Competition and Culture on Canada's Information Highway








Competition and Culture on Canada's Information Highway:

Managing the Realities of Transition

19 May 1995



Public Works and Government Services Canada
Catalogue No. BC92-53/1995
ISBN 0-662-61811-4
CRTC Offices


Mailing address:
Ottawa, Ontario K1A 0N2

Internet address:
http://www.crtc.gc.ca

Street address: 

Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage
Hull, Quebec J8X 4B1
Tel: (819) 997-0313
TDD: (819) 994-0423
Fax: (819) 994-0218

Place Montréal Trust
1800 McGill College Avenue, Suite 1920
Montréal, Quebec H3A 3J6
Tel: (514) 283-6607
TDD: (514) 283-8316
Fax: (514) 283-3689

275 Portage Avenue, Suite 1810
Winnipeg, Manitoba R3B 2B3
Tel: (204) 983-6306
TDD: (204) 983-8274
Fax: (204) 983-6317

Bank of Commerce Building
1809 Barrington Street, Suite 1007
Halifax, Nova Scotia B3J 3K8
Tel: (902) 426-7997
TDD: (902) 426-6997
Fax: (902) 426-2721

Standard Life Centre
121 King Street West, Suite 820
Toronto, Ontario M5H 3T9
Tel: (416) 954-6273
TDD: (416) 954-8420
Fax: (416) 954-6343

800 Burrard Street, Suite 1380, Box 1300
Vancouver, British Columbia V6Z 2G7
Tel: (604) 666-2111
TDD: (604) 666-0778
Fax: (604) 666-8322

Letter


The Honourable Michel Dupuy
Minister of Canadian Heritage
15 Eddy Street
Jules Léger Building
Les Terrasses de la Chaudière
Hull, Quebec
K1A 0M3

- and -

The Honourable John Manley
Minister of Industry
235 Queen Street
11th Floor East
Ottawa, Ontario
K1A 0H5

Dear Ministers:

I have the honour to present to you, in accordance with Order
in Council P.C. 1994-1689, the report of the Canadian Radio-television
and Telecommunications Commission entitled "Competition and
Culture on Canada's Information Highway: Managing the Realities
of Transition".

Yours respectfully,

Keith Spicer
Chairman

Mandate

Parliament's Mandate to the CRTC


A. Broadcasting Act 1991 

"...the Canadian broadcasting system should encourage
the development of Canadian expression by providing a wide range
of programming that reflects Canadian attitudes, opinions, ideas,
values and artistic creativity, by displaying Canadian talent
in entertainment programming and by offering information and analysis
concerning Canada and other countries from a Canadian point of
view...the programming originated by broadcasting undertakings
should be of high standard..."
Section 3.(1)(d)(ii) and (g) 

"The Canadian broadcasting system should be regulated
and supervised in a flexible manner that...is readily adaptable
to scientific and technological change; [and] does not inhibit
the development of information technologies and their application
or the delivery of resultant services to Canadians..."
Section 5.(2) 

B. Telecommunications Act 1993 

"...Canadian telecommunications policy has as its objectives...to
facilitate the orderly development throughout Canada of a telecommunications
system that serves to safeguard, enrich and strengthen the social
and economic fabric of Canada and its regions [and] to foster
increased reliance on market forces for the provision of telecommunications
services and to ensure that regulation, where required, is efficient
and effective..."
Section 7.(a) and (f)

Table of Contents


Introduction

Chapter 1: Culture and Competition -- Building on Achievements

Chapter 2: Competition and Facilities
1. Access to Distribution Networks
(a) Local Telephony
(b) Number Portability
(c) Rate Restructuring
(d) Access to Cable Networks
(e) Interoperability and Interconnection
2. Competitive Safeguards
(a) Telephone Companies
(b) Structural Separation in Programming
(c) Structural Separation in Distribution
3. Transition to Sustainable Competition
4. Ownership Issues
(a) Foreign Ownership
(b) Bell Canada Act
(c) Provincial Crown Corporations

Chapter 3: Content: Confirming Canadian Values
1. Definitional Issues
2. Exemption Orders
3. Tools and Instruments
4. New Programming Undertakings
(a) New Scheduled Services
(b) True Video-on-Demand (VOD) Services
(c) Licensing Approach for New Programming Undertakings in a Competitive
Environment
(d) Social Concerns
5. New Distribution Undertakings
(a) Carriage Issues
(b) Support for Existing Canadian Services
(c) Contributions to Canadian Programming

Chapter 4: Public Places in a Digital World
1. Universality
2. Education
3. Community Access

Chapter 5: Other Issues
1. Privacy
2. Copyright

Appendices: Appendix I - Glossary
Appendix II - Order in Council

Introduction


This report is submitted to the Government of Canada, pursuant
to a request from His Excellency the Governor General in Council
to the CRTC (Order in Council P.C. 1994-1689 dated 11 October
1994), to gather information, seek input, provide critical analysis
and report to the Government on a number of matters, as they relate
to the Commission's area of responsibility, respecting the development
of content and competition policies for new communications technologies
and services that will comprise the "information highway".
It is the Government's intention that this report complement the
ongoing work of the Information Highway Advisory Council created
by the Government, and assist the Government in determining its
policy framework for telecommunications and broadcasting.

In response to the Government's request, the Commission undertook
an extensive public consultation. As set out in Public Notice
CRTC 1994-130 dated 20 October 1994, the Commission held a two-stage
written process for public comments. This allowed interested parties
to comment in writing on written submissions filed during the
first round. The Commission received a total of 1,085 written
comments. This phase of the public consultation process was completed
on 13 February 1995.

From 6 March to 31 March 1995, the Commission held an oral public
hearing in the National Capital Region during which interested
parties were invited to elaborate on their written comments. A
total of 78 parties participated in the oral phase of this public
hearing.

"Convergence has often been considered a "dirty word"
that has always held monopolistic connotations. Although convergence
has been an ongoing issue in debates over the telecommunications
industry, it must be seen as a positive; as a chance to open up
new services and market opportunities to the Canadian public."

Dave Fittler, student 

The three broad policy areas established by the Government in
the Order in Council are: competition, facilities and content.
With respect to competition policy, there was wide support for
the operating principle that "fair" and "sustainable"
competition is in the best interests of consumers. For example,
it was clear that consumers desire more competitive distribution
alternatives. As noted in the Order in Council, however, the introduction
of such alternatives should be subject to safeguards to ensure
that competition is fair and effective and does not lead to the
elimination of any particular industry segment.

At a broader level, concerns were expressed that a competitive
model for the provision of facilities, products and services may
jeopardize important public benefits and policy objectives that
have been built into the existing regulatory frameworks for telecommunications
and broadcasting. These concerns raised questions regarding the
ability of a purely competitive model to ensure affordable and
universal access by individuals, both to essential communications
services and to new emerging services associated with the information
highway. With respect to rural and remote areas, a common theme
was the need for alternative models to competition, such as the
licensing of a single service provider, the shared ownership or
joint use of facilities by providers, or other measures that would
enhance the development and viability of communications in these
areas.

As for competition among providers of distribution facilities,
there was widespread support for the Government's vision of an
interconnected and interoperable network of networks. However,
there were differing opinions as to the terms of interconnection,
and the extent to which standards could be agreed to or accommodated
in a competitive environment and across unique technologies.

"In the new knowledgebased economy, our geographic remoteness
need not add to our marketing and distribution costs. As exporters
of information resources, we can compete on an equal footing with
the rest of the world. As these new industries are still in their
infancy, this is the ideal time for us to develop our own expertise
and enter the field."
Department of Education, Culture and Employment
Government of the Northwest Territories 

Regarding content, virtually all parties agreed that competing
broadcasting distribution and programming undertakings should
be required to support the creation and distribution of Canadian
services. Most parties suggested that all distribution undertakings
should allocate funds for the development and production of Canadian
services, while programming undertakings should continue to acquire
and invest in Canadian programming. Many encouraged support for
new and emerging multimedia services. At the level of distribution,
parties advocated that all distribution undertakings be required
to carry certain core Canadian services, provide access to all
Canadian programming services, and adhere to packaging policies
designed to ensure a strong Canadian cultural presence.

Some suggested that the definition of broadcasting should be narrowed
to exclude certain multimedia and other services. However, most
parties considered that broadcasting should continue to be defined
broadly, to ensure that new multimedia and other services that
are deemed to be programming and capable of contributing to the
objectives of the Broadcasting Act, can in fact be called
on to do so. They recognized, however, that it may be difficult
or impossible to expect certain new content services to contribute
to these objectives, and that it would thus be reasonable for
the Commission to exempt the operators of such services from licensing
requirements.

Access by content providers to competing distribution systems,
and the purchase of exclusive rights, were also raised as concerns
that need to be addressed to ensure fair and sustainable competition,
particularly when distribution network providers own or control
content services. The ability of distributors to assure the security
of information that travels over their networks and to protect
the privacy of individual users remains a significant issue.

"This enterprise should reflect our country's true potential.
The unity and vitality of Canada cannot develop fully without
recognition of regional identities and cultural diversity, for
culture is what gives a nation its character and its worth."

Bernard Benoist and Ann Gauthier 

Francophones were concerned about the ability of the information
highway to reflect the cultural identity of Francophone consumers.
Suggested remedies and safeguards included measures to ensure
access to packages or tiers of French-anguage services only, within
as well as outside of Quebec, and the creation of additional French-language
programming services and development of French-language navigational
tools to assist users in accessing electronic information. There
were also suggestions for the creation of an information network
that would allow communication between Francophone users, not
only in Canada but throughout the world.

Aboriginal groups and representatives from Canada's North conveyed
their sense of urgency that the information highway be extended
to include their regions. The high cost of travel, isolation and
the lack of social services mean that the communications infrastructure
must be upgraded in a timely fashion if aboriginals and others
residing in northern and remote areas are to benefit socially
and economically from the new communications services. Parties
also argued strongly that supportive measures are required to
deliver essential communications services across vast distances,
particularly in the areas of health and education.

Groups representing the disabled made the point that builders
of the information highway should ensure that the appropriate
technology is in place to ensure all Canadians have access.

The Commission wishes to thank all those who took part in this
important public process, including: individual subscribers of
cable and telephone companies; consumer and public interest groups;
governments; industry associations; telephone companies; broadcasting
distribution and programming licensees; other content producers
and distributors; and parties involved in alternative distribution
technologies. Their written and oral comments have greatly assisted
the Commission in preparing this report to the Government.

We also wish to thank our own extraordinarily talented and disciplined
staff. Drawn from all segments of our organization -- notably
Broadcasting, Telecommunications and Legal -- they "converged"
under the quiet but firm coordination of Diane Rhéaume,
our Director General, Broadcast Analysis. Working nights and weekends
to impossible deadlines, they nourished and stimulated Commissioners
with astute analyses and perceptive advice. To all of them, we
express our deepest gratitude.

Chapter 1: Culture and Competition -- Building on Achievements



The information highway is more than cable and copper wire; it
is a metaphor for the promise and uncertainty surrounding the
emergence of a world-wide communications network driven by innovation,
competition and technology. The highway links past achievements
in communications to future aspirations, binds economy and culture
in ways that harness the creative energies of Canadians, and opens
gateways to global trade in information products and services.
Throughout Canada's history, policy makers have seen the importance
of communications to economic and cultural sovereignty, and have
fought to build roadways that link all parts of this country.
Their efforts have created a North American country with distinctive
values. Increased competition in telecommunications and broadcasting
can be introduced in a manner that supports the bold vision of
the nation on which our communications systems are built. The
clear message from hundreds of Canadians who participated in this
process is that they want windows on their own communities, as
well as on the world.

"One line of argument that must be rejected is the fatalistic
stance that globalization renders all national policies obsolete."

McLuhan Program in Culture & Technology 

The Commission shares the Government's view that competition in
facilities and services is key to the creation of wealth and ideas
in the information economy. However, in a country the size of
Canada, exclusive reliance on market forces to shape the development
of cultural products could well jeopardize the continued availability
of Canadian voices and ideas on our communications systems. While
the new system must include expressways to global markets, our
own markets will prosper from globalization only if we build on
our achievements.

As many of the participants pointed out, Canada is at the forefront
among countries in promoting diversity and competition in communications
as tools to stimulate choice, innovation and growth. Through its
regulatory policies, the Commission has actively promoted competition
in the delivery of telecommunications, information and broadcasting
services. Since 1982, the Commission has increased choice by licensing
over 30 new Canadian pay, pay-per-view and specialty undertakings,
and authorized a variety of U.S. satellite services for distribution
by cable. While conventional broadcasters, as a consequence, operate
in an intensely competitive marketplace, they continue to succeed
in providing an impressive variety of quality Canadian programming.

"We are here today not because the broadcasting system
has failed, but because it has succeeded."
Canadian Association of Broadcasters (CAB) 

In terms of diversity and quality, Canadians have more real choice
on their television screens than citizens of any other country
in the world. Canadians have managed to accomplish this in a market
that is significantly smaller than that of any of our major trading
partners. Canadians want and deserve more choice. In the Commission's
view, a more competitive model for both distribution and programming
services will allow this to occur.

Such a model must take into account Canadian realities. In surveys
and in their comments to the Commission, many Canadians have signalled
their wish, not just for additional choice among foreign services,
but among domestic services as well. The Commission considers
that meeting that demand cannot be accomplished simply by licensing
or authorizing new undertakings or services, but by also allowing
more choice in how services are packaged and distributed.

"Community networks create Canadian content provided by
regular Canadians for Canadians."
Internet Public Interest Research Group 

In its potential for delivering broadcasting services, the information
highway is as much evolutionary as revolutionary. While interactivity
holds many promises, surveys indicate an uncertain consumer demand
for interactive services. Interactivity and video-on-demand (VOD)
will not replace the existing broadcasting system, but will certainly
add new dimensions to how we consume information and entertainment
services. If Canadians are to benefit from increased choice, market
entry should be regulated in a manner that contributes to the
Canadian broadcasting system and the development of quality programming.
It is therefore critical that we not ignore the economic limitations
of our market, nor lose sight of what we have achieved, by embracing
illdefined promises of unlimited choice that often reflect more
dogma than substance, more universal theory than Canadian reality.

Government policy supports fair, effective and sustainable competition
among facilities and services. To achieve these policy goals,
it is essential that barriers to competition arising as a result
of the monopoly power or dominant position of telephone and cable
companies be removed. As regulators and legislators in the United
States and other countries have recognized, if competition is
to be sustainable, rules must be in place that allow effective
competition in the local telephone and cable markets, and allow
service providers equitable access to both cable and telephone
subscribers.

The transition rules proposed in this report are designed to quickly
remove barriers that could prevent new service providers from
competing effectively. We are not looking for ways to slow the
arrival of sustainable competition. We will be looking for ways
to hasten it.

In preparing this report for the Government, the Commission has
also been guided by the following:

New broadcasting services cannot merely offer "more of
the same", but must contribute to increasing choice and diversity.
Barriers to competition in distribution must be removed so
that both content providers and the public have affordable and
non-discriminatory access to all information highway systems.



"Our vision is to have a facility that will be equipped
with a broadband connection that will support interactive communication
for business, education and the arts."
Don MacKenzie, Festival Place 

The information highway will encompass a variety of terrestrial
and wireless distribution technologies and service providers connected
in ways that serve the increasing demands of Canadian businesses
and institutions, as well as individual consumers -- at home,
in the office or on the road.
Fair and sustainable competition requires that consumers have
an increased choice among distributors of telecommunications and
broadcasting services, including cable, telephone, wireless, direct-to-home
(DTH) satellite and others.
There should be no fixed transition period before telephone
companies are permitted to compete in the core cable business.
They should be permitted to enter the cable business as soon as
barriers to effective competition in the local telephone business
are removed. The issues of rate rebalancing [Footnote 1:
Rate rebalancing involves increasing prices for local services
that are subsidized by long-distance revenues, and reducing subsidies
paid by long distance service providers.] and cross-subsidization
which are currently under review by the Commission, must be addressed
in order to facilitate competition.
The Commission is prepared to consider, without delay, applications
by other potential distribution undertakings.
Content providers must have affordable and non-discriminatory
access to distribution systems if Canadians are to benefit to
the fullest extent possible from increased choice, diversity and
innovation in Canadian services.
Structural separation [Footnote 2: Structural Separation
involves setting up a separate but affiliated company to provide
a specific line of business. Structural separation is one approach
to dealing with cross-subsidy or undue preference.] of carriage
and content for providers of broadcasting services, and non-preferential
access to distribution systems, are essential to ensure diversity
and choice in broadcasting and telecommunications.
Until there is sufficient capacity on cable networks, and
until transparent access rules are in place to prevent undue preference,
affiliates [Footnote 3: Affiliates: companies are affiliates
if one owns or controls the other, or if both are owned or controlled
by a common parent.] of cable licensees should not generally be
granted licences to operate, nor should they be permitted to acquire
ownership or control of, programming undertakings other than over-the-air
radio and television services.
Affiliates of telephone companies and cable companies would
be eligible to hold programming undertaking licences to operate
VOD services as soon as video-dial-tone (VDT [Footnote 4: Video-dial-tone
refers to the two-way or "switched" (as distinct from
the one-way or "dedicated") broadband carriage of information;
VDT will provide the technology platform for video-on-demand services.
A switched communications system is one that allows the two-way,
point-to-point exchange of information.]) tariffs are approved
by the Commission allowing non-discriminatory access to their
respective networks by any other VOD providers.



"The reality is that no one buys wires, infrastructure
or satellite dishes for their own sake, they buy them for the
content. Broadcast signals are nothing without programming."

Canadian Independent Record Production Association (CIRPA)


Competition alone will not deliver the benefits of the information
highway to every region in Canada. Canadians want assurances that
they will have affordable access to the information highway. This
will require retaining some subsidies and the adoption of co-operative
approaches by governments and distributors in building communications
infrastructure and developing public access to essential communications
services, particularly in remote and underserved areas.
Programming services should continue to be licensed in a manner
that takes into account market size and ensures that existing
and future producers have sufficient resources to produce quality
Canadian programming.
Contributions to the objectives of the Broadcasting Act
by all broadcasting undertakings should be fair and equitable.
Competing distribution systems should permit open access to
their facilities. Government should actively promote the development
of open/interoperable standards on the information highway, but
should not mandate such standards at this time.



Chapter 2: Competition and Facilities


The Government asked the Commission to address the following questions
relating to the issues of competition and facilities:

"Within what timeframe can the Government's policies
regarding interconnection and interoperability as well as the
leasing, resale and sharing of cable facilities not used for broadcasting
be implemented?" 

"What, if any, conditions should apply, and what mechanisms
should be in place to ensure effective cooperation and fair competition?"


"What measures, transitional or otherwise, are required
to ensure that competition is fair in the long term? Such measures
might include line-of-business restrictions and restrictions on
cross-ownership for the transition period." 

"Because of the limited size of the Canadian market and
the dominant resources and market power of a few large players,
wide open competition without appropriate safeguards could reinforce
monopoly trends rather than foster the entry of numerous new players."

Shaw Communications 

Most parties favour increased competition, subject to mechanisms
to protect our cultural identity. Most recognize the necessity
of safeguards to prevent telephone and cable companies from competing
unfairly, a necessity also recognized by regulators and legislators
in the United States and the United Kingdom. The Commission supports
competition in telecommunications, broadcasting distribution and
programming services, subject to such safeguards. Competing networks
for distributing services to the home (telephone, cable, DTH,
wireless) must be developed if competition is to be fair and sustainable.
For this to occur, the power of telephone and cable companies
arising from their near-monopoly positions in their respective
core activities must be reduced. This requires safeguards to ensure
fair and equitable access and prevent crosssubsidy. Specifically,
rules are required to ensure effective local telephone competition
and non-preferential access to cable distribution systems.

The Commission has actively promoted competition in a variety
of telecommunications and broadcasting services with a view to
creating greater choice and diversity for consumers. In telecommunications,
customers can now purchase terminal equipment, long-distance and
other services from a variety of sources. In broadcasting, the
Commission has licensed over 30 Canadian specialty, pay and pay-per-view
television undertakings since 1982. In addition, the Commission
has authorized the distribution in Canada of numerous U.S. services.

The record of this proceeding suggests strongly that Canadians
want further choice in the packaging and distribution of broadcasting
services. Although government and regulatory policy, until recently,
supported cable delivery as the primary instrument to achieve
the objectives of the Broadcasting Act, the Commission's
evolving regulatory framework now supports the development of
competing distribution technologies, including the development
of VDT by telephone companies. For several years now, the Commission
has also exempted the operators of satellite master antenna television
(SMATV) systems from the requirement to hold broadcasting distribution
licences. In June of 1993, the Commission also made clear that
it considers DTH satellite service to be an important vehicle
for delivering services in competition to cable.

"Distribution of existing and new services, including
services yet to be imagined, can be accomplished using the networks
of at least two existing mature industries: telecommunications
and cable television. Potentially competing distributors will
make use not only of "wired" technologies -- fibre optics,
coaxial cable, even twisted copper pairs -- but also of established
and new "wireless" technologies, such as cellular and
Personal Communications Systems, conventional direct broadcast
and low earth orbit satellites and wireless CATV."
Telus Corporation 

In September 1994, following extensive public hearings, the Commission
established a comprehensive framework for telecommunications (the
Framework proceeding; Telecom Decision CRTC 94-19). This framework
is based on the premise that the public interest is best served
if basic telecommunications and innovative information services
are competitively provided and made accessible to all sectors
of the public, and if the facilities used to offer such services
are open to a variety of potential service providers on reasonable
terms and conditions. This policy recognizes that telecommunications
has become a principal engine of economic and social activity
ranging from electronic commerce to the creation of virtual communities,
such as the Internet, that transcend geographic distance and political
boundaries.

The evidence presented by a broad range of interested parties
during the Framework proceeding led the Commission to conclude
that underlying these phenomena was no less than a political,
economic and cultural revolution in which Canadians are redefining
themselves and their environment in ways and at a pace that challenge
the ability of regulators and governments to articulate and define.
This proceeding on the evolution of the information highway reinforces
these conclusions.

Increased and sustainable competition is fundamental to the development
of the information highway. In an information economy, consumer
demand for communications services will range from simple dialtone
service and Internet access to conventional television and multimedia
applications. In the Commission's view, multiple suppliers, rather
than monopolies, can best serve this diverse demand.

Competition is generally recognized as the best means of stimulating
choice, innovation, efficiency, better service, lower prices and
economic growth. However, increased reliance on market forces
must take into account the other objectives of broadcasting and
telecommunications legislation. For example, the benefits of competition
may not extend equally to all subscribers in all regions. Some
form of subsidization will likely be required to assure affordable
access to the information highway. Government initiatives and
sharing of infrastructure will also be required if certain parts
of Canada are ever to obtain interactive broadband services. Further,
as noted in the Order in Council, the cultural content and ownership
objectives of the Broadcasting Act must be upheld.

It is essential that we recognize the economics of broadcasting
in this country, from the limited size of the viewing audience
and pool of available advertising revenues, to the restricted
amounts of leisure time and disposable income available to consumers.
Exclusive reliance on market forces in the broadcasting sector
would threaten the economic underpinnings of our cultural industries.
Regulation and funding for program production have resulted in
more real quality and diversity in the services on our television
screens than anywhere else in the world. Competition on the information
highway must add opportunities for increased diversity, not erode
the diversity now in place. Mechanisms to promote the production
of, and access to, Canadian-content products and services are
addressed in more detail in Chapter 3.
1. Access to Distribution Networks


"The assurance of open networks to all Canadian users
and all service providers at equal terms including the networks'
own services is essential if Canada wants to keep up with the
global Information Highway evolution and hopes to export information
services rather than just become a consumer."
Michael Kedar 

Technology and competition are producing a range of alternative
forms of distribution, such as DTH and other wireless services.
In Canada, however, existing telephone and cable networks remain
the most broadly-based systems for delivering telecommunications
and entertainment, respectively, to the home. These industries
retain a high degree of monopoly power and, without safeguards,
could exercise significant control over the terms and conditions
of access to their distribution systems. Thus, to ensure Canadians
receive the full benefits of competition, action must be taken
to temper the market power of telephone and cable companies.
(a) Local Telephony


The local telephone network is the predominant bottleneck
[Footnote 5: A bottleneck is a local telephone network service,
function or facility currently subject to some degree of monopoly
control, that competitors cannot economically duplicate, but require
access to in order to compete. The degree to which network elements
exhibit bottleneck characteristics will soon be examined in the
Commission's process on local competition.] in the communications
system due to its universally-interactive nature. Collectively,
telephone companies control switched access to virtually every
household and business in the country, and provide connections
to subscribers throughout the world. These factors ensure that,
until the widespread deployment of bi-directional broadband networks,
the local telephone network will remain the principal means of
interaction on the information highway.

"Our culture is both the message, and the sharing of it.
The information highway offers many more ways for Canadian culture
to be shared, and consequently many more opportunities for Canadian
messages or Canadian content to be developed and delivered."

Telus Corporation 

The Commission has established a policy framework in Telecom Decision
CRTC 94-19 that promotes competition, reciprocal access and interoperability
[Footnote 6: Interoperability refers to the connection of networks
that allows traffic to move efficiently from one network to another.]
in all telecommunications markets; it has also initiated a number
of proceedings to develop mechanisms to give effect to these policies.
Currently, the Commission is in the midst of its Split Rate Base
proceeding, a major examination of the cost allocation between
monopoly and competitive services, the investment in interactive
broadband networks, and the reduction of the local service subsidy
(rate rebalancing). Preparations are underway for proceedings
to examine local competition, including rules for unbundling
[Footnote 7: Unbundling involves the offering of individual components
or services of the local telephone network on a disaggregated
(or piece-by-piece) basis in order to facilitate sustainable competition.]
and interconnection. The Commission expects that a proceeding
on price caps [Footnote 8: Price caps are an alternative
to traditional rate-of-return regulation. Price caps focus on
price levels rather than return on investment. Price caps are
intended to reward productivity and reduce concerns about unnecessary
overinvestment and inappropriate cost allocations.] will take
place in the spring of 1996.

Regulatory policy supports competition in the local telephone
market. The Commission, however, does not expect that entry will
occur to any significant degree until technological and other
barriers to entry are reduced, and until the terms and conditions
of entry in local telephony are sufficiently clear to allow new
entrants to develop viable business plans. In the Commission's
view, the completion of the local competition process prescribed
in Telecom Decision CRTC 94-19 is a fundamental precondition to
competition in all markets on the information highway. Creating
opportunities for competition in local telephony will begin the
process of establishing alternatives to one of the most significant
bottlenecks, the local access loop [Footnote 9: The local
access loop is the dedicated line between a telephone company
switching centre and a subscriber's premises.] connecting each
individual subscriber to the switched telephone network.

It is essential that many of the issues surrounding local telephone
competition be resolved before any applications by telephone companies
for broadcasting distribution licences (e.g. entry into the core
cable business) are approved. Once local competition issues are
resolved, the Commission would generally be prepared to license
telephone companies, subject to safeguards discussed below.

Since the provision of video-dial-tone facilities for the distribution
of broadcasting services is clearly a common carrier function,
telephone companies should be allowed to continue to build VDT
platforms. With regard to the provision of video-on-demand services
over those platforms, telephone companies may participate in VOD
trials under criteria set out in the Commission's Exemption Order
(Public Notice CRTC 1994-118). Affiliates of telephone companies
would be eligible to hold programming undertaking licences for
VOD services as soon as the Commission has approved, under the
Telecommunications Act, a tariff that ensures that any
other provider has non-discriminatory access to the VDT platform.

In order to stimulate effective competition in the local telephone
market, the following issues must be addressed and resolved:

the rates, terms and conditions under which competitors in
all markets terminate their networks at central office facilities
(co-location);
the rates, terms and conditions under which components of
the local network (transmission, switching [Footnote 10:
Switching is the process of routing traffic from one subscriber
to another on the same or different networks. As noted earlier,
a switched network permits traffic to move in a bidirectional
fashion.], signalling [Footnote 11: Signalling is the functional
process of identifying and setting up calls within the telephone
network.], local loops) are to be offered on an individual or
"unbundled" basis to competitors;
the development of comprehensive interconnection tariffs that
will provide the economic basis and capability to interchange
traffic, including disposition of matters pertaining to access
to poles, ducts and rights of way, as well as such other matters
as directory assistance, billing, number assignment, database
access, and compensation for reciprocal access.


(b) Number Portability


Many parties contended that effective local competition requires
the development of mechanisms that will allow subscribers to retain
use of their existing telephone numbers when they choose to switch
suppliers in a local serving area (number portability). The Commission
considers that number portability would stimulate local telephone
competition. It also notes efforts by policy-makers in the United
States and United Kingdom to establish number portability. Number
portability must be addressed in proceedings on local competition,
and solutions must be sought to facilitate competition. However,
the Commission recognizes that technical issues surrounding number
portability require clarification, and that interim solutions
may be necessary to facilitate an acceptable measure of portability
at an early date. 
(c) Rate Restructuring


"Surely the object is not to give precedence to large
cities at the expense of less populated regions, for which the
Information Highway represents a unique opportunity. Be it in
the form of economic activity, job creation, or incentives for
young people to stay in their home towns, less populated communities
will not really benefit from competition unless we give them a
fighting chance."
Daniel Bénéteau, Québec-Téléphone


The current telephone company rate structure poses a barrier to
entry. In Telecom Decision CRTC 94-19, the Commission concluded
that action is required to reduce subsidies through a program
that would move prices closer to their real costs. In particular,
the Commission notes the following:

The size of the subsidy to local service is being contested
in the current Split Rate Base proceeding. If it is determined
to be too high, it will likely have to be reduced in some manner
to permit efficient competition.
While prices for local business service in urban centres are
already at or near costs, residential services are priced below
costs. Prices for local service in rural areas are lower than
in urban centres, even though the cost is generally higher to
provide rural service. Competition in the local market may increase
pressures to reduce subsidies from business to residential subscribers
and from urban to rural areas (rate restructuring).
Notwithstanding the above, the requirement will continue for
subsidies to promote affordable access in some circumstances.
The need to maintain some degree of subsidy may require regulatory
mechanisms to identify its appropriate size and nature, to ascertain
which competitors or services will make payments and which will
receive support, and to determine how the subsidies will be administered
in a more competitive environment. The treatment of subsidies
must be addressed in the context of local competition in order
to assist prospective entrants in formulating their business plans.
While any subsidy poses a barrier to entry, it is difficult
to ascertain the extent of that barrier. That would be a function
of how close prices are to costs in the core markets where competition
will first roll out, whether competitor costs are comparable to
telephone technology costs, and the profitability of bundling
a number of services (local, long distance, data, entertainment)
in a single package.



The regimes for rate rebalancing, and for the recovery and allocation
of subsidies, must be clearly established in order to facilitate
competition. These issues will be examined both in the context
of the Split Rate Base proceeding now under way and in further
proceedings this year on the local competition issues identified
above.
(d) Access to Cable Networks


"The central question before the Commission in this proceeding
will be when such entry can be accomplished on the basis of sustainable
competition that does not jeopardize the achievement of the goals
of the Broadcasting Act."
Canadian Cable Television Association (CCTA) 

Cable is the most extensive form of broadband access to the home.
While competition in distribution is evolving, cable companies
still exercise control over the delivery of most broadband services,
and effectively control a bottleneck for the delivery of entertainment
services to the home. The existing market power of cable companies
provides the potential for preferential treatment of affiliated
broadband services. The opportunity for preferential treatment,
particularly in light of limited channel capacity, requires that
more comprehensive access rules be established to deal with price,
placement and packaging.

Ultimately, digital video compression (DVC), common carrier tariffs
for VOD access, and competition from satellite and telephone companies,
will reduce opportunities for preferential treatment. Until then,
no cable company affiliate should be permitted to hold a licence
for a discretionary video programming undertaking. This general
restriction should remain in place until comprehensive access
rules to prevent preferential treatment are established and there
is sufficient channel capacity to ensure that unaffiliated broadcasters
would have access comparable to that provided cable-owned services.
In the case of true video-on-demand, such access would require
the establishment of non-preferential common carrier video-dial-tone
tariffs. 

Telephone companies have proposed that access to part of a cable
system's bandwidth capacity (bandwidth sharing), and to the subscriber
drop (the wire from the street to the subscriber's premises),
should be mandated so that telephone companies could enter the
broadcast distribution business more quickly and on a more economical
basis.

"Regulatory safeguards are necessary to protect the rights
not only of service providers but, equally importantly, those
of Canadian consumers."
TORSTAR 

As discussed below, while networks should be interoperable to
permit subscribers to exchange information, the Commission
does not consider that mandatory bandwidth sharing or access to
the cable drop, as proposed by the telephone companies, is necessary
or desirable. Fair and sustainable competition can be better assured
through other means, such as the creation of alternative networks
for delivering services to subscribers. 

While the Commission agrees that non-preferential access to cable
networks by programming services is essential, it does not consider
that similar access by competing distributors should be mandatory.
The development of alternative distribution systems to the home
is the best way to achieve sustainable competition and fair access,
since such alternative facilities remove bottlenecks and reduce
opportunities for undue preference. Moreover, the Commission does
not view the existing cable distribution plant as being an essential
facility to the same degree that the switched telephone network
is, given the carriage priorities and restrictions imposed on
cable under the Broadcasting Act.

"Telecommunications (voice, data, TV, I-way) are not and
cannot be limited by national borders."
Mick Omeara, New Technology Training Ltd. 

In the Commission's view, interconnection and sharing of cable
facilities are better accomplished through the negotiation process,
by which agreements can be reached that serve the economic interests
of both parties. Such common interest may occur in rural or
small market areas where distributors are most likely to determine
that it makes economic sense to share a common infrastructure.
In Public Notice CRTC 1993-74 that followed the Commission's hearing
on the structure of broadcasting, the cable and telephone industries
were encouraged to explore cooperative opportunities for the shared
use of network infrastructures. We consider that such ventures
may be a key ingredient to building the information highway in
smaller markets in Canada.
(e) Interoperability and Interconnection


The Order in Council identifies, as a major policy objective of
the Government, the establishment of an interconnected and interoperable
network of networks to permit traffic to flow between networks.
Interoperability requires industry and cross-industry adoption
of transmission and other standards to permit all types of traffic
to be exchanged and accessed by subscribers of competing distribution
networks.

The Commission strongly endorses the Government's vision of an
interconnected and interoperable network of networks within a
competitive environment. Such a model would clearly serve to maximize
benefits to subscribers by allowing them to move seamlessly from
one competing distributor or content service to another.

The Commission has supported the development of industry-wide
technical standards for communications in Canada in order to maximize
benefits to consumers. The Commission's telecommunications framework
is based on the principle of open and reciprocal access. However,
it is difficult to mandate standards for the development of broadband
networks, servers and products given the experimental nature of
many services, the rate of technological change and evolving business
strategies. Competing distribution systems have incentives to
differentiate themselves technically in order to obtain market
share. The different approaches to the development of settop boxes
is an example of this phenomenon.

While businesses on the information highway may choose to develop
proprietary applications to serve particular markets, the Commission
believes that there will be incentives for systems to interconnect
in order to interchange communications among subscribers of different
systems. The Commission notes in this regard that access to the
local telephone networks is based on open standards and rules
to assure non-preferential access. The need to interchange traffic
and interconnect to the public telephone network will be a major
stimulus to achieving interoperability.

The Commission supports the principle of interoperability and
interconnection. Regulatory mechanisms are required to give effect
to interconnection among telephone systems, and to ensure access
by content providers to distribution networks or video-dial-tone
services. However, specific regulatory mechanisms mandating interconnection
and interoperability among broadcasting distribution undertakings
for the carriage of programming services would not be consistent
with the objective of fostering competition in facilities. The
terms of such interconnection are better left to negotiations
between the parties concerned.

"For decades, Canadians and their government have allowed
technology to catch them by surprise. It is time, now, to come
together in this democracy and dictate to the technology how we
will allow it to operate within our lives rather than how we will
agree to function within its demands."
Patricia Herdman 

Similar arguments pertain to the Commission's existing regulatory
requirement for cable operators to own and operate their local
head end, amplifiers and subscriber drops, as set out in section
4 of the Cable Television Regulations, 1986. The intent
of this requirement is to ensure that the cable operator is able
to exercise adequate control over its undertaking so that broadcasting
objectives can be attained. The existing regulation allows for
an exception to this policy where it can be demonstrated that
it is in the public interest. As it stands, however, the Commission
considers that the regulation acts less as a barrier to competition
than as an important safeguard for the broadcasting system in
a competitive environment.

At the same time, the Commission considers that the cable and
telephone wires installed inside a subscriber's premises have
attributes of an essential facility. In the case of a number of
telephone companies, responsibility for this inside wiring has
already been transferred to the telephone subscriber. The Commission
proposes that measures be developed to ensure that all telephone
and cable subscribers have the freedom to connect the inside wire
to the systems of whichever suppliers of service they choose.
The Commission notes, however, that ownership and control of inside
wires raise a number of regulatory and legal issues that may have
to be addressed to give effect to this proposal.

Standards, including those that would support access by the
disabled, should be developed through cooperation and negotiation,
subject to the broad direction and guidance of Industry Canada.
That being said, the Government, in approving standards, should
be aware that premature adoption of one particular competing approach
over another could favour or disadvantage the distribution of
Canadian product on the highway, particularly in view of the continuing
development of technical equipment and applications. Ideally,
the creation of standards should await the emergence of a clear
technical market and business consensus. 
2. Competitive Safeguards

(a) Telephone Companies


As noted above, the resolution of issues surrounding local competition
must be addressed before telephone companies may be issued broadcasting
licences. Further, in the case of Crown entities such as SaskTel
and Manitoba Telephone System, entry should be predicated on regulatory
safeguards to address competitive advantages that may arise from
their unique status as Crown corporations.

Many smaller independent telephone companies that operate in rural
and remote areas have never been subject to competition. Competition
in the areas served by some of these independent telephone companies
is being examined in a separate proceeding. The Commission considers
that, in the absence of competition in their business, such telephone
companies should generally not be permitted to enter the cable
business. Exceptions may be permitted in the case of unserved
communities or regions, or where participation by the telephone
company is in the form of a joint venture with the licensee of
an existing broadcasting distribution undertaking.
(b) Structural Separation in Programming


"Technology makes possible the separation of service provision
from infrastructure operation. But what technology makes possible,
government policy should turn into a requirement."
Charles Sirois and Claude E. Forget 

Many parties in this proceeding suggested that telephone companies,
due to their size and dominance, should only be permitted to hold
broadcasting licences subject to stringent restrictions on entry,
including the implementation of price caps and structural separation.
As announced in Telecom Decision CRTC 94-19, the Commission plans
to impose price caps effective 1 January 1998. The Commission
expects a proceeding on this matter to commence in the spring
of 1996. Many parties also proposed that telephone companies and
cable distribution undertakings should be subject to safeguards
based on transparent access rules and the separation of carriage
and content in order to prevent undue preference or discrimination
in favour of affiliated content-based services.

While the Commission supports the principle of transparent access
arrangements, it does not consider that structural separation
is a necessary safeguard in respect of telephone or cable companies
providing non-programming services. In Telecom Decision CRTC
94-19, the Commission dealt with this issue as it affects telephone
companies, and concluded that safeguards, such as equivalent access
tariffs, were sufficient to permit telephone companies to take
advantage of the benefits of integration and provide content-based
information services. Competition, technology and globalization
of markets have reduced concerns that any one supplier can control
the flow of information. In a competitive environment governed
by open access and unbundling, telephone companies can make an
important contribution to the development of innovative and advanced
services.

Structural separation is not required in the case of non-programming
services provided by cable. Currently, information or nonprogramming
services (on-line services, home banking, Internet access) tend
to be interactive and narrowband. Cable companies cannot be considered
to be essential suppliers of facilities since they do not control
interactive networks. The Government has asked the Commission
to examine issues related to access guidelines for broadband distribution
in a separate proceeding.

"This goal, to reinforce Canadian sovereignty and cultural
identity, will in the future be dealt with on the production side
and not the delivery side. The traffic cop...can no longer control
the flow of traffic."
Jerry Good, Professor

While structural separation should not be a precondition to the
supply of non-programming services, structural separation should
generally be required of any distributors that are in a position
to exercise undue preference in respect of the delivery of programming
services. Economies of scope arising from the integration of program
and production functions are negligible, and would be offset by
the preferences that may benefit those that develop and supply
programming on an integrated basis.

The absence of significant economies of scope supports a policy
of structural separation for any distributor that is in a position
to exercise market power. Cable companies can be expected to retain
market power in broadband distribution. There are also general
concerns about the financial strength and monopoly power of telephone
companies. Therefore, any activities of these distributors
in programming should be carried out through structurally separate
affiliates, and be subject to transparent access rules and conditions
of licence, including those dealing with ownership and control.
It is worth noting that telephone companies did not object to
providing programming services through separate affiliates. During
the transitional period or, in the case of VOD, until VDT tariffs
are approved, investment by these distributors in discretionary
video programming undertakings should be limited to a voting interest
of up to 29.9%, and to a nonvoting interest short of control,
consistent with current Commission broadcasting regulations.

That being said, telephone companies, through structurally separate
affiliates, should be able to acquire control of off-air radio
and television broadcasting undertakings before the rules governing
local telephony competition are addressed. Off-air stations are
protected by priority carriage rules; accordingly, issues related
to preferential treatment in distribution do not arise. Telephone
companies could increase diversity and the pool of funds available
for programming through their ownership of off-air television
and radio affiliates. Any application proposing such ownership
should be assessed on its own merits, subject to concerns about
crossownership and concentration.
(c) Structural Separation in Distribution


"In an economy of plenty where the costs of access are
not overwhelming, the incredible drive and need to express themselves
of the artistic community will result in more "Canadian Content"
than has ever been seen."
M.V. Bernier

It was the position of cable companies that a telephone company
should apply for a licence to distribute programming only through
a separate affiliate. Under such a scenario, the telephone company
would lease facilities to an affiliated distribution licensee,
subject to common carrier tariffs for broadband distribution.
The primary reason given for requiring the structural separation
of the licensed distributor from the integrated network is to
reduce opportunities for cross-subsidy. The Commission is not
convinced that such an approach is necessary.

First, all evidence suggests that the trend is to integrated
networks [Footnote 12: Integrated networks provide the capacity
to carry voice, video and data on the same facilities.] on the
information highway. That is the nature of the Stentor alliance's
Beacon [Footnote 13: Beacon is the name given by the Stentor
alliance of telephone companies to its plan for the construction
of a two-way (or switched) broadband network.] initiative; this
trend also reflects the plans of the cable industry. Thus, it
is likely that economies of scope would be lost if telephone companies
had to structurally separate their network and distribution activities.
Second, the greatest risk of crosssubsidy arises during that period
of time when broadband investment is being made under rate
of return regulation. [Footnote 14: Rate of return regulation
is intended to allow a telephone company to earn a reasonable
return on its rate base (which includes investments in capital
and operating expenses).] Risks of cost misallocation will be
reduced under price cap regulation. The Commission is currently
undertaking a detailed examination of Beacon and past broadband
investment in the Split Rate Base proceeding. Since the Split
Rate Base proceeding is currently under way, and because price
caps will be in place by 1998, there appears to be no compelling
need for a telephone company to set up a separate affiliate to
apply for a broadcasting distribution licence. However, the
Commission does not preclude such an option and notes that, to
resolve issues of foreign or Crown ownership, this or some other
alternative may be necessary for market entry by some telephone
companies.
3. Transition to Sustainable Competition


The Government asked the Commission to address the following question:

"What is the appropriate timeframe to complete the move
to fair competition in the delivery of telecommunications and
broadcasting services to Canadians?"

"...in our opinion, it must be expected that the factors
decisive to competition will evolve along with the development
of markets, consumer trends, new technologies, popular and political
orientations, social values, legal questions and demographic and
economic conditions."
Groupe Vidéotron

Cable companies took the position that telephone companies should
not be permitted to apply for a broadcasting distribution undertaking
licence until (i) local telephone markets are opened to allow
sustainable competition; and (ii) the cable industry is in a position
to finance existing broadcasting commitments as well as their
entry into local telephony. Telephone companies argued that the
need to attract investment, build interactive networks and obtain
regulatory approval will create a natural transition period that
will take years to complete.

With regard to the timeframe, our best estimate is that factors
such as technology, market forces (including investment decisions),
and the regulatory proceedings already under way will create a
natural transition period of about three to four years before
telephone companies begin to establish any significant presence
in the cable market. We do not expect that the processes to resolve
issues related to local telephone competition and to address rate
restructuring will take up more than the first 12 to 18 months
of this transition period.

Consumers want, deserve, and will get competition in cable's core
market. While recognizing that technology and market forces will
shape the broad direction and timing of competition, the Commission
will manage the transition with a strong bias toward ensuring
the earliest possible competition. The perceived need for transitional
protection of the core cable business stems essentially from concerns
about the market power of the telephone companies and any head
start they may obtain in packaging telephony and entertainment.
However, in light of the dominance of the cable industry relative
to other potential entrants, there is no need to limit competition
by other entrants in the broadcasting distribution market. Further,
telephone companies should be allowed to apply for broadcasting
distribution licences as soon as rules have been established to
remove barriers to effective competition in the local telephone
business. Applications from other potential distributors should
be considered without delay. Such applications could involve
DTH, Microwave Distribution Systems or other distribution technologies.

"Our vision is of the "virtual mega mall", where
shopping, entertainment, learning and interacting will all take
place."
Media Buying Services Limited

In the case of telephone companies, fundamental issues related
to local telephone competition should be resolved before they
or their affiliates are permitted to own or control any broadcasting
undertaking, other than an over-the-air television or radio undertaking.
As noted above, telephone companies should be allowed to continue
to carry out VOD trials and build video-dial-tone platforms. As
well, telephone company affiliates would be eligible to hold programming
undertaking licences to operate VOD services as soon as the Commission
has approved a telephone company VDT tariff. The speed with which
the Commission is able to resolve issues surrounding local telephony
and access will depend, in large part, on the cooperation of the
telephone companies.

The ability of cable companies to complete plant upgrades or adopt
a particular telephony technology should not be a precondition
to telephone company competition in broadcast distribution. More
specifically, the inability of cable systems to carry telephone
traffic should not prevent telephone companies from competing
in the cable business. The regulatory safeguards proposed in this
report should send clear signals to the investment community about
the rules to govern competition on the information highway. As
discussed above, there will likely be a transition period of three
to four years before any significant entry by telephone companies
into the core cable business occurs. Even then, it may take many
years to roll out Beacon to most parts of the country. This should
provide cable companies with sufficient time to develop competitive
strategies and adopt new technologies. In addition, many of the
technological impediments to true bi-directionality are present
within both the telephone and cable industries. Finally, if it
became evident that telephone companies would have an unfair advantage
or head-start in marketing cable and telephone service on a bundled
basis, then rules could be introduced to address any such advantage.
Such rules have been effective in ensuring competition in other
competitive markets.

This transition to sustainable competition will provide the cable
industry adequate time to develop competitive strategies in more
vulnerable market segments.
4. Ownership Issues


The Government asked the Commission to address the following question
on ownership:

"Would it be appropriate for all telecommunications carriers
to become eligible to hold broadcast licences subject to Canadian
ownership rules and generally applicable regulation? Within what
timeframe and under what conditions might this be considered?"

"Canada is now the recognized world leader in the development
of community networks...Citizen leadership has created a tangible
Information Highway that is already servicing Canadians."

Internet Public Interest Research Group

The Commission notes that, even with a policy that would permit
the licensing of telephone companies to carry on broadcasting
distribution undertakings, certain telephone companies operating
in Canada would be legally unable to hold broadcasting licences.
(a) Foreign Ownership


The Broadcasting Act states that the Canadian broadcasting
system should be effectively owned and controlled by Canadians.
To this end, the Government issued a Direction to the CRTC on
10 December 1969 which establishes 20% as the permissible maximum
level of foreign participation, in respect of either the voting
shares or paid-up capital of a company, in determining that company's
eligibility to hold a broadcasting licence. In the case of both
BCTel and Quebec-Telephone, the foreign ownership currently exceeds
the 20% level set out in the Direction to the CRTC.

The requirement set out in the Broadcasting Act, that the
Canadian broadcasting system should be effectively owned and controlled
by Canadians, is critical to ensuring the integrity of the system
and should be maintained. Accordingly, the Commission considers
that the activities of BCTel and Quebec-Telephone in broadcasting
could only be through their participation, at the permitted threshold
level, in a Canadian owned and controlled corporation. The carriage
of interactive broadband services (eg. video-dial-tone) is not
a broadcasting activity. Therefore, no telephone company would
be precluded from offering access to video-on-demand and other
advanced services on an integrated basis.
(b) Bell Canada Act


Bell Canada is currently prohibited from holding a broadcasting
licence pursuant to the Bell Canada Act. Given the Commission's
view that Canadian telephone companies have the potential to contribute
to the objectives of the Broadcasting Act, and that they
should be allowed to do so, the Commission recommends that
the Government amend the Bell Canada Act to permit Bell
Canada to hold broadcasting licences.
(c) Provincial Crown Corporations


By a Governor in Council direction, provincial Crown corporations,
such as Manitoba Telephone System and SaskTel, are currently prohibited
from holding broadcasting licences. The Commission considers that
it is in the public interest that governments not be eligible
to hold broadcasting licences. The Commission notes that some
provinces have established educational broadcasting authorities
as independent arm's-length corporations that have been found
to be eligible under that direction to hold licences to operate
broadcasting undertakings. Similar models could probably be used
in the case of Manitoba Telephone System and SaskTel.

Chapter 3: Content: Confirming Canadian Values


The Government has asked the Commission to address the following
questions relating to content concerns:

"Are the current legal definitions under the Broadcasting
Act and the Telecommunications Act sufficiently clear
to enable new and emerging services to develop under a coherent
regulatory approach or is there a need for review of definitions
such as "broadcasting" and "telecommunications
service"?"

"Do the tools and instruments existing under the Broadcasting
Act and the Telecommunications Act ensure that content-based
services, whether Canadian or foreign, are made available in a
manner that furthers Canadian cultural policy objectives? If not,
what modifications are required?"

"Under section 9.(4) of the Broadcasting Act, the
Commission shall exempt undertakings from regulation where the
Commission is satisfied that compliance would not contribute to
the objectives of the Act. Would it be appropriate to establish
specific criteria which could be used in determining which services
could be exempted? If so, what should be the criteria against
which such services would be judged? Should a distinction be made
between services that the CRTC could exempt without further notification
and the type of services that the CRTC would continue to exempt
only after the usual public process?"

"Would it be appropriate for all telecommunications carriers
to become eligible to hold broadcast licences subject to Canadian
ownership rules and generally applicable regulation? Within what
timeframe and under what conditions might this be considered?"

"In exploring the above questions, the Commission may wish
to seek opinions on the following matters:
i) How should new originators and new distributors of video, audio,
and other programming services contribute to the creation and
presentation of Canadian programming?
ii) How will the presence of new programming services impact Canadian
public and private broadcasters?
iii) How should new services maintain and enhance national identity
and cultural sovereignty?
iv) How should new distributors of video, audio, and other programming
services give priority to the distribution of Canadian video,
audio, and other programming services?"

"Be neither distracted nor hypnotized by the Information
Highway dreamweavers. When the smoke clears, content will prevail."

CHUM Ltd

The background section of the Order in Council contains a statement
by the Government that was supported and reinforced by virtually
all participants in the Commission's public process: "Our
policies must encourage the development of Canadian content that
can compete with the best the world has to offer, including cultural,
entertainment and educational products. Our policies must also
ensure the continued support of our cultural industries by ensuring
that new broadcasting content services meet the sovereignty and
cultural identity objectives of the Broadcasting Act, and that
content services are introduced in a manner which contributes
to the objective of reinforcing Canadian sovereignty and cultural
identity."

Section 3 of the Broadcasting Act sets out detailed objectives
for a distinctively Canadian broadcasting system. The Act is not
a dusty and dated piece of legislation passed in the days of crystal
sets and Victrolas. It is an expression of the will of Parliament
studied, debated and passed just over four years ago. This legislation
anticipated both the extraordinary pace of technological change
and an explosion of broadcasting services in a competitive environment.
Nevertheless, the framers of that legislation held to the primary
importance of maintaining a Canadian system that offers Canadians
programming of high standard and one that, in its totality, reinforces
the sovereignty of their country and their own cultural identity.

The 1991 Broadcasting Act is the latest in a consistent
set of responses to the two central questions that have preoccupied
Canadians since before the 1919 sign-on of Canada's first radio
station, XWA (now CIQC) in Montréal. How can Canada create
and maintain a distinctive Canadian broadcasting system, and how
can that system ensure the availability of highquality and diverse
Canadian programming, particularly in the face of the attractive,
low-cost, popular culture spilling over our southern border? Both
of these goals have rested on the conviction that "Keeping
Canada on its own airwaves" could never be guaranteed by
U.S.-dominated market forces, but must rely on reasonable forms
of Canadian public intervention. Like Canada itself, our national
broadcasting system is not an accident of the market; it is an
act of will.

"...when it is all said and done, Canadians want to access
Canadian content."
Stentor

The challenges facing Canadians today, as we adapt to a new era
of information technology, do not differ in principle from the
challenges posed by radio in the 1920s and 1930s; television in
the 1940s and 1950s; cable in the 1960s and 1970s; and, communications
satellites in the 1970s and 1980s. In each case, attractive new
services were first available from U.S. sources. With Canadians
rightly demanding access to these services, government policy
had to ensure that attractive and viable domestic services were
also available within the system.

The Canadian broadcasting system, as it exists today, is the product
of more than five decades of cooperation between public and private
elements; compromise between idealism and pragmatism; balance
between national identity and continentalist market forces; and
concentration on the principles in section 3 of the Broadcasting
Act.

Canadians can be justifiably proud of their broadcasting system.
It is studied and emulated by nations around the world. We live
beside the world's most prolific exporter of popular culture and
mass media, one whose products reach us in particular abundance,
and in one of our own official languages. Despite this, and in
a vast and thinly-populated land, Canadians have accomplished
the following:

established publicly-funded radio and television services,
educational services and community services, in both official
languages;
extended public broadcasting services to over 97% of the population;
established private conventional radio and television services
that provide Canadians with a range of choices in virtually every
community;
established multilingual radio, television and specialty services
directed to Canada's multicultural population, as well as services
controlled by and dedicated to the aboriginal peoples of Canada;
developed an advanced cable distribution system that is available
to 94% of Canadian homes; and
created over 30 specialty and pay television services available
to cable subscribers.



"Canadians, given a choice, pick quality Canadian programming."

Canadian Association of Broadcasters (CAB)

Intervener after intervener celebrated the range and depth of
the existing broadcasting system and urged the Commission to make
recommendations that build on the achievements of the past. While
Canadians clearly and justifiably want to choose from the widest
possible range of services offered by the information highway,
they do not want to lose their Canadian choices. In the marketplace
of ideas, Canadians wish to be more than consumers; they wish
to be participants in a system that reflects their lives and values.

Following the strong and clear demands of Parliament in successive
broadcasting Acts, Canada's broadcasting system has evolved into
a complex balance between social and cultural goals and market
forces. Central to this structure, particularly for the private
sector, has been the demand by Canadian viewers for popular U.S.
programming and services. Profits generated by providing Canadians
with foreign programming and services have been used to help fund
a variety of public policy initiatives, such as the extension
of services to remote areas and the production of frequently unprofitable
although valued Canadian programming. This has been the case from
the earliest days of radio and it will likely remain so as the
information highway develops.

"Lets not succumb to the false notion that wanting to
promote our sovereignty and identity is, in some way, the cowardly
act of weaklings afraid of so-called competition. In fact, we
should be taking steps to enhance and enrich our nationhood. If
not, we don't have a country. We just have a bunch of people who
happen to live close to one another."
Astral Communications Inc.

The obligations placed on Canadian licensees by the CRTC and its
predecessors flow from the broadcasting legislation and are designed
to ensure that the broadcasting system is owned and controlled
by Canadians; that licensees offer the public appropriate amounts
of Canadian programs and services; that licensees take responsibility
for their programming; that all such programming be of high standard;
and, that licensees play effective roles in addressing issues
of concern to our society.

In exchange for their meeting these obligations, the Canadian
system has developed various measures to support and protect licensees.
These measures include carriage rules for distribution systems,
public support for the production of Canadian programs, and a
licensing system designed to ensure that adequate resources are
available in the market to permit licensees to fulfil their obligations.

This, then, is the delicate balance between obligation and support
that the Commission must examine in order to answer the Government's
questions on content. Which, if any, of these elements should
be eliminated or changed, and which should be reaffirmed?

In the opinion of some, the old era was characterized by limited
spectrum, over-regulation, and concepts of public service that
may have encouraged attitudes of paternalism on the part of legislators,
regulators or even broadcasters. It is now clear that any such
attitudes cannot survive in an era of virtually unlimited capacity,
where control is increasingly in the hands of the consumer.

Nevertheless, the principles of shared national identity and public
service remain valued in the global marketplace. Throughout the
world, and notably in Europe and Asia, nations are trying to find
formulas to accomplish what Canada has already achieved. The challenge
is to manage the transition to the new environment in such a way
as not to lose the central values on which our system has been
built.
1. Definitional Issues


"...there should be an industry-wide solution in Canada
to ensuring the place before Canadian eyeballs of Canadian programming
services and content."
Cogeco Inc

Submissions identified as an issue whether the Broadcasting
Act's definition of "broadcasting" should be interpreted
broadly or narrowly. At the hearing, the majority view supported
an expansive interpretation and concluded that there was no compelling
need to review the definitions. However, there was general recognition
that applying the criteria contained in the definition of broadcasting
to new and emerging services may, on occasion, create difficulties.

Identified as potential problem areas were such matters as the
difficulty in determining what constitutes predominantly textbased
services, the interpretation of the Act's words "for reception
by the public", and the importance of interactivity to such
interpretations.

"In order to participate in the new marketplace, companies
will need to act sometimes as a common carrier and sometimes as
a distribution undertaking; they will need to offer broadcasting
services as well as non-broadcasting services. The meanings given
to the words "broadcasting" and "telecommunications"
become extremely important in these circumstances."
Stentor

The Commission has taken note of concerns expressed that the current
definitions in the Broadcasting Act will likely capture
many new and emerging services that would not contribute materially
to the achievement of that Act's objectives. The Commission agrees
that the development of certain new and emerging services could
be expedited by amending the Broadcasting Act to exclude
such services from its ambit. Moreover, such exclusions would
not jeopardize attainment of the various objectives set forth
in subsection 3(1) of the Act.

It is the Commission's recommendation, therefore, that the
Broadcasting Act be amended, perhaps by way of suitable
changes to the definition of "program", so as to exclude,
in addition to predominantly alphanumeric text, other services
that, while they likely fall within the definition of broadcasting,
will not foreseeably contribute materially to the achievement
of the Broadcasting Act's objectives.

These might include such services as: interactive courses offered
by accredited institutions or used by medical institutions, online
commercial multimedia services, and educational multimedia materials
directed to schools.
2. Exemption Orders


The Order in Council asked the Commission to explore the possibility
of establishing specific criteria to determine what types of services
should be exempted and whether certain categories of service could
benefit from a more streamlined process, while retaining the usual
public process for more significant applications.

Most parties to this proceeding agreed that the Commission's primary
focus should be on matters directly related to furthering the
objectives of the Broadcasting Act. Many considered that
services not having a demonstrable cultural dimension or purpose
should be exempted. Many interveners also suggested that the exemption
process would encourage experimentation and hasten the introduction
of new multimedia services. Some parties were of the view that
a further public process would be necessary.

As noted earlier, the Broadcasting Act casts a wide net,
capturing all manner of current and future activities that will
neither resemble traditional broadcasting nor address cultural
goals. That is part of the reason why the Act also requires the
Commission to exempt from licensing requirements persons operating
any class of undertaking when the Commission is satisfied that
such licensing would not contribute in a material manner to the
achievement of the objectives of the broadcasting policy set out
in subsection 3(1).

The Commission strongly agrees that the regulatory framework must
encourage, rather than hinder, the introduction of new products
and services on the information highway. The simplest means of
eliminating possible regulatory difficulties regarding certain
new and emerging services is to amend the Broadcasting Act,
as described in the previous section, thereby taking such services
entirely outside the ambit of the Act.

Some parties cautioned that the exemption process should not be
permitted to evolve into a regime that would generally replace
the normal licensing requirements for new service categories.
Concern was expressed that the Commission's recent exemption orders
for broad categories of services such as home shopping and video
games may limit its future ability to require such undertakings
to make contributions to the broadcasting system. Participants,
however, provided little specific advice regarding what criteria
should be used in determining which services could be exempted.
Consequently, the Commission will undertake a public process to
explore this matter further, to determine whether certain categories
of services can be dealt with in a more expeditious fashion.
3. Tools and Instruments


The Order in Council seeks advice as to whether the existing tools
and instruments under the Broadcasting Act and Telecommunications
Act can ensure that content-based services are made available
in a manner that furthers Canadian cultural objectives.

"It would be a mistake for carriers to shut content producers
out of content development for the Information Highway."

Canadian Magazine Publishers Association

The Commission notes that Parliament's policy, as set out in the
Telecommunications Act, does not identify any specific
cultural or content objectives. While section 7 of that legislation
affirms that "telecommunications performs an essential role
in the maintenance of Canada's identity and sovereignty...",
the nine policy objectives set out in section 7 make no reference
to cultural concerns. Therefore, in seeking to assess the effectiveness
of existing tools and mechanisms to further cultural objectives,
the Commission has focused on content services that are likely
to be defined as broadcasting.

As noted above, it is widely recognized and reaffirmed in the
comments submitted that the Canadian broadcasting system is a
success. Clearly, the legislative and regulatory mechanisms developed
over the years have had a positive effect. The challenge for the
future, as the Order in Council states, is to adjust these mechanisms
in order to adapt to "an environment where competitive delivery
of services brings unprecedented consumer choice".

As a general response to the question posed in the Order in Council,
however, the Commission considers that the tools and instruments
under the Broadcasting Act and the Telecommunications Act are,
in fact, sufficient to ensure that content-based services can
be made available in a manner that furthers Canadian cultural
policy objectives.

As another matter, the Commission notes that, under the current
legislative framework, one group of Commissioners (the full-time
and part-time Commissioners together) decide broadcasting matters;
another group (the full-time Commissioners only) decide telecommunications
matters. The Commission recommends that the legislation be
amended in order to remove this unnecessary distinction.
4. New Programming Undertakings


"The audience is both citizen and consumer."
McLuhan Program in Culture and Technology

As noted earlier in this report, one of the characteristics of
the new information environment will be the availability of electronic
video stores offering true VOD programming services, including
movies. While the technology is being tested in various locations,
such services are not currently available. Clear guidelines as
to how these services might best contribute to Canadian cultural
objectives should be articulated now. Such guidelines will assist
entrepreneurs in formulating their business plans.

It is likely that the technology enabling large numbers of Canadians
to access true video-on-demand services will not be widely available
for at least three to five years. Even when these services are
available, it is not at all clear how popular they will prove
to be with consumers. Evidence provided by interveners suggests
that on-demand broadcasting services, unlike interactive Internettype
services, may have limited appeal.

Consequently, the greatest growth in new programming services,
at least in the medium term, will likely continue to be in services
that offer a scheduled sequence of programming, including conventional,
specialty, pay and pay-per-view services.
(a) New Scheduled Services


"Any new licensee for either a programming undertaking
or a distribution undertaking should contribute at least as much
to the maintenance of Canada's sovereignty and cultural identity
as do existing infrastructure operators, such as cable and over-the-air
broadcasters."
Canadian Cable Television Association (CCTA)

Most participants were of the view that new scheduled programming
services should contribute to the cultural objectives of the Broadcasting
Act in a manner equivalent to existing scheduled services.
Existing regulations and policies respecting Canadian content
and spending requirements were considered to be both effective
and fair. Participation in the licensing process and adherence
to similar rules will ensure that new scheduled programming services
contribute to Canadian cultural and industrial objectives, while
enhancing national identity and cultural sovereignty.

The Commission concludes, therefore, that new programming services
offering a scheduled sequence of programming, whether licensed
or exempted under the Broadcasting Act, should contribute
to the creation and presentation of Canadian programming by adhering
to Canadian content and spending requirements similar to those
that currently apply to existing services of the same type.
(b) True Video-on-Demand (VOD) Services


"a vibrant, healthy, innovative production sector will
be to the benefit of all Canadians, both socially and economically."

International Multimedia Development Association

In Public Notice CRTC 1994-118 dated 16 September 1994, the Commission
defined a VOD service as, "a service that provides programs,
as defined by the [Broadcasting] Act, transmitted by means of
telecommunications, where individual consumers select specific
programs to be received by means of broadcasting receiving apparatus
at any time of their choosing."

The development and diffusion of technology to support true VOD
will do for broadband content what the Internet is doing for the
distribution of information today. In a bi-directional, broadband
universe, Canadian consumers will have just as ready access to
video libraries elsewhere in the world as they will have to those
in Canada. Multimedia applications will transcend borders, creating
global villages bound by common interest, not just heritage and
geography. The Commission considers that much of this interactive,
multimedia universe need not be licensed or regulated.

Some parties argued that programming delivered in a true VOD mode
must be regarded quite differently from programming offered in
a scheduled sequence. Near VOD services, such as pay-per-view,
schedule their programs sequentially on a multi-channel basis.
Although, from the viewers' perspective, these services may appear
to offer programming on demand, the programs are only available
at set times. Near VOD services are thus capable of offering a
specific number of Canadian programs in their schedules. In the
past, this capability has provided a mechanism by which the Commission
has ensured that pay-per-view services contribute to the presentation
of Canadian programs. True VOD, on the other hand, is not scheduled.
These services will be akin to a book store or library, where
individual programs are stored on electronic shelves and customers
access the titles they want by navigating through a series of
menus.

Because of their nature and scale, however, certain mass-appeal,
on-demand applications such as movies can and should be regulated
where this would contribute materially to the cultural objectives
of the Broadcasting Act. VOD services of this type will
require significant financial resources to launch and market,
will involve the acquisition of program rights, and will likely
have an organizational structure similar to those of licensed
broadcasters today.

A further issue is whether it can be ensured that licensed VOD
services will stock Canadian programs on their shelves and how
customers will be made aware of the availability of these Canadian
programs. In the VOD market of the future, the availability of
electronic shelf space will not be a concern and it will clearly
be in the interest of competitive VOD programming services to
make as many titles as possible available to their customers.

In the Commission's view, however, as licensed VOD programming
services develop, they should be expected to offer the maximum
practicable number of Canadian titles in the program categories
offered by the licensee. Further, they should be expected to make
direct contributions to the development and production of Canadian
programs. The specific measures for implementing these policies
should be determined at the relevant licensing proceedings.

"Emerging media services must be evaluated qualitatively,
in terms of the service provided, in relation to a continuum of
cultural sensitivity, rather than exclusively on established regulatory
principles and definitions."
Nicola Bleasby, student

The successful introduction of interactive, on-demand services
will be highly dependent on the availability of sophisticated
and consumer-friendly navigation systems. The world's major hardware
and software designers are racing now to be first with the best
in this area. Participants in the public process were convinced
that it is important to design navigational systems that give
prominence to Canadian material.

Applicants proposing licensed VOD programming undertakings
should therefore be encouraged to employ a system that gives priority
to Canadian programs in the various categories their systems may
offer. The Commission recommends that the design of Canadian navigation/menu
systems be a priority and be supported by government policy.
(c) Licensing Approach for New Programming Undertakings in
a Competitive Environment


"While the commercial considerations of Canadian multi-delivery
corporations are of major import, their welfare must be considered
in lock-step with that of Canadian producers, technicians, artists
and performers who create the product."
American Federation of Musicians of the United States and Canada

The Government stated in the Order in Council that, while vigorous
competition cannot protect individual firms, neither should it
lead to the extinction of a particular sector. The Commission
and its predecessor have actively promoted the introduction of
new competitors in programming services, including the licensing
of the CTV network in the 1960s, independent television stations
in the 1970s and 1980s, and pay and specialty undertakings during
the 1980s and 1990s. The increase in the number and range of competing
programming services will be accelerated with the introduction
of DVC, increased broadband capacity and addressable technology.
The Commission is confident that the various components of the
broadcasting system are resilient and fully capable of adapting
to competitive and technological challenges, within a broadly
managed system designed to ensure the continued existence of attractive
Canadian choices.

The Commission has generally treated like services in a similar
fashion. There are broad policies and regulations applicable to
conventional services, while other rules have been specifically
tailored for specialty, pay and pay-per-view programming undertakings.
The Commission's approach to French-language services has taken
into account the unique characteristics of the markets they serve.
Its ability to apply particular regulatory instruments to the
different sectoral components of the system has allowed a multiplicity
of services to flourish. The Commission's policies have also addressed
the issue of representation of, and access by, multicultural and
aboriginal communities. What remains essential is the continued
application of licensing criteria specifically adapted to the
new emerging services and technologies.

"Given the relatively modest size of the Francophone market,
special measures are needed to ensure that French-language services
will continue to be available. Accordingly, the policy on packaging
of services should employ linguistic criteria as well as country-of-origin
criteria."
Michèle Fortin, CBC

Looking ahead, the Commission expects that it will continue to
apply market tests when considering applications for new conventional
services. These services are totally reliant on advertising revenue,
and also attract the most viewing to Canadian programming. The
Commission foresees considerably greater competition in new domestic
and foreign specialty services, both in existing and in new formats.
It should therefore remain the Commission's policy to provide
Canadian entrepreneurs with the opportunity to launch services
operating in specialized programming formats prior to authorizing
the distribution in Canada of similar foreign services.

The Commission also foresees competition within the pay-per-view,
near VOD and true VOD industries. Further, the Commission expects
that the pay television sector will evolve into a more viable
competitive structure, particularly with the advent of VOD and
direct-to-home pay-per-view. When licensing competitive pay-per-view
or VOD undertakings offering feature films, it would be reasonable
to impose conditions of licence prohibiting the acquisition of
exclusive Canadian rights for any foreign or domestic film. Also,
concerns raised by the licensees of existing programming undertakings
with respect to the potential impact on their services of new
programming services would be addressed by the Commission at the
time it considers applications for such licences.

In the past, the Commission has generally restricted the participation
of individual cable licensees in the ownership and control of
pay television or specialty programming undertakings. The access
commitments of the cable industry have served to ensure that,
subject to channel capacity, all services in the majority language
of the area served are available to the vast majority of cable
subscribers. However, concerns regarding channel placement, promotion,
packaging and pricing will endure.

For these reasons, and since cable will likely remain the principal
distributor throughout the transition period, cable affiliates
should generally not be permitted to acquire ownership or control
of programming undertakings other than those providing over-the-air
radio and television services, since these are protected by carriage
rules. Once issues of non-discriminatory access and channel capacity
are resolved, this restriction may no longer be necessary. In
the case of VOD, cable company affiliates may be licensed to own
or control such programming undertakings once a tariff for video-dial-tone
service has been approved; this will ensure that all licensed
VOD providers have non-discriminatory access to the VDT platform.
(d) Social Concerns


"In a two-way communications environment, every Canadian
can be a content provider."
Public Information Highway Advisory Council

The Commission uses its regulatory authority to influence the
practices of program content providers in a number of areas judged
to be of broad social concern. These areas include balance, violence
in programming, gender portrayal, advertising directed to children,
employment equity and access to programs and services for the
disabled. Tools such as self-regulatory codes, expectations and
conditions of licence ensure that minimum standards are met in
these areas. In addition, regulations generally prohibit the broadcast
of abusive comment or representation, and obscene language or
pictorial representation.

The Commission affirms the ongoing relevance and importance of
addressing these social concerns in the context of all new programming
services, and intends to ensure that all licensees continue to
respond effectively to these concerns.
5. New Distribution Undertakings


There is no doubt that fair competition among distribution undertakings
will bring many benefits to Canada. Subscribers will enjoy an
even greater range of choice in programming and non-programming
services. Canadian producers and service providers will have additional
ways to reach their audiences. Consumers will benefit from better
prices and services as distributors compete for market share.

However, if distributors are to play their part in contributing
to the objectives of the Broadcasting Act, they must ensure
that their subscribers are offered Canadian choices in a manner
that makes those services accessible and attractive. In addition,
licensed distributors should play a role in supporting the production
of Canadian programming, and in ensuring that citizens of the
communities they serve have opportunities to access public services
and use the distribution networks to encourage community expression
and dialogue.
(a) Carriage Issues


Throughout the 1970s and 1980s, as cable emerged as an increasingly
important vehicle for the delivery of broadcasting services for
Canadians, the Commission developed a regulatory framework designed
to ensure that cable distributors gave priority to Canadian services.
As the cable carriage of additional foreign services was authorized,
and as new Canadian pay and specialty undertakings were licensed,
the Commission adjusted the regulatory framework to ensure that
these Canadian services were given every reasonable chance to
succeed.

There was general agreement among participants that these policies
have been effective in providing subscribers with access to a
remarkable range of broadcasting services while, at the same time,
fostering a healthy Canadian presence in a wide variety of programming
formats. Participants supported the principle that new competitive
distributors should be required to adhere to carriage rules similar
to those currently applied to cable. The Commission agrees with
this position and considers that all distributors should be
subject to similar rules and obligations with respect to predominance
of Canadian programming, priority carriage, linkage, and fair
and equitable access for programming sources. However, it
recognizes that, as the broadcasting system evolves, carriage
policies to support the distribution of Canadian services will
also change.
Francophone Markets


Many Francophone participants suggested that discretionary French-language
services should be packaged together so that Francophones wishing
to receive services in their language might do so without also
having to subscribe to English-language services. It was also
suggested that, for Francophones outside Quebec, as well as for
Anglophones inside that province, services in their respective
languages are often not available unless a large package containing
primarily majority-language services is purchased.

"Our French-language television is unique; not because
of the profusion of services we offer -- that distinction falls
to the USA -- but because of our ability to make programs that
mirror the lives of our viewers."
Suzanne D'Amours, Association des producteurs de films et de télévision
du Québec

At present, the basic cable service package must include all priority
English- and French-language services. In addition, because there
are fewer French-language services, cable systems in Francophone
markets often offer mixed tiers of English- and French-language
specialty services.

The Commission agrees that Francophones should be able to access
packages of French-language discretionary services, and notes
that the deployment of addressable technology should permit distributors
to offer distinct packages of services tailored to the needs of
their Francophone subscribers.

Other Francophones advocated the creation of navigational tools
that would facilitate access to information and services in the
French language. The Commission supports this objective, and encourages
producers and distributors to take these concerns into account
when developing future navigational systems, in order that Francophones
may have their own spaces on the information highway.
(b) Support for Existing Canadian Services


"Unless the role of the creator and the content provider
is the linchpin of Canadian policy, the parameters of the technologies
themselves are of no importance."
Canadian Conference of the Arts

Conventional broadcasters who took part in this proceeding fully
supported a more competitive distribution environment, but noted
the central role played by the licensees of public and private
programming undertakings in fulfilling the Broadcasting Act's
cultural and industrial objectives. In their view, if these objectives
are to be met in a future environment characterized by even more
competition, certain policy cornerstones must be in place to support
existing programming undertakings. These policies, they argued,
should include assurance that conventional broadcasters maintain
or improve access to their audiences; that the system direct significant
resources to the production of Canadian programming; that rights
of licensees to their programs and their signals be respected;
and that there be fair competition and equitable regulation.

The Commission recognizes the key role played by conventional
broadcasters in the scheduling of, and spending on, Canadian programs.
In 1993, public and private conventional broadcasters together
accounted for more than 75% of the spending on, and over 90% of
the viewing to, Canadian programs. While Canadian pay and specialty
services account for an increasingly greater share of both expenditures
on, and viewing to, Canadian programming, the central role played
by conventional broadcasters today will likely continue for some
years.

In that context, the policy framework for competitive distribution
undertakings must provide support for Canadian licensees. While
many aspects of that support will be resolved in future proceedings,
the following statements of policy underscore the importance the
Commission places on these concerns and the basis on which it
will proceed in the future.

All licensed terrestrial distributors will be required to
carry a Canadian basic service based on the television service
priorities set out in section 9 of the Cable Television Regulations,
1986. Satellite distributors will be required to meet carriage
priorities tailored to their circumstances.
The Commission recognizes the importance to all Canadian licensees
of protecting the program rights that they have purchased. Accordingly,
the Commission intends to conduct a public proceeding with a view
to examining the feasibility of implementing simultaneous substitution
for all distributors, and exploring options with respect to advanced,
or nonsimultaneous, substitution.
As set out in the following section, the Commission considers
that all participants in the distribution of programming services
should make a contribution to the development and production of
Canadian programming.


(c) Contributions to Canadian Programming


"Authorities must strike a balance between individual
interests, as evidenced in the demand for more interaction with
the world, and the public interest, as served by sustaining the
cultural identity of Francophone Canadians."
Suzanne D'Amours, Association des producteurs de films et de télévision
du Québec

The Broadcasting Act requires that "each element
of the Canadian broadcasting system shall contribute in an appropriate
manner to the creation and presentation of Canadian programming"
and that "each broadcasting undertaking shall make maximum
use, and in no case less than predominant use, of Canadian creative
and other resources in the creation and presentation of programming..."
unless the nature of the service makes this impracticable.

There was wide support for the concept of directing additional
resources to Canadian production, based on the principle that
those undertakings benefiting from the ability to distribute the
wide array of information highway content services should make
direct financial contributions to the production of Canadian content.
A similar consensus existed regarding the principle that all licensed
distribution undertakings should make contributions to Canadian
programming generally comparable to those currently required of
cable in respect of the community channel and the Cable Production
Fund.

New technologies and competitive distribution systems will have
the effect of expanding the number of Canadian programming services.
Considerable quantities of new Canadian programming must be available
if these services are to fulfil the objectives of the Act. As
the new distribution technologies are refined, Canadian consumers
will increasingly have the ability to choose programs on demand.
In this environment, Canadian programs must be of the highest
quality and relevance if they are to be chosen and, as a consequence,
contribute to the Government's cultural and industrial objectives.

In the future, as in the past, Canadian entertainment programs
will compete directly with the best the world, and the U.S. in
particular, have to offer. To be competitive, therefore, production
costs for Canadian programs must be kept equivalent to U.S. costs.
However, with Canada's relatively small population, it is and
will continue to be impossible to recover these costs in our domestic
market. Funding of some form will remain necessary to assist in
the production of distinctively Canadian programming.

Finally, public funding mechanisms initiated by federal and provincial
governments have clearly been instrumental in developing what
has become a creative, efficient and successful private production
sector. This achievement has demonstrated that well-designed public
support programs can provide the stimulus necessary to create
the kind of entrepreneurial success stories that must be replicated
as Canada moves into the highly competitive information economy.
By themselves, however, governments will be unable to provide
the additional financial support needed to ensure the availability
of Canadian programming in the new broadcasting environment.

The Commission considers that all new licensed distribution
undertakings should make a contribution to the development and
production of Canadian programming.

Throughout the public process, the Commission received suggestions
as to how such a contribution should be assessed; to what type
of production it should be directed; and who should have access
to it.

With regard to the method of determining the contribution that
should be made by new distribution undertakings, the Commission
considers that the fairest mechanism would be to base the contribution
on the gross revenues derived from their broadcasting activities.
It is the Commission's view that the final determination of a
precise ratio should await further study and consultation with
interested parties.

In the current year, the cable industry will contribute approximately
$40 million to Canadian program production through the Cable Production
Fund, which was established pursuant to the Commission's Structural
Public Notice CRTC 1993-74. This amount is expected to increase
in subsequent years. However, contributions to this fund are not
based on gross revenues and they are voluntary. The Commission
considers that, at least until such time as sustainable competition
is in place, the current structure of the Cable Production Fund
should be maintained.

Regarding what would be the most effective use for any new production
resources, participants identified two broad needs. First, it
was suggested that funding will continue to be required for those
categories of Canadian programming that remain under-represented
in the broadcasting system. The Commission has identified these
as drama, music/variety, children's programs and documentaries.
It was pointed out, however, that some of the developing forms
of interactive multimedia may be considered as broadcasting on
the information highway and that the development and creation
of this material should be supported. In fact, many of the telephone
companies desiring to compete in broadcasting distribution have
indicated their intention to support these new production sectors.
The Commission is of the view that any new resources for Canadian
programming should be directed in proportion to both the production
of conventional under-represented programs and to support innovative
new programming formats. Specific guidelines as to allocations
should await further study and consultation with interested parties.

Further, any new resources should be available to all Canadian
producers of qualifying programming. Such producers are likely
to be independents for the most part, but could also include
private and public broadcasting licensees, where such licensees
own the rights to the project and where safeguards regarding self-dealing
have been met.

Chapter 4: Public Places in a Digital World

1. Universality


"It will be critical for policy-makers and regulators
to ensure that all voices may be heard - that there is room enough
for all on the highway."
Information and Privacy Commissioner/Ontario

Affordable public access to the information highway is a key concern.
Many parties used the term "public lane" to capture
this concept, and there were different ideas of what it should
include. Parties project that public access on the information
highway will range from that provided by public broadcasting and
the cable community channel, to dial-up government and health
care information, educational services, community networks, e-mail
facilities, libraries and information banks, and services designed
for use by aboriginal peoples.

As competition increases, traditional approaches to achieving
social goals must be rethought if Canada's information highway
is to be accessible and affordable. It is unlikely that market
forces, by themselves, will ensure that the benefits of the information
highway will roll evenly out to all regions of Canada or satisfy
all of the public interest demands made on it. This suggests that
the policy objective of universal access at affordable prices
will not be realized without some support. The vision of the Canadian
information highway captured in the term "public lane"
is multi-faceted, and the Commission believes that the goal of
universal access to that highway will be realized through various
means, including market forces, subsidies and cooperation.

"Video conferencing may be the only way that a resident
of Grise Fiord could see a doctor, and vice versa."
Government of the Northwest Territories

The Commission agrees with parties who emphasized the importance
of providing at least one access point to the information highway
in each community. Work is being done in this area through government
programs such as SchoolNet. The Commission believes that programs
that provide access points within each community, and from which
Canadians can dial up various information highway services at
minimal or no charge, are an important focus of governmental strategy
in moving towards universal access.

The sense of urgency underscored by many parties respecting access
to the information highway is heightened in remote areas, including
the North, because of the greater isolation, higher costs of travel,
and the importance of the information highway to economic development
in these areas. Parties emphasized that the potential benefits
flowing from the information highway are greater in these areas,
because of its ability to shrink the distance otherwise isolating
them from the many social and commercial services taken for granted
in urban centres. They drew particular attention to the importance
of the link between the Government's policy objectives of affordable
universality and job creation. This suggests that, even as rates
move closer to costs in urban centres, regulation and government
policies will have to ensure direct and indirect subsidies to
allow universal and affordable service.

"Our priority must be to connect our isolated communities
together. We do not have the same communications needs as huge,
urban populations."
Rosemarie Kuptana, Inuit Tapirisat of Canada

Although universal service is a goal of telecommunications policy,
affordable universal service has traditionally meant access to
basic local telephone service only. The Commission heard much
discussion of the exciting potential associated with many of the
new information highway services. The Commission believes that,
over time, as present methods of delivering services are replaced
with electronic delivery, certain interactive or on-demand services
delivered over the information highway may come to be viewed as
essential services.

Traditionally, universality has been achieved in telecommunications
by permitting monopoly providers to cross-subsidize lower rates
for access through higher rates for other services. For example,
local telephone rates have generally been subsidized by long distance
rates.

While basic telephone services can continue to be supported
in part by subsidized rates, the Commission considers that decisions
on funding and priorities for infrastructure development on the
information highway in high-cost areas should be made by governments.

The Commission will continue to examine the issue of universality
in the context of applications that come before it (including,
for example, the current applications by Northwestel Inc. and
Arctic Cooperatives Limited to cable the North). With respect
to the submissions of the Ontario Telephone Association, the Commission
considers that the Association may file a proposal if it wishes
to extend individual line service to multi-line subscribers. The
Commission will also consider, on an application-specific basis,
requests from independent telephone companies for authority to
serve areas in their territory with no cable service.
2. Education


"Information technology will revolutionize learning and
training for Canadians, providing educators with the means to
make lifelong learning a reality."
Association of Canadian Community Colleges

In the hands of educators and students, the multimedia interactivity
that characterizes the information highway is a powerful new tool.
The information highway has begun to change the orthodox roles
of teachers, students and all Canadians interested in life-long
learning. Educators are taking the learning experience beyond
the classroom, and using the information highway within the classroom
to transform the way they teach.

Many polls have indicated that education is a key priority of
Canadians. The Commission agrees that education is essential,
not only for its own sake, but because of the social and economic
returns it provides on money invested in training Canada's citizens.
However, many educational institutions made submissions in this
proceeding that focused on what they find to be the high costs
for telecommunications. Stentor considered that its shareholders
might support preferential tariffs for education and health services.
Further, Stentor indicated that it would be reasonable for its
shareholders to make an investment in the development of applications
that will be available on the information highway, such as those
directed to providing a superior level of distance education.

The Commission considers that, in certain circumstances, telecommunications
service tariffs that discriminate in favour of educational or
health service entities may be desirable, and not anti-competitive.
This would be the case if criteria are developed to determine,
among other things, who should benefit from the discrimination.
It would also have to be demonstrated that other subscribers are
not asked to pay more, and that the prices charged cover the costs.
This last criterion would ensure that pricing for educational
or health service entities is not detrimental to the development
of a fully competitive marketplace.

The Commission intends to seek comment on a proposal based on
these criteria.
3. Community Access


The development of the cable community channel as an integral
part of the Canadian broadcasting system has ensured that individual
Canadians have direct access to that system to express their ideas
and opinions. The Commission agrees with the view expressed at
the hearing that it is important to "sustain the local in
the face of the global". It also expects that new opportunities
to develop the public lane will present themselves as interested
parties apply for licences to operate broadcasting distribution
undertakings. The Commission considers that all broadcasting distribution
undertakings should make comparable contributions to outlets for
community expression.

As new parties apply for licences to operate broadcasting distribution
undertakings, the Commission will look to the applicants for such
contributions. In a competitive world, however, distribution undertakings
will use differing technologies. For this reason, the Commission
considers that it would be unrealistic to mandate a particular
form of contribution. Instead, parties wishing to operate new
broadcasting distribution undertakings should come forward with
innovative proposals for providing community expression, perhaps
through incorporation of interactive community dialogue and vehicles
for sharing information. Such proposals would complement the
contribution made by existing cable operators through their community
channels.

Chapter 5: Other Issues

1. Privacy


"High standards for something like privacy do not inhibit
innovation but guide it."
Consumers Council of Canada/National Capital Region Consumers
Association

Privacy protection and network security, were two of the operating
principles identified by the Government as guiding the development
and implementation of its information highway strategy. They were
also mentioned frequently by parties as being critically important
to the highway's development. The Commission agrees.

While parties did not, in general, provide details of any possible
approaches to privacy protection or network security, this was
not unexpected in view of the terms of reference for this proceeding.
The principal point of difference between parties who commented
at any length on this issue is with respect to the need for legislation
to protect privacy.

The Commission notes that detailed study of privacy concerns is
being carried out by the Information Highway Advisory Council
under the terms of its mandate, and believes that issues respecting
privacy and the information highway should be left to that body.
With respect to issues of network security, the Commission considers
that they are better dealt with in other forums. The Commission,
however, in the exercise of its telecommunications jurisdiction,
will continue to deal with privacy issues as they arise.
2. Copyright


"Authors, and other rights holders, must be rewarded for
the use of their works."
Canadian Recording Industry Association (CRIA)

Many interveners commented on the issue of copyright. The majority
of comments regarding this issue came from representatives of
the production industry, requesting or supporting protection of
copyright and intellectual property. Generally, interested parties
wanted assurance that the legal, technological and managerial
aspects of copyright would be workable on the information highway.

Concerns were expressed regarding the capacity of digital technology
to produce perfect copy. Parties suggested that this could lead
to copyright violations, as well as complicate the rights clearance
process or the negotiation of rights payments. Although the issue
of copyright was not raised directly in the Order in Council,
parties argued that it is implicit, based on the questions in
the Order regarding the means to ensure that Canadian content
is supported, that there is a need to ensure that producers and
creators are adequately compensated for use of their works. Interveners
concluded that, without strong copyright laws, creators may not
be willing to put their works into the system, and that this would
not serve the cultural objectives of the Broadcasting Act.

The Commission acknowledges the high importance of copyright protection,
and thus brings these concerns to the attention of the Government.
Although the Commission, itself, is not mandated to intervene
in such matters under the Broadcasting Act, it notes that
the Information Highway Advisory Council has mandated a Copyright
Subcommittee to look at this matter.

Appendix I: Glossary


Affiliates
Affiliates: companies are affiliates if one owns or controls
the other, or if both are owned or controlled by a common parent.

Beacon
Beacon is the name given by the Stentor alliance of telephone
companies to its plan for the construction of a two-way (or switched)
broadband network.

Bottleneck
A bottleneck is a local telephone network service, function
or facility currently subject to some degree of monopoly control,
that competitors cannot economically duplicate, but require access
to in order to compete. The degree to which network elements exhibit
bottleneck characteristics will soon be examined in the Commission's
process on local competition.

Integrated networks
Integrated networks provide the capacity to carry voice, video
and data on the same facilities.

Interoperability
Interoperability refers to the connection of networks that
allows traffic to move efficiently from one network to another.

Local access loop
The local access loop is the dedicated line between a telephone
company switching centre and a subscriber's premises.

Price caps
Price caps are an alternative to traditional rate-of-return
regulation. Price caps focus on price levels rather than return
on investment. Price caps are intended to reward productivity
and reduce concerns about unnecessary overinvestment and inappropriate
cost allocations.

Rate of return regulation
Rate of return regulation is intended to allow a telephone
company to earn a reasonable return on its rate base (which includes
investments in capital and operating expenses).

Rate rebalancing
Rate rebalancing involves increasing prices for local services
that are subsidized by long-distance revenues, and reducing subsidies
paid by long distance service providers.

Signalling
Signalling is the functional process of identifying and setting
up calls within the telephone network.

Structural Separation
Structural Separation involves setting up a separate but affiliated
company to provide a specific line of business. Structural separation
is one approach to dealing with cross-subsidy or undue preference.

Switching
Switching is the process of routing traffic from one subscriber
to another on the same or different networks. As noted earlier,
a switched network permits traffic to move in a bidirectional
fashion.

Video-dial-tone (VDT)
Video-dial-tone refers to the two-way or "switched"
(as distinct from the one-way or "dedicated") broadband
carriage of information; VDT will provide the technology platform
for video-on-demand services. A switched communications system
is one that allows the two-way, point-to-point exchange of information.

Unbundling
Unbundling involves the offering of individual components
or services of the local telephone network on a disaggregated
(or piece-by-piece) basis in order to facilitate sustainable competition.


Appendix II: Order in Council


WHEREAS the development of new communications technologies, including
the information highway, is vital to Canada's future;

WHEREAS the Canadian Radio-television and Telecommunications Commission
is responsible for regulating many elements involved in these
new communications technologies;

WHEREAS section 14 of the Telecommunications Act and section
15 of the Broadcasting Act provide that the Governor in
Council may require the Canadian Radio-television and Telecommunications
Commission to make a report on any matter within the Canadian
Radio-television and Telecommunications Commission's jurisdiction;

WHEREAS the Governor in Council has determined that it is in the
public interest that the Canadian Radio-television and Telecommunications
Commission examine several questions relating to the new communications
technologies;

AND WHEREAS the Canadian Radio-television and Telecommunications
Commission has been consulted by the Minister of Communications
in accordance with subsection 15 (2) of the Broadcasting Act;

THEREFORE, HIS EXCELLENCY THE GOVERNOR GENERAL IN COUNCIL, on
the recommendation of the Minister of Industry Science & Technology
and the M