DANCES WITH DIGITAL

CARLETON UNIVERSITY SEMINAR ON “PUBLICS, MARKETS AND THE STATE:
SEMINAR ON CANADIAN COMMUNICATIONS POLICY”

OTTAWA, FRIDAY, 23 JANUARY 1993

You asked me to reflect on some of the emerging issues related to communications technologies and markets in Canada, and on public policy measures surrounding these. That is a lot to cover so let me take advantage of this being January and approach the topic by a look back on a momentous year in 1992, and forward to some of the changes we can anticipate in 1993.

1992 – THE YEAR OF COMPETITION

The CRTC and the DOC made 1992 a turning point in communications policy in Canada. To remind you of just a few of the highlights, it was the year when the CRTC opened competition wide open in the public switched voice long-distance field. It was also the year when the DOC opened up new licenses for air-to-ground service and, at year-end, for the new Digital Cordless Telephone service.

There is a very consistent theme running through all of these decisions – to open competition in the communications field to virtually any potential entrant who applies. The CRTC has established uniform rules for long distance resellers which makes market entry easier for them as well. All applicants for air-to-ground were awarded access to the frequencies. Both applicants for public long distance were allowed entry to the field. All significant applicants for the DCT service were also provided licences.

The year also saw publication by the DOC of the report of the Intven/Menard local Network Convergence Committee, which argued for the continuing evolution of multiple local networks, to ensure that there is a competitive environment for new local services.

The Government of Canada has clearly stated that communications in Canada is open for competition – let the market decide!

In doing this, they are following a world trend. The U.S., the U.K. and Japan have allowed competition to their monopoly telephone companies and countries such as Germany and Sweden are not far behind. Even Russia and China are doing the same in varying degrees.

In what might appear to be an anomalous decision, the CRTC extended the monopoly for Teleglobe as Canada’s overseas carrier. However, this does not shield Teleglobe for, without a doubt, this is the most intensely competitive time Teleglobe has ever faced on the international scene.

These decisions were made against the background of the existing Free Trade Agreement and the newly-negotiated North America Free Trade Agreement. These agreements go to some length to protect Canadian culture but in the telecommunications industry, will serve to encourage additional competition in the form of value added services, which are now opened up to international companies.

In a word, 1992 was the year when Canada awakened to a new, highly competitive world in the field of telecommunications.

All of this has resulted in dramatic structural changes in the Canadian communications industry. Strategic alliances are in, largely because of this new competitive environment.

Stentor took the lead in its deal with MCI. Bell then announced its venture with Cable and Wireless.

Unitel negotiated its deal with AT&T. Cantel fostered its close relationship with McCaw Communications, although without any reciprocal financial involvement.

WHY IS THERE SUCH A DRAMATIC CHANGE?

First, the risks are getting higher all the time. For example, in cellular, Cantel alone has invested over $1.2B in its national network. Teleglobe and other international partners will invest US$385M for CANTAT-3, a high-capacity fibre optic cable linking North America with Western and Eastern Europe.

Secondly, no one has a monopoly on ideas. Without international connections, Canadian firms could easily fall behind in the global race. The development of a network of networks for information exchange, largely in R & D, is another result of this trend toward globalization.

Thirdly, people are also increasingly mobile internationally, with recruiting being done a worldwide basis.

Finally, capital is mobile. Canada no longer has the financial resources to fund internally the huge projects that are needed to keep the country competitive in the communications industry.

IMPLICATIONS

During 1992, we were pleased to see the Minister of Communications in a press release, advise that the Government would consider increasing the ceiling on foreign investment that would be allowed, at least at the holding company level, for Canadian telecommunications service providers. Given the changes noted above, we believe such a change is essential if our telecommunications sector is to remain competitive in a global economy.

I know this may raise certain concerns of relating to preservation of Canadian identity, but I believe these values are strong enough to stand on their own merits. We cannot allow Canada to become an economic backwater. This will do nothing for Canadian culture or the Canadian way of life.

LOOKING AHEAD TO 1993

While last year saw a major systemic change in the communications industry, 1993 will be just as interesting in the broadcasting field. Prior to my involvement with Cantel, I spent many years in the cable television industry and watched it grow and evolve into a key player in the Canadian broadcasting system. I continue to watch it with interest today.

One of the most interesting trends is the imminent emergence of high-powered, DBS services from the United States. The recent failure of the Skypix consortium to get off the ground has lulled some into a false sense of security, and has lead them to conclude that high-powered, direct-broadcast satellites will not happen. Wrong. I believe that, with the financial backing of the Hughes Corporation and Hubbard Broadcasting, high-powered US DBS is a reality.

Receiving dishes no larger than a napkin can be placed indoors on window sills, making it easy and inexpensive for Canadians to subscribe to hundreds of channels of pay-per-view movies and other programming services. The technology is here and the product is in place. It will have strong competitive consumer appeal.

The implication for Canadian broadcasting is obvious. If people find their cable television subscription less attractive than the US DBS, they will be disconnecting from the Canadian system. Canadian specialty services will lose their audiences. Over-the-air broadcasters will experience reduced benefits from simultaneous program substitution by cable systems, and reduced viewership of their signals. And UHF stations, which enjoy priority carriage on cable, will see their audience universe shrink dramatically. The cable industry in Canada will be arguing that to remain competitive, it must be allowed access to the same programming services that could be offered by US DBS satellite. This will allow the industry to continue to make a positive contribution to the Canadian broadcasting system through such measures as priority signal carriage, simultaneous program substitution, and community and special programming channels.

I find it ironic that our private television broadcasters are attempting to do just the opposite. Their thrust in the CRTC Structural Review proceeding seems to be to drive people away from the Canadian broadcasting system by proposing a fee for carriage by cable of local broadcast signals. This is simply a tax designed to improve the broadcaster’s own bottom line. It will do little to put more money in the hands of Canadian program producers. The logic of this proposal escapes me. Why should a cable television subscriber pay a tax to watch a local Canadian television station when his or her neighbour, using an antenna, does not? The broadcasters will claim that they are unable to increase their earnings from advertising in the future. Yet, the Girard/Peters Task Force on the Economic Status of Canadian Television concluded there was plenty of opportunity for television broadcasters to increase their advertising revenues.

That Task Force found that the television advertising spending in Canada, measured on a per-capita basis, was almost 50% lower than in the United States. The Task Force concluded “that television has the potential to significantly increase its share of advertising revenue”.

But other issues will be just as important in 1993. There has been a steady evolution toward increasing competition throughout the CRTC’s decisions, starting with allowing wireless competition through the cellular decision in December 1983 to the recent long-distance decision. However, monopolies still exist. Local telephone service is still provided on a monopoly basis. As well, the local telephone company is still a dominant supplier by a very large margin of local telephone services, where competition does exist.

The CRTC in its Notice of Public Hearing commented that regulation should continue to protect subscribers and service suppliers from abuse from monopoly or dominant power by the telephone companies. The telephone companies are arguing that the very existence of any level of competition should result in full deregulation. They argue that all competitors should be operating under the same regulatory regime in order that there be what they call a “level playing field”.

Of course, starting out a new game on a playing field where one of the teams already has the ball, and is on your one-yard line, is hardly level. A transitional phase must be allowed, enabling new companies to gain some market share before any kind of level playing field conditions could exist.

I might note that in the United States, where AT&T has less than 2/3 market share, it is still regulated because it dominates the market – whereas its competitors are not. A similarly-managed evolution toward competition will, undoubtedly, be one of the major regulatory topics for 1993.

THE NEW MEDIA

All of the regulatory and structural changes should be viewed against the background of a technological revolution that is affecting every facet of the communications industry – the Digital Revolution. The background is well covered in the recent publication of Communications Canada called ‘New Media, New Choices’. This highlighted the fundamental implications of a move to an all-digital world.

There is now no essential difference amongst any form of media, whether it is audio, video, images or data.

Furthermore, there is no essential difference as to where you are, i.e. in your office, your home or out fishing on a lake on a Saturday afternoon.

Band width on-demand will allow suppliers of services, as well as users, to tap into a variety of networks, whether these are over-the-air, through fibre, cable or copper pairs. And, they will be able to do this internationally.

At Cantel, we view the completion of the change to all-digital transmission as just a logical step in this process. The broadcasters will see the same with Digital Audio Broadcasting, giving the availability of 100 or more audio channels. The ability to digitize and store video will lead to True-Video-on-Demand on cable systems. Information providers will be using CD-ROM (compact disc read only) digital storage, providing access to encyclopedias of information at inexpensive rates.

The form of convergence that will be discussed in the remainder of this decade will not be the single-wire/multiple-wire controversy of a few years ago. That has, long since, been put to bed. The convergence we see today will be the intermingling of various forms of digital information. One only has to look at the screen of a Next computer to see how a user can already call up text, see a still picture of the person with whom they are communicating, add video, transmit voicemail or call up graphic data, all on the same terminal.

The impact of this will be enormous, providing new and exciting challenges for the industry and the regulators. We are truly in the Digital Decade.

CONCLUSION

One of the themes of this seminar seems to be “what should governments do to ensure that all this is in the public interest”. While I congratulate you on holding a seminar on this topic, I might observe that it may be a bit late. Having already joined the worldwide trends toward letting the market decide, Canadian regulators and policy makers have already largely done the job. Oh yes, a few anomalies remain, such as not allowing motion on the Home Shopping Network, but these, I am sure, will be ironed out.

I believe that the CRTC and Communications Canada are to be congratulated for a far-seeing approach that is already positioning Canada to thrive, by concentrating on competitive new industries, and not just industries of the past, and by requiring only the minimum amount of regulation that will let the communications industry develop competitively.

My answer to “What Should the Governments Do?” is more of the same!