A TALK GIVEN TO THE CANADIAN INDUSTRIAL COMMUNICATIONS ASSEMBLY, OTTAWA, CANADA
MARCH 14, 1975
The Wired City has yet to be plugged in. The more I examine the concept, the more I become convinced that the reason is not technological, but rather a question of political decision and economic common sense. However, the way has been opened for progress.
As this is a technologically mature audience, I am not going to review the many advantages claimed for The Wired City. The concept of using the broadband cable communication links now available in Canada through the CATV companies, by linking these to a computer to provide a range of in-the-home or office services is well known. Repeating these would remind me of discussions in university about the existence of God. I remember our discussions became so sophisticated, we actually numbered the standard arguments ‘pro and con’ and disposed of these early statements much like the standard opening of a chess game. Instead, you have asked me to update you on what is really happening, as opposed to what the many learned articles indicate might happen.
WHERE DOES THE WIRED CITY STAND TODAY?
I remember Sol Hurok’s famous comment about the entertainment world that. when people don’t want to come, nothing in the world will stop them. This is about where the Wired City stands today. Essentially, it is still in an experimental stage. A number of quite interesting projects are being tried, but no one, including SDL, has yet found a way to make any money in the field.
As I pointed out last Fall in a talk to the OECD in Paris, there is a wealth of alternate forms of entertainment. From the point of view of any country’s national priority list, the Wired City does not rank high. I mentioned at that time that there were some intriguing applications, such as In-the-Home Shopping, which I thought that a private organization could undertake, using the existing cable company facilities. Such an application is, however, purely commercial and seems to run counter to the present policies of the Canadian Radio-Television Commission. I expressed considerable doubt that the use of the current cable network for such things as In-the-Home Education was on the near horizon. Despite the many theoretical advantages, the need has yet to be clearly demonstrated, the expense is high, and in any case the impetus is going to have to come from the provincial governments. I really doubt that a private organization can be successful competing against the public education system. However, one of the high-ranked potential applications for The Wired City is the Cashless Society. This area bears serious examination, for even though it may not require broadband facilities, it will be the earliest of the major applications usually associated with The Wired City.
THE CASHLESS SOCIETY
As some wag noted. inflation has already made this a cashless society for most of us. The concept of automating the payments system is viable. It is particularly attractive because there is a high degree of economic pressure for a solution to the growing paperwork problem encountered by the banks, or other near-bank institutions. This situation has recently been the subject of a landmark decision. I doubt if many of the companies in the cable industry have yet really understood all the implications. In January 1975, the Department of Communications and the Department of Finance sided with Bell Canada by backing their approach to packet-switching for transmission of data. Effectively, this decision gave Bell the go-ahead to develop the network and the standards which the banks and the computer manufacturers must follow.
The intention is that this would allow any financial institution, or any institution for that matter, to use a publicly-available network for automated payment transactions. Once again, I will assume that the details of this are well-known to you and will dwell on the implications of this very important move.
Let us go back for a moment to consider the real reasons why the Federal Government chose to use Bell Canada as the vehicle for this important application. To begin with, any major use of the existing cable organizations has the immediate problem of limited coverage. Even though Canada is the most heavily cabled country of any major nation, there are vast areas of the country which do not, and probably will not, be reachable by the cables now provided by CATV companies in our major centres. An automated payments system for Canada could not realistically, therefore, be delegated to the cable companies.
Secondly, the Federal Government has recognized the obvious fact that national policy cannot easily be built around some 380 individual firms, many of which are small, marginally financed, managed by local entrepreneurs, and where few have the technical capability to undertake a major Wired City project.
The CRTC has gone out of its way to ensure that these companies do as little networking as possible, concentrate on serving a very local market, and certainly do not compete any more than is necessary with the major broadcasting networks.
Further, the recent decision of the CRTC to discourage the CATV companies from Pay TV has further reduced the potential of cable companies in Wired City applications.
All of this has, in my opinion, relegated the cable companies to a lower growth, quasi-parasitic type of operation. I say ‘parasitic’ because, as you know, cable companies, by and large, produce nothing new except for a bit of local programming. Essentially, all they do is re-transmit what someone else has produced. It had been the hope of a number of the major cable organizations to evolve their companies into the major vehicle for The Wired City in Canada. As many of you know, several of these companies banded together to form Broadcast Communication Network (BCN) as an organization which would examine these possibilities. I understand that this project is being re-examined at the moment. This is particularly understandable in view of the recent CRTC decision to not allow the mingling of computer service organizations and cable companies.
Thirdly, and finally, it is doubtful that these individual cable companies are going to stay under federal jurisdiction. To my knowledge, no cable company operates across a provincial border. The Federal Government could not reasonably be expected to put major applications, such as a nationally-available automated payments system in the hands of organizations that almost certainly will rapidly fall within provincial jurisdiction, or even municipal. The mere fact that the CRTC has forced the cable companies to remain local will effectively force these companies out of federal jurisdiction in the near future.
Without meaning to sound too pessimistic on the future of the cable industry as a medium for The Wired City, I honestly believe that cable companies are going to be relegated to a very minor role in the communications industry.
When you examine the above, you can see clearly why the Federal Government chose the Trans-Canada Telephone System rather than the cable companies as the future vehicle for Wired City applications.
There is no way I can speak for Bell Canada on the question of their strategy. However, their position as operators of a national switched network must suggest to them a logical course of action. Bell, apparently, missed the implications of The Wired City in the early days and, by default, allowed the initial wiring of many cities with coaxial cable by the cable companies. However, the cable that is used by many of the CATV organizations is still essentially a one-way media. To differentiate themselves from the common carriers, the cable companies have presented themselves as being point-to-multipoint broadcasters rather than a switched point-to-point communicator. This latter function is clearly that of the public communications system. This limitation of a one-way non-switched network will severely restrict the ability of the cable companies to pick off the significant applications of The Wired City. Further, the technology is changing. One should bear in mind that Bell Canada still enjoys the rights of way for communication lines in most locations, owns the poles and, in fact, owns much of the cable on which the cable companies actually transmit. There is little doubt that, even if the cable companies were given some rights to undertake Wired City applications, which would involve a change of heart by the CRTC, Bell could counter this move by simply over-wiring
the area. Further, it could over-wire with fiber optics, or some more advanced technology which would effectively relegate the cable companies, once again, to small local operations, using second class technology. In a word, the winner of Round 1, and I predict the winner of the fight, is clearly Bell Canada and the Trans-Canada Telephone System.
ROUND 2 TO BELL
To further reinforce my contention that the Federal Government has consigned the future of The Wired City to the TCTS companies, I will briefly discuss the second announcement regarding the relationship of Bell Canada to the computer service companies. In January 1975, the same two federal government departments jointly announced that Bell would be allowed to enter the computer services industry. Clearly, if Bell is going to provide services along the Wired City line, this move is necessary. The recommendation was in line with the position taken by the Canadian Association of Data Processing Service Organizations. This group came out with the fair and rational suggestion that the computer services industry should not try to restrain the entry of other organizations into its industry. The only thing that CADAPSO asked for, and got, was that an organization enjoying a monopoly position, granted by the government, should not be able to use this position to adversely affect other organizations not enjoying such a position, e.g. the banks, the common carriers, or other such groups, should not be allowed to use their government-granted power to dominate the industry. Therefore, the federal government said that Bell could only establish an arms-length subsidiary, and could not have that subsidiary sell computer services to the parent at preferred rates. On the surface, this looks like a reasonable approach. However, when one considers that Bell Canada’s telephone service is rate-regulated, one might question why Bell would want its subsidiary to sell to the parent company at anything other than the highest rates it could reasonably charge. This obviously makes the subsidiary more profitable, lowers the return on investment of the parent company, and could provide justification for rate increases by the parent – a ‘most favoured nation’ approach in reverse.
Secondly, Bell would certainly not object to having its computer services entry as a completely arms-length operation. I could expect that Bell’s long-range strategy would reasonably be to get as many as possible of its operations out of the regulated side of the business. If the computer services business looks as though it is going to be profitable, the last thing Bell would want would be to have its subsidiary part of the regulated telephone operation.
In essence, then, Bell Canada won Rounds 1 and 2 in this fight for the right to develop the Wired City.
IMPLICATIONS FOR THE FUTURE
I do not look upon this as being at all negative. Frankly, I believe the federal government has made the only choice that makes any sense. Allowing Bell to proceed along these lines really restores the situation to where it should have been many years ago. Clearly, one national network is the best use of our limited national financial resources. It will provide the best automated payments system to the majority of people more rapidly than any other method I can think of. I am sure that we all will acknowledge that Bell Canada has provided us with one of the finest telephone systems anywhere in the world. I also believe that Bell is reasonably responsive to changing needs. In fact, in the computer services industry I have found that they have listened very carefully to our concept of what was needed and Dataroute has now given Canada a digital data network second-to-none.
Computer service organizations, such as ourselves, have already reasoned that there is a market for them in the automated payments system area and their position is made stronger by the existence of the proposed network that will be available to financial institutions. This network will not be dependent on any one computer manufacturer’s standards, nor will it be without standards, as might be the case if The Wired City were opened to the scattered cable companies.
The first conclusion is obvious. The Wired City will progress from this point on as fast as Bell Canada cares to push it. The first real application will be in the Automated Payments area. Secondly, the cable companies have lost their chance to be a significant factor in the national scene or have had it taken from them. Thirdly, we should not be too upset at this trend, for I believe that the decision shows a lot of common sense and will be best for the country in the long run. The alternative decision to have important Wired City applications in the hands of the cable companies, or the small computer service organizations, would really make no sense at all. These organizations, as is always the case when there is a near-monopoly in an industry, must find their markets in areas that are peripheral to such major applications as are forecast for the Wired City. There is a big remaining market that will be of little interest to corporations the size of Bell or IBM. It is here that the computer service organizations can find a profitable future. Finally, one might conclude that, when a company is developing its corporate strategy, it is rarely wise to ignore the obvious and the logical. The decision that the future of the Wired City belongs to Bell and the TCTS has, of course, not been explicitly stated by the Federal Government or anyone else. However, the decision should be recognized and is the only sensible one. The challenge now is to rank the really important applications in a national priority sequence, and get on with the job.