mr. Addy: Thank you, Mr. Chairman.

[Translation]

There were three components to the question. First, in terms of the competition model, are there other models? Other models may well exist. I support the model proposed by the Panel in the directive, because it sets out, as I indicated in my opening remarks, three levels of competition and offers Canadian consumers a real choice, for the first time. That's that for the question on models.

Secondly, I also raised the matter of the exclusive use of satellites in my remarks. I talked about inefficiency, the additional cost resulting from transmission duplication. I also pointed out that telecommunications and broadcasting legislation do not require the exclusive use of Canadian satellites or Canadian infrastructure. I therefore said that the proposal is consistent with the policy set out in the two Acts.

I also said I thought it would be unfair to impose such an obligation on a series of competitors, including DTH undertakings, when broadcasters have no such obligation.

One final point on this: I had endorsed the recommendation of the working group whereby those given PPV or DTH programming licenses in Canada be subject to the terms and conditions imposed in these licenses by the CRTC, as you heard earlier witnesses say. From a cultural standpoint, they are perfectly comfortable with that, because the basic conditions will be included in the conditions of license.

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Mr. de Savoye: There is one point I mentioned for which you're not giving an answer. I said yesterday that ADISQ alleged that, on the cultural level, there would be a rapid erosion - they are talking five to six years - of the Canadian content or at least a minimisation of that content from sea-to-sea, with the adoption of the model your are supporting. Do you agree or disagree with what ADISQ is alleging?

Mr. Addy: I disagree with it.

Mr. de Savoye: And why?

Mr. Addy: I think that the witnesses you heard 15 minutes ago told you why they were very interested in getting a wider access to American markets for Canadian products.

Mrs. Tremblay: This is not quite what they said. You are narrowing down their thoughts saying so. They agreed provided it was back and forth.

Mr. Addy: Yes, it was said that for security purposes, the domestic market was protected by the terms and conditions prescribed, namely because there will be minimum Canadian contents, minimum standards and on top of that, they will take advantage of the access to American markets.

Mr. de Savoye: In the pro-competition model you are supporting, the recommendations made by the witnesses that we heard before you do not appear. If I understand correctly, you would like the model you are promoting to be enhanced by the recommendations made by the witnesses heard before you. Is that what you thinking?

Mr. Addy: There must be some misunderstanding, sir, because according to what I understand from the panel's report, those who have licenses in the area of services will have to abide by the regulations set by CRTC, which would include that type of obligations.

Mr. de Savoye: So you're not dealing with that issue. You are leaving it to others to ensure that the vicious effects of the model you are promoting can be thwarted.

Mr. Addy: But I am not saying that there will be vicious models. This is your dilemma.

Mr. de Savoye: You are not convinced of that. Thank you for your answer.

The Chair: Let's go over to Mr. Hanrahan.

[English]

Mr. Hanrahan: Thank you, gentlemen. I want to continue to some degree on what my colleague was saying, but I want to make it more broad, more philosophical.

I'm assuming, Mr. Addy, that you are an expert in this area. While I recognize that expertise can be narrow or broad, surely you've thought through many of these things and their effect on various aspects of the industry.

You favour open competition, as do I. You also pointed out that DTH cannot replace cable because of cost and the local aspect of cable and so forth. I would like you to answer my questions in, if necessary, a philosophical or an opinionated position rather than a technical one, if you could.

Let us say that we have this open competition in DTH. First of all, this competition, as does most competition, ends up with the strong surviving and the weak not. How do you see this having an effect on consumer prices and on their choice of television channels?

Mr. Addy: That's a very good question, sir. It goes to the very heart of one's understanding and philosophy behind competitive markets.

When you believe in the efficiencies the competitive markets bring, you have to accept that those efficiencies may result in less efficient or less competitive companies being forced out. So your focus, and indeed my focus in carrying out my mandate under the legislation, is primarily on markets as opposed to individual competitors. To the extent that the market is competitive, consumer demands will be voiced. Consumer demands will be responded to by the most competitive and innovative producer.

It may not be a price issue. It may be the product offered. Maybe somebody else has a better widget, and there will be a shift from one to the other because the first company is just sitting on its hands and isn't being consumer-responsive.

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Philosophically I think we're consistent, because I accept that there will be exit from the market. But I also look to competitive markets to foster entry of new people and to foster innovation by those who remain. That's one of the beauties and really the cornerstones of the competitive market - incumbents don't have a guaranteed right to a market share or a customer. You have to continuously earn that right. If you don't, you lose them.

Mr. Hanrahan: I would also like your opinion on how you see this affecting the Canadian artist, the Canadian artistic community and the amount of money that is going to flow to that particular segment of the economy.

Mr. Addy: As I mentioned to the CRTC when I appeared before them at the convergence hearing recently, I don't think there's an inconsistency between having a cultural objective and having a market objective. To the extent that there is a cultural objective, whether it's encouraging a domestic film production industry or some other type of domestic cultural industry, you can deal with that and have the two coincide. What's important is that when you're framing that structure, you try to focus on the mechanism that will be least intrusive of the market dynamics. That's at the general level.

With respect to this particular issue, I think the DTH panel addressed this in its recommendation by saying the licensees would still be subject to the terms and conditions that will be the means by which those cultural objectives are achieved.

Mr. Hanrahan: In terms of the grey market and the implication of the grey market on the speed at which this whole process is handled, what do you see as the relationship there?

Mr. Addy: That's one of the factors in the Hobson's choice we're facing. The longer you wait to allow DTH to enter, the longer the grey market will be able to erode some of that market.

Mr. Hanrahan: Which in turn will have an effect on Canadian content, Canadian culture and all of those kinds of things....

Mr. Addy: Yes. How extensive it is depends on the rate of erosion.

The Chair: Just to understand this, from the competition bureau's point of view, what is the official view of a grey market? It's a form of competition, but it doesn't meet other objectives. How do you...?

Mr. Addy: In this particular case it's the sale, purchase and use of that service from a unlicensed provider in Canada. The people who are buying a direct dish today are going down to Ogdensburg and -

The Chair: I know what they're doing. I'm just wondering what your view of it is as a form of competition. Is it unfair competition?

Mr. Addy: That's a tough one. There's no doubt it is bringing a competitive influence. The cost on the other side is that it may be undermining other policy objectives of government - cultural integrity in licensing and the integrity of the regulatory regime. It is a competitive influence, I agree, but it has that cost.

The Chair: I'm sorry, Mr. Hanrahan. Carry on.

Mr. Hanrahan: In terms of the consumer sovereignty in all of this -

Mr. Addy: Mr. Hanrahan, could I just add one last element to answer your earlier question that had to do with the grey market?

Mr. Hanrahan: Certainly.

Mr. Addy: If you allow Expressvu to go ahead on September 1, you're going address part of the grey market problem. The trade-off to that is whether the delay in the licensing process means that any competitor to Expressvu will be behind the eight ball in trying to capture some market share. Is Expressvu going to run in there and sew it all up so the entry barrier will be that much higher for the possible competitors to Expressvu? That's the trade-off you're trying to focus on.

One concern I would have, having participated frequently before the CRTC, is that the regulatory process itself can be used strategically. That's on the other side of the equation that one has to keep in mind. There may be some strategic use of regulatory regimes to protract them, etc. That's the other side of the equation.

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Mr. Hanrahan: I don't want to embarrass you with this question, and feel free not to answer, but in your opinion did the CRTC act correctly in its approach vis-à-vis competition?

The Chair: This will have to be your last answer, embarrassing or not.

Mr. Addy: I'd prefer not to answer it in that context. I think our submission and our support for the DTH panel address what we see as a competitive problem with the exemption order.

The Chair: We have two questioners. I want to be fair and divide the remaining time equally between them. I'm going to start with Ms Brown.

Ms Brown: Thank you, Mr. Chairman.

Actually, Mr. Addy, I'm fairly surprised by your presentation. One of the main objects of this committee is to encourage and even protect the cultural sovereignty of this country. As a public servant, I find it odd that there is no mention of our cultural sovereignty. Instead we get page after page of adulation of the efficiencies of the marketplace - theories I hope our government has been questioning since we took office.

I find it odd that this far into our mandate, you go on and on, saying consumers benefit by the struggle between firms, the winners should be determined by the marketplace, and this is great because it closes less efficient and less competitive companies. In my view, that often causes companies to lay off workers. It has no protection for our artists, the people who were here before you. You even want to remove from the CRTC's criteria for licensing a judgment on the economic viability of the applicant.

These kinds of opinions may be good in other parts of Canadian industry, but they're really giving me second thoughts about the role of your department in having a say in any of this.

The Chair: It is the competition bureau.

Ms Brown: I know, but it's out of Industry, isn't it?

Mr. Addy: Perhaps I can address that, Ms Brown.

I'm appearing here as Director of Investigation and Research. I'm statutorily independent in enforcing the Competition Act. My mandate is precisely to bring to fora such as these or to regulatory agencies a consideration of the competitive implications of the issues they're dealing with, in addition to investigating criminal offences and referring them to the AG for prosecution and bringing civil offences before the Competition Tribunal. I'm appearing here today as Director of Investigation and Research; that's my job.

To get back to your fundamental issue about the trade-off between competition and cultural sovereignty, I tried to address that issue earlier and obviously I wasn't successful in doing that. I think the two can coexist, and I think the recommendation that has been put forward addresses that by allowing, through a licensing regime, the imposition of terms and conditions that can achieve that.

What I'm trying to indicate and what I see as my role under the statute is to identify the market implications of various scenarios. As I mentioned earlier, I think you can achieve cultural objectives, and I don't question that as government policy at all. All I want to remind people of, as I've done publicly before the CRTC in the convergence process, is that when you're doing that, don't forget about the dynamics and efficiencies the market brings. Try to achieve your cultural objective without encroaching too much on the market efficiency objectives. They're quite legitimate objectives, but when you're trying to trade them off, just remember there's an implication here. You may be able to devise another method of achieving your cultural objective that doesn't quite have the same effect on the market outcome.

Ms Brown: The explanation I've just heard is much more balanced than the report I've just read, which not only tries to warn us about the implications of interfering with the marketplace and having effects we really wouldn't intend - and I think you're wise to warn us about that - but also seems to be selling the idea of the purity of the market and how wonderful it is.

But we know from the experience of the past few years that a lot of people have paid the price for that and a lot of jobs have gone elsewhere because of that.

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Somehow or other, I think the idea of both our economic and cultural sovereignty should be at least considered in presentations you make to those of us who are charged with making these decisions.

Mr. Addy: I take your point.

The Chair: For the remaining time, we will have Mr. Ianno.

Mr. Ianno: I want to go more into your role. How do you decide to participate in this issue?

Mr. Addy: The whole telecommunications evolution is one that is a priority for my office. I think it's a key priority for the economy. For the first time we're seeing a whole burgeoning.

I gather I missed some earlier discussions on the information highway, the telecommunications side and so on. While we are moving from a regulated model to a market-driven model, we have the opportunity to participate in this. This is rarely available to someone such as I, charged with competition advocacy. That's why we're spending a lot of time on this issue. It's important to the economy and it's important that we get it right.

Mr. Ianno: You just decide on your own whatever issue you want to jump in on.

Mr. Addy: There's a whole host of them. We have within the bureau a sort of priority system that we developed within the management team. There's a task force of officers dealing with a whole host of issues related to telecommunications and the information highway, and we do have to pick and choose.

Mr. Ianno: Of course, competition is your main goal and the achievement of that.

Mr. Addy: Yes, indeed.

Mr. Ianno: When Rogers decided to take over Maclean-Hunter, could you tell me the competition value on that side, how you made your decision in terms of the telecommunications industry and the betterment for competition so that the consumer could benefit?

Mr. Addy: This will take a few minutes.

Mr. Ianno: Try to do it within one because I have a follow-up.

Mr. Addy: Okay. The transaction was examined within the context of the merger review provisions of the act and did not contravene any thresholds there. Under the legislation, mergers are not presumed bad as opposed to price fixing and market sharing; mergers are exceptionally bad. There are provisions in the statute, factors we have to consider, and a legal test we have to meet before I can challenge one, so it was below that.

The Chair: When you speak of mergers, let me understand the English language here. When you say mergers are exceptionally bad, you don't mean that they're even worse than -

Mr. Addy: I am sorry. They're bad by exception.

Mr. Ianno: The reason I asked about when you decide to jump in or not...my understanding is that the cable industry in effect has monopolies in terms of regions. Is that correct?

Mr. Addy: That's correct.

Mr. Ianno: In other words, I don't have a choice as before between Maclean-Hunter or Rogers. How does this fit in with your competition, and why did you decide not to participate in this issue?

Mr. Addy: Simply put, sir, the regulatory regime allows for the creation of regional monopolies. All you're talking about is changing the ownership from one monopolist to another. The impact on the marketplace is neutral.

Mr. Ianno: My point is that since you are concerned about competition and you decide on your own when to jump in or not, my constituents as consumers are concerned at times that they have no choice regarding cable. They either accept Rogers, Shaw, or whatever else is there, and it's not like anybody can compete for their service. Why has it taken so long? How long has this process been in place in terms of regional exclusivity?

Mr. Addy: Since they started licensing cable, and I forget how long that is.

Mr. Ianno: It's about 20 years. I don't know the answer. How long have you been in the role you're in?

Mr. Addy: Since I was appointed in December 1993.

Mr. Ianno: Has your body looked at any of that in the past?

Mr. Addy: There is a principle of law that maybe I should explain. The Competition Act is framework legislation, and it will not apply where there is specific regulation and law in place that displaces it.

To the extent that the government articulates policy in a more focused fashion rather than a generic framework legislation, by putting in place a regulatory regime that would allow for regional monopolies and cable in this instance, our act is displaced.

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Mr. Ianno: In other words, the CRTC with this issue here doesn't fit that point, in terms of a regulatory body that determines....

The Chair: I must intervene to ask Mr. Ianno if he can bring this to a conclusion. We're running short of time.

Mr. Addy: If I can answer it sort of in the positive fashion, the way we've addressed it is by intervening before the CRTC and saying to hurry up with DTH because we want consumers to have a choice, and allow telcos to get into the business as well.

Mr. Ianno: I'm slightly confused. I'm trying to follow your words, which basically state that where there is no regulatory body, then you determine to participate. Maybe I'm missing something, but is the CRTC a regulatory body?

Mr. Addy: I guess we're confusing participation and application of the law. If there's a regulatory body that exists, I can't apply the sections of the legislation I'm responsible for with respect to those activities.

Mr. Ianno: Does DTH constitute that?

Mr. Addy: No. That's the issue.

Mr. Ianno: Mr. Chairman, I'm trying to finish up.

Why did you decide on this one, since it doesn't apply to your normal procedure?

Mr. Addy: That's why I did intervene on DTH, because I see it as an opportunity to create competition against the cable companies, and it is not regulated.

Mr. Ianno: I go back to my original statement, Mr. Chairman, which is back to my cable subscribers and my constituents. Since there is no competition, they have to take the Rogers, Shaw, or whatever else. Why have you not jumped in on that?

Mr. Richard Annan (Commerce Officer, Mergers Branch, Bureau of Competition Policy, Department of Industry): I think there's a technical answer to that. The CRTC decided, I think in the early 1970s, to grant cable licences on an exclusive basis primarily because of the expense of creating a cable system in a particular area.

Mr. Ianno: So financial consideration is something.

Mr. Annan: In economic terms it would be called a natural monopoly, in essence. They were saying that a local market couldn't support more than one supplier because of the cost of ripping up the sidewalks and the roads, laying down the cable and so on. They thought it was in the best interest to create exclusive licences and then regulate them.

Mr. Ianno: Did your body object to that at the time?

Mr. Annan: That was 20 years ago, before my time. The point I'm trying to get across is that in our view, that's changed dramatically. Now you have wireless technologies like DTH and you have the potential of competition from -

The Chair: I have to wind this up. I have to exercise what remaining pathetic authority I have to regulate this conversation.

Thank you very much for coming before us and bringing some very important insights to our process.

We'll take a break to change the witnesses.

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PAUSE

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The Chair: May we reassemble ourselves once more to the breach, dear friends. This is our last witness until 3:30 p.m.

Ms Brown: How long is it going this afternoon?

The Chair: Until about 6 p.m.

Ms Brown: The good news is, Mr. Chairman, that the House is sitting for as long as it takes tonight, and not shutting at 11:30 p.m.

The Chair: There are no votes tomorrow.

Ms Brown: I don't think so.

The Chair: Ladies and gentlemen, we'll pull ourselves back together.

We're delighted to welcome the Expressvu army, which I see before me. How many do we have here?

[Translation]

We welcome Mr. Gourd and his team.

[English]

It gives us a particular pleasure because your name has seldom been absent from our considerations nor thoughts. We are delighted to have you appear before us. Mr. Gourd and I have chatted.

There is a long text, which we will accept as an exhibition. It will not be part of the written record, but it will be available to all committee members as a document for consultation. Of course, individual members will have received it as well.

In the interests of time and questions, I'm going to ask Mr. Gourd to give us a résumé so that we can get into the questions.

[Translation]

Mr. Alain Gourd (Chairman of the Board, Expressvu): Thank you, Mr. Chairman.

As chairman of the Board of Expressvu, let me say how pleased we are to have been invited to briefly give you our views.

I would like to introduce the members of our group. First things first, Mr. Ted Boyle, president and chief executive officer; Mr. Chris Frank, vice-president of government and regulatory affairs; and Mr. Marc Lacourcière, Expressvu's corporate secretary. Mr. Lacourcière is also vice-president in the BCE group of companies, and is a former partner of the law firm Fasken Campbell Godfrey.

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Let me also introduce, from the law firm McCarthy Tétrault, Mr. Anthony Keenleyside, the managing partner of the firm's Ottawa office, who practices with that firm's communications group; Mr. Gérald Tremblay from the firm's Montreal office, who is also the president of a Quebec region of the firm. Our lawyers and Mr. Lacourcière are here to answer any questions of a legal nature you may have.

Mr. Chairman, rather than read our presentation in extenso, we'd like it to be taken as read. However, please let me read a small part of it.

[English]

This extract I wish to read is on page 2 of this presentation. I will then give the floor to Mr. Boyle.

On page 2 we say, and I am reading, that when Industry Minister Manley rose in the House of Commons on November 29 last year to comment on the formation of the DTH policy review panel, he said:

Lest you think that this statement has been taken out of context somewhat, I have with me the entire transcript and would be very happy to table it with the committee.

In having taken the minister's statement seriously, Expressvu acted in good faith and proceeded under the terms of the CRTC exemption order of last August to implement its business plan.

Mr. Chairman,

[Translation]

having said that, I will sit down. We know you have a number of questions. When we appeared before the Senate, I was told that I was perhaps a bit too communicative, as all Latin people are. In the interest of brevity, I now ask Mr. Ted Boyle to make his presentation. Thank you.

[English]

Mr. Ted Boyle (President and Chief Executive Officer, Expressvu): Good morning, Mr. Chairman and members of the committee.

Our message to you today is straightforward. Expressvu has made a commitment to Canadian consumers to offer a real alternative to cable television and to U.S.-originated grey market services. In this context, we have announced our service launch for this September. This is a date we intend to keep because the market conditions are ripe for a timely entry.

The combination of consumer hostility to the cable monopoly and the quality and diversity of our service have created enormous demands for our Expressvu product. Noting our advantage over cable, a group led by the president of their industry association, Richard Stursberg, recently stated:

Always knowing this to be true, we have worked hard over the past several months to get up and running this fall in time to meet rising consumer demand.

It is also useful to note that Expressvu is not a continuation or extension of an existing monopoly. The record is quite clear. None of Expressvu shareholders are from the cable industry. In fact, a little history might prove useful here.

A year ago, when certain members of the cable and broadcasting industry formed a consortium to develop a Canadian DTH alternative to DirecTV and USSB, Expressvu's current shareholders split with cable and some of the broadcasters over the issue of competing with cable in their licensed areas. Cable and some of its allies in the programming industry wanted a moratorium on selling DTH services within licensed cable franchise areas. We strongly opposed this barrier for obvious business and legal reasons. We split with the group and formed Expressvu. The other group has created CableSat, a consortium against which we will compete and whose presence, due to their marketing power, is large and frightening.

Given our track record to date and our urgency to begin to compete with cable, you can imagine why we are concerned now that the cabinet is proposing quite specific directions that would fundamentally change satellite TV rules halfway through the game. These are the same rules that made the creation of a Canadian digital satellite TV service possible. These are the rules that were the catalyst for Expressvu's formation, for the investment of millions of dollars in a new Canadian service exclusively owned, controlled, managed by and serving Canadians. These are also the rules upon which Expressvu based its public consumer commitment of a September launch date.

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Now that these CRTC rules hang in the balance, much is at stake for our new business. Much is at stake for the consumers who want choice. Much is at stake for the future of the Canadian broadcasting system, and indeed, much is at stake for the government.

That is why Expressvu has sought an understanding of its legal rights. We obtained formal opinions as to the legal implications of certain aspects of the proposed government policy from two of Canada's premier law firms. Copies of these have been tabled with the committee for your review. Based on these opinions from respected national firms, Expressvu understands that the part of the direction to the CRTC to immediately revoke the existing CRTC exemption order is illegal. It is as simple as that.

What I am referring to is section 4, which has the effect of requiring the CRTC to repeal, in its entirety, the existing exemption order under which competition was introduced and Expressvu began its corporate life. Section 4 would also require the CRTC to do what is necessary to shut our company down unless and until it obtains a licence.

Mr. Chairman, we have been advised that there has been so much uncertainty surrounding these matters that the timing for the issuance of licences is anyone's guess. For the record, you should know that Expressvu is not against open public licensing processes. Indeed, our view has been that licensed competition is fair competition, whereas retrospective competition is unfair competition.

Specifically, Expressvu believes it is inappropriate to retroactively remove the exemption order, which could have the effect of forcing us to break our September commitment to consumers, more than 10,000 of whom have phoned our 1-800 number and have been told by Expressvu that we will launch in September. We don't want to break our promise to these people, and we don't think it's fair that we should have to suffer such an embarrassing reversal of our most important corporate credibility milestone - our launch date.

Expressvu is 100% committed to an on-time launch, because any delay could cause seven unfortunate consequences. Delay could stall millions of dollars in new Canadian manufacturing value, new manufacturing jobs and the creation of a new advanced technology consumer electronics industry, now being built for Expressvu by Tee-Comm and IBM's Celestica. It could compromise the work Expressvu has done in obtaining satellite space and Canadian programming. It could delay offering Canadian programming where close to 90% of the channel line-up will be Canadian-licensed services in both official languages. It would delay the 40% of Expressvu's revenues that will go to programmers, delay the 95% of Expressvu's payments for programming services going to Canadian service providers, and effectively give one of our competitors an even bigger head start as the number of grey-market subscribers to its American services continue to increase, allowing the conversion of even larger numbers of its subscribers to its Canadian service upon licensing. Finally, delay would allow the cable industry to further extend its monopoly, both in terms of its wire customers and with CableSat.

We have heard from government witnesses who have appeared here and said that if parties can propose workable alternatives to the documents now before Parliament, they're prepared to listen. We're encouraged by this. We take it at face value and we appear here before you today in a constructive spirit. But let there be no misunderstanding, Mr. Chairman - Expressvu will do what it believes is necessary to protect its legal position.

Expressvu's business plan is predicated on the maximum use of Canadian facilities and service providers. To that end, we have conducted extensive negotiations with Telesat, Canada's satellite carrier, to obtain satellite transmission capacity designed to give consumers in every part of this country universal access to our service.

We and our shareholders and suppliers have also negotiated and signed multi-million-dollar agreements with Canadian advance technology companies that will manufacture, in Canada, the digital receiving equipment Expressvu subscribers will require. Of particular note is the financial commitment of a $100 million contract with Celestica of Don Mills, which will produce Expressvu's set-top boxes, by far the most complicated and expensive element in our consumer based product.

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Not only are there domestic manufacturing and sales possibilities here, but significant export potential for this product exists as well. The latter stems from our technology choice, which is the worldwide standard for delivering video and audio signals to televisions, stereo systems and computers. This standard is being embraced by electronics manufacturers, satellite broadcasters and telephone companies around the globe.

We have been and are still negotiating with numerous Canadian and American programmers in an effort to assemble an attractive programming package of maximum appeal to subscribers. Negotiating contracts of this type is an ongoing process, yet to date Expressvu, its shareholders and suppliers have actually signed contracts or obtained commitments involving more than $200 million. Our shareholders have also collectively committed $55 million to the company.

These arrangements have been negotiated on the basis of two key assumptions in our business plan: commencement of the service in September, and provision of services to Canadians in accordance with the competitive model spelled out by the independent regulator.

We acknowledge that government has the power of broad policy direction under the Broadcasting Act, and we understand its belief that a licensing regime may be preferable to the exemption route. What we have great difficulty in accepting, though, is that our business plans and consumer commitments should be put on hold for an indefinite period of time until some other party, one that is not yet committed to Canadian facilities and service providers, is allowed to gain unfair grey-market advantage. That other provider is Power DirecTV.

Frankly, Mr. Chairman, we do not think they have levelled with the Canadian people. Consider the following: we have told you the status of our negotiation with Telesat for signal delivery, with the Canadian manufacturers of our set-top boxes, and with our programming suppliers. What has Power DirecTV told anyone about when its service will actually be ready to start?

The CRTC has actually had a DTH licensing policy in place since 1984, well before the exemption order or Expressvu were ever conceived. Don't forget that the exemption order operates as an exception to the licensing policy. Why has Power DirecTV never applied for a licence from the CRTC under that policy?

However, after much soul-searching, Mr. Chairman, we have come to the conclusion that a regime in which some players are licensed and others are exempt would not be in the public interest and would simply confuse Canadians. Accordingly, as a reasonable alternative proposal, we are proposing a short transitional process.

We recommend that the exemption order remain in place for any entity that qualifies under it, including Power, subject to one new condition: that such entities respond to any call for DTH licences that the CRTC might issue, which appears to be contemplated in paragraph 6 of the proposed order. We would be pleased to circulate our specific wording if this would be helpful to you in your deliberations.

The Chair: I think it would be, Mr. Boyle. Feel free to circulate it.

Mr. Boyle: Okay. We'll do that at the end.

The practical effect is that Expressvu would launch on time in September as planned, and under the exemption order, but would undertake to respond to the commission's call for licensed applications. That means that when the licensing process is completed, the exemption order could be revoked by the CRTC of its own motion and all affected players would then be under a licensing regime.

This proposal is a reasonable alternative on Expressvu's part. After all, we have legal advice to the effect that immediately revoking the existing CRTC exemption order is illegal and, hence, unenforceable. A licensing regime is clearly less certain for us, because until the CRTC issues a favourable decision we will not know for certain what the specific rules of the road will be for us as a DTH licensee. This could have a negative impact on our business plan. However, on balance, we prefer the licensing regime to the delay associated with litigating the legality of the proposed orders.

Mr. Chairman, I'm a businessman, not a lawyer. We want to give Canadians a choice in television viewing that they want and deserve. We hope that if all the parties bend a little, the public interest and the Canadian interest will be served. If we do that, Canadians will have an alternative to the grey market and the cable monopoly in three and a half months. A competitive model envisioned in the report of the policy review panel will be attainable, and the government preference for a licensing regime can be fully entrenched early next year.

Thank you for your time and attention, Mr. Chairman and members of the panel. We'd be pleased to respond to any questions you may have.

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The Chair: Before I turn to questioning, there's just one clarification that may be clear in the document you will circulate to us. The distinction between your bid and that of Power was the satellite issue. Are you willing to waive that question if you both went under the exemption order? That was the deal-breaker, as I understood it.

Mr. Chris Frank (Vice-President, Government and Regulatory Affairs, Expressvu): Perhaps I can clarify that question, Mr. Chairman.

The Chair: You see what I'm getting at. In other words, if you just leave the same conditions in place it doesn't do any good to Power because they're ineligible for the exemption.

An hon. member: That's the point.

The Chair: I'm just trying to make sure that is the point.

Mr. Frank: The solution we're proposing formally in our presentation has to do with the direction. It doesn't have to do specifically with the exemption the CRTC issued. While we're very interested in creative solutions to this problem so that litigation does not become a situation, we believe it would be inappropriate for us to comment on matters such as the exemption policy that are the responsibility of the independent regulator.

The Chair: So if a direction order from the government stipulated that the satellite problem wasn't a problem and should be changed in the exemption order, you'd accept that, would you?

Mr. Frank: That's a matter more properly discussed, I think, between the government and the CRTC in their final round of consultation. I'm saying that as businessmen, we are looking for fair solutions. We would support fair solutions. But as to commenting publicly on whether the exemption order should be modified, I think it's inappropriate for this company.

The Chair: I thought I'd try.

[Translation]

Mrs. Tremblay.

Mrs. Tremblay: Good morning, sirs, and thank you very much for your presentation. Of course, we have many questions to ask you. I will try to be brief and ask short questions, simply for my information. You might give us short answers.

I might be imagining things, but it seems to me that the first time the text of the exemption was published, there was no question of satellites. The first time that the conditions were set, there was no mention of satellites.

Mr. Gourd: I'll ask Mr. Lacourcière to comment on this and then I'll ask Mr. Keenleyside to read the specific text of the agreement we're proposing.

The Chair: Please.

Mr. Marc Lacourcière (Secretary to the Board, Expressvu): The exemption project published by the CRTC included the same provision as the final exemption, and I think that Mr. Keenleyside has the text with him.

The provision concerning satellites has not been modified between the exemption project published by the CRTC and the final version of the exemption published a few months later.

[English]

Mr. Anthony Keenleyside (Managing Partner, Ottawa Office, McCarthy Tétrault): The wording in the original proposed text is not identical to the wording in the final text of the order; however, it was quite clear that what was contemplated was exclusive use of Canadian satellites. In fact, DirecTV, not Power DirecTV, filed a written intervention with the commission during the comment stage and specifically objected to this. They were under no illusions that it was exclusive satellite use.

I'll just refer to this proposal we mentioned before. It's the second document on Expressvu letterhead dated June 2 in the grey folder. On page 7 there's a proposed amendment to the current direction to the commission on DTH satellite distribution undertakings. It's the 4(b) section that we say is retrospective. I'll just read it into the record with the emphasis on what we're proposing to change. We're suggesting that the wording should be amended to read:

These are the words we propose to add: ``following the conclusion of the licensing process referred to in paragraph 6 of this order''.

So what we're contemplating is a two-, three-, four-month dual-track period where the exemption order stays in place but a call for licences is issued. Expressvu and everybody else responds to that call, the commission issues licences, and at the end of it, the exemption order in effect becomes spent and could be revoked by the commission at that point.

The Chair: But Power might come in under an exemption order as you are then in that period.

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Mr. Keenleyside: Under the exemption order, if they qualify...as I understand their proposal, they don't qualify.

Mr. Boyle: Just on that one point, we heard from Power DirecTV that they have a plan for Canadian programming on Canadian satellites and American programming on American satellites, and it's the lack of the second half of their service that would cause them not to have a whole service and hence be a non-viable business.

It would certainly be my view today that the direction government is going in is such that it is highly likely that under the exemption, the first half of the service could be put up as early as this fall, with the second half of the service arriving by December or January based on comments made earlier in front of this panel. As a businessman, if I had the power that Mr. Bell has at Power DirecTV, for example, I'd be doing that to short-circuit the market and get there first. But we're puzzled, in effect, by his lack of wanting to split what he plans to do anyway and doing it sooner rather than later.

The Chair: We'll have a chance to understand his motives better when he comes before us this afternoon.

[Translation]

Mrs. Tremblay.

Mrs. Tremblay: If the orders are approved as they stand, they will go to the CRTC, which will have to undertake a series of public hearings in order to grant licenses to those wanting to set satellite businesses.

If the CRTC did announce such hearings, would you be prepared to go before it quickly? However big Canada is and however well secrets are kept here, we all know that there are two companies wanting to set up a business: Expressvu and Power DirecTV. We do not know yet who the others are, and I would not be surprised to see them popping up like mushrooms.

Would you be prepared for a very short timeframe in which to appear before the CRTC?

Mr. Gourd: Mrs. Tremblay, we are ready to go into business in September and at the same time to appear before the CRTC to obtain a license; this is the essence of the compromise we proposed.

I would also like to add that there may be a third competitor.

Mrs. Tremblay: Oh, really?

Mr. Gourd: The cable industry, as Mr. Boyle mentioned, has set up CableSat, and we do not yet know whether it will become a DTH or not. If you have satellite programming and at the same time can link the cable and DTH satellite market, once you have paid your satellite costs, it would be logical to go for both markets. I cannot say what their intentions are, but there may well be three services.

Mrs. Tremblay: If the order is published as it stands - people mentioned competition - Power DirecTV will have the advantage over you. It will cost it less, because it will make use of its American satellite. Do you intend to set up a joint venture with someone in the States to be able to enjoy the same advantages?

Mr. Gourd: Indeed, we believe that Power DirecTV will enjoy that advantage and also have the advantage because it has the grey market.

Mrs. Tremblay: It created it.

Mr. Gourd: DirecTV from the States provides the service. Therefore, yes, they will have an advantage, but we came up with a Canadian project and want to provide all French programming as of September. We want to very quickly offer all English Canadian and multilingual programming and we propose to implement our business plan as of September.

Mrs. Tremblay: I want to share my time with my colleague.

Mr. de Savoye: What an extraordinary colleague I have.

The Chair: Indeed.

Mr. de Savoye: In your text, Mr. Boyle, you say you are going to produce Expressvu's set-top boxes in Don Mills, and that they are a technology choice based on a world-wide standard for delivering video and audio signals.

I was told yesterday by another witness that Canada was not in a position to directly participate in the selection of a world standard at this point.

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What you tell me suggests that it is possible to make choices, and to make sure that these choices will be the right ones.

Could you clarify this for us?

[English]

Mr. Boyle: We did not set the world standard. We were the first in North America to adopt the ISO world standard. It's called the MPEG 2 DVB standard...more details to follow if interested, but it's a complicated thing. It's based on digital signals used for video and audio delivery as opposed to the traditional analog signals that drive our television sets today. Others such as South Africa, Hong Kong, Britain are following along. The Deutsche Telekom, which has 12 million subscribers in Germany, is employing this system; companies like Nokia, Philips, Panasonic, Toshiba are all building to this new standard.

We recognized it early as a tremendous opportunity for us. If we chose a technology that was open and searched for Canadian manufacturing firms capable of building this technology on the basis that new technologies generally get better built in North America before others begin to copy them and move the product manufacturing overseas, we could have a ``made in Canada'' product.

There were a couple of good reasons for this: first, we thought it would help us sell the product, and second, we thought we'd be a lot closer to our supply lines. We wouldn't have to wait for boats from Korea to bring the stuff to us and hence have a slowness in getting the product we needed. We knew we had to move quickly to get the product. That's the rationale.

Mr. de Savoye: The reason for my question yesterday - and you seemed to imply that I had a good question - is the very fact that we would promote a standard that is universally adopted. What you just mentioned led me to understand that we took a lead on this. It will do two things: first, it will give us a capacity to export our technology, and second, it will give our consumers a better choice.

Let's say Power DirecTV would adopt the same technology. That means with the same equipment, I can just decide tomorrow morning to go with Power DirecTV because I don't like your programming, or because they're cheaper or whatever. Actually, I feel that you have an open technology; they will have a closed technology, and if I go with Power DirecTV, after having made that choice, I'm caught with them. If I want to switch to some other supplier I will have to spend another $1,000.

Mr. Boyle: That's right.

Mr. de Savoye: So your offer, as I understand it, is a better offer to protect the consumer in Canada and to create jobs in Canada. How do you react to that?

The Chair: This will be your last reaction to this set of questions.

Mr. Boyle: That's exactly why we did it. We felt we had a unique opportunity to ``Canadianize'' the product top to bottom to the benefit of the Canadian economy - and, to be honest, to Expressvu's benefit. One cannot argue that by using IBM's plants, you're going to have a bulletproof product that the consumers will accept, and you know it will be built properly. It was critical to us that we have a product from day one that would work and work well so that we would be able to build a business and end up with a substantial number of subscribers. The side benefit clearly is jobs, no question.

The Chair: I'm going to have to declare a conflict of interest here because the Celestica plant, of course, is in my Don Valley West riding in Toronto. I've put that on the record.

Mr. Hanrahan: In your presentation you listed seven areas that delay would cost you in terms of income. From what we understand from other witnesses, the grey market is apparently expanding at a very fast pace, and you suggest this is going to help the cable industry and your competitor, Power DirecTV. Could you expand on that to some degree?

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Mr. Boyle: Because of the choice of technology by these Canadian consumers who want enhanced television and who have bought the DirecTV system from the United States, Power DirecTV has the ability to obtain subscriber lists from dealers and distributors and offer to those people TSN, CBC Newsworld and the other Canadian services we know Canadians want very much. Hence Power DirecTV can convert these subscribers to a system that looks at the two satellites, Canadian and American, with their two levels of service.

What I can imagine will happen at some time after licensing, when Power DirecTV is prepared to enter the market from a technology point of view.... We're hearing in statements made by them that they haven't spent a lot of time or money on research and development on their technical side and may be a little slow, even once licensed, getting into the market. But nonetheless, they will be able to go out and offer this upgraded level of service and hence repatriate this grey market on their own. Clearly we can't get at those subscribers, because they've already made the $1,500 or more commitment for their proprietary technology. They're their subscribers to convert, not ours.

So the level playing field, which has been presented by some as having both services starting at the same time, has us starting with zero subscribers and them starting with 40,000 or 50,000 that they can immediately convert within a month or so. To us that's not a level playing field.

Mr. Hanrahan: You use the figure of 40,000 to 50,000. Others before us have said it is at least ten times that number. They also suggested the increase in the grey market would ultimately make this whole argument redundant - that it would be impossible to have a Canadian satellite direct-to-home TV industry or any kind of Canadian content or whatever. Are you suggesting that the grey market can be recaptured by Power DirecTV?

Mr. Boyle: That's our contention, but I think there's some confusion on the numbers. Ten times the number? There are approximately 500,000 satellite dishes in the country. Most of them are the big dishes. We think 25,000 or 30,000 DirecTV dishes exist in Canada today. By the time they're licensed - and I'm referring back to a speaker you had before you sometime in December - they might have 40,000 or 50,000 subscribers. Of a 500,000-dish universe, 450,000 clearly are the large dishes that people use today to get the old-style, analog services off satellite.

Mr. Hanrahan: So really there are two levels of grey market: the big one and the little one.

Mr. Boyle: Absolutely.

Mr. Hanrahan: And you're suggesting we can get back the small one. What's the hope of getting back the large one?

Mr. Boyle: I think the hope of getting back the large one is extremely strong. The reason I suggest this is that while we were at Tee-Comm Electronics, in cooperation with Canadian Satellite Communications, Cancom, we mounted what was in effect a trial run of this business in an analog world. We went out into rural Canada in 1992 and 1993 and offered a six-foot satellite dish that looked at the Canadian satellite and saw TSN, MuchMusic, Newsworld, and Cancom's services from across the country - ITV Edmonton, BCTV Vancouver, etc.

The result was that we doubled the number of Cancom subscribers in eight months. It took Cancom eight years to get 12,000 subscribers because they had to wait for satellite dealers to do it on a reactive basis. We had them up to 24,000 in eight months. What we did was what we plan to do with Expressvu: aggressive, door-to-door sales in under-serviced Canada by satellite dealers and retailers who are committed to a Canadian product.

The feedback from the people who have been out there, who have said that the six-foot dish is a little big and the product line-up at twenty channels is a little light, is that if you go out with a satellite dish in the range of eighteen inches to two and a half feet and a 100-channel package that's mostly Canadian, you will do extremely well. So we have real research - door-knocking in rural Canada.

Mr. Hanrahan: That's encouraging. I'd like to carry that one further, but our time restrictions don't allow it.

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Let me ask you this question. If in fact it came to pass that there was a delay and you could not start up on September 1 for whatever reason, and you had to start up at the same time as Power DirecTV, understandably you would lose a fair amount of income. But would it be sufficient to destroy the competitive nature so that you could not start up in December or January or whenever?

Mr. Boyle: If the launch is delayed, there are costs. The biggest costs are more likely the costs in market share.

We think cable is our competitor today. We think to some extent Power DirecTV is on our side in this one. It's the cable industry that people want a choice in, and we're anxious to compete with that industry. The consumers are anxious to see us compete with the cable industry. I have no doubt you've heard that in your deliberations here.

Any delay would cause the cable industry to have more time to gird their flanks to prepare for the entry of the satellite group as an industry. Clearly the other member of the satellite group today, Power DirecTV, would have more time to gain grey-market subscribers to be converted. So the only one disadvantaged by delay is Expressvu.

Mr. Hanrahan: But you'd still be able to compete?

Mr. Boyle: I'm suggesting there would be a substantial, unfair loss of potential market to others.

Mr. Hanrahan: So on the one hand you have cable, on the other hand you have Power DirecTV, and you feel you're being squeezed in between.

Mr. Boyle: That's right.

Mr. Hanrahan: Let me ask you one final question. I think you had mentioned in your brief - there were so many papers I got a little bit confused - that you have no connection with the cable companies whatsoever. Does Shaw or Astral have any influence or concerns with Expressvu, or did they in the past?

Mr. Gourd: Neither Astral nor Shaw has any equity, any board members or any influence on Expressvu.

Around May of last year BCE, WIC and Cancom were within a partnership that used to be called DTH Canada. Expressvu did interface with Astral, Shaw, Rogers and CFCF to see if there could be a way for us to get access to programming, because they had a lot of programming services on their side. But we could not reach an agreement, particularly around our desire and intention to promote our services in cabled areas. When it became crystal clear that BCE, WIC, Cancom and then later Tee-Comm would not move from that decision to offer the Expressvu services in the cable market, Shaw and Astral did not become shareholders or partners.

Mr. Lacourcière: I would just like to add one comment. You mentioned Rogers and Shaw. I want to make it clear that there is no cable company anywhere in the world that is any way connected to Expressvu. There are four publicly declared shareholders: BCE, Cancom, WIC and Tee-Comm. I think it's evident to anybody who knows this industry that BCE and Tee-Comm are not friends of cable, and it wouldn't come as any surprise to anyone that they are not in any way related to our company.

Mr. Hanrahan: For the record and just to be clear, other than your interfacing with these cable companies, there has been no other relationship - financial, market-sharing or anything along these lines whatsoever. There never has been and there is not now.

Mr. Lacourcière: None whatsoever.

The Chair: Thanks very much.

We have about ten minutes left. Mr. Ianno wants to say something and I have a couple of quick questions.

When the first predecessor alliance to what is now Expressvu was proposed about a year ago, what was the role of the CRTC in encouraging the development of that alliance? How active a role did they play?

Mr. Gourd: Since Mr. Lacourcière and I were involved in that, I can convey to you that there was no intervention.

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The Chair: Formal or informal, by any person of the CRTC?

Mr. Gourd: That's correct.

Let me do a bit of history. The first partnership agreement was between BCE, WIC and Cancom. I believe anybody who knows the industry a bit can understand that the entry of BCE into broadcasting, through direct broadcasting satellite, was received as quite a shock. Also, I believe that anybody who could seriously believe that Expressvu, where BCE and Tee-Comm together have 66% of the vote and therefore are entering the broadcasting industry...well, anybody can understand that it was not well received at all by the broadcasting world.

Then when we decided to interface with cable and some programmers, it was the issue of access to programming that was preoccupying us. But access to programming had to be put together with the delivery of the services to the cable and non-cable markets. When that second issue could not be resolved, the final agreement was concluded between BCE, Cancom, Tee-Comm and WIC. That's how it happened.

The Chair: If there is indeed a grey market that is now a DirecTV market of 30,000 or 40,000, presumably under the proposal we hear they're putting forward, there would have to be a cost associated with retrofitting both the dish to pick up two satellites and the box to reprogram the capacity to receive the two channels. It would not, in other words, be a simple flick of a switch by any means.

Mr. Boyle: It would not be a simple flick of a switch, but it would not be a great expense either.

The Chair: For either of those elements?

Mr. Boyle: It would certainly be well worth the revenues that would come directly to Power DirecTV.

The dish would be changed to a slightly larger dish with a dual feed, widely seen in Europe, where they have lots of satellites that people pick up with this size of dish. Second, there would be a new card for the front of the box, one that said ``Power DirecTV'' on it as opposed to ``DirecTV''. For the back of the box there would be a change in their computer software to allow the feeds from the two satellites. Our engineers tell us it should be that simple; it should be a half-hour or 45-minute change and would hence not be very expensive - well worth the investment.

The Chair: Thank you.

Mr. Ianno.

Mr. Ianno: I want to start off with your references to the minister getting up on November 29 and stating that this is in no way to overrule or set aside the CRTC decision with respect to the exemption order. Can the minister overrule or set aside the CRTC decision?

Mr. Lacourcière: It's my understanding that under the Broadcasting Act the government cannot overturn an exemption order.

Mr. Ianno: So in effect the minister was just stating the obvious, right?

Mr. Lacourcière: One would expect that. One would also expect that he was stating it is the government's policy to leave the exemption.

Mr. Ianno: Or just to state the obvious, right?

Mr. Lacourcière: That's your statement.

Mr. Gérald R. Tremblay (Partner, Montreal Office, McCarthy Tétrault): Forgive me for a second. I think the important fact is that there was a hint even in the paper presented by Mr. Addy that we took our risk knowing the matter was under review.

Mr. Ianno: I didn't get that hint.

Let me go back to my question, if you don't mind, because I have limited time. The order was issued on August 30, 1994, and the government announced its intention to review DTH policy on September 12, 1994.

Mr. Lacourcière: That's correct.

Mr. Ianno: So when we got to November, what the minister did, according to how I tie the items together and taking into account what you said, is basically state the obvious: they're not setting it aside, but because it was mentioned earlier that they were going to review it, you knew many aspects of the order could be dealt with. Is that correct?

Mr. Lacourcière: The ``stating the obvious'' conclusion is your reading of the -

Mr. Ianno: Right, of course. It has to be, because it's a difference of opinion.

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Do you believe that the Government of Canada has the right to determine broad policy regarding the CRTC?

Mr. Lacourcière: That is its authority under section 7 of the Broadcasting Act.

Mr. Ianno: Considering that DTH is a new system to Canadians, do you think that would be a broad policy?

Mr. Boyle: I'd argue if it's a new system to Canadians. There are 500,000 satellite dishes in the country, but to -

Mr. Ianno: Right...Canadian policy regarding the CRTC, in effect, a new regulatory approach, because the rest is what they call grey market, right?

Mr. Boyle: No, from 1984 - in fact earlier, 1983 - there were a substantial number of Canadians watching Canadian satellites, Canadian programming, quite legally.

Mr. Ianno: Regulated by the CRTC?

Mr. Boyle: Yes.

Mr. Ianno: I see. So since 1984, when the CRTC came out with the DTH licensing policy, that was in effect when they made the decision but they had no takers. Is that correct in terms of the process?

Mr. Gourd: There have been Canadian direct-to-home undertakings for at least a decade.

Mr. Ianno: I see. So when you referred to the 1984 DTH licensing policy being in place, and the exemption ruling also there, you said that Power DirecTV never applied for a licence from the CRTC under that policy. You were asking the question of why. Did Expressvu?

Mr. Frank: Expressvu didn't exist at that time.

Mr. Ianno: I see. Power DirecTV did exist in 1984?

Mr. Lacourcière: I'm not sure when they came into existence.

Mr. Ianno: I see. So in other words, the question you asked - why has Power DirecTV never applied for a licence from the CRTC under that policy, especially since 1984 - applies also to you, right? There's no difference.

Mr. Gourd: I would like to clarify that both Power DirecTV and any other could have either used the exemption route or applied for a licence since last August -

Mr. Ianno: Oh, not since 1984?

Mr. Gourd: - and could have also done that prior to the -

Mr. Ianno: But you did not do it, right? Expressvu did not do it.

Mr. Gourd: Cancom had direct-to-home undertakings under that regime. Expressvu was created in December 1994 -

Mr. Ianno: Right.

Mr. Gourd: - and when Expressvu was created, it decided to go the exemption route -

Mr. Ianno: I understand the rest of the story. I guess I look at the words you present to us -

Mr. Gourd: Our wording is correct. It's correct because technically anybody could have filed for a licence before the exemption order and after the exemption order.

Mr. Ianno: Right, and since neither of you did since 1984, I understand that.

The next question I have is -

The Chair: This will have to be heading into the home stretch here.

Mr. Ianno: I understand. Since you took a lot of the time, I understand.

What is the percentage of Canadian programming that you are negotiating right now? What percentage will be Canadian?

Mr. Boyle: A substantial number of Canadian services are Canadian. We have in effect a 100-channel line-up, and 15 of the services are U.S.-based.

Mr. Ianno: Does that mean 85% will be Canadian?

Mr. Boyle: Yes. Until the CRTC approval list changes and new services are added, both American and Canadian, that's how we'll be starting our business.

Mr. Ianno: So in other words, out of the 100 channels you will be supplying, I will be able to order 85 channels that are Canadian.

Mr. Boyle: Because of the pay-per-view component and the audio component, yes - 75 video and 25 audio. So of 75, 15 are American services from a video point of view.

Mr. Ianno: From a video point of view, how many are Canadian? Did you say 50?

Mr. Boyle: It's 60.

Mr. Ianno: And they all exist?

Mr. Boyle: They all exist.

Mr. Ianno: I see. How are you attaining the American ones?

Mr. Boyle: We have several sites across Canada in cooperation with owners and others in our corporate group: Edmonton, Montreal -

Mr. Ianno: Will it come from the U.S. satellite and be beamed back up to the Canadian?

Mr. Boyle: It comes off air. In some cases it's received from a broadcast tower and then put into the service. In some cases it may come to us by fibre optic cable.

Mr. Ianno: But it's still coming from U.S. satellites, right? It's just received somewhere.

Mr. Boyle: No, not necessarily. Some of the U.S. services come off air and some -

.1230

Mrs. Tremblay: Let him give his answer.

Mr. Ianno: I'm trying to, Suzanne. If you give me a chance, I will.

Mr. Boyle: Some of the U.S. services come to us by satellite, some come off air, and some may come from fibre optic cable.

Mr. Ianno: The U.S. satellite services that come off to your receptor -

Mr. Boyle: That's right. Like any cable company - and that's kind of what this is, wireless cable for the entire country - we will bring the service in to what we call our head end. We will then put it back up to the Canadian satellite for redistribution across the country to the small dish network with our consumers.

Mr. Ianno: That's similar to what the cable companies do, in a different way.

Mr. Boyle: In a different way. They call it a head end, where they receive all their signals, one way or the other -

Mr. Ianno: Does the Power DirecTV...U.S. retrieving of their information comes from which way, from the U.S. satellite down -

The Chair: I have to intervene at this point. This will have to be the last question and the last answer.

Mr. Boyle: I'm not sure how clearly I understand their plans, but what I can sort of glean from public statements they've made is that they intend to take all the Canadian services down in Colorado and put them back up to the Canadian satellite from there. They have one uplink site for their entire -

Mr. Ianno: That's the Canadian but not the American?

Mr. Boyle: The Americans come from there as well.

Mr. Ianno: They'll be doing both.

Mr. Boyle: Yes, everything is done in the United States with Power DirecTV, from what I can tell.

Mr. Ianno: That basically is Colorado versus Calgary, or whatever.

Mr. Boyle: It's Colorado versus Edmonton, Montreal, Toronto, and Milton.

Mr. Ianno: It's beaming down and they're retrieving it.

Mr. Boyle: Yes.

The Chair: Thanks very much. It's been fascinating. I see Mr. Frank has a final comment.

Mr. Frank: The use of the satellites is different too.

The Chair: Thank you very much. It's been a fascinating morning, and we thank you for appearing.

The meeting is adjourned.

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