ARCHIVED—Proceedings

Canada Roundtable on the Future of the Internet Economy
Ottawa, October 2, 2007

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Benefiting from Convergence: Access, Mobility and Ubiquity

Rafik Bawa
Senior International Legal Counsel and Canadian Legal Director
eBay Canada

Lawson Hunter
Executive Vice President and Chief Corporate Officer
Bell Canada

Gary Maavara
Vice President and General Counsel
Corus Entertainment Inc.

Konrad von Finkenstein
Chairman
Canadian Radio-television and Telecommunications Commission (CRTC)

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Questions for Discussion:

• What actions will ensure timely investment in the Internet economy, both to enlarge network capacity and functionality and to accelerate the convergence of technologies and applications into a single, interoperable communications platform?
• What is the appropriate balance between the interests between network owners and operators, applications providers, end users, and consumers in terms of sharing the costs of building universal, high-capacity networks, and how do we strike this balance?
• What is the long-term role of governments, regulators and businesses in ensuring Canada's future competitiveness in the global Internet economy?

Rafik Bawa said 32,000 Canadians rely on eBay, in part or in whole, to earn a living. This is possible because the Internet is a seamless, global network with the potential to connect everyone, and is governed by principles of non-discrimination and openness. The fact that Internet companies have spent billions of dollars on new content that has changed people's lifestyles is a testament to that openness, Bawa said. Services and content are driving the next generation of the Internet. Subscribers want interesting and informative content. eBay commissioned Léger Marketing to see how Canadians view changes to government policy. The study found widespread agreement about the value of the Internet to Canada. "An open Internet is the engine that fuels local and national economies of the future," said Bawa. Replacing the current scenario with a closed system could reduce positive growth. "As we build Web 2.0, we must not forget the original, open foundation."

Lawson Hunter said Canada must turn its attention to Internet capacity. Internet service providers (ISPs) are seeing a tremendous growth in bandwidth use. For example, 56% of high-speed network capacity is peer-to-peer. Mike Lazaridis of Research in Motion (RIM) once said, "If you build it, they will come." Bell Canada is seeing this pattern, said Hunter. Five percent of Bell Canada's users use 60% of its total capacity and 1% of its users use 20% of its capacity. Bell Canada must focus on the network's capacity to carry traffic—a costly enterprise. Hunter said ISPs must look at pricing models. Most have already moved to usage pricing or bandwidth caps. "There must be a balance or the return on capital just won't be there." He spoke of network neutrality and asked who shares the economic rent generated from Internet use. ISPs depend on their user base to generate the revenue that justifies the investment. With this exponential growth, he said, capacity will affect the key issue of quality of service.

Gary Maavara asked what government regulators could do. He said Corus wants to be the largest communicator in the world, and has launched a children's channel to be broadcast around the world in nine languages. "We need the government to allow Canadians to experiment. We're up against larger competitors." Maavara urged the government to embrace Canadian-owned industry and support creativity. To be competitive on the world market in the area of intellectual property, Canadians must achieve a certain scale, and finance the commercialization of that IP, said Maavara.

Konrad von Finkenstein made three points about regulation:

• There are too many players and no coordination in the system.
• Regulation and deregulation are extreme measures—there are intermediary alternatives such as co-partnerships and a mandated voluntary code.
• The OECD is slow and consensus-based, leading to the lowest-common-denominator outcome.

Von Finkenstein said he has helped to found an organization that has no secretariat—something made possible by the Internet. The organization has been able to move with lightning speed on international issues and in developing rules for procedure and practice, because delegates speak as experts, not as representatives of their country. The result is a "proper idea," rather than the lowest common denominator.

Johnston opened the discussion to comments from the floor on several topics:

• Convergence of platforms and services
• Changing regulatory paradigms
• Internet performance
• Networks and sensor-based technologies
• Access and pricing

One participant said his company does not see itself as a distributor. It uses available technology to be in the broadcast distribution business. On the Internet, "the applications providers are distributors," he said. A solution to Hunter's comments would be an elaborate bid cap, he suggested; a solution to transcending the neutrality rhetoric is to let people know exactly what they are paying for. He did not agree that the Internet was an open model in the past. Some networks are closed and others have security. He predicted that different levels of applications would prevail as traditional networks adopt IP. He questioned whether the process was open enough, or whether there was undue preference. Referring to Section 27 of the Telecommunications Act, he said, "If you are using your power as an ISP to prevent the free flow of information, the Commission has the power to step in, and it should." He said there is no such thing as a completely open Internet—and there never was.

Another participant said he had written his Master's thesis on the interoperability of networks. Such a system saves tens of thousands of dollars but is unheard of in Canada, he said. The Canadian Standards Association (CSA) had invited him to present on the subject, but could not afford to send its staff, which ended up using their own money to attend. "So that's how come we don't sit on boards that set international standards," he said. He recommended that the government take part in setting national and international standards. Fringe meetings take place all over the world without the participation of big business and governments. Three years ago, in his research for the tourist industry on the online hotel industry in Canada, he found that of 15 intermediaries used to purchase travel in Canada, 13 were foreign and of those, 12 were American. "I wondered if we were giving our money to the rest of the world," he said, noting that 52% of Canadians buy travel online. Travel agents were totally unaware of this, he said, and were offering brochures instead. "That's good for the printing industry, not for e-commerce."

A participant said the government must show a high level of commitment and play a leadership role in working with the private sector to build the infrastructure that is so "absolutely essential." He said access to broadband should not end 30 minutes beyond Ottawa.

A participant said the Canadian business model is "severely broken." He said he is in the business of creating companies from scratch and getting them quickly to size; he competes for capital on a global scale. He said investors look to China and India these days, as they create companies the size of Bell Canada every three months. Investors do not think of Canada, partly because it does not have enough companies like RIM. One of his main challenges is tax policy issues that are taking too long to solve—up to 10 years. "We have to be a leader in moving things through." The participant said Israel does terrific commercializing, Ireland has turned itself into an economic powerhouse, and Korea is one of the most wired nations in the world. "If we could distill what those three countries have done very well, we could become successful."

A participant said Canada tends to ignore the potential of wireless technology. Technology is more powerful than regulation, and it is essential to see where it can go. A type of broadband is available in rural areas through Telesat. There is access, he said, but Canadians want more. He said Section 27.2 of the Telecommunications Act should be repealed. "In a competitive market, the government is going to come in and impose fairness?" he asked. "We need unbridled, ruthless competition, not the government imposing artificial rules when it cannot predict the future of the industry."

A participant said he was pleased to hear Beatty say more spectrum is available and being managed by the government to maximize revenue at the right time. "If we really want more activity and competition with government intervention, it should begin to release spectrum and follow that up."

Another participant said his company holds an annual venture capital fair. At this year's fair, 275 investors listened to 16 company pitches. Of these, 75% were in the Internet business and all were already global and only employed 10–12 people. None was looking for a Canadian service provider as a first customer. They were looking at the international market—following the innovation. Canadian banks no longer fund venture capital, the participant said, so how are companies getting funds for innovation? The single largest barrier is probably the Section 116 clearance certificate. He gave an example in which venture capitalists lost $10 million each in one deal because of the time it took for government approval. "They haven't come back," he said. Companies are global already—if they need to hire someone, they will find the best talent wherever it is. "We should be open to competition and this international economy."

A participant disagreed with the idea that other countries provide transferable policy ideas. "India has nothing to teach us in terms of policy, although they are competitors; Ireland was fortunate enough to be part of a generous club—we should join it immediately; and Korea has no transferable policies either." The problem is one of reducing the social and economic cost of entrepreneurship, the participant said, adding that Canada has "spectacularly failed to do that." He said the operators' problem was an issue of fairness and should be addressed by the government. With respect to neutrality, he said the solution is to change the business model and charge consumers according to their use of the network. "The first question is not 'can I charge eBay?' but 'how can I allocate bandwidth so I can bill them adequately?'"

Referring to earlier comments about the lack of a free and open Internet, Bawa said it means access for everybody. "We don't know where the next novel idea will come from. Wouldn't it be great if they could all flourish with the same base as eBay?" Noting that the world has only seen "the tip of the iceberg for the Internet," Bawa emphasized that this opportunity must not be allowed to pass by.

A participant said regulation is not the right way to unleash innovation. "Government is not going to save us," he said. Young people with good ideas are abandoning the current framework because it does not work for them. They are not asking what the government can do for them and "that's why they're not in the room today."

A participant commented on the concept of ubiquity rather than universal service. The industry has been encouraging the government to set a goal giving all Canadians access to well designed high-speed service. There must be some degree of subsidy because such a project is capital-intensive. Although the cost could be passed on to consumers, the number of subscribers is not growing as fast as the availability of bandwidth, and this will affect penetration. The participant said metered billing is unnecessary. "It's a question of what the market will bear. The profit we can make on subscription is enough. It's easy to spend other people's money."

Another participant said ISPs must manage their networks competitively. Consumers have to know what they are paying for and how ISPs are managing traffic.

Today's market forces make it easier to reach those Canadians who do not yet have access to broadband, a participant said. At some point, the market will not justify the investment and public money will have to be spent. If the theme of this meeting is leadership, then the group must turn their minds to achieving access and not to whether the government should determine business models.

A participant asked for advice on universal access, broadband or otherwise. Pointing out that the CRTC's definition of basic access is a limited one, he asked whether the definition should be updated, what the consequences of doing this would be, and whether this would be an appropriate topic for the Seoul meeting.

Another participant said certain rural municipalities have invested in Wireless Fidelity (WiFi) to encourage employment in those areas. Although he said he had not seen any statistics on this issue, he wondered whether it would be possible to correlate this innovation with what is being done in the cities.

A participant replied that Vidéotron, with 500,000 customers, is considered a small company. He said some of its customers are content without access to high-speed. He connected his laptop at the meeting, and although he does not have access to high-speed, being connected is all he needs.

The WiFi paid for by municipalities is proving to be a failure because the municipalities do not take the need for management and continual funding into account, said a participant. He said it "looks cleaner" to do the job with public money in the network, not on the network. "Everybody has a black phone. It's what you do with it that makes the difference."

A participant replied that spending public funds is an issue in rural Canada that will not go away.