Improving Canada's Digital Advantage – Comments from the Canadian Association of Internet Providers

Submission

The Canadian Association of Internet Providers (CAIP) is Canada's largest industry association representing the interests of Internet access providers across the country. Established in 1996, CAIP's Mission is to foster the growth of a healthy and competitive Internet service industry in Canada through collective and cooperative action on Canadian and international issues of mutual interest. CAIP membership comprises commercial telecom service providers ("TSPs") and enterprises interested or involved, directly or indirectly, in the industry of telecommunication service provisioning.

The main aims of CAIP are to:

• provide effective industry advocacy respecting public policy and regulatory matters (e.g., access, copyright, privacy and security issues, e–commerce guidelines) affecting Canada's telecommunications industry;
• promote a positive image for the telecommunications industry and the Association through proactively educating Canadians about, and building awareness of Internet industry issues; and
• offer value to members through the timely communication of relevant business information and the provision of special member benefit in partnership with Affinity members.

We are pleased to provide our comments on the Digital Economy Strategy consultation. CAIP wholeheartedly agrees that Canada is in need of a national digital economy strategy. Through our work with a variety of federal government departments we have been advocating for such a strategy for many years.

As part of the consultation we were asked to provide input in a number of areas. While all elements of the consultation paper are important, CAIP will limit its input to those areas we are most involved in, however, we must stress in no uncertain terms, that developing such a strategy involves more than the consultation paper has outlined. "Digital Technologies" as outlined in the consultation paper are but one of a myriad of items that need to be considered if Canada is to grow and prosper as a digital nation.

From CAIP's perspective, a Digital Strategy for Canada must include, but should not be limited to, the consideration of many elements:

• telecom and broadcasting regulatory policy;
• competition policy;
• SR&ED tax incentives;
• R&D funding;
• government procurement;
• education and training in technology industries;
• cyber security;
• ISP liability, copyright and privacy;
• digital literacy for all.

This list isn't exhaustive. What we wish to illustrate is that a holistic approach needs to be taken in developing a national Digital Strategy. We don't believe that we can look at any one element in isolation.

So what's the solution?

When it comes to telecommunications, some would say that we need to address Canada's foreign investment rules. The convenient wisdom says that with more investment comes more competition. With more competition comes more innovative services and better value.

In a perfect world, or maybe the heady days of the mid–90's, this would be true. In today's economic climate and given the general lack of available risk capital in Canada, investors aren't beating down the doors to build new, competitive wired networks. Even with favourable policies for licensing of wireless spectrum, the cost to build–out wireless networks is enormous and cannot be done without a policy environment that encourages competition through a variety of methods, not just through the building of new parallel wired and wireless networks.

And even if we were to liberalize our foreign investment rules to allow for greater investment in Canadian telecommunication companies, the companies most likely to attract new investment are the same companies that already control the vast majority of the telecom infrastructure in Canada and also control virtually every retail market in the country… those companies are the incumbent telephone and cable carriers.

Improving the investment climate for these companies doesn't create more competition. It doesn't guarantee that new products and services are born. It doesn't guarantee better value and quality of service for Canadians. It doesn't create an innovation nation.

What it will do is make the large, larger. It will make it more difficult for competitive telecommunication providers to gain access to infrastructure to reach their customers. As a result it will mean that Canadians have less choice, and receive less value.

Access to infrastructure by competitors in a manner equivalent to that which the incumbent carriers provide to their own retail service divisions no longer exists. The common retort from the incumbent carriers, particularly the telephone companies, is "let them build their own networks". In the '90s we saw companies, large and small, attempt this. When the dot–bomb hit that investment evaporated. Networks were literally abandoned. Ironically, in the aftermath, the competitive networks that were built and the services deployed to increase competition were often acquired by the incumbent carriers and have reinforced their dominance in the retail and wholesale markets.

Will an increase in investment help? We think it would, but as part of any relaxing of foreign investment rules we need a regulatory regime that guarantees competition can exist on a fair and equitable basis. Canada desperately needs investment in infrastructure from public and private sources but this investment must be implemented in a way that ensures consumer choice grows, innovation blossoms and value to Canadians is enhanced.

So how do we change the system? First, we have to decide what we want as a nation in five, ten, fifteen years. This Digital Economy Strategy consultation is a good start but we live in a dynamic and fluid era where technology and the benefits it brings Canadians are changing on a daily basis.

We need to ensure that we have the right telecom and broadcast regulations in place. We also have to put copyright, competition and tax policy to work in a manner that addresses this century's realities, not those of the last century. We need to incent investors and customers alike to invest. That investment could be financial or intellectual in nature.

In other jurisdictions we have seen a change in thinking regarding telecommunication networks. One of the changes that evolved in this decade in the UK and elsewhere is the functional separation of telecommunications infrastructure from content or service delivery.

In other words, companies that were previously vertically integrated from the network through to the delivered service have been required to separate their network from their other business interests in a manner that requires the network to be self sustaining financially, and open to all who wish to deliver services across the network. Most importantly, the open access that is created must be fair, equitable and equal for all competitive providers.

What's happened in the UK as a result? It is still early in the evolution but initial indications are that broadband penetration has increased, competition is more robust and consumers are receiving better value. Similar regulatory policy is being implemented in other European nations.

Can we do something like that in Canada? Absolutely! Can we do it without a National Digital Strategy? Not a chance.

In the last ten years we've had the National Broadband Task Force and Federal Anti–Spam Task issue recommendations for advancing segments of a digital strategy. Until recently, successive governments failed to adopt those recommendations and as a result those recommendations are now largely out of date, particularly those of the National Broadband Task Force. The recent investment in the Broadband Canada program is a case in point. While $225 million is a good starting point in building out our broadband infrastructure, it will take that size of commitment each year for many years to achieve a national goal of broadband everywhere.

As part of this consultation and as a result of it, CAIP proposes that Canada establish a Digital Strategy Task Force. The Task Force should be given a two–year mandate with milestones along the way. It should be tasked with defining what a Canadian digital lifestyle may look like in five, ten, fifteen years. It should determine what is currently impeding the growth of our digital economy and what needs to be changed to meet those objectives. The current consultation would be the foundation for the Digital Strategy Task Force's work.

In tandem with the Digital Strategy Task Force, a new Ministry of Digital Evolution should be established. This Ministry should oversee or at least partner in areas that many other Ministries are now responsible for. Examples would be:

• Industry — Spectrum, Information Technologies and Telecommunications; Copyright; Telecom policy
• Heritage — Copyright; Broadcasting policy
• Revenue — SR&ED
• Human Resources — Technology Skills Training
• Public Works & Government Services — ICT procurement

The Digital Strategy Task Force will need broad membership. We need academics, business trade associations, network providers, service providers, intellectual property owners, manufacturers and consumers alike. We need a robust cross–section of Canadian society to help guide us to where they want to be in the future.

Most importantly we need all political parties to agree on the need for such an effort. This can not be a partisan effort.

In specific response to questions posed in the consultation paper, CAIP offers these comments:

Capacity To Innovate Using Digital Technologies

Should Canada focus on increasing innovation in some key sectors or focus on providing the foundation for innovation across the economy?

• Clearly one of our interests is telecommunications and we feel that this sector has been and can again be a world leader. From the days of Alexander Graham Bell and his first phone call in Brantford, Ontario through to today and the dominance Research in Motion's BlackBerry enjoys, Canadians have been leaders.
• Canada was once a world leader in telecommunication technologies and now, with the exception of RIM, we have slipped. Nortel is a mere skeleton of its former self. Telesat continues to be recognized for its innovation but is no longer the only game in town. Teleglobe, once the connection to the world for Canadians is now foreign owned.
• Even one of Canada's most stable technology shining–stars, Mitel, finds Canada's investment and tax policies make it difficult to grow the company within Canada. Mitel Chair, Sir Terence Matthews, has been a strong advocate for changing the Canadian environment in a manner that will see us return to being an innovation nation.
• Canada can no longer afford to lose one world leader when another appears on the horizon. We must ensure that the financial, regulatory and business needs of Canadian companies grow and evolve as technology and consumer demand evolves if we want to have multiple international success stories originating and being sustained in Canada.
• Other key sectors — automotive, pharmaceutical, agriculture, nuclear power — have been foundations for the Canadian economy in the past and drove innovation and growth in other sectors. By focusing on a few key sectors, the spin–off benefits are realized across many sectors.

Which conditions best incent and promote adoption of ICT by Canadian businesses and public sectors?

• CAIP believes that the best way to incent the adoption of ICT by Canadian businesses and consumers is to ensure that Canadians have adequate access to services and content. This "access" can take many forms, including open and connected e–government, access to academic research and collaborative environments that promote information sharing & mentorship.
• Ultimately, "access" means "access"… the ability for Canadians to connect with themselves and others via ubiquitous broadband telecommunication networks and the services that emanate from those networks.
• The key to ensuring the growth of the networks and the services delivered across them is to ensure Canadian businesses and consumers have a robust choice of network service providers.
• To that end, Canada needs to develop telecommunication policy which encourages the delivery of services across the network, without limiting that ability to just those few companies that own the networks. At the same time, the companies that own the network infrastructure deserve a fair return on their investments when providing access to competitive service providers.

Once anti–spam legislation, and privacy and copyright amendments are in place, are there new legislative or policy changes needed to deal with emerging technologies and new threats to the online marketplace?

• One could ask, "how long is a piece of string?" The answer will always be changing. As noted previously, a Digital Strategy for Canada cannot rely on legislative and policy changes being applied in isolation. Changes to any of the three items mentioned will invoke discussion on the need to implement change in other areas. A Digital Strategy must be able to respond to the fluid and dynamic nature of the times we live in.
• In 2000 the National Broadband Task Force determined that the minimum acceptable definition of "high–speed" was 1.5Mb/second. Ten years later, Broadband Canada and many provincial broadband initiatives are still working to this standard while the market place in urban areas is delivering speeds in excess of 10, 20, 30, 50 and even 100 Mb/second. Clearly we cannot be looking at new legislative or policy changes without ensuring existing policy is keeping up with the times.
• In 2009 the CRTC established guidelines for the use of Internet Traffic Management Practices (ITMP) by ISPs but those guidelines were established in a manner that allows networks managers to regressively influence network traffic without the obligation to review and rescind their ITMPs as network capacity improves. This is another example of how policy changes can inadvertently become obsolete while the negative impact of that policy remains.
• If there is a need for legislative or policy changes it is most assuredly in the area of 'Net Neutrality. While the CRTC ITMP decision is seen by some as a way of addressing 'Net Neutrality it does not fully address the right of Canadians to access any legitimate content, using any legitimate means at any time of the day. Only when we have ITMP policy that is platform, content and time agnostic will we have any true measure of 'Net Neutrality.

Building a World–Class Digital Infrastructure

What speeds and other service characteristics are needed by users (e.g., consumers, businesses, public sector bodies and communities) and how should Canada set goals for next generation networks?

• As noted above, previous and current government policy has established 1.5Mbps as a benchmark while the market place is experiencing speeds of 100Mbps or more for residential broadband services. There has been an extreme disconnect between what technology makes possible, what consumers desire and what government decrees as acceptable.
• Government will not be able to effectively determine what speeds or service characteristics are needed by users. This is driven by technological development and the way consumers put that technology to work. YouTube, online gaming or Voice over Internet Protocol (VoIP) could not have been imagined when dialup speeds were the norm, hence, future speeds and service characteristics cannot possibly be foreseen by government in developing policy. These services appeared in the market place as technology and networks evolved.
• CAIP would like to stress that "next generation networks" are merely the result of an evolution in technology. Today's Intel Core 2 Duo processor is more powerful and capable than the Intel 8088 processor of 1979 and while there have been many generations of processors between these, they are the result of the evolution of technology.
• Similarly, so–called "next generation networks" are an evolution in technology. It is now less expensive from a capital expense and operating expense perspective to use fibre optics in greenfield developments. Even in existing developments, augmenting ubiquitous copper network infrastructure with fibre is more efficient than adding more copper.

What steps must be taken to meet these goals? Are the current regulatory and legislative frameworks conducive to incenting investment and competition? What are the appropriate roles of stakeholders in the public and private sectors?

• The current regulatory framework, relevant to telecommunications infrastructure, is under tremendous strain. While the ultimate goal of the Telecom Act is to ensure Canadians have adequate and appropriate services, much of the Act was written at a time when those "services" were presumed to be voice services.
• POTS — Plain Old Telephone Service — is anything but plain in the 21^st century. While we have deregulated long distance and local services to ensure that incumbents and competitors may compete on a level playing field, we have neglected the fact that the incumbent carriers (telco and cableco) still control the vast majority of the network infrastructure in Canada. True competition for the customer cannot occur as long as the incumbent carriers can influence both the wholesale and retail markets through their network–ownership dominance.
• Canada must seriously consider a regulatory regime that rewards network buildout as well as innovative services delivered across the network. Other jurisdictions have taken the route of functional/structural separation to achieve this goal.
• Through separation, incumbent carriers separate their infrastructure assets from their service delivery. The resulting network infrastructure company must supply access to the underlying infrastructure to its new service affiliate and competitors on an equivalent basis. It must do so in a manner that allows it to be profitable and expand the network without cross–subsidization to or from its service affiliate.
• Through separation, network growth continues, competition for the customer is encouraged and customers receive more innovative services and/or services of greater value.
• We want to be clear that we do not feel that simply changing a delivery platform for existing content/services is true innovation. Broadcast television programming is an example. Broadcast television has been delivered over copper and copper/fibre hybrid networks for decades. Delivering that content over copper and copper/fibre hybrid networks owned by telephone companies is no more innovative or of greater value to the consumer than delivering the same content over copper/fibre hybrid networks owned by cable companies. While it does increase consumer choice by 50% (we will now have cable, satellite and phone companies delivering broadcast programming) we are simply shifting the monthly household expenditure from one carrier to another.

What steps should be taken to ensure there is sufficient radio spectrum available to support advanced infrastructure development?

• Industry Canada has already taken steps to make radio spectrum more readily available by re–allocating analog TV spectrum when it becomes available as well as "white space" spectrum between currently utilized frequencies on a local basis. We think this is an excellent first step.
• We also applaud the set aside for new entrants that occurred with recent spectrum auctions. This has allowed new entrants to come to market for mobile wireless services.
• Continued creativity on the government's part is important to continue to grow opportunities for the use of wireless service, particularly as it relates to the next question.

How best can we ensure that rural and remote communities are not left behind in terms of access to advanced networks and what are the priority areas for attention in these regions?

• Rural and remote areas present unique opportunities and challenges. In many of these areas it has been the independently owned, competitive ISP that has brought service to consumers and businesses, often through wireless services.
• In these areas one of the challenges is getting bandwidth not to the consumer but to the locale itself. Competitive ISPs have deployed final mile networks that can deliver 2, 4, 10Mb/second or more but they cannot adequately and cost effectively provision service to end users because of a lack of available bandwidth coming into the community's they serve.
• This is a function that government can and should assist with. Just as has been done with railways, roadways, water, sewer and electrical systems in the past, the Government of Canada must make commitments of similar value as was done in the past to build other forms of infrastructure. It has been done for high–capacity research and education networks in the recent past and should also be done with networks that can be accessed by tax paying Canadians.
• The proceeds of spectrum auctions should be utilized in reaching these rural and remote communities.
• "Lite regulation" of re–allocated spectrum should also be encouraged with more of that spectrum being made available in the public–space (an example is the current licensing of 3.65gHz spectrum) and/or this spectrum should be reserved for use by independently owned, competitive providers.

Growing the Information and Communications Technology Industry

CAIP believes that one of the most fundamental ways to grow the ICT sector is to incent innovation. To that end we support the work of our parent association, the Canadian Advanced Technology Association (CATA) in the area of improving SR&ED credits, reducing corporate taxes, expanding programs such as IRAP and CANARIE, and assisting SMEs involved in the ICT sector in developing export markets for their products and services.

We also need to see a reduction in the red tape involved with attracting foreign Venture Capital to Canada. Not addressing these artificial and draconian restrictions to investment will continue to see a reduction in foreign VC investment, especially in high–tech companies.

CATA and other industry associations have also made proposals to the Government of Canada that would see the government become a model purchaser and user of ICT inputs. Much of this effort has been in establishing an environment that encourages and assists SMEs who are trying to sell to government.

Building Digital Skills for Tomorrow

The consultation paper provides an excellent overview of the issues Canada faces with regard to digital literacy, however, the emphasis appears to be on Canadians already in the workforce. Digital literacy must begin in the home and continue throughout the elementary, secondary and post–secondary education systems. Indeed, Canadians of all ages should have the ability to improve their digital literacy throughout their lives.

What do you see as the most critical challenges in skills development for a digital economy?

• Comedians live by the mantra "timing is everything". The same can be said about digital skills development, especially for Canadians already in the workforce who did not grow up in a digital culture. This is why it is vital that we ensure our young people are provided with the resources needed to grow as technology changes. Anticipating change rather than reacting to change will be critical in developing digital literacy skills.

What is the best way to address these challenges?

• Expand workplace training programs and incent employers and employees alike to pursue "digital skills upgrading". This can be done through expanded government sponsored training programs and/or tax incentives for employer or employee financed training programs with additional assistance for training leading to recognized designations relevant to digital skills in particular sectors.
• For the elementary and secondary education systems, allow and encourage flexibility in curriculum development on a regional basis. Curriculum development must be responsive and dynamic to changing technologies.

Recommendations

To summarize the above comments, CAIP makes the following recommendations:

1. Establish a Digital Strategy Task Force tasked with defining what a Canadian digital lifestyle may look like in five, ten, fifteen years. It should determine what is currently impeding the growth of our digital economy and what needs to be changed to meet those objectives. The current consultation would be the foundation for the Digital Strategy Task Force's work.
2. Establish a new Ministry of Digital Evolution to oversee the growth of the digital economy of the future. Policy elements of existing Ministries would come under the purview of the new Ministry of Digital Evolution.
3. Review the emerging telecommunication regulatory policies of other jurisdictions and use their best practices to establish new Canadian policy, particularly in the area of access to infrastructure.
4. Use the proceeds from spectrum auctions to build–out high–speed backbone networks to rural and remote areas to provide the necessary bandwidth to support local initiatives to deliver service to end users.
5. Incent investment in the ICT sector through improvements to SR&ED credits, lower corporate taxes for ICT firms and expanding programs such as IRAP.
6. Remove barriers to foreign Venture Capital investment in Canadian technology companies.
7. Establish government procurement policies for ICT inputs that encourage and assist SMEs in supplying the Government of Canada.
8. Establish digital literacy policies and programs that span all levels of formal education as well as workplace/career training to create a literate digital workforce.

Is it a big job? You bet it is! So was building a national railway and the Trans–Canada highway. Did it happen over night? No, it took years if not decades. We don't have the luxury of time. We've already let a decade or more slip through our fingers. Canada and Canadians have already fallen behind. We need to act now to ensure future generations have the digital infrastructure and skills they need to grow and prosper.

Respectfully,

Thomas Copeland
Chair, Board of Directors
Canadian Association of Internet Providers