ALTERNATIVE APPROACHES TO NETWORKING IN THE 1980’S FOR THE DISTRIBUTION OF NEW TELECOMMUNICATIONS SERVICES

Annual Meeting of the Canadian Telecommunications Carriers Association Vancouver, B.C. June 24th, 1980.

Like Dennis Wardrop, I originally expected to discuss some of the fascinating proposals for new broadband communication networks and the services that these networks will provide in the 1980’s. However, Dennis has chosen to address regulatory, economic and political considerations rather than the technical. As I have only a few minutes to comment on his Paper, I too will restrict my comments to these areas.

I am not surprised at the conclusion drawn by Mr. Wardrop, for the ‘single wire’ concept is the favourite theme of the telephone companies in Canada. It is not new.

Terry Heenan said to the CCTA Annual Meeting in May, 1978: “That the telephone companies are convinced that they must be the owners of any such plant to be made available on a common carrier basis to entrepreneurs for various purposes.

“We believe it is in the public interest that if, as and when we get to the point where there is one broadband cable distribution system, it ought to be owned on a common carrier basis by the telephone companies.”

Again, from the Bell Canada Annual Report of 1978, “Ideally it would make economic sense if there were a single integrated network in Canada providing the facilities for all telecommunications – voice, data, or visual. This would avoid wasteful duplication in the use of scarce resources, and reduce costs.

“In fact, the advent of fibre optics now being field tested in Bell Canada’s network will in time remove any technical justification there may have been in the past for running separate telephone and cable tv lines in the customers’ homes.”

The telephone companies have clearly laid out . their approach which is to eliminate the cable companies and establish a single monopolistic system in Canada to provide all telecommunications’ systems.

As the token cable participant in this Conference, (as Lorne Parton of the Vancouver Province noted, “the lamb amongst the wolves” ) , you would expect me to take exception to this approach. I do take exception to it because I believe most strongly that this nation would not be well served by a total lack of competition in the telecommunications industry.

This is not an emotional reaction, but one resulting from extensive observation of the telecommunications industry in this country over many years. I am always the first to acknowledge the very fine voice grade switched network that this country enjoys. However, I must remind the telephone industry that they have not always been the innovators in this country. They had every opportunity to enter the cable television business thirty years ago and, frankly, dropped the ball.

I further watched the telephone companies miss opportunities in the growing field of computer communications to the point where at my former company, Systems Dimensions Limited, we switched most of our lines to CN/CP. It was only after this action by ourselves and other major companies in the computer field that Bell finally took the step of setting up the Computer Communications Group. Let me also acknowledge that they are now doing a good job in the field, but in my opinion it was only the existence of a strong competitor that caused the telephone monopolies to make major strides forward in these and other areas.

This single system syndrome, leading to higher costs or less innovative services, is not restricted to the telecommunications industry. I doubt if there is anyone in the audience who would not believe that the computer industry is better for having some competitors to IBM. Or that Air Canada is a better airline for having CP. Or that the CBC is a better network for having CTV and the independent producers. Or Canadian National better for having CP in the transportation business.

Edward N. Ney, Chairman of Young and Rubicam Inc., at a conference of the Association of National Advertisers in New York said, “Television made print a better medium by threatening its future. It is quite possible that the new wave of communications media will do the same for conventional television. Innovation breeds invention. Insecurity breeds inspiration.”

I believe that anyone who feels that a single monopolistic entity is the best way to go should be sentenced to spend two weeks behind the Iron Curtain. I am sure that as they are waiting for their delayed Aeroflot flight to take off, they will quickly tear up the paper that even suggests such a process.

Single monopolistic systems always appear better on paper. If this were a perfect world, they might be better. But the reality of how the western world got to be such an advanced civilization is that competition exists and is encouraged.

The reality is that there are two wires already. There have been two wires for over thirty years. There will be at least two for as long as any of us can reasonably foresee.

I believe it is essential that the telephone companies and the cable companies stop the rhetoric and start the research. We have enjoyed excellent relations with B.C. Tel over the years, and are even now examining areas of possible joint development. It is my belief that there are a number of areas in which the companies could co-operate, although there will also clearly be a number of areas of new services where we will be competitors. I see no difficulty with this and in fact believe in the long run that the public will be best served by a combination of co-operation and competition among the various organisations, including CN/CP, who operate in the communications industry.

The most important factor to remember is that one cannot consider only the efficiency of wiring. As pointed out by Carl Beigie of the CD. Howe Research Institute, an even more important efficiency comes from, “… the optimization of the rate of new undertakings. From this dynamic perspective, competition may lead to benefits that outweigh the static costs of a certain duplication of resources. Dynamic efficiency relates to the pace at which new technologies are developed and put into application; to the rate of introduction of new services; to responsiveness to new consumer needs; and to the extent to which experimentation and risk taking occur.”

The telephone companies cannot legislate away competition. It will exist in the form of over-the-air broadcasting, direct broadcast by satellite and a variety of other media. The telephone companies should recognise the essential complementarity of the cable and voice grade networks.

They must recognise that the cable companies are unlikely to ever give up their right to develop their own kind of plant. There is no single path to perfection and alternative approaches will allow the plants to be optimized for different needs.

The cable companies would be reluctant to put their entire future at the mercy of the rates that could be charged by the telephone companies. The same reluctance applies to broadcasters who could logically give up their over-the-air broadcasting and rely entirely on cable. They have a similar concern, despite the logic of the situation in major urban areas.

If the cable companies are going to pursue their prime marketing approach of making more choice available to the consumers, then they will have to have control over at least some of the content and certainly over most of the capability of the plant to deliver the services.

There is more than enough for everyone to do in the communications industry if we all worked as hard as we could for the next thirty or forty years. The range of new services is that impressive.

Unfortunately, the rhetoric that is being undertaken by the telephone companies is leading to counter rhetoric by the cable industry.

The situation is being worsened by actions such as those by SaskTel in jamming House of Commons broadcasts that have been authorized for delivery by a cable company by the Department of Communications and the CRTC. Such actions are simply reprehensible and frankly make me somewhat ashamed of our industry, which is supposed to be thinking of the public interest first.

No technology was ever improved in a court room. But this is exactly where the current path is taking us.

The situation is similar to that in the Middle East. There will never be peace in that area until both sides recognise the right of the other to exist. Only then can meaningful discussion take place.

I believe that in B.C. we have demonstrated that with the right attitudes on both sides there is a workable solution. My reply to Mr. Wardrop’s Paper is that the ‘single wire’ concept is economically undesirable and politically impossible. The sooner the concept is put to bed the better off the whole communications scene in Canada will be.

I conclude with an offer to do anything I can to reduce the frictions that currently exist between the telephone companies and the cable companies. The cable companies are not going to go away. Neither are the telephone companies. If we work together in the eighties where feasible and compete where sensible, we will be serving the public in the best possible way.