TELECOMMUNICATIONS AND THE COMPUTER SERVICE INDUSTRY IN CANADA

APRIL 27, 1970

Mr. Kierans’ speech to the Canadian Information Processing Society on January 14, 1970 stated that the aim of the Telecommission was as follows:

“It is essential also that the government adopt a positive attitude toward the computer industry, encouraging the maximum degree of innovation, encouraging the entry into the market of firms which make up in imagination what they may lack in capital resources, encouraging also research and development which, in the fields of software programming and of terminal equipment, can lead us toward export sales. To create, in short, a climate in which Canadian companies can flourish and in which, because of the presence of excellence, the kind of data banks to which I have been referring would be located here rather than elsewhere. It is also essential that the enormous benefits of the computer revolution be made available to the maximum number of Canadians, wherever they live, otherwise we will widen the gap between haves and have-nots. Any finally, it is essential that all our specific policies and programs should be formulated on the assumption that machines exist to serve men and that machines must be shaped and controlled to serve human needs instead of men being regimented to suit the technical convenience of machines.”

To summarize the aims, his intention appears to be:
– To promote and protect the Canadian computer industry.
– To ensure that the benefits of the computer industry are made available to as many Canadians as possible.

We share these aims but are very concerned that the first step that may be taken by the Department of Communications could severely damage the Canadian computer industry, as it now exists, and will not serve the national purpose as this may be defined by other studies now underway in the Telecommission.

PROPOSED GOVERNMENT POLICY

The industry has not been made aware of what the proposed government policy will be. However, speculation is rampant that the Department of Communications is recommending that common carriers and, in particular, Bell Canada, be allowed to provide computer services.

If this is the case, such a policy would be in direct opposition to the brief submitted by the industry in July 1969. The FCC study in the U.S., announced on April 6, 1970, prohibits AT&T entry into the computer service bureau field. While we would not maintain that conditions in the United States and Canada are identical, the results of the four-year FCC Study are at least worth examination by the industry and by the Department of Communications.

To date, the Department of Communications has only outlined some policy options and the industry is totally unaware of the conclusions arrived at by the Department, However, the following comments are still valid.

CONSIDERATIONS

1. Capacity

The existing computer service industry has already provided, with private funds, more than adequate capacity to meet the foreseeable needs of the Canadian economy. The field is highly competitive and there is no lack of service to Canadian industry.

2. Economy-of-Scale

For the foreseeable future, there is no way in which Bell Canada or any other company could provide more economy-of-scale than is already provided by SDL which has installed, at its own expense, the largest and fastest computer in Canada and one of the largest in the world.

3. Innovation

The impetus for the development of this industry has not come from companies such as Bell Canada but has come what Mr. Kierans referred to as the “modest Canadian entrepreneurs” (speech to the Data Processing Management Association, February 19, 1970).

Bell Canada, on the other hand, has evidently been unable to anticipate the needs of this growing field and is not now able to provide economic data communication service in Canada.

4. Risk

The existing Canadian companies have undertaken all the risks in developing this new industry. At the very time when the industry is at its most critical stage, it appears the Government may be about to allow Bell Canada to provide its massive financial resources to compete directly with this new industry.

The industry itself has been able to finance its own development, but if the Government announces that Bell Canada will be allowed to compete in the computer services field, financing for the existing companies may become almost impossible. This will likely have the effect of driving these firms outside of Canada – the very thing that Mr. Kierans has publicly declared he does not want to have happen. If public financing is not available here or in the United States, the next step would be that these firms would be absorbed by large American corporations.

PROPOSAL

The Department of Communications wants a vehicle through which it can implement any national policy that may be recommended by other committees of the Telecommission. These may include the east-west development of a computer/communications network, the provision of nationally-available databanks on economic, social or industrial information, and a means of promoting regional development in Canada through the provision of computer services where they are needed. The Department appears to believe that such developments can only take place if Bell Canada is allowed to participate in the computer field as well as the communications field.

The Department has also indicated that they believe Bell Canada should be in the raw computer field only. We have disputed, and do dispute the technical feasibility of differentiating between raw computing and applications services.

We also doubt that Bell Canada or any single organization has sufficient knowledge or innovative spirit to provide such a national program even with Federal Government backing.

However, we are as interested as the Government itself in meeting the national needs of Canada. We recognize that the Government must have some means of co-ordinating and implementing such national policies as it may wish.

We recommend, therefore, that Bell Canada not be allowed to enter the computer services field. There is no question that if the Bell is allowed to enter, there would be immediate competition between the Bell and CN/CP which would only lead to a vastly increased computer capacity in Canada and which would have the effects described above of ruining the existing Canadian computer service industry.

We propose, therefore, that Bell Canada be allowed, instead, to undertake the role of co-ordinating a national communications network as a prime contractor, using firms already existing in the computer service industry to provide the raw computing power and related applications services.

For example, if the Bell were to contract with three of the largest computer service firms and combine this with a network serving Canada, the result would be provision of service offering an IBM System/360 Model 85, a Univac 1108, and a CDC 6600. The firms referred to are Systems Dimensions Limited, Computel, and Multiple Access General Computer Corporation. The addition of AGT Data Systems, the largest Canadian computer consulting group, and the addition of the Northern Electric Research & Development Laboratories, would provide all the capacity that would be needed to develop a service over the next decade for small business and industry as well as for large Canadian corporations. Other firms in the Canadian computer industry might be added to this group as required.

ADVANTAGES

1. Although the firms would form a consortium for the purpose of developing a Canadian computer network, they would still be independent and able to use their own imagination to develop new products for use in Canada and for export.

2. The announcement of such a policy would greatly strengthen the Canadian industry and would encourage the Canadian public to make the necessary further investment in the field.

3. Such an announcement would discourage the entry of U.S. computer firms.

4. Such a policy would provide Bell Canada with a profitable means of increasing its own communications network, but would avoid r

equiring Bell Canada to duplicate the already extensive computer capacity in Canada.

5. There would be no reason why the CN/CP Telecommunications arrangement with Computer Science Corporation could not then proceed to provide a measure of competition to the Bell Canada consortium.

6. A vehicle for the implementation of the Government’s national policy would clearly be available.