Honourable John Manley, Minister of Industry

June 28, 2000

CANARIE/Net 2000

Our objective has been to ensure that all Canadians can access the new networked economy. Not just people who live in cities. Not just people who have the economic means to buy a computer. But everyone.

Honourable John Manley
Minister of Industry
Ottawa, Ontario
June 28, 2000
Check Against Delivery

INTRODUCTION

Thank you, Andy (Andy Bjerring, President & CEO, CANARIE) for that kind introduction.

I want to congratulate CANARIE on its excellent organization of this year’s annual networking conference. This is the first year that CANARIE has organized the conference.

CANARIE Inc. has been an integral partner in our Connecting Canadians program. It has upgraded Canada’s R&D Internet speeds by a factor of 1 million since 1993.

The benefits to our universities are enormous. Less than two years ago I announced that CANARIE and the Bell consortium would build CA*Net 3, the world’s first national optical R&D network.

Today, this network stands as a new benchmark for broadband connectivity.

It provides our researchers with the platform for developing new and exciting applications in health, education, electronic commerce and other advanced services.

This is the fourteenth year the industry has gathered for a Net conference. I’ve been Minister of Industry for half of them. So this occasion would be a good time to look back on what we’ve achieved together over the past seven years.

Progress can be measured by the commercial success many of you have enjoyed. It can also be seen in the access figures.

Statistics Canada reports that over 40 per cent of Canadians access the Internet regularly. Private sector research suggests that about one third of Canadian households have an Internet connection.

We’ve come this far because everyone had a part to play – and they played it well. The private sector built the infrastructure, but the government also made a major contribution.

Our objective has been to ensure that all Canadians can access the new networked economy.

Not just people who live in cities. Not just people who have the economic means to buy a computer. But everyone.

Ensuring that all Canadians have access to the Internet is the single most important action that government can take to ensure success in the knowledge-based economy.

REPORT CARD

Our objective has been to reach the goal set by Prime Minister Chrétien. His vision is for Canada to become the most connected country in the world.

How are we doing? We wanted to be the first nation in the world to connect its public schools and libraries to the Internet. Done.

We said we would create up to 10,000 community access sites. We are well on our way – we’ve already established 4,943 sites.

We said we would deliver 250,000 computers to schools by March 31, 2001. We’re ahead of schedule, with over 210,000 delivered already.

We said we would help develop smart communities. The demonstration projects were announced last month.

We said we would put Canadian content on-line. We’ve hired over 2,500 young Canadians to digitize content for the Web. Canada’s Digital Collections is now an internationally recognized, award-winning site.

We said we would get volunteer organizations on line. Almost 5,500 are connected or are about to be connected.

We said we would set a policy framework for electronic commerce. Done.

In fact, we recently enacted the Personal Information Protection and Electronic Documents Act. This completes what I have called the “Seven Firsts” – the seven key areas of electronic commerce policy.

They cover everything from standards to privacy; from security to consumer protection.

We said that the government would be a model user. Anderson Consulting ranks Canada first in using the Internet for government-citizen transactions.

We said we would make Canada the most connected country in the world.

Are we there yet?

In its first composite index on connectivity, the Conference Board of Canada ranks us second to the United States.

Pretty good. But not good enough. Many other countries are aggressively pursuing similar strategies.

So how are we going to close the gap and reach for first place? By sticking to our game plan.

By relying on three factors:

competition, regulation, where it is required, and targeted government programs.

I will talk about each of the three.

COMPETITION

Our competition policy dates from one of our early initiatives. In 1994, I established the Information Highway Advisory Council – IHAC – under the very able leadership of David Johnston, currently the President of University of Waterloo.

Its role was to look at the rapidly emerging new technologies and services delivered by telecommunications. To advise us on the kind of agenda Canada needs to succeed in the knowledge-based, networked economy. IHAC told us that access was going to be a key issue.

We’ve made universal access a key goal of the connectedness agenda. And IHAC told us that competition should drive the process of building the Information Highway in Canada.

We followed that advice. We opened the markets. We ended monopolies.

We let the private sector take the lead in creating the Canadian component of the Internet and its applications. Businesses like those here today built the infrastructure and created the software.

You created much of the content and services that underpin the new economy. You did it by taking on global markets – by competing to be the best in the world.

We built our Information Highway so that Canada could be at the forefront of the world. We’re confident that competition is the right course for Canada.

Competition has driven prices down. It has increased consumer choice. It has sped up the introduction of new services.

Competition has stimulated productivity, innovation and investment. In fact, the telecommunications services industry invested $27 billion in capital expenditures between 1995 and 1999. $6.3 billion last year alone. That’s up nearly 50 per cent from 1995.

Do you want an example of how competitive the market is becoming in Canada?

When we initiated the convergence policy debate, the cable industry was concerned about its ability to compete with the telcos.

Look what happened. Canada has now pushed ahead of the United States in penetration of high-speed cable modems.

Some 61 per cent of Canadian homes have access to cable modem service – nearly twice the percentage in the U.S. Almost 600,000 Canadian Internet users now subscribe to the Internet on cable.

There’s a lesson here. Often people will say that, in the changing economy, this or that industry won’t be able to compete. They will predict that this or that company won’t survive.

But competition brings surprises. The survival instinct is very powerful. Companies and industries are very innovative. And the private sector has a tremendous capacity to make the decisions that will help them compete.

So cable made the transition. It has definitely entered the competitive fray. Wireless and satellite services are competing as well. Their market will more than double over the next five years.

Consumers have benefitted from this range of competition. Canadians enjoy a choice in services and some of the world’s lowest telecom prices.

SPECTRUM AUCTION

The competition will heat up even further as the wireless industry gets ready to market the third generation of mobile services. These services respond to growing business and consumer demands.

Canadians want advanced communications: whatever, wherever and whenever they choose. But the new services need radio frequency spectrum. We intend to make it available.

Today I am pleased to announce the framework for our second spectrum auction. This will set the stage for the introduction of third generation Personal Communications Services.

Fifty per cent of the Canadian population has access to one of the PCS networks licensed since 1995. And over seven million Canadians – nearly one in four – use wireless phones.

To foster competition, we have decided to allow both existing players and new competitors to participate in the spectrum auction. We will auction four blocks of 10 megahertz of spectrum. These four blocks will be made available in each of 14 areas for 56 licences that will cover all regions of Canada. The auction will begin in November 2000.

Let’s make one thing clear.

We believe that our wireless industry has done an excellent job:

in building its infrastructure; in rolling out services to Canadians; and in stimulating innovation and investing in research and development as part of its license conditions. And we are looking for more of the same.

My department will continue to work with the wireless industry to ensure timely access to the spectrum required to ensure that Canadians are offered the latest in advanced mobile wireless services.

This will include developing the licensing process for the release of additional spectrum such as that identified at the International Telecommunications Union’s Conference held in Istanbul, Turkey, in May 2000.

We would expect this process to be initiated in the 2002/2003 timeframe. All the options related to eligibility and the competitive measures that may be required to ensure a competitive marketplace will be re-evaluated at that time.

REGULATION

I have been talking about the role of competition in our telecom policy. Now I want to talk about regulation.

We must strike the right balance between the need for competition and the need for access to high quality, affordable service. In some regions, the market alone will not provide high quality services at affordable prices.

In the past, governments relied upon telecommunications monopolies to reach these objectives. The CRTC allowed telco monopolies to set high prices for long distance, business and optional services. In that way, the telcos could price basic local service below-cost.

Then, in 1992, the CRTC opened long distance service to competition. Prices dropped dramatically. They are now among the world’s lowest.

So competition has been good for all Canadians – but to ensure that competition continues, and that all Canadians have access – the regulatory environment has to be right.

I want to talk next about some of the CRTC’s regulatory decisions, and three appeals that have been made.

TECHNICAL APPEALS

One appeal came from Call-Net. It involves one of the charges that new entrants pay to access part of the local network.

Another came from the four major alternative long distance carriers.

AT&T Canada Corp., Call-Net Enterprises Inc., Primus Telecommunications Canada Inc., and RSL Com Canada Inc. It involves the way in which the subsidy from long distance service to local service is collected.

Both appeals deal with technical aspects of the regulatory framework. As a government, our role is to establish policy. We must leave the CRTC to regulate. When it comes to intervening in CRTC decisions, we must set the bar high. If we don’t, we undermine the independent regulatory authority. These decisions involve matters best left to the regulator.

We have, therefore, decided to let these two decisions stand. But in making this announcement, I want to emphasize that these two appeals raised some very important points.

The appellants are concerned about the status of competition in our telecommunications market. I take these concerns seriously.

Industry Canada held public consultations in connection with these two appeals. We learned a lot. It is important to ensure that arrangements for new entrants to access the local network are not a barrier to entry.

It is also important to ensure that subsidies intended to maintain affordable local service are not a competitive advantage to the former monopoly telephone companies. There is no room for subsidies to tilt the playing field. It may no longer be possible for the long distance industry alone to support the explicit subsidy to local service.

I want to make one thing very clear: a return to monopolies is not an option. This is a time of intense competition and rapid technological change. The CRTC has heard the debate around these appeals. It has seen the submissions on the public record.

And it has an opportunity to address many of these concerns in ongoing proceedings. Timing and speedy decisions do matter. I understand that the CRTC will be reviewing the current Price Cap regime in a proceeding to be initiated in mid-July.

As well, the CRTC is reviewing the existing subsidy system in a proceeding initiated under Public Notice 99-6. And it is looking at issues related to the costing of service in rate bands under Public Notice 2000-27, which will have an impact on the system.

I expect that the CRTC will consider carefully every opportunity to foster competition through its regulatory decisions, keeping an eye on the future of competitive telecommunications in Canada.

Timely decision making will go a long way to re-establishing confidence in the regulatory environment in Canada. As well, the Senate Subcommittee on Communications is looking at competition, convergence and consumers. This review includes an examination of the status of competition in Canada. I urge the industry to participate, and I look forward to reading the Senate’s report.

MANITOBA-SASKATCHEWAN APPEAL

Now let me turn to the appeal of a third CRTC decision. It comes from the Manitoba and Saskatchewan governments.

Unlike the other two appeals, it does not deal with technical matters. It addresses how we ensure access for Canadians in rural and remote communities.

Let me begin by reminding you that, on October 19, 1999, the CRTC issued an important decision affecting regions where the cost of providing telecommunications is high.

It defined a basic service objective for all of Canada. This service includes eliminating party lines and ensuring that all Canadians can connect to the Internet without long distance charges.

As well, the CRTC ordered the telephone companies to deliver this level of service where it is not already available. The decision also dealt with the subsidy system. Currently, over 800 million dollars a year from long distance charges subsidizes the CRTC’s basic-service objectives.

On October 19, the CRTC decided that it could rely upon the existing subsidy system. It recognized that, in the Far North, additional measures may be needed.

The governments of Manitoba and Saskatchewan appealed this decision on January 14, 2000. They asked that it be changed to create a new national universal service fund. This fund would be financed by the industry.

It would subsidize advanced telecommunications and information services in all rural areas. It would also subsidize advanced services for schools, libraries and health care providers.

Ensuring that rural and remote communities have access to advanced telecommunications service is an important objective that we share. The CRTC’s decision will help make it possible for all Canadians to access the Internet.

As well, our Connecting Canadians initiatives have targeted rural and remote communities first.

We carefully considered the case made by Manitoba and Saskatchewan.

We will let the CRTC’s decision stand because, we believe, it supports the basic objectives of this government in both our access and competition policies.

How effective have our policies been in ensuring access? I think there’s no question. We’re on our way to being the most connected nation in the world.

But to help determine whether we have advanced telecommunications services at affordable rates across Canada, I have asked the CRTC to report annually.

In this way, the CRTC will be in a better position to consider whether further regulatory measures are necessary. But the annual report will also help us determine whether further policy or program initiatives are required to achieve our objectives.

PROGRAMS

And this brings me to the third component of our telecommunications policy. I’ve spoken about competition and about regulation.

Now I want to talk about our programs. Because, by using all three components, Canada has been very successful in providing Canadians with access to the Internet.

We don’t want to go back to a system that relies more on subsidies. We want to push ahead with a combination of competition, regulation, and programs.

Our programs don’t take the place of private sector initiative. They are a catalyst to help partners in the private sector, the volunteer sector, and communities to work together.

Around the world, Canada has been recognized as a leader in these kinds of initiatives. I mentioned several of these programs in the report card I gave at the beginning of my remarks.

Let me add here that programs like SchoolNet, Computers for Schools and the Community Access Program have become models for other nations. We’re investing $60 million to fund our 12 smart communities. I’m confident that this program will be a world model as well.

In March 1999, we became the first nation in the world to connect all of our public schools and libraries to the Internet. We completed this mission when our SchoolNet team crossed Northumberland Strait in a rented lobster fishing boat.

It was loaded with a computer, a modem and a satellite dish. These Industry Canada employees connected a tiny three-student school on Pictou Island, Nova Scotia, to the Internet.

Our ad in today’s papers celebrates SchoolNet’s success and thanks our non-profit and business partners. Some of those partners are in this room today. I want to add my personal thanks to you for making this program such a success.

Government programs like these make a difference. So does the power of competition. So does the subtle but guiding hand of regulation. Using all three, we are reaching the goal the Prime Minister set for us: to become the most connected nation in the world.

CONCLUSION

Ladies and gentlemen, I am very proud of how far Canada has come in the seven years I’ve been at Industry Canada.

I’ve watched the Internet grow from a playground for researchers to a multi-billion dollar industry. I’ve seen it shape the future. I’ve seen Canadians play pivotal roles in its development. I’ve seen how Canadians will benefit from its applications.

And I’m convinced that we’re on the right track with the right balance of competition, regulation, and targeted programs. I look forward to working with you to ensure that Canadians reap the benefits.

Thank you.